By: Martin Olszynski
Cases Considered: Ernst v. Alberta (Energy Resources Conservation Board), 2014 ABCA 285
On September 15, 2014, the Alberta Court of Appeal released its decision in Ernst v. Alberta (Energy Resources Conservation Board). Ms. Ernst owns land near Rosebud, Alberta, and is suing EnCana Corporation, the ERCB (now the Alberta Energy Regulator) and Alberta Environment (now Alberta Environment and Sustainable Resources Development) for negligence in relation to the alleged contamination of her groundwater as a result of EnCana’s hydraulic fracturing (fracking) activities in the area. The ERCB (but not Alberta Environment – a point further discussed below) applied to have the action against it struck. The case management judge, Chief Justice Wittmann, agreed that this particular negligence claim was not supported in law: he found that the ERCB owed no private law duty of care to Ms. Ernst and that, in any event, any claim was barred by s 43 of the ERCB’s enabling legislation (see Ernst v. EnCana Corporation, 2013 ABQB 537). The Alberta Court of Appeal (Justices Côté, Watson and Slatter, writing as “The Court”) dismissed Ms. Ernst’s appeal. This post considers the regulatory negligence aspects of both the Queen’s Bench and Court of Appeal decisions.
Canadian Negligence Law in a Nutshell
Under Canadian tort law, a plaintiff has to prove five elements in order to establish negligence: (1) that the defendant owed the plaintiff a duty of care; (2) that the defendant breached the applicable standard of care; (3) that the plaintiff suffered damages; (4) that these damages were the result of the defendant’s breach (causation); and (5) that the resulting damages are not too remote.
The Ernst decisions are concerned only with the first and most challenging element (especially in the context of an action for regulatory negligence): whether the ERCB owed Ms. Ernst a duty of care. The applicable test is the Anns/Cooper test, which the Supreme Court of Canada described in Cooper v. Hobbart, 2001 SCC 79 as follows:
 …At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care. [emphasis in original]
With respect to proximity, the Supreme Court has stated that this “may involve looking at expectations, representations, reliance, and the property or other interests involved” (Cooper at para 34). In the specific context of regulatory negligence, the Supreme Court has recently distinguished between two situations: (1) where the alleged duty of care is said to arise explicitly or by implication from the statutory scheme (which the Court admits will be rare); and (2) where the duty arises from interactions between the claimant and the regulatory authority (most relevant here) (see R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42). In all cases, the driving determination is whether “it is just and fair having regard to that relationship [between plaintiff and defendant] to impose a duty of care in law upon the defendant” (Cooper at para 34).
As for the second, “residual policy considerations stage,” the Supreme Court in Hill v. Hamilton?Wentworth Regional Police Services Board, 2007 SCC 41 made clear that “even if a potential conflict could be posited, that would not automatically negate the prima facie duty of care… A prima facie duty of care will be negated only when the conflict, considered together with other relevant policy considerations, gives rise to a real potential for negative policy consequences… a duty of care in tort law should not be denied on speculative grounds” (at para 43).
The Ernst Decisions
Perhaps the most striking aspect of both decisions is how much space is devoted to an issue that is technically obiter. The analysis of the ERCB’s duty of care seems unnecessary in light of both courts’ conclusion that any claim against the ERCB was barred by s 43 of the Energy Resources Conservation Act, RSA 2000, c. E-10 in any event (since repealed and replaced with s 27 of the Responsible Energy Development Act, SA 2012, c. R-17.3).
There are, of course, numerous good reasons why a court might choose to address all of the issues in a case such as this one, not least of which is the fact that there is another regulator – Alberta Environment – being sued for negligence here, one which has not applied to have the action against it struck. Perhaps Chief Justice Wittmann and the Court of Appeal wanted to make clearer to counsel the framework within which the action against Alberta Environment will be assessed and give some sense of their predisposition to such actions. Along these lines, it is reasonable to suggest that the Court of Appeal’s decision to state explicitly that which was not at issue before it, including “whether the pleading against the defendant Alberta could be struck as being frivolous or vexatious” (Ernst v. Alberta at para 9), reflects judicial scepticism.
As for the duty of care analysis, although the outcome is the same in both decisions the analysis is actually quite different. Chief Justice Wittmann begins and ends his analysis at the first stage of the Anns/Cooper test, which as noted is concerned with foreseeability of harm and proximity. Situating Ms. Ernst’s relationship with the ERCB as more like that between the unsuccessful investors and the Registrar of Mortgage Brokers in Cooper than the miners to whom government inspectors were held to owe a duty in Fullowka v Pinkerton’s of Canada Limited, 2010 SCC 5 (CanLII), the Chief Justice concluded that there was “no sufficient proximity to ground a private duty. Nor was there a relationship established between Ernst and the ERCB outside the statutory regime which created a private duty” (Ernst v. EnCana at para 28). It was thus “unnecessary to determine whether the harm to Ernst was foreseeable. It [was] also unnecessary to consider the second part of the Anns test, that is, whether there would be any policy reason, assuming proximity, to [not] impose a private duty” (ibid, at para 29).
The Court of Appeal, for its part, seemed to jump immediately to the second, “residual policy considerations” stage, laying out a series of reasons reflected in the jurisprudence as to why any prima facie duty of care owed by regulators is usually negated. These include the difficulty of distinguishing between policy and operational decisions (the former being immune from liability), the potential for conflict between private and public duties, and indeterminacy problems (Ernst v. Alberta at para 17). In the Court of Appeal’s view, many of these considerations were relevant to the case at bar:
 Forcing the Board to consider the extent to which it must balance the interests of specific individuals while attempting to regulate in the overall public interest would be unworkable in fact and bad policy in law. Recognizing any such private duty would distract the Board from its general duty to protect the public, as well as its duty to deal fairly with participants in the regulated industry. Any such individualized duty of care would plainly involve indeterminate liability, and would undermine the Board’s ability to effectively address the general public obligations placed on it under its controlling legislative scheme.
Bearing in mind the teaching from Hill, one might have expected the following paragraphs to elaborate on these otherwise fairly generic concerns. The Court of Appeal, however, switched gears entirely and simply concluded that Chief Justice Wittmann “correctly applied the test for determining whether the Board owed a private law duty of care to the appellant” (Ernst v. Alberta at para 19). This conclusion is jarring because, as noted, the Chief Justice did not even engage the second stage. Rather, he focused on proximity and, adopting what could be called the “spectrum” approach applied by Justice Cromwell in Fullowka, concluded that the interactions between Ms. Ernst and the ERCB were more like those of the unsuccessful plaintiffs in Cooper than those of the miners in Fullowka. The Court of Appeal actually dismissed Fullowka as an “anomaly” (Ernst v. Alberta at para 16), which if anything suggests that they didn’t agree with the Chief Justice’s approach at all.
As noted by Professor Feldthusen, “[d]ecoding the law governing the negligence liability of statutory public authorities in Canada has always been a challenge” (see “Simplifying Canadian Negligence Actions Against Public Authorities – or Maybe Not” (2012) Tort L Rev 176 at 176). Indeed, Professor Feldthusen suggests that it may be time to revisit the basis upon which liability for regulatory negligence will be founded (ibid at 184). Certainly, recent events like the Lac Megantic disaster and the Mount Polley spill do point to something rotten within the regulatory state (University of Ottawa Professor Jennifer Quaid provides a compelling explanation here) to which the common law could potentially respond.
The Ernst case may or may not be the right one for such a discussion. At the very least, however, it bears recalling that the Supreme Court’s decision in Cooper is valued first and foremost for bringing some much needed transparency to the duty of care analysis. It would be preferable, then, for the courts to apply the Anns/Cooper test in a predictable, sequential manner – something that both the Chief Justice and the Court of Appeal failed to do here.
As noted above, the first step is to determine foreseeability of harm. Contrary to the Court of Appeal’s assertion (Ernst v. Alberta at para 16), this is actually something that most regulatory negligence plaintiffs have very little difficulty establishing (see e.g. Cooper at para 42, Hill at para 32, Imperial Tobacco at para 57). It is precisely because foreseeability represents a relatively low bar that finding a prima facie duty of care requires both foreseeability and proximity. As in Cooper, then, it seems reasonably foreseeable that Ms. Ernst would suffer some harm if the ERCB were negligent in carrying out its duties, especially with respect to compliance and enforcement.
With respect to proximity and the second situation through which a duty of care may arise (Imperial Tobacco, above), the “spectrum of regulatory relationships” approach applied by Justice Cromwell in Fullowka and adopted by Chief Justice Wittmann may be a good place to start, but it also has the potential to mask important distinctions. For example, although there were differences in the relationship and interactions between the plaintiffs and the relevant public authorities in Cooper and Hill (where police officers were held to owe a duty of care to their suspects), a fair reading of Hill suggests that an equally important factor was the very significant personal interest (i.e. liberty) at stake (see Hill at paras 34 – 38). Arguably, Ms. Ernst’s interest in the safety of her water supply is more like the interest in Hill than in Cooper – which was a case for pure economic loss – where “[p]roximity and foreseeability are heightened concerns” (Imperial Tobacco at para 42). Chief Justice Wittmann himself seems to recognize that further analysis is required when he states that a private duty cannot arise simply because an individual communicates with a regulator (Ernst v. EnCana at para 28).
Turning to the second, “residual policy considerations” stage, it is not obvious to me how owing a private law duty to those individuals particularly vulnerable or susceptible to a regulator’s negligence would be unworkable or create indeterminacy problems. Generally speaking, regulators like the ERCB and Alberta Environment are not monolithic entities – they have branches or sectors that carry out specific functions, including a compliance and enforcement branch. When this branch is engaged, the problem of indeterminacy would seem to be largely resolved: compliance activities are concerned with specific incidents at discrete locations. The Supreme Court’s approach in Hill, which affirmed the existence of a tort of negligent investigation but also recognized the role of the standard of care in mediating the spectre of liability (see paras 54, 58 and 67 – 73) seems perfectly suited for such situations. At the very least, however, counsel for the defendant should have to explain – and the courts should set out in their reasons – the overarching policy considerations that justify negating any prima facie duty of care in the specific instance before them.
The Court of Appeal is certainly correct that there are a number of reasons why a duty of care is not generally placed on a regulator (Ernst v. Alberta at para 17), but it is equally true that sometimes it is, and that regulatory negligence is a recognized tort in Canada.
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By: Shaun Fluker
Cases Considered: Hunter v College of Physicians & Surgeons of Alberta, 2014 ABCA 262
In this judgment the Court of Appeal reviews a disciplinary decision made by the College of Physicians & Surgeons of Alberta against one of its physician members. I think the judgment is noteworthy to a broader audience of administrative law scholars and practitioners because of the stark contrast in how the majority and the dissent apply the reasonableness standard to review the College’s decision. The majority judgment written by Justice Slatter and Madam Justice Veldhuis dismisses the appeal by the physician using only 6 paragraphs of reasons to conclude the disciplinary decision is reasonable. The dissenting opinion written by Justice O’Ferrall concludes the College’s decision is unreasonable and in doing so probes much further into the impugned regulatory process and the record in this case. There would appear to be a divergence of views at the Court of Appeal in how to apply the reasonableness standard in judicial review.
The governing legislation here is the Health Professions Act, RSA 2000, c H-7 and the decision in question is a disciplinary decision issued by the Council of the College under sections 87 to 89 of the Act. The physician was found guilty by the Council of ‘unprofessional conduct’ as defined in section 1(1)(pp) of the Act for contravening the College’s Standards of Practice by terminating a physician-patient relationship to pursue a personal relationship with the patient. The physician appealed this finding to the Court of Appeal under the statutory appeal provisions set out in section 90 of the Act, arguing that the personal relationship in question was not of the predatory or exploitive sort contemplated by the prohibition in the Standards of Practice and that entering the relationship did not amount to professional misconduct.
The majority of the Court dismisses this application by observing that judicial deference is owed to disciplinary decisions made by self-regulatory professional tribunals and concludes the Council’s finding of unprofessional conduct in this case was an available outcome given the facts and the law in question (at para 3). In short, the majority concluded there was no reviewable error of law or unreasonable exercise in discretion by the Council.
Justice O’Ferrall agrees that the applicable standard of review here is reasonableness, but he approaches this case from a very different perspective than the majority. Justice O’Ferrall’s reasons include a description of the governing legislative framework, noting in particular (at paras 20 to 24) the relation between the Standards of Practice and the Act as well as making the point that the Council enacts the Standards of Practice under statutory authority. He also provides a detailed description of the facts as determined in the disciplinary hearing process, including a summary of how the relationship between the physician and the patient developed over the years (at paras 25-39). Justice O’Ferrall parts ways with the majority starting at para 58, where he probes into the reasoning provided by the College in its disciplinary decision and undertakes a contextual interpretation of what is meant by ‘personal relationship’ in the Standards of Practice. This investigation leads him to conclude the College erred in its interpretation and application of the Standards of Practice in this case – there was no evidence to conclude the personal relationship here was predatory or exploitive (at para 75). Justice O’Ferrall also notes that the disciplinary proceeding was commenced by an anonymous complainant who refused to be interviewed by the College and moreover that there was no evidence to support a finding that the conduct in question would harm the integrity of the medical profession (at paras 76-77).
Certainly it is not unusual for a dissent to significantly part ways with the majority in an appellate decision, and there is little doubt that consensus in how to administer substantive judicial review remains elusive for the Canadian judiciary despite pronouncements by the Supreme Court of Canada back in 2008 that Dunsmuir v New Brunswick, 2008 SCC 9 was a game-changer and would help to alleviate these difficulties. The troublesome application of the reasonableness standard, in particular, has attracted some scholarly attention – Professor Paul Daly has an article on point forthcoming in the Alberta Law Review (see here).
My initial reaction here was that Justice O’Ferrall is far too intrusive in his review of the College’s disciplinary decision to be consistent with the deferential reasonableness standard of review. And indeed there is very little sense of deference in his reasoning. But on reflection and giving closer consideration to the governing legislative framework, I wonder if perhaps his dissent is the more appropriate approach and outcome for this case. We shouldn’t overlook the fact that the Act provides a physician with the ability to appeal disciplinary decisions to the Court of Appeal without the need to seek leave of the Court, and that the substance of the appeal is not limited to questions of law or jurisdiction (section 90). In the conduct of the appeal, the Court is entitled to make findings of fact based on the record and may quash, confirm or vary the impugned College decision (section 92). These are unusual provisions for a statutory appeal to the Court of Appeal, and on reflection they provide pause for thought on whether the very deferential and brief majority decision in this case is consistent with the role contemplated for the Court by the legislature. Justice O’Ferrall makes reference to these provisions at para 51 but he also cites the earlier Court of Appeal decision in Sussman v College of Alberta Psychologists, 2010 ABCA 300 for authority that the reasonableness standard of review should normally apply in these cases despite the legislative provisions that allow for an intrusive review.
I will conclude this comment by simply suggesting that such widely divergent approaches towards applying the reasonableness standard is not terribly helpful for scholars and practitioners in administrative law charged with either having to advise their clients or instruct their students on what it means to apply the reasonableness standard of review.
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By: Jennifer Koshan
PDF Version: Sentencing in an Unusual Domestic Violence Case
Cases Considered: R v Hernandez, 2014 ABCA 311
The most recent edition of Eugene Meehan’s Supreme Advocacy newsletter lists R v Hernandez, 2014 ABCA 311, as the Court of Appeal case of the week nation-wide. The case involves a Crown sentence appeal in the domestic violence context. Sadly, domestic violence cases are not uncommon, so what is so remarkable about this case?
First, it involves a female perpetrator. As annual Statistics Canada reports on family violence show, domestic violence is a gendered crime. In the most recent Stats Can report, 80% of all domestic complaints made to police in 2011 were made by women, a number which is consistent over time. At the international level, gender-based violence has been recognized as a form of discrimination against women in documents such as General Recommendation No. 19 to the Convention on the Elimination of All Forms of Discrimination Against Women. But in this case, Luisa Amelia Hernandez was the accused, and the complainant was her former common-law husband.
Second, the case involves unusual facts and charges. Hernandez pled guilty to two offences: intent to cause death or bodily harm through the setting of a trap, and assault with a weapon, to wit, an insulin-filled hypodermic syringe. According to the facts laid out by the Court of Appeal, the complainant served Hernandez with an eviction notice following their separation and refused her request to loan her $1000. The next evening, Hernandez entered the complainant’s home and “set a trap” by pouring oil and placing insulin-filled syringes on the floor. When arriving home, the complainant slipped on the oil but did not fall; if he had, “he likely would have been pricked by an uncapped, exposed needle.” Hernandez then confronted the complainant, again asking him for money, and when he refused she stabbed him in the back of the neck with syringe filled with insulin that she, a nurse, had stolen from her employer. Hernandez told the complainant that the syringe contained insulin and Hepatitis C, and while the latter was not true, it took some time for the complainant to determine that. Hernandez also tried to block the complainant from calling the police. He was eventually taken to the hospital, where he was kept overnight for observation as his blood sugar levels were extremely low (at paras 2-3).
The offence of setting a trap with intent to cause bodily harm is set out in section 247(1) of the Criminal Code, RSC 1985, c C-46. It is one of the more uncommon offence provisions in the Code, and has been subject to little judicial commentary. The only decision I was able to find involving a similar offence – that of knowingly permitting a trap to remain in place on one’s property for the purpose of committing another indictable offence under section 247(3) – is R. v. Legge, 2011 CanLII 5561 (NL PC). In this case, the Newfoundland and Labrador Provincial Court considered a scenario where the accused owned property where numerous marijuana plants were growing, and were surrounded by 100 feet of line connected to fish hooks, with barbed fish hooks attached to branches within the perimeter. A hand written sign close to the plants warned people in very colourful language that if they were caught stealing, their throats would be slit. The Court discussed the history of the “trapping” provisions of the Criminal Code, which have been in place since the time of the first Code in 1892. In rather archaic language, the original provision was aimed at “man-traps”, and did not extend to “any gin or trap usually set or placed with the intent of destroying vermin or noxious animals” (Legge at para 15). (I had to look up the definition of “gin”, which is a trap used for catching animals (as well as a beverage made with juniper berries and a card game)).
