Key Takeaways From 2022 Appellate Decisions

This year’s edition of our annual summary of key appellate decisions from the past year addresses a broad range of topics of interest.

Assessing Proximity in Whether a Bank Owes a Duty of Care for Economic Losses

McDonald v. Toronto-Dominion Bank, 2022 ONCA 788 arises from the second largest Ponzi scheme in history perpetrated by the principal of Stanford International Bank (“SIB”). TD acted as SIB’s primary U.S. dollar correspondent bank responsible for receiving funds and disbursing funds to purchasers of SIB’s certificates of deposit. TD’s services were critical to SIB’s operations. 

SIB’s Joint Liquidators sued TD for the billions of dollars lost alleging that TD was negligent in its provision of service. The trial judge dismissed the claim, finding insufficient proximity to impose a duty of care on TD to SIB’s customers. The Court of Appeal dismissed the Liquidators’ appeal. 

At the proximity stage of the duty of care analysis, the overarching question is whether the parties are in such a close and direct relationship that it would be just and fair having regard to that relationship to impose a duty of care in law. In cases involving pure economic loss arising from negligent performance of services, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reliance.

The Liquidators submitted that, conducted properly, a full proximity analysis confirms that there was a relationship of proximity between TD and SIB because TD undertook to provide correspondent bank services and SIB had the right to rely on TD to do so with reasonable care. The Court of Appeal found it “simply not believable” that SIB detrimentally relied on TD to effectively protect SIB from itself. The Court of Appeal held that monitoring SIB’s internal operations so as to protect SIB from internal abuse fell outside the scope of the proximate relationship and therefore outside TD’s duty of care. It agreed to provide correspondent banking services; it did not assume the role of a regulator, auditor or insurer.

Whether a relationship fits within an established or analogous category goes beyond the identity of the parties. It also requires considering the scope of activity. Merely because particular factors will support a finding of proximity and recognition of a duty within one aspect of a relationship does not mean a duty will apply to all aspects of that relationship and for all purposes and to compensate for all forms of loss. Accordingly, the Court of Appeal held that to find a relationship of proximity, a more particularized approach is required, and the mere fact that proximity has been recognized as existing in a bank-customer relationship for one purpose is insufficient to conclude that proximity exists between the same parties for all purposes. 

The Court rejected that there exists an all-encompassing category of proximity between banks and their customers in relation to “banking services.” To accept such a broad category would be to ignore that banks undertake an extremely broad range of different activities for very different purposes. In other words, to define the relationship of proximity as simply that of a “bank-customer” relationship ignores the reality that banks and their customers are not engaged in a one-size-fits-all relationship.

Relative to prior cases finding banks to owe duties to their customers in carrying out activities, the Court of Appeal agreed with the trial judge that none went so far as to establish that a bank has a proximate relationship with a client that extends to monitoring the client for the purpose of detecting internal fraud. It distinguished cases that suggest that a bank may be liable to a customer where the bank fails to question suspicious banking transactions, as there was no allegation against TD that there were any suspicious banking transactions and the trial judge found that there was no reason to suspect fraud.

Regulatory 'Best Interest' Obligation Does Not Mean Fiduciary Duty

In Boal v. International Capital Management Inc., 2022 ONSC 1280, the majority of the Ontario Divisional Court upheld the dismissal of a certification motion brought against the plaintiff’s investment advisors and mutual fund dealer for allegedly breaching their fiduciary duty. The plaintiff’s allegation was premised on the advisors’ failure to disclose a commission they received on an investment recommended to the plaintiff. The plaintiff’s claim hinged on whether investment advisors could have an “ad hoc” fiduciary relationship with the putative class members based on their professional duties under the rules and obligations outlined in the Mutual Fund Dealers Association rules and by-laws and the Financial Planners Council Code of Ethics, including the obligation to exercise business judgment in the “best interest of the client” in respect of any conflict of interest that may arise.