In Legge, the Court indicated that it had not been able to find any reported decisions interpreting this provision or its successors, and ascertained the elements of the offence through the process of statutory interpretation (at para 20). Under section 247(1), the Crown must prove that a trap was set, that the accused intended to cause death or bodily harm by doing so, and that the nature of the trap made it likely to cause such harm, even though proof of actual harm is not necessary (at para 21). Different elements are in place for section 247(3), and without getting into the details, the Crown proved all of those beyond a reasonable doubt in Legge.
Hernandez pled guilty to setting a trap, so there was no discussion of the elements of the crime, but they are still important for understanding the gravity of the offence. The penalty for contravening section 247(1) is a maximum of 5 years incarceration, or 10 years if bodily harm is actually caused.
Assault with a weapon is certainly a more common offence, though the particular weapon used in this case was unusual, as were the circumstances in which Hernandez obtained it. Under section 267 of the Criminal Code, this offence has a maximum of ten years or 18 months imprisonment, depending on whether the Crown proceeds by indictment or summarily.
The sentencing judge in Hernandez, Judge L.G. Anderson, imposed a sentence of 6 months incarceration on each offence, to be served concurrently. The Crown appealed on the basis that this sentence was demonstrably unfit. The Albert Court of Appeal agreed with the Crown’s submissions, and increased the sentence to 18 months imprisonment concurrent on each count.
In a decision written by Justice Ellen Picard (Justices Barbara Lea Veldhuis and Russell Brown concurring), the Court noted the principle that appellate courts should be deferential to sentencing courts, interfering only where the original sentence was demonstrably unfit. This high burden will be met where the sentencing judge made an error in principle, failed to consider or underemphasized a relevant factor. As required by section 718.1 of the Criminal Code, the sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender (at para 5).
One problem with the original sentence, according to the Court of Appeal, was that Judge Anderson failed to give adequate weight to the gravity of the offence, which can be measured by the risks created by the offender’s conduct and their level of responsibility. In this case, it was not only the contents of the needle that caused potential harm to the complainant, but also the serious risks inherent in receiving a “random, aggressive stab” to the back of the neck, near the spine. As a nurse, the accused would have known these risks. And these risks materialized into harms, given the complainant’s low blood sugar levels and his mental stress associated with fear of having contracted Hepatitis C (at paras 7-9). The sentencing judge also gave insufficient weight to the offender’s level of responsibility, in particular the facts that she planned the offence (with a trap and a backup plan if it failed), and stole from her employer to execute her plan. The Court called Hernandez’s conduct “premeditated, cruel, and vindictive”, with her motive elevating her moral culpability (at para 12). She did not have a criminal record, and was given credit for her guilty plea, though the Court questioned whether she was in fact remorseful (at para 13).
The other difficulty with the original sentence noted by the Court of Appeal was that it failed to give adequate weight to the principles of denunciation and deterrence. Domestic violence offences involve a breach of trust, which make specific and general deterrence and denunciation “paramount considerations” (at para 14). Though the Court of Appeal did not cite it, this principle is codified in section 718.2(a)(ii) of the Criminal Code, which stipulates that “evidence that the offender, in committing the offence, abused the offender’s spouse or common-law partner” is an aggravating factor for sentencing purposes. Although Judge Anderson recognized that a breach of trust is aggravating, he found that this case did not involve “a vulnerable victim trapped in a dependent relationship.” The Court of Appeal indicated that this characterization was an error based on stereotyping, which improperly diminished the responsibility of the accused (at para 15). The sentencing judge also failed to account for the breach of trust Hernandez committed in using her professional skills and connections to injure her former partner, and placed too much weight on her prospects for rehabilitation.
These difficulties collectively resulted in a sentence that was demonstrably unfit, and as noted, the term of incarceration was increased to 18 months, with credit for time served.
Interestingly, in its list of leave to appeal decisions rendered this week, Supreme Advocacy notes another spousal assault case involving a female accused. In R. v. Kim, 2013 ONSC 4333, the accused’s conviction for assaulting her husband and her 12-month conditional discharge were upheld by the Ontario Supreme Court, sitting as a summary conviction appeal court. Her applications for leave to appeal to the Court of Appeal and Supreme Court of Canada were dismissed. Two cases do not a trend make, and as argued here, the Hernandez case in particular is quite unusual – which is likely why it was Meehan’s appellate case of the week.
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By: Bryce Tingle
PDF Version: A ‘Victimless’ Crime Just Lost its Perpetrators
Case commented on: Walton v. Alberta (Securities Commission), 2014 ABCA 273
In Walton v. Alberta (Securities Commission), 2014 ABCA 273 (the “Eveready” decision), the Alberta Court of Appeal has just decided the most important insider trading case in recent memory. It may also be the last insider trading case for a long time.
Here is how insider trading happens: a business person in possession of inside information is chatting with friends or family members. Someone asks him how his company is doing and he replies along the lines that, “I can’t really tell you what is going on, but it might be a really good idea to buy some stock in the next month or so.” Maybe he isn’t that discrete. Maybe he actually says, on the golf course or over lunch, “listen, there is a pretty good chance we’re going to be acquired in the next month or two, you might think about grabbing some stock.”
Why does he do this? Well, he might feel responsible: he can help a less well-off family member without giving them something that feels like charity. But it could also be showing-off, doing a favour, of just making himself feel big. We are a species that likes being liked, that likes having people feel grateful to us, and disclosing inside information advances these objects.
It doesn’t hurt that the victims in insider trading are difficult to see. The seller’s decision was freely made; the trade presumably was in its interests. Perhaps the seller decided to sell because she needed the money right away. In any event, the counterparties to an insider trade usually remain forever anonymous. Some corporate law scholars debate whether insider trading should even be against the law, given that it sends valuable pricing signals to the market.
For all of these reasons there is a considerable amount of insider trading in Canada’s markets. One recent study that looked at 1,859 merger and acquisition (M&A) deals in Canada and the U.S. found evidence that roughly 25% of all transactions were accompanied by abnormal trading in the options market during the run-up to the deal announcement. The odds of the trading abnormalities they identified arising by chance were “three in a trillion.” Another study found aberrant trading patterns in the shares of target companies in 41% of deals in the U.S. and 63% in Canada. (America’s superior performance may be due to the fact that America has the strictest insider trading laws in the world, affords a private cause of action against individuals that engage in the practice and seems to have higher rates of prosecutorial success. It also doesn’t hurt that, unlike Canada, American insiders regularly go to jail for increasingly long periods of time.)
The impact of insider trading is material. In testimony to Congress one American scholar noted that, “beginning about 12 days before takeovers or a merger, roughly 30 to 50 percent of the premium that is going to be ultimately paid… is already reflected in the stock’s price…” A 2009 study found that only 49% of leaked deals complete, compared with 72% of non-leaked transactions. Leaked deals also took 70% longer to complete.
Most of us feel that insider trading should be against the law, if only because it doesn’t seem fair for someone to be trading with a massive informational advantage. As well, the best evidence is that vigorous enforcement of insider trading laws significantly reduces the cost of equity for all firms in a market. Unfortunately, insider-trading cases are notoriously difficult to prosecute. Unless one of the parties confesses and turns evidence against the others, or the insider trading is sufficiently organized and consistent that law enforcement authorities can mount a long-term investigation with wiretaps and microphones, there is never any direct evidence.
The instances of alleged insider trading that reach triers of fact are almost always, therefore, decided on the basis of circumstantial evidence: a suspicious trade was made, there is some connection between the buyer of the stock and an insider, there is some reason for the insider to have disclosed the information to the person making the trade. The significance of the Alberta Court of Appeal’s decision in Eveready is that it sets the standards for making this circumstantial case so high that it is difficult to imagine it being met.
The facts in Eveready are typical of insider trading cases. An insider, Holtby, is accused of tipping a wide circle of associates during the run-up to an acquisition of his company, Eveready Inc. His investment advisor admitted to the Commission that he had been tipped and entered into a settlement agreement. Everyone else issued denials and provided alternative explanations for their unusual purchases of Eveready shares. Nearly all of them were found guilty by the Alberta Securities Commission, but let off by the Court of Appeal.
How they got off:
1. A statute that presents challenges – The “insider trading” offense under the Securities Act, RSA 2000, c S-4 (the “Act”) provides in s. 147(2) that someone in a “special relationship” to an issuer commits an offense if she trades. This “special relationship” includes anyone who has learned material, non-public information from someone they know to be an insider (even if this information is communicated second-hand). There can thus be a chain of people in a special relationship connecting an accused to the original insider, like a felonious version of the children’s game “telephone”.
Of course, if no material fact is disclosed, or if the accused didn’t know the information came from an insider, there is no crime. An insider can be prosecuted for “encouraging” others to trade in securities (s. 147(3.1)), but the recipient of this encouragement does not offend the Act if she trades. Thus, the enforcement staff of the Securities Commission must, from circumstantial evidence, prove the trade followed the communication of information by an insider and also prove that the information contained material non-disclosed facts and was not just a vague encouragement to purchase stock. This is difficult to do without wiretaps or email.
The best circumstantial evidence a prosecutor has – the timing of the conversation relative to the trade – is thus nearly valueless. As the Court of Appeal says (at para 29), “even if a certain trading pattern might be consistent with ‘tipping’, it might equally be consistent with merely having been ‘encouraged’.”
2. A high standard of proof – The Court in Eveready articulates the appropriate standard of proof for these cases as being very high: “given the serious consequences of a finding of culpability, clear and cogent evidence should be expected before any particular inference is drawn” (at para 29). In practice, this obviously makes any case based on circumstantial evidence very difficult prove. Inferring “knowledge of a material fact, merely because of opportunity and general motive, is weak” (at para 33).
This high standard of proof is displayed in a variety of ways throughout the decision. One accused is a “bare acquaintance” of Holtby; the Court doesn’t believe Holtby would therefore bother to tip him (at para 69). There was an atmosphere of “cautious optimism” about the stock at the time an accused made his trades – that is sufficient explanation for them (at para 72). Holtby’s brother made a big investment in Eveready shares ahead of the acquisition, but he had recently inherited some money and why wouldn’t he have invested in his brother’s company? His investment could have been a “fortuitous coincidence” (at para 101). His brother’s close friend also made an unprecedented acquisition of Eveready stock, but there is no evidence he received inside information or knew Holtby was an insider of Eveready (at para 97). Holtby’s accountants made a series of equally fortuitous trades ahead of the announcement, but their trades didn’t happen immediately after the relevant conversations with Holtby (at para 135), and they had other explanations to do with tax planning (at para 138).
None of this is to say the Court of Appeal is wrong either in its articulation of the “clear and cogent” standard of proof or its application to the facts in Eveready; it is to say that it is better to be a fortuitous trader than to be employed in prosecuting them.
3. A narrow view of the purpose of penalties – All the evidence cited earlier in this post suggests that a significant amount of insider trading occurs in Canada. A casual review of the enforcement records of the securities commissions suggests that little of it is discovered and prosecuted. Worse, Eveready shows that successfully prosecuting it is extremely challenging.
In these circumstances securities commissions have only one tried and tested tool: large penalties. The lower the chances of something occurring, the greater the penalties must be to act as a deterrent. (Lotteries are predicated on this kind of logic: people will buy even very remote chances to win a prize, provided the prize is very large.) The Court in Eveready found the Securities Commission’s awards against Holtby and the others too high: “The resulting penalty [$1,750,000] is very severe and one can argue that it extends well beyond what the public interest might require” (at para 160). The matter of sanctions was remanded back to the Commission for reconsideration – though with the strong implied suggestion they be reduced significantly.
What are the take-away lessons of Eveready? First, the Securities Commission should focus its enforcement activities somewhere else. Unless someone admits wrongdoing the chances of success are too low to justify much expenditure on insider trading cases. Second, the best advice for someone accused of wrongdoing is to deny it. Third, if we are serious about keeping insider trading a crime, we will have to rethink our enforcement practices.
Why focus on enforcement practices rather than our legislative provisions? The United States is the most effective jurisdiction in the world at prosecuting insider trading. When scaled for the relative size of our markets, the U.S. prosecutes 20 times the number of trading violations that we do. They also impose penalties 17 times greater than ours. But their insider laws, which have an element of scienter mostly absent from ours, set a higher standard for prosecutors. The difference in prosecutorial success seems most likely, therefore, to be a function of the additional tools afforded prosecutors of white-collar crime in America. These would need to be the subject of another post, but there is a reason they haven’t evolved in Canada.
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By: Alice Woolley
This summer I again provided the Federation of Law Societies with the syllabus for my legal ethics course. The Federation requested the syllabus for, presumably, the purpose of verifying that the University of Calgary’s course complies with the Ethics and Professionalism Competency as set out in Table B of the Federation’s Implementation Report for the Approved Law Degree. As it did the past two summers fulfilling the Federation’s request left me feeling both uneasy and uncertain.
Uncertain because I am not sure what the Federation wants to do with the syllabus. Are they simply ascertaining that it is a stand-alone course on professional responsibility? Is this just something to let them demonstrate that they really are reviewing those programs they approve? Or are they going to review it more substantively to see if it addresses the broad variety of topics set out in Table B (noted below and here)? Will they tell me if they do not think I am teaching the right topics? Will they go beyond the syllabus to see what I am actually teaching in various areas? And – ultimately – is the status of our degree as approved at stake as a result of what my syllabus contains? How much freedom do I still have?
My guess is that, right now, the Federation’s review is more of the former kind – simply doing enough to ensure that the approval process has some substance to it. But in my experience (which includes a few years working in regulatory law) regulatory powers tend to get exercised sooner or later. Further, what is the legitimacy in the approval process if it doesn’t have some rigour to it? If the Federation is approving our degree as meeting their competencies, and it has stated that that approval requires a review of the content of a stand-alone ethics course, then does an approval process which does not provide that review mean anything?
And uneasy for a variety of reasons, not least of which is that I can say with confidence that there is no way that my syllabus conforms with Table B. That competency requires that an applicant have “demonstrated an awareness and understanding of the ethical dimensions of the practice of law in Canada and an ability to identify and address ethical dilemmas in a legal context.” The Table further specifies that an applicant must know 1) the law governing lawyers in relation to when ethical issues arise; fiduciary duties, conflicts of interest, administration of justice, confidentiality and privilege, professionalism and the administration of justice; 2) the nature and scope of the lawyer’s duties; 3) the range of responses to unethical conduct and professional incompetence; 4) different models concerning the role of lawyers. They must additionally have the skills for identifying and making “reasoned decisions about ethical problems” and to think critically about ethical issues.
I do cover many of these topics, but I certainly don’t cover all of them. I mention fiduciary duties in passing. While I think I could argue that I cover the administration of justice, I do so more indirectly than directly. Access to justice is always listed in my syllabus, I also always run out of time before I get to it. Sound pedagogy favours depth over breadth; it is better for students to really understand one concept than to have minimal understanding of many. If anything, my syllabus already contains too much material to engage with students in the right way, so its coverage of the Table B topics is likely to go down, not up.
Further, even with respect to the topics that my syllabus does cover, there is no way that a student who has completed my course actually has the knowledge and skills the competency contemplates. How could they? It is a 36 hour course. Coming into it students know little about the area. While I am increasingly incorporating practice problems and analysis into the course, I do not think that any purely academic setting gives students the skills necessary to “identify and make informed and reasoned decisions about ethical problems in practice”. And those students who pass the course with a C or C- can hardly be said to have demonstrated a really sound knowledge of the area. They deserve their passing grades, but I wouldn’t overstate what they know. I hope that my students are better off after my course than they were before it, but that’s as far as I’d go.
Most importantly, while I recognize the Federation’s legitimate concern with the education we provide to law society applicants, having that concern extend to reviewing the content and delivery of specific courses seems fundamentally wrong. Law schools and law school classes, including required courses in legal ethics and professional responsibility, are places for intellectual inquiry and critical thought. The ability to explore new ideas, to criticize existing practices, to question accepted wisdom is at the heart of what universities provide. While I would be unlikely to do so, in my view a professor could cut conflicts of interest from her curriculum while still providing an outstanding course on legal ethics. The resources for learning about conflicts are easily accessible, and are almost certain to be well covered in the bar course and examination, allowing other more foundational questions about the role of lawyers in society to be more richly explored. That may not be my course, but I think it could be a terrific and important one.
If the university legal ethics course loses the freedom of intellectual inquiry, if all it is is a delivery service for the Federation, then in what way is that a university course? And in what way is the professor who teaches it still a professor enjoying the freedom of academic inquiry and practice?
I don’t dismiss the weight of the standard response – if we want our graduates to enjoy the privilege of bar admission, then we need to give them what the Federation thinks they ought to have. It is the privileges and qualifications law societies offer that ensure applicants want to attend our school. In my view the Federation and law societies do have a legitimate interest in the education we provide.
But at the same time, if the Federation wants its applicants to have a university education, an academic course in legal ethics, then they also need to recognize that universities have certain essential characteristics without which they cease to provide the legitimacy and intellectual authority that the law societies want their lawyers to enjoy by virtue of their LLB or JD degrees. Dictation of the content of an ethics course eliminates those characteristics; the education in that course may be something, but it is not university education. And the person who provides it is a source of information, but she is not a professor.
This post originally appeared on Slaw.
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By: John-Paul Boyd
The demographic information on litigants without counsel available to date reveals a number of interesting patterns: most litigants appear to be 40 years old and older, and people in that age range are involved in litigation at rates far higher than those in younger age groups; although most litigants have lower incomes, a significant number have incomes around or exceeding the average income; and, litigants’ often high incomes match their educational achievements, which often exceed the average. All of this information strikes me as potentially useful when designing services and reforming processes for litigants without counsel.
In her 2013 report Identifying and Meeting the Needs of Self-represented Litigants, Julie Macfarlane obtained demographic data from 230 litigants without counsel in Alberta, British Columbia and Ontario. The Nova Scotia Department of Justice surveyed 58 litigants without counsel for its 2004 report Self-represented Litigants in Nova Scotia. For their 2005 report BC Supreme Court Self-help Information Centre Initial Evaluation Report, John Malcolmson and Gayla Reid surveyed about three hundred of the centre’s users.
In Alberta, British Columbia and Ontario, litigants without counsel belong disproportionately to the 40 plus age group. In Nova Scotia, the 35 to 44 year old age group is disproportionately represented among litigants without counsel:
Here’s a chart comparing the percentage of litigants without counsel in each age group with Statistics Canada census data from 2006 and 2011 on the percentage of the general population in each age group.
(I could only find the 2006 data in mid-decade age cohorts, and it’s a bit difficult to compare the findings in the Malcolmson and Reid report with the census data as a result).
Although the lion’s share of litigants without counsel have incomes that are lower than average, the studies to date show that a significant number have incomes that are toward the middle and high ranges:
Here’s a chart, from Statistics Canada’s Table 202-0407, Income of Individuals by Sex, Age Group and Income Source, showing the average income by age group in 2011 dollars for: Alberta, British Columbia and Ontario combined; Alberta; British Columbia; and Nova Scotia.
(Note that the average incomes will likely vary between urban, rural and remote communities.)
The reports also suggest that litigants without counsel tend to have taken more schooling than most Canadians:
According to Statistics Canada’s 2011 Education in Canada: Attainment, Field of Study and Location of Study report, 64% of Canadians have a post-secondary qualification of some nature, 23% have graduated high school and 13% have neither. Here’s a chart from the 2011 census showing the educational attainments of people age 25 and over for: Alberta; British Columbia; Ontario; and Nova Scotia.
(Note that this data shows only completed diplomas, certificates and degrees, and thus excludes people who took a year or two of post-secondary education before leaving school. Note also that the average level of educational attainment will likely vary between urban, rural and remote communities.)
A few preliminary conclusions and a few tentative suggestions
The reports’ findings on age are interesting. First, according to the Statistics Canada data, Canadians’ peak earning years are between 45 and 55. This is probably helpful for people involved in a court proceeding, as the bubble of litigants noted by the Macfarlane and Malcolmson and Reid reports falls right in the midst of this age group. However, given that the reports also show that the significant majority of litigants without counsel are unrepresented because they can’t afford to hire a lawyer, it seems that these particular litigants cannot afford to retain counsel even at their peak earning years.
Second, the data on age suggests that some adjustments may be required on the part of public legal education groups, who may want to retool their publications to accommodate the declining visual acuity of their prime markets in their web and print offering. Further, as the baby boomers work their way through Statistics Canada’s age groups, other issues are foreseeable such as an increased need for public health services relating to competency, the redesign of courthouses to accommodate increasing numbers of people with lower levels of mobility, and an increase in the number of elderly Canadians living in poverty as divorces split fixed incomes. The nice people at CARP will tell you that the impact of divorce on seniors can be disastrous, particularly for women.
The reports’ findings on income also suggest the need to increase the income threshold for the provision of legal aid. To recap, 40% of the litigants in the Macfarlane report earned less than $30,000 per year, 61% in the Malcolmson and Reid report earned less than $24,000 per year, and 60% in the Nova Scotia report earned less than $29,999 per year. However, according to Canadian Lawyer magazine’s 2014 survey of legal fees:
Clearly lawyers are unaffordable for the majority of litigants without counsel. Nevertheless, the data also suggests that litigants can afford at least some services, and that litigants with mid to high incomes can afford even more. It seems to me that this data argues powerfully for both increasing eligibility for legal aid, so that fewer litigants are left without counsel, and lawyers to consider the unbundling of legal services, providing services at a flat rate or on a barter basis, and exploring other creative approaches to paid legal services than the billable hour. I’ve written about the adverse effect of the billable hour model of legal services elsewhere.
Further, given the vicious spiral that self-representation can lead to, which I’ve also written about previously, one wonders whether increasing the legal aid limits to provide more people with lawyers would in fact increase the rate of settlement, reduce the number of trials and result in a net savings to the justice system as whole. Just a thought.
Finally, the data on educational attainment makes me wonder what has happened to all of the people with high school diplomas or less. The national Action Committee on Access to Justice in Civil and Family Matters notes in its final report that only about 6.5% of legal problems ever make it to court, but it is unlikely in the extreme that so many of the people with high school diplomas or less are bundled into the 93.5% who manage to resolve their legal issues outside of court, especially when we know that for people with low incomes, legal issues tend not come one at a time but cluster and multiply into other areas of the law. Are these people simply never entering the formal justice system and abandoning their rights and entitlements? It seems to me that the providers of public legal assistance services need to examine their client population and ask how to better engage people with lower levels of educational attainment.
This post originally appeared on Access to Justice in Canada.
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By: Martin Olszynski
Case commented on: Council of the Innu of Ekuanitshit v. Canada (Attorney General), 2014 FCA 189 (CanLII)
At least three times in the course of the past year, an environmental assessment (EA) panel convened under the Canadian Environmental Assessment Act 2012, SC 2012, c 19 (CEAA, 2012) has concluded that a project is likely to result in significant adverse environmental effects: Shell’s Jackpine Mine Expansion, Taseko’s New Prosperity Mine, and Enbridge’s Northern Gateway Pipeline. In the case of both Jackpine and Northern Gateway, the federal Cabinet determined that these effects were “justified in the circumstances,” but not so for New Prosperity. In none of these instances, however, did the relevant “Decision Statement” pursuant to section 54 of CEAA, 2012 contain any explanation or reasons for Cabinet’s decision. The Federal Court of Appeal’s recent decision in Council of the Innu suggests that this approach is wrong. This litigation involved the Lower Churchill Hydroelectric Project proposed by Nalcor in Newfoundland. This project was reviewed under the previous CEAA regime but the relevant provisions are virtually unchanged. Like the three EAs referred to above, the panel concluded that the project was likely to result in significant adverse environmental effects. Unlike the three projects referred to above, however, the government did provide a detailed explanation for its determination that the significant adverse environmental effects were justified in the circumstances. The Council challenged this determination (the Council also challenged the sufficiency of Aboriginal consultation; this post focuses only on the justification issue).
The Council’s primary argument was that the project as proposed and assessed involved two plants, a larger Gull Island plant and a smaller Muskrat Falls plant, but that at the time of Cabinet’s decision-making a construction date for the Gull Island plant had yet to be confirmed, such that it was unreasonable for Cabinet to rely on the benefits of both plants when making its decision about justification. The Federal Court of Appeal ultimately disagreed (see para 58), but not without first setting out a framework for reviewing a “justified in the circumstances” determination. Beginning with the standard of review, the Court endorsed the trial judge’s approach:
 …the Court will only intervene with the [Governor in Council’s] and Responsible Ministers’ decisions under subsections 37(1.1) and 37(1) if it finds that: 1) the CEAA statutory process was not properly followed before the section 37 decisions were made; 2) the GIC or Responsible Ministers’ decisions were taken without regard for the purpose of the CEAA; or 3) the GIC or Responsible Ministers’ decisions had no reasonable basis in fact; which is tantamount to an absence of good faith.
The vast majority of CEAA litigation has focused on the first criterion, with applicants alleging various deficiencies with the EA process. In fact, to the best of my knowledge the Council of Innu decision is the first to challenge the legality of the GiC’s decision directly. And while the parameters of review here (the second and third criteria above) are deferential to be sure, it is equally clear that they require something by way of explanation. Otherwise, it is simply impossible to carry out what the Court of Appeal stated was its duty (at para 44): “a reviewing court must ensure that the exercise of power delegated by Parliament remains within the bounds established by the statutory scheme” (essentially the same approach I argued for here). Turning to the GiC order with respect to Lower Churchill, the Court noted (at para 53) that Cabinet “determined, after consulting the Joint Review Panel Report as well as several government studies, that [translation] ‘the significant energy, economic, socio-economic and environmental benefits outweigh the negative environmental impacts of the Project identified in the Panel’s Report.’” The Court then addressed the Council’s argument with respect to the Gull Island Plant in a passage that suggests that, notwithstanding its subjective and policy-laden nature, the justification determination must be able to withstand at least some scrutiny:
 I share the appellant’s view that the abandonment of the Gull Island plant, if this were proven to be true, would raise serious questions about the validity of the environmental assessment and the impugned decisions. The Project authorized by the Governor in Council and responsible authorities following the balancing exercise imposed by section 37 of the CEAA included the Muskrat Falls plant as well as the Gull Island plant… If Nalcor were to forego construction of the larger of the two plants assessed (Gull Island), or if there was an unreasonable delay in its construction, the balancing exercise carried out for one of the Report’s findings would be necessarily compromised.
As noted above, the Court of Appeal ultimately concluded that the Council failed to prove that the Gull Island plant had been abandoned or that it had been unreasonably delayed (at para 57), but the above framework and its application to this case leave little doubt that the federal government’s current practice with respect to justification is insufficient.
Nor would it seem sufficient for the government to simply rely on the justification occasionally provided by panels as in the case of Jackpine, which was a joint review panel with the Alberta Energy Regulator and which concluded that that project was in the public interest, or Northern Gateway. As a starting point and consistent with the Federal Court’s recent decision in Greenpeace Canada v Canada (Attorney General), 2014 FC 463 (CanLII), such panels lack democratic legitimacy. Another reason, and something that I have noted before, is that there often exists a yawning gap between panel recommendations and the conditions that the government ultimately imposes on proponents (see e.g. the recommendations with respect to a Traditional Land Use (TLU) management framework under the Lower Athabasca Regional Plan in the context of Shell’s Jackpine project). Practically, this means that there is often a real difference between the “balance” reached by panels and that struck by the government.
By: Sarah Burton
Cases Considered: Lustre Studio Inc. v West Edmonton Mall Property Inc, 2014 ABQB 525
In Lustre Studio Inc. v West Edmonton Mall Property Inc, 2014 ABQB 525, the Honourable Mr. Justice B.R. Burrows provided a candid window into judicial frustrations with access to justice in Alberta. In pointed words, he expressed dissatisfaction with the courts’ willingness to prioritize and accommodate commercial cases through mechanisms unavailable in family and non-commercial matters. While Justice Burrows clearly criticizes this preferential treatment, he also expresses resignation in quelling the tide. This decision implicitly questions the priorities of our justice system and the preference given to commercial matters over non-commercial cases, even when they urgently require the court’s attention. Practically speaking, Justice Burrows may be correct in stating that expanded accommodations for commercial cases are here to stay. If so, this innovative project should be harnessed to create equally effective mechanisms for family and other non-commercial cases.
On August 22, 2014, Justice Burrows was completing a week on Edmonton Chambers Duty (sitting in Family, Regular and Special Chambers). Many of the matters he heard in Family and Regular Chambers were complicated and required a Special Chambers hearing. Unsurprisingly, however, there was a significant queue for Special Chambers dates stretching until the winter and/or spring of 2015.
That same day, Justice Burrows received a request from counsel for Lustre Studio Inc. (“Lustre”) to have an interim injunction application heard as part of the Commercial/Duty Justice Initiative at a full day hearing on September 12, 2014. The injunction revolved around a commercial lease dispute between Lustre and its landlord West Edmonton Mall Property Inc. (“West Ed”), wherein West Ed invoked a lease provision requiring Lustre to relocate by January 16, 2015, which Lustre sought to avoid.
Lustre’s effort to have its case heard in September 2014 (rather than early 2015) is permitted by the Commercial/Duty Justice Initiative (the “Commercial List”). The Commercial List is a 2010 initiative of the Court of Queen’s Bench (Notice to the Profession #2010-08) that creates a separate queue for commercial cases to access specialized judges on an expedited basis. Practically speaking, if a case falls within the Commercial List mandate, it can be heard by a judge from the Commercial Practice Group within weeks, not months. While it began as a Calgary/Edmonton project to accommodate bankruptcy, insolvency and related matters, the Commercial List was expanded in a Notice to the Profession issued by the Chief Justice and Associate Chief Justice of the ABQB (NP#2014-04) in April 2014 to include non-bankruptcy commercial matters such as:
Counsel for Lustre relied on the last of these headings. In its letter to Justice Burrows, Lustre did not allege that its matter was urgent, as urgency is not a requirement of the expanded Commercial List initiative (at para 8).
Justice Burrows granted Lustre’s request (at para 12). The expanded Commercial List initiative did not provide guidance for his exercise of discretion. Since it fit within the mandate and nothing else was scheduled on that day, he had no reason to refuse the request.
Justice Burrows explained, however, that he was granting the request despite his fundamental disagreement with the expanded Commercial List initiative. While it is uncharacteristic for a judge to highlight his disagreement with a law, Justice Burrows was compelled to make this comment because the law in question was a judicial policy implemented by the Alberta judiciary. As such, he wished to make his personal disagreement with this law crystal clear. In his words:
 … My oath requires me to apply the law even when I am of the view that the law is not what it should be. This is a situation where I am obliged to apply “law” with which I fundamentally disagree.
 Ordinarily, it would not be relevant or even appropriate for a judge to point out where he does not agree with the law he is obliged to apply. In my view that is not the case where, as here, the judge is a member of the policy setting body which adopted the law in question and might otherwise be thought to have agreed with the law as adopted.
Justice Burrows’ objection was not based in opposition to Lustre’s argument, injunction applications, lease disputes, or commercial matters generally. Rather, he was motivated by the inequity of dedicating scarce judicial resources to prioritize commercial matters over family and non-commercial civil actions. The Commercial List plainly prioritizes non-urgent commercial cases over urgent family and non-commercial civil matters. Thus, while bound to apply the law, Justice Burrows expressed his palpable distaste for it. He concluded:
 The Court clearly requires a triage system to deal with matters which have an element of urgency. In this Court there is no formal triage system. A family and non-commercial civil litigant who feels their matter requires priority judicial attention can do little more than hope that a judge will agree and make some ad hoc arrangement for the early hearing of the application. As noted, pursuant to the Notice to the Profession, commercial business matters are simply given automatic priority assuming there is free time on the schedule of the commercial duty judge. In Edmonton at least, such free time occurs frequently.
 I have on several occasions made my view on this subject known to my colleagues. I have been unable to prevent the adoption of this Notice to the Profession. I record here that, though I am bound to apply it, I believe it institutes an extremely ill-advised policy.
The Priority of Commercial List
Commercial litigators in Calgary and Edmonton often praise the efficiency, specialization, and practicality of the Commercial List. As a former commercial litigator, I have some familiarity with the Commercial List where matters are often undeniably urgent and the stakes are high. The Commercial List itself is not inherently bad, nor does it impede access to justice. It is an intelligent response to a problem facing commercial litigants who need to access the courts on time sensitive matters. The Commercial List has undeniably advanced access to justice for many commercial parties who (for example) face immediate and irreparable harm from a creditor-induced bankruptcy application, or a permanent injunction that could destroy a business and put many people out of work.
The problem with the Commercial List arises from its inequity in relation to non-commercial cases. While certain commercial litigants are able to access a formal queue-jumping system, as Justice Burrows stated “[a] family and non-commercial civil litigant who feels their matter requires priority judicial attention can do little more than hope that a judge will agree and make some ad hoc arrangement for the early hearing of the application” (at para 17).
As matters stand, the expanded Commercial List effectively creates a two-tiered system whereby non-urgent commercial matters are blatantly prioritized over urgent family and non-commercial civil cases. This distinction is unfounded and unacceptable.
I would not, however, suggest that we abolish the Commercial List to rebalance the current inequity. It is an example of a positive and practically based solution to the problem of accessing courts. Therefore, instead of attacking the program, we ought to use it as an example. The same innovative thinking used to develop the Commercial List (and the resources needed to implement it) would be well-utilized developing a similar program for family and non-commercial litigants in urgent cases. This would rebalance the current inequity while promoting innovative solutions to make courts more accessible.
The Emergence of a Trend?
On a concluding note, the timing of Justice Burrows’ comments also merits discussion. Earlier this month, I blogged on R v Smart, 2014 ABPC 175, where the Honourable Assistant Chief Judge Anderson stayed proceedings against three accused persons who could not afford counsel, but did not qualify for Legal Aid. Like Lustre, Smart contained considerable commentary on the barriers to justice faced by parties who fail to fit within a particular initiative (in that case, Legal Aid). While couched in different terms, both decisions expressed frustration with the justice system’s failure to adequately serve the people who use it.
Strikingly, despite their stated views on increasing access to justice, in both cases the adjudicators ultimately sacrificed civil and family law matters in favor of cases with a greater priority. In Lustre, Justice Burrows was ultimately required to accommodate the applicant’s request to the detriment of non-commercial civil and family law cases. In Smart, Judge Anderson leveraged the constitutional priority given to criminal cases to demand that the accused persons be appointed Legal Aid counsel. As discussed in my earlier blog, this decision will likely come at the expense of civil and family litigants seeking Legal Aid.
Lustre and Smart were released approximately two weeks apart. It is likely premature to label two cases a “trend”, but they are consistent with recent reports on access to civil justice, and this recent judicial commentary does provide an invaluable perspective on how barriers to justice are directly encountered and perceived in the courtroom. These decisions also highlight the fact that barriers to justice are often systemic. In their decisions, Judge Anderson and Justice Burrows both clearly wanted to increase access to justice. Their decisions, however, were ultimately compelled by the application of a triage system that prioritizes some cases over others. Unfortunately, when there aren’t enough resources to go around, family and non-commercial civil matters are continually left in the cold. Clearly, this inequity cannot be remedied on a case-by-case basis in the courtroom. Policies and (before that) perspectives on the importance of civil justice must change if we want to level the playing field.
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By: Martin Olszynski
Case commented on: Syncrude Canada Ltd. v Attorney General of Canada, 2014 FC 776
“The fall term in the 1997-1998 academic year,” wrote Professor David Beatty, “was a constitutional law teacher’s dream.” Professor Beatty was referring to the release of two Supreme Court of Canada decisions that touched some of the “most politically charged issues” of the day and which “together raised almost every important issue in constitutional law” (one of which was R v. Hydro Quebec,  3 SCR 213, 1997 CanLII 318 (SCC), central to the Syncrude decision being commented on here; see David Beatty, “Canadian Constitutional Law in a Nutshell” (1998) 36(3) Alta L Rev 605). As it turns out, the summer of 2014 has shaped up to be an environmental law teacher’s dream. In May, the Federal Court released its decision in Greenpeace Canada v Canada (Attorney General), 2014 FC 463 (CanLII), a decision that I have suggested represents a major development in Canadian environmental assessment law. Then in August, the Federal Court handed down its judgment in Syncrude, which my colleague Professor Nigel Bankes has observed is the “first case in which a party has challenged the constitutional validity of any federal greenhouse gas regulations.” This post focuses on that very issue; Professor Shaun Fluker has also written a post on the decision, focusing on the administrative law issues.
The Constitutional Question
Subsection 5(2) of the Renewable Fuel Regulations, SOR/2010/189 (RFR), being regulations made pursuant to subsection 140(1) of the Canadian Environmental Protection Act, 1999, SC 1999 c 33 (CEPA), requires that diesel fuel produced, imported or sold in Canada must contain renewable fuel of at least 2% by volume. Compliance can be achieved by either blending diesel with biodiesel, which is made from either biological waste matter or feed stocks, or by purchasing compliance units from those who have more than 2% renewable fuel in their diesel fuel.
Canada argued that subsection 5(2) “is in pith and substance a legitimate use of the federal criminal law power to suppress the evil of air pollution by mandating a 2% renewable fuel content in diesel fuel produced” (at para 12). For its part, Syncrude argued that the provision’s “dominant purpose and effect…is to regulate non-renewable resources and promote the economic benefits of protecting the environment,” and in particular “to create a demand for biofuels in the Canadian market place,” such that any prohibition of harm is merely ancillary (ibid).
Justice Zinn first set out the applicable framework as recently set out in Québec (Procureur Général) v Canada Procureur (Procureur Général), 2010 SCC 61 (CanLII) [Re: Assisted Human Reproduction]. The first step is to determine the dominant matter – the pith and substance – of the impugned provisions, a contextual analysis that requires asking “[w]hat in fact does the law do and why?” (at para 16, citing para 22 of Re: Assisted Human Reproduction). The second step is to determine which of the heads of power such matter falls under.
Justice Zinn then began by considering the purpose of the RFR and, because it is subordinate legislation, the CEPA as well. Referring to the preamble of both, Justice Zinn observed that CEPA is designed “to address environmental degradation, protect the environment and human health, and place the cost and responsibility of pollution on the polluter”, while the RFR were considered by the Governor in Council (GiC) as contributing to “the prevention of, or reduction in, air pollution…” (at para 17). Following the teaching in Bristol-Myers Squibb Co v Canada (Attorney General), 2005 SCC 26 (CanLII), Justice Zinn also considered the various Regulatory Impact Analysis Statements (RIAS) related to the RFR, which in his view confirmed that the driving concern was the reduction of greenhouse gas (GHG) emissions (at para 21). Readers interested in the history and evolution of the federal government’s position on climate change should check out paragraphs 22 – 28 of the judgment. Justice Zinn himself summarized those documents as follows:
 …The RIAS for both the RFR and its amendment…make clear that GHG emissions pose a significant, enduring effect on the environment, have high global warming potentials, and can directly affect the health of Canadians. The RIASs also explain that renewable fuels have been shown to make a significant contribution to lowering GHG emissions on a life-cycle basis. While the provinces currently have regulations imposing renewable fuels requirements, Parliament was of the view that federal regulation could contribute above and beyond the provincial contributions and would fill gaps and address inconsistencies in provincial legislation.
While Justice Zinn recognized that the RFR were “also intended to increase the demand for renewable fuels and develop new market opportunities” (at para 31), it was equally clear that these economic effects were part of a larger strategy, the purpose of which was to reduce GHG emissions: “Creating a demand for renewable fuels was…a necessary part of the overall strategy to reduce GHG emissions, but it was not the dominant purpose. The reason the government wanted to create a demand for the fuels was to make a greater contribution to the long term lowering of GHG emissions” (at para 35).
Consequently, Justice Zinn had no difficulty concluding that “the dominant purpose of the RFR was “to make a significant contribution to the reduction of air pollution, in the form of reducing GHG emissions” (at para 39). Turning to the regulations’ effect, the bulk of this part of the decision was aimed at rejecting Syncrude’s efforts to have the Court assess the efficacy of the RFR. However, Justice Zinn was also of the view that even if this was part of the test, Syncrude “has failed to present convincing evidence to show that the blending of renewable fuels would not ‘make a significant contribution to the prevention of, or reduction in, air pollution’” (at para 45; see also para 49).
Having determined that the pith and substance of the RFR is the reduction of GHG emissions and potentially other emissions (at para 54), Justice Zinn turned to classification. The federal criminal law power requires that there be (1) a prohibition; (2) backed by a penalty; (3) with a criminal law purpose (Reference re Firearms Act (Can), 2000 SCC 31 (CanLII)). There was apparently no dispute with respect to the first two criteria; the issue was whether the RFR were enacted with a valid criminal law purpose (at paras 58, 59).
The Minister relied on R. v. Hydro Quebec, the landmark but also controversial Supreme Court ruling that grounded CEPA’s toxic substances regime in the criminal law power. In that case, both the majority and minority agreed that Parliament’s use of the criminal law power was not limited to protecting public health; “the protection of the environment is itself a legitimate basis for criminal legislation” (Hydro Quebec, at para 43). Where the parties disagreed, and where the majority ultimately prevailed, was whether the impugned regime was more regulatory than prohibitory in nature. Writing for the majority, Justice La Forest held that environmental issues did not always lend themselves to blunt prohibitions but that this should not preclude Parliament from relying on the criminal law power, especially where the alternative is the seemingly more drastic reliance (from a federalism perspective) on its residual power to pass laws for peace, order and good government (POGG).
Applying this reasoning to the RFR, Justice Zinn acknowledged that they appeared “more regulatory in nature than prohibitory. However, like the majority in Hydro, I am of the view that this particular evil – GHG emissions by combustion of fossil fuels – is not well addressed by specific [sic] prohibitions. For example, much of society runs on fossil fuels and Parliament should not be expected to prohibit the use of fossil fuels entirely in order to meet progressive goals of GHG emission reduction” (at para 67).
Where the decision gets really interesting, in my view, is around paragraph 78. Here, and in contrast to the public messaging from industry and industry groups such as the Canadian Association of Petroleum Producers (i.e. that they support action on climate change), Syncrude argued that “the production and consumption of petroleum fuels is not dangerous and does not pose a risk to human health or safety,” and that “there is no evil to be suppressed.” To this, Justice Zinn responded that “[t]he evil of global climate change and the apprehension of harm resulting from the enabling of climate change through the combustion of fossil fuels has been widely discussed and debated by leaders on the international stage. Contrary to Syncrude’s submission, this is a real, measured evil, and the harm has been well documented” (at para 83).
Several years ago at the annual “CBA-DoJ Day” in Ottawa (an event organized by the National Energy, Environment and Resources Law section of the Canadian Bar Association), someone asked counsel from Environment Canada if they thought that the toxic substances provisions of CEPA – the provisions upheld under the criminal law power in R. v. Hydro Quebec – would pass muster if they were to be challenged now, in light especially of the fact that there are now thousands of regulated substances under that scheme. If I recall correctly, the response was positive if somewhat tepid. Justice Zinn’s decision would seem to be put any doubt to rest, while at the same time swinging the criminal law door open for all manner of schemes to control GHG emissions, including cap and trade. And while it is pretty clear that this door is not one that the current federal government will be walking through, a future government just might.
By: Shaun Fluker
Case commented on: Syncrude Canada Ltd v Attorney General of Canada, 2014 FC 776
This post continues on from the introductory comment posted by Nigel Bankes on September 11, 2014 (here) concerning this case, and discusses the administrative law aspects in Justice Zinn’s decision. Briefly put, Syncrude challenges the validity of the Renewable Fuels Regulations, SOR/2010-109 enacted pursuant to section 140 of the Canadian Environmental Protection Act, 1999, SC 1999, c 33 [CEPA]. Section 139 of CEPA together with the Renewable Fuels Regulations require diesel fuel produced, imported or sold in Canada to contain renewable fuel of at least 2% by volume. Syncrude produces diesel fuel, and is thus subject to this requirement unless it can successfully argue the Renewable Fuels Regulations are ultra vires the authority of the Governor in Council or that there is some other legal defect in how the rules have been administered against it. My comment focuses on two points in the decision, namely: (1) are the Renewable Fuels Regulations unlawful because they do not conform to the regulation making powers of the Governor in Council set out in section 140 of CEPA?; and (2) did the Minister err in law by failing to afford Syncrude procedural fairness in administering the regulations?
I would say the resolution of these points by Zinn J. represents a fairly straightforward application of settled law, and I can accordingly describe the essence of the reasoning in short order. The law on the first issue was recently summarized by the Supreme Court of Canada in Katz Group Canada v Ontario (Health and Long-Term Care), 2013 SCC 64 at paras 24-28. An issue over the vires of a regulation involves the following considerations: (1) is the impugned regulation consistent with the objective of its parent statute – in order to demonstrate invalidity a person must establish that the regulation is not consistent with such objective or that it addresses a matter which is not set out in the regulation-making provision of the parent statute; (2) there is a presumption of validity such that the onus or burden is on the challenger to demonstrate that the regulation is ultra vires – so where possible a regulation will be read in a ‘broad and purposive’ manner to be consistent with its parent statute; (3) the inquiry into the vires of a regulation does not involve assessing the policy merits of the regulation, nor does the reviewing court assess whether the regulation will successfully meet its objective. There is also, of course, always the prospect that a regulation is unlawful because it has been enacted for an improper purpose that amounts to an abuse of discretion.
After citing the Katz decision, Justice Zinn considers various arguments put forward by Syncrude to support its position that the Renewable Fuels Regulations are invalid because they fail to conform with CEPA. Zinn J. rejects all of these arguments, and I will comment on these in turn.
Syncrude argues the Governor in Council erred by failing to form the opinion that the Renewable Fuels Regulations could make a significant contribution to the prevention of, or reduction in, air pollution before enacting the regulations – an opinion which section 140(2) of CEPA requires it to form. Here Justice Zinn references the preamble to the regulations, which states such an opinion was formed and he applies the presumption of validity noted above to assert that the validity – or in my words the bona fides – of this opinion as set out in the regulations is not open to question in this case without tangible evidence from Syncrude that such opinion was not actually formed (at paras 114 – 118).
Syncrude argues a Cabinet Directive on strategic environmental assessments concerning policy proposals imposes a mandatory obligation on a Minister to perform such an assessment before enacting the Renewable Fuels Regulations. This argument required Syncrude to establish that the Cabinet Directive is law rather than policy, which it fails to do (at paras 119-123). Justice Zinn is rather short on reasoning here, and perhaps little was made of this in argument. However, the distinction between legislative instruments which are binding and policy instruments which are not binding is a complex area, and resolving these questions is typically more involved than what is set out in this case. A good summary of the applicable law on this point can be found in John Mark Keyes, Executive Legislation, 2d ed (Lexis Nexis, 2010) at 19 – 63.
Syncrude argues the Renewable Fuels Regulations do not accord with the purpose and objective of CEPA because they do not protect the ‘environment’ as defined in CEPA to mean air, land and water. In this regard, Syncrude emphasizes the conjunctive aspect of this definition and asserts that the record did not include material to demonstrate the regulation was intended to protect land and, moreover, that the renewable fuel requirement would actually result in negative impacts to these components. Again citing the Katz decision, Justice Zinn rules that a vires inquiry cannot go into the merits of the policy underlying the regulation save for those egregious cases where abuse of discretion is evident. And moreover, he lists several reasons for rejecting the conjunctive interpretation of ‘environment’ offered by Syncrude (at paras 124 – 137).
The second issue concerns whether the Minister failed to afford Syncrude procedural fairness in rejecting Syncrude’s request for a review of the Renewable Fuels Regulations before they were enacted. Syncrude argues that before rejecting such request, the Minister was required to consult with Syncrude on the issue and also that the Minister provide Syncrude with reasons for its decision not to initiate the review. This argument by Syncrude is based on the Minister’s power under sections 332 and 333 of CEPA to establish a board of review – on the request of a person who objects to a proposed regulation – to inquire into the nature and extent of the danger posed by the substance in respect of which the regulation is proposed. The legal question here is whether the Minister owed Syncrude a duty of procedural fairness under the common law, since the statute is silent on these questions of consultation and reasons.
Justice Zinn has little trouble ruling the Minister has no such duty of procedural fairness towards Syncrude or any other person for that matter in deciding whether or not to establish a board of review (at paras 144 – 161). The law on this point is well settled: The common law duty of procedural fairness does not apply to decisions of a legislative or general nature. Syncrude argues the decision is specific and directed at it, however Zinn J. points to the wording in CEPA that any such review would address general matters pertaining to the substance in question under the regulation rather than the specific circumstances of a person objecting to the regulation.
I will end this comment by returning to the title – where is the gatekeeper when you need one? The constitutional law aspects of this decision aside, which I have not considered here, it seems to me there was little prospect of success on these administrative law arguments by Syncrude. One can’t help but read this judgment and contrast it with the many leave to appeal decisions of the Alberta courts on applications involving Alberta’s energy regulatory boards, which seem to hold the applicants to an unbearably high burden of showing not just the prospect of success but more than a reasonable probability of success in their arguments, before even getting the chance to argue their case on the merits!
By: Nigel Bankes
Case commented on: Syncrude Canada Ltd. v Attorney General of Canada, 2014 FC 776
In the dog days of summer (August 6, 2014) Justice Russel Zinn of the Federal Court of Canada handed down his judgement in a case in which Syncrude sought to challenge the validity of the federal Renewable Fuels Regulations, SOR/2010/189 (RFR) on both constitutional and administrative law grounds. The judgment seems to have passed almost without comment in the media. The RFR require that diesel fuel produced, imported or sold in Canada must contain renewable fuel of at least 2% by volume. This requirement can be met by blending diesel with biodiesel (although this can be challenging at cold temperatures). Failure to comply with the RFR is an offence although a regulated entity can achieve compliance by purchasing compliance units from other regulated entities who have exceeded their own compliance targets. See the judgement at para 4.
It is a pity that the decision did not attract greater media attention because the case is politically important and also legally significant on a number of fronts. For example, this is the first case in which a party has challenged the constitutional validity of any federal greenhouse gas regulations. The decision gives strong support to the federal government’s reliance on the criminal law power to legislate in this area. The case also offers useful guidance at the administrative law level as to the preconditions that the Governor in Council must meet before making regulations under the Canadian Environmental Protection Act, 1999, SC 1999, c.33. The decision confirms that the courts will not interfere with the manner in which the executive goes about meeting its policy objectives even if the efficacy of the measure (either absolutely or comparatively) may be open to question. And there are other interesting tidbits in the case as well. For example, there is a useful discussion of the Cabinet Directive on Strategic Environmental Assessments and on the distinction between a Cabinet Directive and a regulation made by Order in Council. We hope to post individual comments on some of the specific legal issues over the coming week(s).
Finally, it is interesting to consider the greenhouse gas politics of this decision. This set of federal regulations represents a tiny, tiny step towards meeting Canada’s post-Kyoto diluted Copenhagen challenge of minus 17% of 2005 emission levels by 2020. I am sure that compliance with the regulations will increase operating costs but I am equally sure that this increase is nothing more than a drop in the bucket for Syncrude. This litigation therefore suggests that at least the sector of big oil represented by the Syncrude interests will fight federal greenhouse gas regulations in all of its forms and that it will fight them hard. There was no stone left unturned in this litigation. Counsel for Syncrude pursued every possible avenue no matter how small the chance of success or creative the argument. Big carbon may be just like big tobacco in protecting its turf – one of several similarities that my colleagues Martin Olszynski and Sharon Mascher hope to explore more fully in a forthcoming research project.
Big carbon might want to think more carefully about the politics of this. So who stands behind Syncrude? Who should the press be asking questions of? Answer: (37%) Canadian Oil Sands Partnership, (9%) SINOPEC, (25%) Imperial Oil Resources, (5%) Mocal Energy, (5%) Murphy Oil Company, (7%) Nexen Oil Sands Partnership, (12%) Suncor Energy Ventures Partnership. Perhaps Imperial Oil would be a good place to start given their important global carbon position.
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Written by: John-Paul Boyd
A lot of good research on litigants without counsel has been published in the last three years, most notably, in my view, Julie Macfarlane‘s Identifying and Meeting the Needs of Self-represented Litigants, a trio of papers published by the Canadian Research Institute on Law and the Family on the views of Alberta judges and family law lawyers, and a report by the Canadian Research Institute on Law and the Family with professors Nicholas Bala and Rachel Birnbaum (in press) on the results of a national survey of judges and lawyers. Although this research doesn’t necessarily label it as such, I’ve noticed that there’s a bit of a slippery slope effect to litigating without counsel, in which the decision to self-represent, whether a choice was involved or not, seems to trigger a cascade of adverse effects that ultimately result in litigants without counsel achieving worse results in every major area of family law than would have been achieved with counsel.
The judges and lawyers surveyed firstly said that by and large litigants without counsel have unrealistically high expectations of the outcomes they are likely to achieve. (In the Alberta research, three-quarters of judges and almost 90% of lawyers said that litigants without counsel “always” or “usually” have unrealistic expectations of outcome; almost half of judges and lawyers outside Alberta said the same thing in the national survey, and 30% said that litigants without counsel “sometimes” have unrealistic expectations of outcome.)
Perhaps as a result of their overly optimistic expectations, litigants without counsel are more likely to go to trial than settle. (In Alberta, 87% of judges and 89% of lawyers said that settlement without trial or before the end of trial is “less likely” or “much less likely” if one party is self-represented. In the national study, almost 60% of judges and lawyers said that settlement is “less likely” or “much less likely”. The national survey also showed that 70% of respondents from Alberta and 55% of respondents from the rest of Canada believe that litigants without counsel are more likely to take unreasonable positions based on principle.)
When litigants without counsel get to trial, problems arise as a result of their unfamiliarity with the law and court processes. (In the Alberta study, a range of 85 to 100% of judges said that additional challenges “always” or “usually” arise in cases involving a litigant without counsel because of their unfamiliarity with the applicable legislation, the rules of evidence, the rules of court and hearing and trial processes. A range of 70 to 77% of judges and lawyers outside of Alberta said the same thing in the national survey.)
At the end of the day, litigants without counsel achieve worse results than litigants with counsel. (In the national research, a range of 51 to 55% of judges and lawyers in Alberta thought that litigants without counsel achieved worse results on child support and spousal support, parenting arrangements and the division of property; 32 to 44% of judges and lawyers in the rest of Canada felt the same way. About 18% of judges and lawyers said that there is no difference in the results achieved by self-represented litigants on support issues, about 20% said that there is no difference in the results on support issues and about 13% said that there is no difference in the results for property division.)
(However, despite their difficulties with court and court processes, litigants without counsel are generally treated well by judges. In The Rise of Self-representation in Canada’s Family Courts (summary), a study which included a survey of Ontario litigants, Nicholas Bala, Rachel Birnbaum and Lorne Bertrand found that 14% of litigants without counsel believed that they were treated “very well” by the bench, 39% thought the way they were treated was “good” and 13% thought they were “not treated well at all.” According to the national survey, 97% of the lawyers from Alberta and 74% of the lawyers from the rest of Canada believe litigants without counsel receive “very fair” or “fair” treatment from the bench.)
It appears from the research that litigants without counsel find themselves caught in a vicious spiral. Self-represented litigants generally have unrealistically high expectations for the outcome of their cases, which reduces the likelihood that their cases will be resolved without trial. When they do proceed to trial, their lack of knowledge of the governing legislation, the rules of evidence, the rules of court and court processes frequently causes additional problems and doubtless increases the length of trials and the number of adjournments, and, when their trials do complete, self-represented parties usually achieve worse results than they would have with counsel.
I’ll provide some thoughts on ways of interrupting the slippery slope in a future post; in the meantime, the results of the research on the attitudes and outcomes of litigants without counsel should be factored into the family justice reform work being undertaken across the country. Mandatory mediation and other diversionary steps strike me as an obvious contribution to a solution.
This comment was originally posted on Access to Justice in Canada.
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By: Bryce Tingle
PDF Version: The Quiet Decline of Canada’s IPO Markets
The Toronto Stock Exchange’s parent company has been travelling the country raising the profile of its new venture, TSX Private Markets. At the same time, Canada’s securities commissions are engaged in the most comprehensive overhaul of the private placement regime in more than a decade. In Ontario, in particular, this would reverse the increasingly restrictive trends of previous reforms and liberalize its private capital markets.
This is a curious state of affairs. The TSX is chipping away at the incentives for a company to go public and the Ontario Securities Commission (OSC) is making it easier for companies to raise money outside of its regulatory “gold standard”: the public company prospectus system. What is going on?
Canada’s public markets are failing to do their job of supplying capital to innovative businesses in this country. Canada is uniquely dependent on its public markets. We have the largest number of public companies relative to our population in the world – more than double the next highest country (and four times higher than the United States). But our Initial Public Offering (IPO) market has been collapsing for over a decade.
Research published in the most recent issue of the Canadian Business Law Journal by Ari Pandes, Michael Robinson and myself, sets out, for the first time that we are aware of, an analysis of the rate operating businesses have been going public in Canada since statistics became readily available in 1993. Between 1993 and 2000 there were an average of 42.6 IPOs on the TSX each year; following 2000 the average was 18.2 IPOs a year – less than half. Even when the markets were awash in liquidity and commodity prices climbed sharply, TSX IPOs in the best years of this century never exceeded the average rate of the previous decade and only amounted to 40% of its best year.
The decline becomes even more visible when the inflation-adjusted proceeds of IPOs over the past two decades are examined. Both in absolute terms and as a percentage of Gross Domestic Product (GDP), the IPO market of the 1990s was in significantly better health than at any time in the years since then. The best year this century for IPOs was 2010, which generated proceeds equal to 0.28% of GDP – or just over half of the proceeds generated during any one of several years in the 1990s.
Reference to the dot-com boom and bust, and then the 2008 financial crisis, provide little assistance in explaining these statistics. The Canadian market is largely resource-driven, not particularly oriented towards technology stocks. Low commodity prices in the second half of the 1990s likely explains why this country’s IPO rates actually declined, even as the United States IPO market developed a bubble. Similarly, Canada’s IPO market was only comparatively briefly impacted by the 2008 crisis, with 2010 being the best year for IPOs in the past decade.
The United States has convened congressional hearings (see here and here) and blue-ribbon panels (see here, here and here) to look into the causes of the decline in public companies in that country. Canada has done nothing. But the fact that we are experiencing the same kind of decline as the United States makes us an important part of any analysis of the problem. The most common explanation in America for the decline in IPOs is the cost of complying with Sarbanes-Oxley era regulation – but Canada did not import most of this regulation and avoided, in particular, the most expensive requirements such as the auditing of financial controls.
Other common American explanations for the decline of IPOs, such as America’s toxic litigation climate (see here and here), changes in the benefits conferred by scale in the high-tech industry, or alterations to the market structure affecting investment banks (see here and here), also run afoul of the Canadian counterfactual.
We are left with the simplest of all explanations: the public markets have become much less congenial to business. Spend any time in Canada’s boardrooms these days and you will hear the same message. Whereas there were once incentives to management teams to take their companies public, there are now incentives to avoid the public markets if at all possible. The result is a climbing cost of capital, less transparency and fewer investment opportunities for a Canadian middle class increasingly responsible for its own retirement.
Professor Edward J. Waitzer, has recently argued for a comprehensive review of Canada’s capital markets by our securities regulators to ensure we are working on our most urgent priorities as a country. I second the motion.
An earlier version of this comment appeared in the National Post.
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By: Shaun Leochko
PDF Version: R v Navales and Reasonable Suspicion
The engagement of section 8 and section 9 of the Canadian Charter of Rights and Freedoms (the Charter) in the drug sniffer dog cases has captured the interest of civil libertarians and law enforcement for what is required for a “reasonable suspicion.” The 2013 Supreme Court decisions of R v Chehil, 2013 SCC 49, and R v MacKenzie, 2013 SCC 50 effectively lowered what would be required of police officers to form the reasonable suspicion necessary to conduct a “sniff” search. This resulted from the Supreme Court allowing an officer’s training and experience, in the totality of the circumstances, to form the objective requirement necessary to the forming of reasonable suspicion. The Alberta Court of Appeal in R v Navales, 2014 ABCA 70, was tasked with applying this law in Alberta. At issue was how officers would use their training and experience, and a constellation of neutral “no win” behaviours on the part of the accused to form the objective grounds needed to find reasonable suspicion. The result has been what dissenting judges have referred to as a lowering of the standard to that of a generalized suspicion. Significantly, this line of decisions has been applied outside of the drug sniffing dog context, and even outside of the reasonable suspicion context, to other areas of criminal law in R v Canlas, 2014 ABCA 160, R v Ng, 2014 ABPC 62, and R v Tosczak, 2014 ABQB 86. Drug sniffing dog cases have proven to be an interesting area for developing criminal law jurisprudence regarding sections 8 and 9 of the Charter. Drug sniffing dog investigations by their very nature generally involve both a detention and a search. The Supreme Court found in R v Kang-Brown, 2008 SCC 18, that an officer would require a reasonable suspicion to perform the dog sniff search. Flash forward four years later, and both the Supreme Court, and the Alberta Court of Appeal are still trying to determine what will amount to a reasonable suspicion to perform the sniff search. Reasonable suspicion requires a subjective belief that is objectively reasonable and subject to judicial scrutiny (Kang-Brown at paras 26, 75). The Supreme Court of Canada in Chehil found that an officer’s training and experience can provide the objective component necessary to form a reasonable suspicion (Chehil at paras 46, 47). Mackenzie dealt with “no win” behaviour, which is “characteristics that apply broadly to innocent people – he looked at me, he did not look at me” (Mackenzie, at para 71). Justice Moldaver found that this behaviour does have “some value” in forming reasonable suspicion when looked at as part of a constellation of factors assessed against the totality of the circumstances (at para 71).
There was also a strong dissent in Mackenzie written by Justice Lebel for himself, Chief Justice McLachlin, Fish J., and Cromwell J. The dissent highlighted a point from the Court’s previous decision of Kang-Brown, that after the fact judicial scrutiny must be rigorous as exclusion of evidence is the only check on police powers regarding breaches under sections 8, 9 or 10 of the Charter (Mackenzie, para 96). The dissent’s main concern was that the approach taken by the majority transformed the reasonable suspicion requirement into a requirement of only a generalized suspicion (at para 97). The dissent was concerned with courts and police draw
By: Sarah Burton
Case commented on: R v Smart, 2014 ABPC 175
Access to justice advocates should to take a few moments to review R v Smart, 2014 ABPC 175, where the Honourable Assistant Chief Judge Anderson stayed proceedings against three accused persons who could not afford counsel, but did not qualify for Legal Aid. While such applications are not uncommon, the evidence considered in Smart extends far beyond the norm. This extensive evidence, coupled with Judge Anderson’s probing commentary on access to justice, places a welcomed spotlight on Alberta’s Legal Aid funding crisis. In Smart, Judge Anderson sought to provide concrete guidance to courts facing similar applications. While he accomplished this task, his engagement with access to justice issues may be the more lasting legacy of the judgment.
Three accused persons in unrelated cases were denied Legal Aid counsel because they exceeded the program’s financial limits. Each accused derived substantially all of their income from the Assured Income for the Severely Handicapped (“AISH”) program – $1,588.00/month (in one case $1608.00/month). They each submitted affidavits stating that they were denied legal aid, had little to no disposable income and could not afford to pay a lawyer. They all expressed discomfort self-advocating and communicating orally. With the exception of one accused, they had each made various unsuccessful efforts to retain counsel outside of Legal Aid.
Each accused was facing a charge of assault in addition to other offences (including possession of a weapon for a dangerous purpose, uttering threats, indecent exposure, breaking and entering, and breach of probation). Their defences were varied – self-defence, deceit by the alleged victim, and issues relating to mental capacity. Each accused was afflicted with at least one mental disorder (including Fetal Alcohol Spectrum Disorder, Attention Deficit Hyperactivity Disorder, and anxiety with a severe lack of memory). The Crown was seeking jail time in all cases.
The applicants sought to stay the proceedings against them pending the appointment of state counsel (commonly known as a “Rowbotham Application”). To increase efficiency, and to allow for extensive evidence on Alberta Legal Aid, the separate applications were consolidated.
The Nature of a Rowbotham Application
A Rowbotham Application (named for R v Rowbotham,  OJ No 271, 1988 CanLII 147 (Ont CA)) is a conditional stay of proceedings granted where trial fairness is compromised by a lack of counsel. While the Charter does not contain a blanket right to legal representation, ss. 7 and 11(d) of the Charter demand that counsel be appointed if a case is so complex and serious that a fair trial cannot proceed without a lawyer. Judge Anderson aptly described the Rowbotham Order as a “pay or stay” system – either the government pays for state-funded counsel, or the charges against the accused are stayed (at para 17).
There are three basic elements of a successful Rowbotham Application: “(a) the accused must have sought the assistance of Legal Aid and been rejected, having exhausted any avenues of appeal, (b) the accused must be indigent, and (c) the charges must be sufficiently serious and complex to warrant judicial action” (at para 19). When jail time is sought, the case is often considered sufficiently serious (at para 149). Complexity requires an examination of the charge, the defences and the capacities of the accused (at para 161).
Evidence and Submissions
A typical Rowbotham Application focuses on the accused’s income and expenses, and an assessment of the case against him or her. In this regard, the accused persons in Smart submitted affidavit evidence of their financial circumstances, and the Court received summaries outlining the nature of the charges against them.
The affidavits were not ideal – they outlined each accused person’s estimated income and expenses with little (or no) exhibits to back up the figures. These estimates sometimes created the impression that the accused had a significant surplus of cash at the end of each month. Yet in oral examination, each accused indicated they never had extra money by month-end.
In addition to this typical evidence, Smart also considered the social restraints and background context of the applications. This evidence was provided through the CEO of Legal Aid (Ms. Suzanne Polkosnik Q.C.) and a member of the junior Edmonton criminal defence bar with experience working for Edmonton Student Legal Services (Ms. Tara Hayes). This additional evidence was candid and striking. It detailed the extent of Legal Aid’s limitations, and the relative lack of options for persons who (barely) do not qualify for Legal Aid. For present purposes, the following key points were discussed:
Judge Anderson granted the three Rowbotham Applications. He did this despite significant shortages in the affidavit evidence, unexplored appeals to Legal Aid, and questions regarding the prospect of jail time.
With regards to the affidavit evidence, the applicants’ quoted figures were often lacking in both accuracy and documentary corroboration. In some cases, they failed to demonstrate that the accused could not afford counsel. Judge Anderson held that the affidavits were made with best efforts, but that they (significantly in some cases) understated the applicants’ expenses (see e.g. at paras 194, 195). Each applicant lived below the poverty line and testified that they had no money at the end of the month. The Court accepted this evidence. Further, the Crown’s complaints did not resonate, because it failed to question these inaccuracies while cross examining the applicants (see e.g. at para 184).Thus, these clearly lacking affidavits (somewhat counterintuitively) lent credence to the applicants’ claims that they required counsel.
Judge Anderson was not persuaded that the charges were insufficiently serious to require counsel. The Crown argued in one case that jail time, while sought, was unlikely to be ordered. Judge Anderson was not swayed, noting that the Crown’s decision to seek jail time caused the accused’s Student Legal Services counsel to withdraw (at para 199). The fact that jail time was possible, though unlikely, seemed to further support the applicant’s position that he needed counsel.
Judge Anderson’s decision was also impacted by the accused persons’ clear (though yet unproven) brain injuries and/or mental disorders. While there was no proof that the persons suffered from the mental disorders, Judge Anderson refused to ignore “the elephant in the room” (at para 206). A person under a mental disorder is less able to defend themselves adequately. Moreover, proving that a mental disorder impacted the accused persons’ mens rea (as in the FASD case) is very difficult and complex. Being under a mental disorder added weight to the argument that counsel was needed.
Lastly, Judge Anderson was not swayed by the fact that unexplored (though likely futile) efforts to retain counsel existed. Each of the accused persons in some respects failed to (a) follow through the Legal Aid appeal process, (b) contact community and support groups, and/or (c) exhaust the gambit of private criminal defence lawyers. Judge Anderson drew from Ms. Polkosnik’s and Ms. Hayes’ evidence to conclude that these efforts had no realistic chance of success. The accused persons had no money to retain counsel and an appeal to Legal Aid would plainly not succeed. In the interests of the timely administration of justice, the accused persons should not have to jump through useless hoops to be appointed counsel (at para 203).
Commentary on Access to Justice
While the Smart decision will undoubtedly be a valuable tool when adjudicating future Rowbotham Applications, its utility will extend beyond those borders. Anyone grappling with access to justice (accused persons, civil litigants and academic commentators) will find value reviewing this decision, which touches on several recurring themes in access to justice commentary. A few of these themes are explored below.
The Focus on Practical Reality
Judge Anderson repeatedly emphasized the need to focus on the practical reality that courts and accused persons face when attempting to access justice. The Legal Aid budget has created a crisis for the poor and middle class to access counsel. While lawyers are comfortable making legalistic arguments grounded in evidentiary thresholds, precedents and technical language, this approach can frustrate rather than facilitate justice. As such, when faced with access to justice concerns, judges should be focused on the realistic lived experience of the applicants. For example, Judge Anderson held that:
Underlying this focus on practicality is the recognition that Rowbotham applicants are often self-represented. They are often the least equipped to be making their application, and they often arise in the least favourable setting (a faced-paced, high volume docket court) (at para 115).
In such circumstances, judges must recognize that self-represented parties should not be treated as though they are experienced counsel. Assistance is needed, but at the same time, judges have to respect the boundaries of the adversarial system (at para 113).
The Proper Role of Judges
Stemming from this, some have suggested that the risk of trial unfairness without counsel is overblown because judges can ensure that a trial proceeds fairly. Judge Anderson cautioned against this approach for two reasons. First, it ignores the role of defence counsel in creating a fair playing field. Judges cannot advise an accused on strategy or preparation – they can only address the unfairness present in the courtroom. The trial is only the tip of the iceberg when launching a criminal defence (at paras 111-112).
Second, relying on the trial judge to protect self-represented parties draws the judge “into the fray” and risks creating a reasonable apprehension of bias (at para 110). Judges have to remain impartial and neutral in the courtroom. They must not only ensure a fair trial proceeds, but that the trial appears fair in the eyes of the public. When judges get pushed out of the neutral role, the appearance of fairness to in the courtroom can be compromised.
The Costs Associated with Legal Aid
Discussions about Legal Aid must proceed unburdened by false assumptions. In particular, people generally believe that Legal Aid and Rowbotham Orders are a drain on taxpayer dollars. This belief is built on two false notions.
First, Rowbotham Orders are not an additional cost on taxpayers – the money to pay a lawyer comes out of Legal Aid’s existing budget (at para 14). Second, the assumption that Legal Aid costs money fails to consider the costs incurred by the justice system when counsel is not present. As Judge Anderson noted:
 Anyone on the front lines of the justice system will recognize the important role that defence counsel plays in allowing matters to proceed efficiently. Judicial experience shows that when accused persons are not represented, the number of appearances tends to increase, the number of adjourned trials tends to increase and the length of trials tends to increase, each of which involves significant cost to the government through judicial, prosecutorial, clerical and security costs.
The Responsibility to Support Indigent Accused Persons
The Crown attempted to argue that Rowbotham Applicants must seek out pro bono counsel or financial assistance from friends or family before being appointed counsel. Judge Anderson unequivocally rejected both suggestions.
As for pro bono counsel, Judge Anderson found it insulting to suggest that the criminal bar ought to be burdened with fulfilling the government’s obligation to provide counsel. He stated:
 The Court categorically rejects this expectation as a requirement to show need in a Rowbotham application. As is well known to the courts, no segment of society does more to assist the indigent facing prosecution by the state, on a pro bono basis, than the defence bar.
 Providing access to justice is the obligation of the government, not good-willed citizens. The Charter protects against state failures not the failure of citizens to make up for state short-comings. With the greatest of respect to the contrary views expressed in some of the jurisprudence, this expectation and its underlying assumptions are insulting to both the impecunious and to the Bar.
He was equally affronted by the suggestion that an accused must seek money from family and friends:
144 … [I]t would be dangerous and in many cases unfair to both the accused and the third parties, if the Court was to make [requesting money from family or friends] a pre-requisite to a Rowbotham Order.
 It is the state that is seeking to hold the accused to account for his or her actions and ensure that the prosecution of that action is fair. Prosecutions are not brought by individuals and it would not be fair to require individuals to fund a matter that is not being brought on their behalf but rather on behalf of society at large.
These statements firmly place the responsibility for ensuring counsel on the government. While members of society can step in to assist a particular person in need, this cannot minimize the government’s Charter obligation to guarantee a fair trial.
Concluding Thoughts: Rowbotham Orders and the Future of Civil Legal Aid
Given the position of the accused persons in Smart, I would predict that most readers approve of Judge Anderson’s order to appoint them counsel. This is a sentiment I share, but one which is complicated by my concerns for the civil legal aid system.
The vast majority of Rowbotham Orders are made in criminal cases. Persons accused in the criminal legal system do not enjoy a blanket constitutional right to counsel, but Rowbotham Orders provide a solid footing to prevent trial unfairness. This is not so in the civil system. Section 11(d) of the Charter does not apply outside the criminal sphere. As jail time is not on the table in civil actions, they are often not serious enough to trigger s. 7 Charter protections. As such, civil litigants largely operate without any right to counsel (for an exception to this rule, see New Brunswick (Minister of Health and Community Services) v G. (J.),  3 SCR 46).
Presently, Legal Aid offers assistance to parties outside the criminal system under extremely restrictive financial guidelines. This would include (for example) family law, immigration, foreclosure, bankruptcy, and general civil actions. However, as Ms. Polkosnik’s testimony made clear, the increasing number of Rowbotham Orders have exhausted Legal Aid’s contingency fund. Future orders must draw from another source of Legal Aid’s budget. While not stated, one may assume that the money to fund Rowbotham Orders is coming at the expense of the civil Legal Aid budget.
Any civil litigator can attest to the fact that the litigation system is flooded with self-represented parties who plainly cannot afford a lawyer. This slows the justice system while these litigants attempt to navigate a complex and seemingly impenetrable maze of legal procedures. For the self-represented litigant, facing (for example) financial ruin, a child custody battle, or losing their home, “access to justice” is an empty phrase that means nothing for those without money or connections (The Canadian Bar Association, Access to Justice Committee, Reaching Equal Justice: An Invitation to Envision and Act, (Ottawa: The Canadian Bar Association, November 2013) at Part 1).
So, while Judge Anderson’s decision may be applauded, we cannot ignore the fact that criminal Rowbotham Orders are merely re-shuffling the burden of an underfunded Legal Aid system to other unfortunate people with fewer protections.
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By: Camille Sehn
PDF Version: Deference, Discretion, and Adjudicative Substitution
Case commented on: E.G. v Alberta (Child, Youth and Family Enhancement Act, Director), 2014 ABCA 237
Editor’s Note: The University of Calgary Faculty of Law runs a fantastic legal clinic, Student Legal Assistance (SLA), that employs several students during the summer. This year’s crop of students was encouraged by SLA’s Executive Director, Michelle Christopher, to submit posts to ABlawg in the criminal and family law areas. This is the second post in the series; the first is available here and there will be more to come.
In a recent decision from the Court of Appeal of Alberta, the Honorable Mr. Justice Jack Watson engages in a discussion around judicial discretion in an often nuanced and complex area of the law. At trial, the Director of Child and Family Services (“the Director”) applied for a Permanent Guardianship Order (“PGO”) of two twin boys; both parents contested the PGO. After 16 days of evidence at trial in Provincial Court, the Honorable Judge L.T.L. Cook-Stanhope concluded that there was gross abuse of the twins based on evidence of a pattern of maltreatment and poor attitudes towards parenting. Judge Cook-Stanhope found that the parents presented a substantial risk of further physical and emotional harm, and relied on the testimony of several witnesses to support this apprehension of substantial risk if the twins were to be returned to their parents. She granted the PGO on this basis. (E.G. v Alberta (Child, Youth and Family Enhancement Act, Director), 2013 ABPC 311 at para 224)
On appeal to the Court of Queen’s Bench, the Provincial Court decision was reversed on the grounds that the Court acted on a wrong principle and disregarded material evidence (E.G. v Alberta (Child, Youth and Family Enhancement Act, Director), 2014 ABQB 406 at para 3). The Honorable Mr. Justice G.C. Hawco disagreed with the weight Judge Cook-Stanhope placed on expert testimony at trial, and found that she disregarded expert written reports which suggested that the parents had motivation and capacity for positive change. According to section 34(1)(C) of the Child, Youth and Family Enhancement Act, RSA 2000, c. C-12 (“the Act”), a PGO is only to be used in most extreme cases where there is no reasonable hope of returning the child to the parents in a reasonable time (ABQB at para 11). As such, according to Justice Hawco, these reports should have been considered by Judge Cook-Stanhope because they appear to provide some support that a PGO may not be necessary. Justice Hawco also disagreed with the definition of abuse adopted by Judge Cook-Stanhope because there was some inconsistency in the older children’s reports of the abuse, and because the twins did not display symptoms of trauma (ABQB at para 14). Essentially, Justice Hawco re-evaluated the evidence, the weight of the written reports, and dispensed with Judge Cook-Stanhope’s finding that the twins were victims of abuse.
The Director applied to the Court of Appeal for a stay of Justice Hawco’s decision pending appeal, which was granted by Justice Watson. In his reasons, Justice Watson was careful to focus on the grounds of the appeal rather than allow his own perception of the evidence to guide his decision. He also made certain to avoid any direction on custody and to recuse himself from participating in the appeal. This is important given the issues being argued: how much deference should be given to the fact finding process at trial? And when does an appeal decision arise from adjudicative substitution rather than a palpable and overriding error?
The written reports were deemed admissible at trial, but they were not relied upon by Judge Cook-Stanhope; she made it quite evident that she relied heavily on the testimony of the witnesses who contradicted the written reports (ABCA at para 4). Justice Watson discussed the problem with one report in particular, by Dr. Vellet. On appeal, Justice Hawco appeared to have relied almost completely on the opinion expressed in this report by reversing Judge Cook-Stanhope’s decision, yet Dr. Vellet was not called by the parents and, as such, was not open to cross examination. This is troubling because the authors of written reports are not then available to answer questions about the parents’ past actions or speak to other pertinent issues around risk (ABCA at para 15).
The Court of Appeal stayed the Queen’s Bench decision because Justice Hawco appeared to have re-weighed the evidence from trial. Justice Hawco opined about the prejudicial influence of evidence presented at trial about the treatment of the older, adopted children, and claimed that Judge Cook-Stanhope failed to consider whether the adopted children could have been treated differently than the biological twins. Further, Justice Hawco took issue with the definition of abuse adopted by Judge Cook-Stanhope, despite the evidence given at trial by an expert in Infant Mental Health who suggested that mere exposure to the abuse of others has the same effect on a child’s development and often results in the same problematic outcomes (ABPC at para 122). This re-weighing of the expert reports indicated that while Judge Cook-Stanhope did not find the written reports reliable, Justice Hawco found them to be “material evidence” which had been disregarded, resulting in grounds for appellate review according to M.T. v Alberta (Director of Child Welfare), 2005 ABCA 125 at para 241.
While a PGO is the worst outcome a parent can receive under the Act, the decision making process for custody and guardianship must always be guided, firstly, by the best interests of the child or children in question. This process relies upon evidence presented by all parties to an action, and according to section 34(1) of the Act, the evidence must show there is no reasonable possibility of returning the children to their parents if a PGO is to be granted. By staying the decision of Justice Hawco, it seems that the Court of Appeal has indicated that if there is expert evidence that a party wishes to rely upon in order to cast some doubt on the necessity of a PGO, that evidence must be made available for cross examination.
The three part test adopted in Alberta regarding a stay is arguableness, irreparable harm and balance of convenience, though the test has been modified in cases involving children to include consideration of their best interests (B(C) v C(P), 2003 ABCA 321). Arguments for the parents against the stay focused on Judge Cook-Stanhope’s fact finding process and exercise of discretion under section 34(1) of the Act, but Justice Watson found the Director’s arguments on procedural and evidentiary errors made by Justice Hawco alongside preserving the physical and psychological stability of the children much stronger (I refer to section 34(1) because although Justice Watson cites section 36(1) of the Act (at para 27), section 36(1) was repealed in 2003, and so I assume this to be a typographical error). Justice Watson found the factors all favored arguments by the Director for the stay, because it would preserve the integrity of the fact finding process and prevent the yo-yo effect where children go back and forth between their parents and the state (ABCA at para 28).
Ultimately, expert evidence submitted without an opportunity for cross examination should carry less weight at trial. The complexities of childhood development and parental patterns of abuse do not exist in a vacuum. Therefore, expert opinions cannot be relied upon heavily without a full and complete opportunity to explore those opinions within the entire context of the issue at trial. Even when that opportunity is used, according to this recent development, the trial judge must be granted deference in analyzing and weighing the expert evidence alongside all other evidence to make a decision. In reversing Judge Cook-Stanhope’s decision, it appears that Justice Hawco erroneously considered the written reports “material evidence”, and further, substituted his own fact finding process on appeal. Justice Watson rightfully stayed this decision pending appeal, but the decision also highlights the potential issues on appeal in matters under the Act wherein an appellate court should support and uphold the integrity of the discretionary process of fact finding at trial, and avoid the occurrence of adjudicative substitution.
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By: Linda McKay-Panos
Case Commented on: Clark v Bow Valley College, 2014 AHRC 4
Recently, human rights decisions in federal tribunals and courts have adopted a broader definition of “family status” as meaning more than just one’s relationship to another person, and recognizing childcare responsibilities. Rights groups have been positive about this development, but perhaps some employers are concerned. The leading case, Canada v Johnstone, 2014 FCA 111, was discussed in previous posts (see here). Alberta’s Human Rights Tribunal has now adopted and applied this jurisprudence in Alberta.
Clark was a nursing instructor with Bow Valley College. She requested and was granted maternity leave from February 1, 2010 to January 31, 2011. She went on sick leave in November 2009, and her child was born nearly seven weeks premature (on January 2, 2010 instead of February 21, 2010 as expected). After the premature birth of the child, there was no communication about the start or end date of the maternity leave. One letter from the College about benefits referred to Clark’s maternity leave as being from February 1, 2010 to January 31, 2011 (as was first planned).
Clark and her family lived in Linden, AB, which is approximately 100 km from Calgary. In mid-November, 2010, she became aware that she had been placed on the instructor schedule beginning January 3, 2011. She contacted Bow Valley College to advise that she had childcare in place beginning February 1, 2011, and was not having any success in obtaining childcare before then. Clark offered to take some of her vacation leave in January. Bow Valley College denied her any leave past January 10, 2011, and when she did not report for work on January 13, 2011, they deemed Clark to have resigned from her position and she was terminated (paras 4, 5).
Clark argued that Bow Valley College was aware that she had no options for childcare, and that the denial of leave was discrimination on the basis of family status.
Bow Valley College argued that under the collective agreement, Clark was allowed only 52 weeks maternity leave. They also said that they did not discriminate against Clark; rather, there was a shortage of nursing faculty and they could not locate coverage. Thus, the denial of a vacation request was based on Bow Valley College’s operational requirements and not Clark’s family status. Further, Bow Valley College had attempted to accommodate Clark by providing her with two alternative childcare options. Thus, Bow Valley College submitted that it did not discriminate against Clark, and further, they had accommodated her to the point of undue hardship (para 6).
Bow Valley College also argued that Clark had not provided sufficient evidence about her husband’s income generating activities or his ability to provide childcare (para 7).
Clark testified that she was the primary breadwinner and caregiver for her family. Her husband contributed about $100 per month to the family income. She did not consider her husband to be a suitable caregiver because of his health issues (para 23). Further, there were no viable extended family caregivers (paras 15, 16). In addition, the two alternatives for childcare proposed by Bow Valley College were not feasible: one did not accept children young enough and the other one involved communal care which would compromise the child’s immune system (para 18). Clark did not have the money to purchase a car seat suitable for the commute to Calgary in her vehicle. Both daycare organizations were not open early enough to accommodate her work schedule (para 19).
The Chair of the Tribunal, Sharon Lindgren-Hewlett, noted that correspondence from Bow Valley College to Clark did not address her childcare concerns. They did not request a meeting to work out the problem or understand Clark’s concerns (para 30).
The Chair noted also that Bow Valley College had a “fairly high standard of care” to confirm Clark’s leave dates (para 38). Thus, there was a mutual mistake on the part of both parties with respect to the leave dates.
In determining whether there was prima facie discrimination, the Chair relied on the factors set out by the Supreme Court of Canada in Moore v British Columbia (Education), 2012 SCC 61. The Chair indicated that (para 42):
A complainant is required to show three elements: they have a characteristic protected from discrimination; they have experienced an adverse impact with respect to employment; and the protected characteristic was a factor in the adverse impact.
Bow Valley College and Clark differed on whether a prima facie case of discrimination on the basis of family status was made out. During the course of the Clark hearing, the Federal Court of Appeal released Johnstone, supra, and Canadian National Railway Company v Seeley, 2014 FCA 111. Both sides were requested to make submissions based on the four-part test set down in these cases for prima facie discrimination in family status childcare obligation cases. The four factors are set out in the following excerpt from Johnstone:
 I conclude from this analysis that in order to make out a prima facie case where workplace discrimination on the prohibited ground of family status resulting from childcare obligations is alleged, the individual advancing the claim must show (i) that a child is under his or her care and supervision; (ii) that the childcare obligation at issue engages the individual’s legal responsibility for that child, as opposed to a personal choice; (iii) that he or she has made reasonable efforts to meet those childcare obligations through reasonable alternative solutions, and that no such alternative solution is reasonably accessible, and (iv) that the impugned workplace rule interferes in a manner that is more than trivial or insubstantial with the fulfillment of the childcare obligation.
 The first factor requires the claimant to demonstrate that a child is actually under his or her care and supervision. This requires the individual claiming prima facie discrimination to show that he or she stands in such a relationship to the child at issue and that his or her failure to meet the child’s needs will engage the individual’s legal responsibility. In the case of parents, this will normally flow from their status as parents. In the case of de facto caregivers, there will be an obligation to show that, at the relevant time, their relationship with the child is such that they have assumed the legal obligations which a parent would have found.
 The second factor requires demonstrating an obligation which engages the individual’s legal responsibility for the child. This notably requires the complainant to show that the child has not reached an age where he or she can reasonably be expected to care for himself or herself during the parent’s work hours. It also requires demonstrating that the childcare need at issue is one that flows from a legal obligation, as opposed to resulting from personal choices.
 The third factor requires the complainant to demonstrate that reasonable efforts have been expended to meet those childcare obligations through reasonable alternative solutions, and that no such alternative solution is reasonably accessible. A complainant will, therefore, be called upon to show that neither they nor their spouse can meet their enforceable childcare obligations while continuing to work, and that an available childcare service or an alternative arrangement is not reasonably accessible to them so as to meet their work needs. In essence, the complainant must demonstrate that he or she is facing a bona fide childcare problem. This is highly fact specific, and each case will be reviewed on an individual basis in regard to all of the circumstances.
 The fourth and final factor is that the impugned workplace rule interferes in a manner that is more than trivial or insubstantial with the fulfillment of the childcare obligation. The underlying context of each case in which the childcare needs conflict with the work schedule must be examined so as to ascertain whether the interference is more than trivial or insubstantial.
The Chair concluded that all four elements of the Johnstone test for childcare obligations under family status fall within the first element of Moore test for prima facie discrimination. The Chair concluded that Clark clearly satisfied the first two Johnstone factors, and the fourth factor as well (not a trivial interference), but that Clark must also demonstrate a bona fide childcare problem remains and that she had not been able to locate a solution on her own (the third factor) (para 49).
Unlike Johnstone or Seeley, supra, this case was not about a permanent change in hours, or a permanent shift adjustment, or a request for further benefits, or increased payment. The matter at hand merely involved a mistake in the return to work date, followed by a denial of a three-week vacation, followed by termination of employment. The Chair determined that the issue to be determined was whether Clark expended reasonable efforts to locate reasonable childcare solutions, including her partner’s availability and suitability to care for the child (para 50). The Chair also concluded that Clark was actually given between six and 21 days’ notice (over a holiday season) to find childcare or be considered to have abandoned her job.
Although Bow Valley College asserted that Clark’s credibility was an issue because she did not call her partner as a witness, her own testimony established that it was not reasonable for her partner to quit his work to care for the child for one month. Thus, Clark was truthful and reasonable in not asking her partner to quit his employment because of a three-week childcare challenge (para 56). Further, Clark faced many obstacles in obtaining childcare because of the mistaken return to work date.
In applying the three factors from Moore, supra, the Chair concluded that Clark had a bona fide childcare problem which satisfied the protected ground of family status; the neutral rule of returning to work on January 3, then January 10, adversely impacted Clark; and, the only reason for her absence from work was the childcare problem, thus demonstrating the connection of the adverse impact to the ground of family status (para 65). Thus, prima facie discrimination on the basis of family status was established.
Bow Valley College defended its position, relying on the Alberta Human Rights Act, RSA c A-25.5, section 11, reasonable and justifiable discrimination, and section 7(3) bona fide occupational requirement. Bow Valley College argued that there was a shortage of nursing faculty at the time and that they believed that Clark was abandoning her position because she believed she had no childcare options (paras 66, 67).
The Chair noted that when Clark communicated her childcare problem, she was, for all practical purposes, requesting an accommodation. In this situation, Bow Valley College did not seek any information upon which they could conduct an assessment; nor was there any consideration of the information provided by Clark at the time. No collaboration or alternative approach was explored with Clark. Clark had 35 days of accrued vacation, and granting her vacation leave would have been a possible accommodation (paras 70-75).
Although Bow Valley College submitted that its operational requirements did not permit any additional absence, there was no demonstrated undue hardship for Bow Valley College to have implemented a shared instructor situation as they did in other cases. Further, Bow Valley located an instructor to replace Clark without even advertising for one (paras 77, 78). Thus, Bow Valley College failed to accommodate Clark to the point of undue hardship, and the defences failed.
The remedy awarded to Clark included $15,000 for injury to dignity, and lost wages for the period of February to May 1, 2011 (to be calculated by the parties).
The overall implication of these cases (including Clark) is that courts and tribunals are clearly recognizing the continued gendered aspects of childcare arrangements. Women, who are increasingly in the workplace, also shoulder the bulk of responsibility for childcare. To discriminate against a worker because she has childcare challenges will amount to discrimination on the basis of family status. Parents’ childcare concerns will need to be accommodated to the point of undue hardship.
By: John-Paul Boyd
Editor’s Note: John-Paul Boyd, the Executive Director of the U of C-affiliated Canadian Research Institute for Law and the Family (CRILF), started a new blog in August on Access to Justice in Canada. John-Paul will be cross-posting on ABlawg from time to time and blogging on family law decisions (see also his blog JP Boyd on Family Law). This first post is an index to five separate entries on DIY access to justice approaches originally posted on Access to Justice in Canada.
Prepare and distribute handouts with clear information about the law and dispute resolution processes. Handouts could cover topics including the substantive law on different issues, management of common litigation tasks and tips for successful mediation. Leave them in a brochure rack in your reception area; give copies to colleagues and to pro bono and community legal clinics; give them to social service providers such as abused women’s centres and immigrant settlement agencies.
Connect with a few of the social service agencies in your neighbourhood, find out where the holes are in their library of legal resources, and fill them. Think and write about the law in a way that addresses the unique legal needs and realities of each group’s target population. Work with community media and larger social service groups; these generally have a broader reach and better funding, and the work you do often goes much further.
Get in touch with the libraries, community centres and social service groups in your area and arrange to provide one or more public lectures; public talks are a rewarding, enriching and engaging way of improving access to justice. The range of topics you can address is unlimited and could include introductions to court processes, alternatives to court, landlord tenant law, wills and estates, the basics of family law, and anything else that could of interest to the people you are talking to. Providing handouts gives the community group and the people at your talk an additional resource.
Working on an unbundled basis is a great way to maintain a remunerative practice while offering legal services that are more accessible than services offered on a comprehensive, billable-hour basis, however few lawyers offer such services. Unbundling gives clients the services they select on fixed or predictable prince and within a defined time period; it gives lawyers a less stressful practice with a lower likelihood of mounting accounts receivable.
Offering services on a flat rate basis is another way to maintain a profitable practice while improving access to justice. Under this model, the client can pick and choose which and how much of a lawyer’s services he or she will buy, at a fixed rate which is determined up front. The client and the lawyer are protected from the client’s frustration if a legal issue is not resolved before his or her resources are exhausted. The lawyer gets a file with a fixed scope of required labour and a minimal potential of becoming a dog file, payment up front and a minimal likelihood of collections issues, and a file free from the tyranny of recording time.
By: Jonnette Watson Hamilton
Case commented on: Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 (CanLII)
The Supreme Court’s decision in Sattva Capital Corp v Creston Moly Corp has quite rightly received a great deal of attention. It has attracted notice in contract law circles for changing the law by holding that contractual interpretation involves questions of mixed fact and law, and not questions of law (see e.g. “Contract interpretation is no longer a question of law”, “A blockbuster decision in contractual interpretation” and “SCC issues ‘big change’ to contract law – Sattva gives last word to trial judges, arbitrators”). And, because the precedent-setting decision arose from an arbitration hearing in British Columbia, it has also attracted commentary more focused on the arbitral aspects (see e.g. “Finally, the Supreme Court of Canada puts some finality into Arbitrations” and “Supreme Court of Canada Limits the Right to Appeal Commercial Arbitral Decisions on Issues of Contractual Interpretation”). Because the British Columbia arbitration legislation that facilitated and regulated the arbitration in Sattva is unlike that in the rest of common law Canada, I will focus on the arbitration aspects of the decision and then explore the difference the Sattva decision may make in arbitrations in Alberta (and in Ontario, Saskatchewan, New Brunswick, Prince Edward Island, Manitoba and Nova Scotia, all of which also adopted the Uniform Law Conference of Canada’s Uniform Arbitration Act (1990)).
The Supreme Court of Canada decision
The initial dispute was about a US$1.5 million finder’s fee that Creston Moly was contractually obligated to pay Sattva Capital. The finder’s fee was payable in Creston shares. The parties disagreed about which date their contract required them to use to determine the price of the Creston shares. Depending upon the date chosen, Sattva would either get 11,460,000 shares or 2,454,000 shares. The arbitrator agreed with Sattva’s interpretation of the parties’ contract and awarded Sattva 11,460,000 Creston shares. Creston wanted to appeal.
Under British Columbia’s Arbitration Act, RSBC 1996, c 55, s 31, appeals of arbitration awards are only available on questions of law and only with either the consent of all the parties to the arbitration or with leave of the court:
31 (1) A party to an arbitration … may appeal to the court on any question of law arising out of the award if
(a) all of the parties to the arbitration consent, or
(b) the court grants leave to appeal.
(2) In an application for leave under subsection (1) (b), the court may grant leave if it determines that
(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,
(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or
(c) the point of law is of general or public importance.
The British Columbia Supreme Court denied leave to appeal, holding there was no question of law. However, the British Columbia Court of Appeal held that leave should be granted and sent the dispute back to the Supreme Court for a decision on the merits of the appeal. The Supreme Court held the arbitrator’s decision was correct and dismissed the appeal. However, the Court of Appeal held the arbitrator’s decision was incorrect and allowed the appeal. The Supreme Court of Canada granted leave to appeal from both of the Court of Appeal’s decisions and, in the end, agreed with the arbitrator and the British Columbia Supreme Court.
The Supreme Court acknowledged that “[h]istorically, determining the legal rights and obligations of the parties under a written contract was considered a question of law” (para 43). However, the unanimous decision determined that this historical approach should be abandoned (para 50). Henceforth, “[c]ontractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix” (para 50). The Court acknowledged that it might be possible to extricate a question of law from the mixed fact and law context of contractual interpretation — for example, 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 (para 53) — those instances “will be rare” (para 55).
In this case, no question of law was raised. As a result, no appeal was available from the arbitrator’s award.
While that was enough to dispose of the appeal, the Supreme Court went on to consider one of the three factors in section 31(2) that have to exist before leave can be granted and whether leave to appeal should have been granted in this case, assuming the issue had been a question of law. First they looked at whether an appeal would have been necessary to prevent a miscarriage of justice, as specified by section 31(2)(a). The Court held that in order to meet that standard, “an alleged legal error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case” (para 70). In other words, the appeal had to have some possibility of succeeding (para 71); without considering the full merits of the case (para 72), it had to be clear that an argument that the arbitrator’s decision was unreasonable had merit (para 74).
Second, the Court looked at what considerations should factor into a court’s exercise of the residual discretion in section 31(2). British Columbia courts had determined that the words “may grant leave” in section 31(2) meant a court can refuse leave to appeal even when one of the three requirements listed in section 31(2) has been satisfied. The Supreme Court agreed a residual discretion existed (without discussing the point), but disagreed with the list of factors to be considered in exercising that discretion as set out in the leading case of British Columbia Institute of Technology (Student Assn.) v. British Columbia Institute of Technology, 2000 BCCA 496 (CanLII), 2000 BCCA 496. The list was overly broad, extending beyond the historical bases for refusing discretionary relief — the parties’ conduct, the existence of alternative remedies, and any undue delay (para 87) — and repeating factors already considered in the section 31(2) analysis.
The Court’s final comment on appeals from arbitration awards was about the standard of review. Here the Court noted:
Appellate review of commercial arbitration awards takes place under a tightly defined regime specifically tailored to the objectives of commercial arbitrations and is different from judicial review of a decision of a statutory tribunal. For example, for the most part, parties engage in arbitration by mutual choice, not by way of a statutory process. Additionally, unlike statutory tribunals, the parties to the arbitration select the number and identity of the arbitrators. These differences mean that the judicial review framework developed in Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), 2008 SCC 9,  1 S.C.R. 190, and the cases that followed it is not entirely applicable to the commercial arbitration context (para 104, emphasis added).
It is refreshing to see the Court acknowledge that appellate review of commercial arbitration awards is different from judicial review of decisions of statutory tribunals. This point is too often forgotten; see my post “Arbitration is not Administrative Law.” However, in subsequent paragraphs, the acknowledged differences do not seem to play any role. For example, all of the precedents cited on the standard of review point are administrative law precedents: Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), 2008 SCC 9,  1 SCR 190; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 (CanLII), 2011 SCC 61,  3 SCR 654, and Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62 (CanLII), 2011 SCC 62,  3 SCR 708, citing David Dyzenhaus, “The Politics of Deference: Judicial Review and Democracy”, in M. Taggart, ed., The Province of Administrative Law (1997) 279.
As for the standard of review itself, the Court held “[i]n the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise” (para 106, emphasis added). And, in analyzing whether an arbitrator’s decision was reasonable, “it is permissible for reviewing courts to supplement the reasons of the original decision-maker” (para 110). Indeed, the Court relies almost entirely on the reasons offered by Justice Armstrong of the British Columbia Supreme Court (paras 107-119). This is arbitration’s version of the administrative law point about deference to “the reasons offered or which could be offered in support of a decision” (Dunsmuir at para 48), i.e., the result is correct because reasons could have been offered in support.
Application to Alberta
In Alberta, the equivalent of British Columbia’s section 31 is section 44 of the Arbitration Act, RSA 2000, c A-43:
44(1) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law, on a question of fact or on a question of mixed law and fact.
(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal, and
(b) determination of the question of law at issue will significantly affect the rights of the parties.
Both the British Columbia and the Alberta legislation make appeals of arbitration awards on questions of law available if the parties consent or if the court grants leave to appeal. The Alberta statute allows parties more latitude to fashion their own agreement about appeal rights, not restricting them to questions of law.
Both the British Columbia and the Alberta legislation limit a court’s discretion to grant leave by setting out conditions that the parties must meet. However, British Columbia courts have a residual discretion because that province’s statute states that “the court may grant leave” if those conditions are met. An Alberta court, on the other hand, is told that it “shall grant [leave] only if it is satisfied” those conditions are met. The use of the word “shall” suggests an absence of residual discretion in Alberta, but the House of Lords in Pioneer Shipping Ltd. et al. v. B.T.P. Dioxide Ltd., [198013 All ER 117 (CA), aff'd  2 All ER 1030 at 1034 (HL), held that a very similar leave to appeal provision in the English legislation did not affect the general discretionary nature of the granting of leave (see also John J. Chapman, “Judicial scrutiny of domestic commercial arbitral awards”(1995) 74 Canadian Bar Review 401 at 412).
Finally, the conditions for granting leave in Alberta are narrowly focused on only the parties. It is only the importance of the dispute to the parties and whether their rights will be significantly affected by the appeal that counts. The courts are seen as dispute resolvers only, a continuation of the role of private arbitration. In British Columbia, appeals from arbitration may have a wider focus, beyond that of the parties only. The appeal can be important to the parties or to a group that the appealing party is a member of, or to the general public. Some Alberta courts have read into the Alberta appeal provisions the requirement that the appeal be in the public interest. See, for example, my 2011 post “Leave to Appeal an Arbitration Award: Is There a Public Interest Requirement?” (The Alberta Law Reform Institute has examined the public interest requirement in Arbitration Act: Stay and Appeal Issues, 2013 (Final Report 103) in the context of re-thinking appeals from arbitration awards and it has recommended that section 44(2) be repealed in its entirety and that there be no appeals without the parties’ agreement (para 138)).
So what do these similarities and differences in the British Columbia and Alberta legislation amount to when it comes to applying Sattva in this province?
Most importantly, the Court’s precedent-setting decision that contractual interpretation issues are questions of mixed fact and law will apply to restrict potential appeals from arbitration awards in Alberta. Contract interpretation questions are prominent in commercial arbitrations and, because they are no longer questions of law and leave to appeal is only available for questions of law, there should be fewer requests for leave to appeal and fewer leaves to appeal granted. It is not quite the abolishment of all appeals with leave that the Alberta Law Reform Institute recommended, but it is a big step in that direction. Members of the legal profession and the public will know less and less about arbitration as cases such as Sattva will simply be decided, privately and confidentially, by decision-makers chosen by the parties to the dispute.
The Court’s interpretation of section 32(1)(a) — the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice — will probably be persuasive in Alberta. Section 31(1)(a) is the closest the British Columbia legislation comes to Alberta’s party-focused conditions for granting leave. Recall that section 44(2) of the Alberta legislation requires that the importance to the parties of the matters at stake in the arbitration justifies an appeal and that determination of the question of law at issue will significantly affect the rights of the parties. This is similar in substance, if not form, to the British Columbia provision. Therefore the Court’s interpretation that what was required was that “an alleged legal error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case” (para 70) is probably an accurate description of what section 44(2) requires.
The Court’s narrowing of the discretion of the court hearing the leave to appeal application is probably not relevant to Alberta. It is not clear that courts in Alberta have a residual discretion to decline to grant leave if the conditions in section 44(2) are met. Section 44(2) does not say that courts must grant leave if the conditions are met, but it does say they “shall” grant leave only if the conditions are met. Thus it appears that Alberta courts cannot take “the parties’ conduct, the existence of alternative remedies, and any undue delay” (para 87) into account in deciding leave application under section 44(2).
The Court’s final point, namely, that the standard of review will almost always be reasonableness, barring a constitutional question or a question of law of central importance to the legal system as a whole and outside the adjudicator’s expertise, will apply in Alberta. It is a general point about arbitration and the types of issues that are generally argued and determined in arbitration.
In summary, the principles of arbitration law decided by the Supreme Court in Sattva should be highly persuasive in Alberta, despite the differences in the arbitration statutes in British Columbia and Alberta.
By: Nigel Bankes
Case Considered: IFP Technologies (Canada) v Encana Midstream and Marketing, 2014 ABQB 470
What happens when A sells B a working interest in the thermal or enhanced production from an oil and gas property and A or its successors in interest continue with primary production? This was the issue at the heart of this decision. The answer is that B gets shafted; B should have taken better steps to protect itself rather than simply assuming that all future production from the property would take the form of enhanced or thermal production.
In the course of his lengthy 73 page judgement Chief Justice Neil Wittmann (acting in place of Justice Ron Stevens (deceased)) addressed a number of questions of oil and gas law which will be of interest to the energy bar including the following: (1) What property interest did IFP acquire? (2) What is the test for determining whether a working interest owner has reasonable grounds for refusing consent to an assignment of shared interest lands under the 1990 CAPL Operating Procedure? (3) What is the legal position where a working interest purports to withhold consent and the Court subsequently determines that the withholding of consent was unreasonable? (4) Did the development of the property through primary production techniques substantially nullify the benefit for which IFP (B) had bargained so as to amount to a breach of contract? (5) Assuming that there was a breach of contract how should damages be assessed? (6) Assuming liability should any claim for damages be capped by a contractual agreement between the parties?
The facts and the agreements between the parties?
IFP (a wholly owned subsidiary of IFP Energies Nouvelles of France) had expertise and technical information in relation to the drilling, placement and completion of horizontal wells. Beginning in the late 1980s IFP entered into a series of agreements with CS Resources, a pioneer in the use of horizontal wells for the development of heavy oil resources. As part of the first series of these agreements CS Resources granted IFP a 3% gross overriding royalty (GOR) on all CS lands on which IFP’s technology was applied. PanCanadian (PCR) acquired CS Resources in 1997. IFP and PCR eventually concluded that the GOR model was inappropriate and agreed to replace it with a working interest model. That agreement was recorded in an MOU of July 1998 and an Asset Exchange Agreement (AEA) of October 1998 to which were scheduled a joint operating agreement (JOA) and its appended operating procedure, which was an amended version of the CAPL 1990 Operating Procedure. This second set of agreements covered both the original CS Resources lands as well as other lands rolled in to the deal by PCR including properties referred to as the Eyehill Creek Assets. At the time of the AEA there were already 222 conventional wells on these lands.
Under the AEA IFP was to acquire a 20% working interest in the PCR lands including the Eyehill Creek Assets. The granting language of the AEA provided as follows:
 PCR hereby agrees to sell, assign, transfer, convey and set over to IFP, and IFP hereby agrees to purchase from PCR, all of the right, title, estate and interest of PCR (whether absolute or contingent, legal or beneficial) in and to the PCR assets, … all subject to an in accordance with the terms of this Agreement.
(Emphasis is CJ Wittmann’s)
The idea that IFP’s interests were actually limited to thermal and enhanced production first seems to have been introduced in the terms of the JOA which was scheduled to the AEA. Clause 4(c) provided (at para 92):
4(c) It is specifically agreed and understood by the parties that the working interests of the parties as described in Clause 5 of this Agreement relate exclusively to thermal or other enhanced recovery schemes and projects which may be applicable in respect of the petroleum substances found within or under the Joint Lands and the Title Documents. Unless specifically agreed to in writing, IFP will have no interest and will bear no cost and will derive no benefit from the recovery of petroleum substances by primary recovery methods from any of the rights otherwise described as part of the Joint Lands or the Title Documents.
(Emphasis is CJ Wittmann’s)
Other provisions of the JOA, including the definition of working interest and the nature of the parties’ participating interests, all simply referred to the interests of the respective parties in the lands without further qualification by reference to the nature of the production process.
Under the attached CAPL operating procedure the parties had elected the right of first refusal option (ROFR) under Article 24 (at para 110) and the agreement seems to have contained the standard provisions on independent operations (with some amendments) with a 400% penalty (at para 107). Another element of the JOA was a series of clauses that relieved IFP of any responsibility for the abandonment of the conventional (primary production) wells on the Eyehill Creek property (at para 33).
By the late 1990s PCR was concerned about its ability to hold on to the Eyehill Creek lands and was focusing on developing other assets such as its Christina Lake property. One of PCR’s Eyehill leases had expired and in other cases Alberta Energy had issued notices on continued leases requiring PCR to establish the productivity of the properties. Oil prices were depressed and PCR had shelved any idea of introducing a thermal recovery operation at Eyehill. Given these concerns and concerns as to the abandonment liabilities associated with its existing wells, PCR was receptive to proposals to removing itself from the property. In 2001 PCR executed a letter agreement with Wiser which was a form of farmout agreement (ultimately formalized as an Abandonment, Reclamation and Option Agreement (ARO)) pursuant to which Wiser would earn PCR’s working interest in the Eyehill Creek lands by “dealing with” the existing 222 wells by abandonment and reclamation, by re-working them or by putting them on production. It was clear that Wiser was only interested in the primary production possibilities from these lands.
PCR gave IFP the ROFR notice to which it was entitled in April 2001. At about the same time Wiser also sought (unsuccessfully) to clarify with IFP that IFP’s working interest was confined to enhanced and thermal recovery operations. IFP declined to exercise its ROFR but did withhold consent to the disposition on the grounds that Wiser “had no technical capability or intent to pursue thermal or other enhanced recovery” (at para 52; see also para 167). PCR proceeded to execute the ARO. Wiser protected itself through an indemnity agreement with PCR. Wiser was never novated into the AEA and related agreements. Wiser commenced the operations contemplated by the ARO and earned its interest. Wiser never informed or consulted IFP as to the nature of those operations. Canadian Forest acquired Wiser’s interests in 2004. All of the operations conducted by Wiser and Canadian Forest were primary production operations; none involved enhanced or thermal recovery.
On the basis of these facts IFP alleged that the Wiser farmout (the ARO) was a breach of contract and sought damages. PCP took the view that IFP had unreasonably withheld its consent to the proposed agreement.
What property interest did IFP acquire?
I think that there are two possible interpretations of what IFP acquired. One interpretation (which I will refer to as the property-limited-by-contract interpretation) is that IFP acquired an undivided interest as a tenant in common of the relevant Crown leases and other assets (subject to some contractual limitations on its precise rights in relation to those assets). A second interpretation (which I will refer to as the property interpretation) would hold that IFP acquired something in the nature of a working interest in production from the lands resulting from thermal or other enhanced recovery techniques. There are pros and cons to each of these interpretations.
The principal argument in favour of the property-limited-by-contract interpretation is that that it is the natural interpretation of the granting words used in the dominant agreement, the AEA. It also has the advantage that it accords IFP a legally coherent and cognizable interest in the property. We know what the basic rights of a tenant in common are. The contrary argument is that this classification does not seem to be consistent with the overall intentions of the parties which suggested that IFP’s rights prima facie did not extend to primary production. But the best way to respect that intention is to conclude that the property rights of IFO as a tenant in common were limited by the terms of the other contractual arrangements between them, including the key provision in the JOA referred to above.
The principal argument in favour of the property interpretation is that it delivers a result that seems to comport with the overall result intended by the parties reading all of the agreements together and the commercial context for those agreements. The principal knock against this interpretation is that it fails to respect the dominant conveyancing language of the AEA and as a result delivers an interest which is unrecognizable in terms of property law. It is one thing to have an undivided interest which is confined to a particular formation or formations; or to have an undivided interest in a particular substance; but we create a whole new layer of complexity when we admit of the possibility that ownership of an interest in land varies with the nature of production from those lands. Not only is this complex but it seems to be inconsistent with the royalty-as-interest-in-land cases culminating in Bank of Montreal v Dynex Petroleum Ltd, 2002 SCC 7. If an interest in the proceeds of production cannot give an interest in land how can a party have a tenancy in common (not just any old interest in land, but an undivided interest) in a Crown lease that is contingent on the mode of production of the leased substances?
How was this issue resolved here? Chief Justice Wittmann seems to suggest that both the plaintiff and the defendant adopted some version of the property-limited-by-contract approach but the Chief Justice himself preferred some version of the property approach:
 I find that IFP’s working interest pursuant to these agreements has always been limited to thermal and other enhanced recovery methods. I find the AEA did not grant broad rights that were subsequently reduced or modified by the JOA, as assumed by both the Plaintiff and the Defendants. The AEA does not define the term working interest. The Preamble to the AEA states, however, that the ownership of working interests is subject to and in accordance with the terms and conditions of the JOA. Furthermore, the JOA is incorporated by reference into the AEA as though it were contained in the body of the AEA. As such, the definition of working interest in the JOA is incorporated by reference into the AEA.
See also para 194 where the Chief Justice comments further on the relationship that the parties have created.
But whatever interpretation is adopted it is still necessary to work through the applicability of the operating procedure to primary production. We don’t have the complete story from the judgement and in particular we do not know the full extent to which the parties modified the CAPL 1990 form, but one would anticipate that significant changes would be required to make it work in these circumstances. Consider, however, what we do know. We know (see para 54) that Wiser carried out operations on the lands once it had acquired its interest in the property and we know that it did not inform IFP about those operations. We can infer from this that Wiser was not in the habit of sending IFP AFE (authorizations for expenditure) notices (which passes without comment in the judgement). Yet on the other hand the Court and the parties assume the applicability of the independent operations clause (modified as discussed at paras 105-107) with the result that Chief Justice Wittmann concludes that IFP might have been able to trigger the clause – although as a matter of practice it lacked both the capital and the operational expertise to be able to do so (at para 197). But even aside from this practical problem facing IFP, it would be extremely difficult legally for IFP to propose an effective independent operation where there were already licensed wells for the relevant drilling spacing units.
The complexities of determining the applicability of various clauses of the CAPL procedure (absent an express statement as to (in)applicability) seem legion. What about the applicability of the CAPL provisions dealing with access to information? Was IFP entitled to information about primary production from the lands (referred to at para 176)? What about Article XI dealing with the surrender of joint lands (referred to at para 221)?
The difficulties were also evident with respect to Article 24, the ROFR/consent provision of the procedure. Given Chief Justice Wittmann’s conclusions as to just what it was that IFP had obtained (i.e. a working interest in only thermal and enhanced production) there was a certain logic to PCR’s position (at para 140) that the transfer to Wiser should not trigger Article 24 since Wiser was only interested in primary production. The difficulty with that argument however was that whatever Wiser’s intentions with respect to what it would produce (and how), Wiser was clearly acquiring PCR’s entire interest in the property. Thus Chief Justice Wittmann is surely correct in concluding (at paras 141-145) that the Wiser transaction did trigger Article 24. The question would have been more difficult had PCP retained its rights to thermal and enhanced production.
What is the test for determining whether a working interest owner has reasonable grounds for refusing consent to an assignment of shared interest lands under the 1990 CAPL Operating Procedure?
The ROFR provision of the 1990 CAPL afford each working interest owner (WIO) two independent rights: the ROFR right itself and the right to refuse consent to the proposed transfer even where the WIO will not exercise the ROFR.
2401B(e) In the event that the working interest described in the disposition notice is not disposed of to one or more of the offerees pursuant to the preceding Subclause, the disposition to the proposed assignee shall be subject to the consent of the offerees. Such consent shall not be unreasonably withheld, and it shall be reasonable for an offeree to withhold its consent to the disposition if it reasonably believes that the disposition would be likely to have a material adverse effect on it, its working interest or operations to be conducted hereunder, including, without limiting the generality of all or any part of the foregoing, a reasonable belief that the proposed assignee does not have the financial capability to meet prospective obligations arising out of this Operating Procedure. …
(Emphasis is CJ Wittmann’s)
This gives rise to two questions. The first is really a methodological question – how should the Court go about analyzing such a question. And the second is that of how to apply the preferred approach to the facts at hand. As for the methodology, both counsel and the Court (at para 152) decided to rely on case law dealing with the unreasonable withholding of consent in the context of the landlord and tenant relationship. There might be some doubts as to the applicability of this body of law in this setting and thus it is useful to have the Court affirm its relevance. From this body of law the Chief Justice derived the following principles:
 The burden of proof is on the party asserting consent was unreasonably withheld: Sundance Investment Corporation Ltd v Richfield Properties Limited (1983), 41 AR 231 at para. 23 (CA).
 The party whose consent is required is entitled to base its decision on its own interests alone: Community Drug Marts P & S Inc, Estate of v William Schwartz, Construction Co Ltd, 31 AR 466 at para 41, (QB), aff’d  AJ No 537.
 Whether a person has acted reasonably in withholding consent depends on all the factual circumstances: Exxonmobil Canada Energy v Novagas Canada Ltd, 2002 ABQB 455 at para 49. The question is not whether a reasonable person might have given consent, but whether a reasonable person could have withheld consent in the circumstances: 1455202 Ontario Inc v Welbow Holdings Ltd,  OJ No 1785 at para 9 (ONSC) (“Welbow”). In Exxonmobil, Park J reviewed the evidence on an objective basis to determine whether in the circumstances a reasonable person would have refused to consent to the assignment.
 A party must not refuse consent where such refusal is calculated to achieve a collateral purpose, or benefit, not contemplated by the original contract: Welbow at para 9.
 Proceeding with an assignment in the face of a reasonable refusal to consent is a clear breach of a negative covenant: Exxonmobil at para 51.
 The court should not defer to the party withholding consent, but must assess the reasons for withholding consent and consider whether a reasonable person in similar circumstances would have made the same decision. The court should consider the purpose of the consent clause and the meaning and benefit it was intended to confer.
Notably absent from this list is any reference to the venerable decision of the English Court of Appeal in Houlder Brothers v Gibbs,  1 Ch 575, which stands for the proposition that a lessor will be able to withhold consent on grounds related to the personality of the proposed assignee or the use and occupation that the proposed assignee will make of the leased premises. Admittedly it is very difficult to reconcile Houlder Brothers with the majority decision of Alberta’s Court of Appeal in Sundance, but recall that in Sundance the majority was clearly of the view that a lessor had good grounds to object to any assignment that prejudiced the lessor’s financial interest. I have never been very persuaded by that approach and much prefer Justice Harradance’s dissenting judgement but in this case both Houlder and the majority judgement in Sundance seemed to offer some comfort to IFP.
Indeed, if one looks simply to the outcome of the transfer in this case it look like a case in which IFP should be able to withhold consent. After all, if IFP failed to forestall the transfer it was going to be forced into a joint venture with a party that had the announced interest of exploiting the property exclusively for its primary production potential. Not only would that exclude IFP from the opportunity to take its 20% share of production, it would also prejudice the economics and perhaps physical feasibility of future enhanced or thermal recovery operations at the site. But for Chief Justice Wittmann this was an oversimplification. He concluded that IFP’s withholding of consent was unreasonable.
Ultimately I think that the principal reason for this conclusion is that as a matter of law IFP is no worse off after the Wiser transaction than it was before the transaction. This is because PCR was under no legal obligation to develop the thermal and enhanced recovery potential of the lands. IFP had failed to contract for that obligation. One may question how consistent this is with the landlord and tenant cases which I think clearly allow the landlord to use the right to withhold consent as a means of ensuring that the property is not used for certain purposes even though the landlord had not specifically contracted against those uses in the lease: Houlder Brothers and Sundance both support that proposition.
Perhaps more convincing is Chief Justice Wittmann’s overall assessment of (un)reasonableness in light of the dire circumstances facing PCR (and therefore ultimately IFP itself). Essentially PCR was sitting on a dying property in the form of a set of leases (although PCR did hold the freehold mineral title to some of the lands) that were going to expire or be cancelled unless somebody did some work on the property (and PCR certainly had no obligation to do that). Seen in this light the transfer to Wiser was a means of saving the properties and saving IFP’s interest in those properties even if it might have prejudiced the adoption of thermal and enhanced recovery in the future. In other words, better the chance of the continuing possibility of future thermal and enhanced recovery (however remote) than the inevitable (and relatively immediate) loss of the properties. But if one takes this broad view of reasonableness then it might also be necessary to consider the extent to which the dire circumstances in which PCR found itself were inevitable or whether they were of PCR’s own making.
What is the legal position where a working interest purports to withhold consent and the Court subsequently determines that the withholding of consent was unreasonable?
If a tenant assigns a lease in breach of the covenant not to assign or sublet without the landlord’s consent (such consent not to be unreasonably withheld) the assignment or sublease is not invalid or void but the tenant is in breach of its covenant and the landlord will typically have reserved a right of re-entry for breach. Similarly, if the landlord withholds consent and the tenant believes the withholding to be unreasonable the tenant may elect to proceed knowing that if it can establish that the landlord’s behavior is unreasonable it will not be in breach of its covenant. This is a high risk course of action since in the case of a lease the penalty for being wrong may be the loss of the lease. As a result, the assignee may well, as here, demand an indemnity. High risk it may be but it is a more expeditious way of proceeding than the alternative which is to apply for a declaration as to the unreasonableness of any withholding of consent (and note that under the CAPL the arbitration provisions of Article 24 apply to valuation issues in package deals; they do not apply to the consent issue).
The issue is a bit more complicated in the context of CAPL because of the novation provisions of the agreement – modified in this case and universally by the terms of the CAPL Assignment Procedure. These provisions are designed to provide for deemed novation in certain circumstances but the provisions can only be triggered if the parties are in compliance with the consent provisions.
In this case Chief Justice Wittmann concluded that the logic of all of this was applicable to the joint operating context and thus: (1) PCR was not in breach of the covenant not to assign without consent because consent was withheld unreasonably, (2) the deemed novation provisions were not precluded from applying by the absence of consent, and (3) therefore Wiser had been novated into the relevant agreements.
The reader may be wondering where this argument was going and who was on what side of it. The issue had been raised by IFP. IFP wanted to argue that if Wiser had not been novated into the JOA the provisions in the JOA that limited IFP’s interest to an interest in thermal or enhanced recovery could not be enforced against IFP – IFP could then be taken to have an unqualified 20% undivided interest in the property. And on that basis IFP sought an accounting of its share of production relying on the Statute of Anne, 4 Anne c 16, s 27 (UK). Chief Justice Wittmann concluded (at paras 402- 403) that his earlier findings as to the limited nature of IFP’s interest and his conclusion on the novation argument just referred to were a complete answer to the claim for an accounting.
Did the development of the property through primary production techniques substantially nullify the benefit for which IFP (B) had bargained so as to amount to a breach of contract?
It seems to me that Chief Justice Wittmann dealt with this issue in two parts of his judgement, first at paras 199-212 under the heading “4. What is the relevance of the reasonable expectations of the parties?’ and then later at paras 220-270 under the heading “6. Has the opportunity to pursue a thermal or other enhanced recovery project at Eyehill Creek been destroyed or damaged?” In framing the issue in terms of substantial nullification rather than adopting the Chief Justice’s headings I am drawing on Justice Kerans’ judgement in the Court of Appeal in Mesa Operating Ltd Partnership v Amoco Resources (1994), 149 AR 187 (which the Chief Justice refers to at paras 199-201). I think that the Mesa case and the substantial nullification test referred to in that decision provide an appropriate umbrella for the consideration of these two headings in part because there is no discussion of any applicable law under heading (6) in the chief justice’s judgement. Thus it seems best to bring the “destroyed or damaged” framing of heading (6) under the Mesa umbrella.
In Mesa, Mesa held a GOR in half a section of lands and argued that Amoco breached its contractual obligations to Mesa when it carried out an administrative pooling of its lands on an acreage basis rather than on a reserves basis thereby effectively diluting Mesa’s royalty entitlement. Amoco had the power to pool under the terms of the GOR agreement and thus the question was whether it had abused its discretion in the manner in which it went about exercising that power. The Court of Appeal concluded that this was a case in which pooling should have taken place on a reserves basis largely because it was able to say, considering the traditions and practices of the industry, that it was well established that “an operator pools on a reserves basis if the geographical data clearly shows the boundaries of the reservoir, and those boundaries are significantly at variance with the size of the corresponding surface parcels …”. Given the unusual nature of the split rights in this case it was clearly going to be difficult for IFP to establish an analogous body of practice to support its contentions in this case.
Chief Justice Wittmann concluded that IFP could not make out its case under either of these two headings. IFP had not bargained for a prohibition on primary production (at para 212) (and thus that benefit was not in the contemplation of both parties and had not been nullified) and while there was much evidence that it would be more difficult and more expensive to introduce a thermal or enhanced recovery operation into a field that had been drilled out and depleted through conventional recovery measures and conventional cementing jobs, such an operation would not be impossible (at paras 267 – 268). In so concluding the Chief Justice establishes that Mesa sets a very high threshold. The application of the test does seem justified in this case because the parties clearly contemplated some continuing primary production, and, as the Court notes at para 195, given that, some level of conflict between those who own all the rights and those who only own some rights (the right to enhanced or thermal production) is inevitable.
Assuming that there was a breach of contract how should damages be assessed?
Although Chief Justice Wittmann concluded that PCR was not liable to IFP he did go on and consider whether IFP had been able to establish that it had suffered any damages. The Chief Justice posed three questions: (1) Was the claim of lost opportunity to develop the thermal and enhanced recovery potential of the property real or fanciful? (2) If real what was the value of the opportunity? (3) What was the likelihood that IFP would have been able to realize this opportunity and what discounting factor should be applied?
Chief Justice Wittmann concluded (at paras 284- 285) that the claim of lost opportunity was not merely fanciful. PCR disposed of the Eyehill Creek property for strategic reasons not because it believed that that the property had no potential for thermal development. He was less sympathetic to the plaintiff on the other two questions concluding (at para 364) that the plaintiff had been unable to establish any value for its lost opportunity and concluding further that there was zero chance that PCR would have initiated a thermal recovery operation in the absence of a farmout because of the poor economics and IFP would have been unable to initiate such an operation itself. I have not dug too deeply into these sections of the judgement but they seem very much to emphasise the economics of a thermal recovery project based upon oil prices at the time of the farmout. The rationale for focusing on the price environment at that time is that PCR would not have been able to hold on to the properties (see paras 377-378) and wait for prices to improve.
Assuming liability should any claim for damages be capped by a contractual agreement between the parties?
Article 9 of the AEA provided that in no event should PCR’s liability to IFP exceed the value of the PCR assets. The parties assigned a value of $16 million to those assets; IFP’s claim for damages was for $45 million. Chief Justice Wittmann commented as follows:
 On its face, a limitation of damages clause is legitimate and enforceable. IFP and PCR are sophisticated business entities who negotiated the AEA with the assistance of legal counsel. There is no indication of unconscionability or oppression at the time the contract was negotiated. There are also no public policy reasons to ignore the limitation clause.
…. Given the language of the contract, IFP’s claim for $45 million in damages was untenable.
Such limitation of damages clauses are common in purchase and sale agreements for oil and gas properties and confirmation of their enforceability will be welcomed.
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