In a split 2-1 ruling, the majority of the Court stated that an ad hoc fiduciary relationship could not be established solely on the basis of professional rules or ethical codes. Instead, the existence of a fiduciary relationship for investment advisors must be assessed in reference to the multitude of factors set out by the Ontario Court of Appeal in Hunt v. TD Securities on a case-by-case basis. Those factors include considering the vulnerability of the client, the degree of trust and confidence between the client and advisor, history of relying on the advisor’s advice and the extent to which the advisor has power or discretion over the client’s account.

While a factor in considering the nature of the relationship is also the professional rules or codes of conduct in helping a court establish the duties of the advisor and the standards to which the advisor will be held, the majority found that the approach of the dissenting judge incorrectly turned one factor – professional rules and ethics codes – into the sole factor in determining whether a fiduciary duty exists. The majority commented that “the regulatory best interests standard is not an unqualified common law fiduciary standard.” It noted that adopting a “one-size-fits-all” duty would cast the net too wide and ignore the multi-factor analysis that is required at common law. The goal of imposing fiduciary duties is to protect particular relationships based on dependency and vulnerability and entailing high trust and confidence. Obligations under professional rules of good faith, care, confidentiality and disclosure apply to a variety of non-fiduciary relationships as well. There are other legal concepts, like tort and unjust enrichment to protect against the conduct alleged, albeit not on a class but an individual basis. Accordingly, the dismissal of the certification motion was upheld.

Are Arbitration Clauses Enforceable Against a Bankruptcy Trustee?

The Supreme Court of Canada in Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 (“Peace River Hydro Partners”) clarified whether and in what circumstances a contractual agreement to arbitrate should give way to the public interest in an orderly and efficient resolution of a court‑ordered receivership under the Bankruptcy and Insolvency Act (“BIA”). The BIA authorizes courts to do what practicality demands in the context of a receivership, and the single proceeding model favours the enforcement of stakeholder rights through a centralized judicial process for an equitable and orderly resolution of insolvency disputes.

Nevertheless, the Supreme Court commented that “courts should generally hold parties to their agreements to arbitrate, even if one of them has become insolvent,” as arbitration law and insolvency law both place an emphasis on efficiency and expediency, procedural flexibility and expert decision-making. This presumption may be disregarded, and an arbitration clause held to be inoperative where the clause would “compromise the orderly and efficient resolution of a receivership.” Among the non-exhaustive list of factors that may be considered by a court include: (a) the effect of arbitration on the integrity of the insolvency proceedings which are intended to minimize economic prejudice to creditors; (b) the relative prejudice to the parties from the referral of the dispute to arbitration; (c) the urgency of resolving the dispute; and (d) the effect of a stay of the insolvency and bankruptcy proceedings.

In Peace River Hydro Partners, the parties had entered into multiple agreements for the design and construction of a major dam and hydroelectric generating station. Each agreement provided for different arbitration procedures. After Petrowest entered receivership pursuant to the BIA, the Receiver brought a civil claim against Peace River to collect funds allegedly owed to Petrowest for performance of work under the agreements. Peace River responded by applying for a stay of proceeding pursuant to B.C.’s Arbitration Act.

The Supreme Court approached the stay issue using a two-part framework that is implicit in provincial arbitration legislation: (1) whether the applicant seeking a stay has established an “arguable case” that the technical prerequisites to a stay exist¹ and (2) whether statutory exceptions to a mandatory stay of court proceedings apply.

On the first issue, the Court rejected that the Receiver was not a party under the arbitration agreement because it is distinct from the debtor and that a receiver can unilaterally disclaim a debtor’s pre-existing arbitration agreement by filing a civil proceeding. 

As to the second issue, the Supreme Court cited the Receiver’s evidence that: (i) the Receiver would need to participate in and fund at least four different arbitrations involving seven different sets of counterparties; (ii) some of the claims involve entities not subject to any of the arbitration agreements and these claims may have to be determined by a court in parallel with the arbitral proceedings; and (iii) the facts and arguments would have to be repeated in different forums before different triers of fact and thereby give rise to a risk of conflicting outcomes and piecemeal decisions. Under those circumstances, the significant costs and delay inherent in multiple proceedings compared to a single proceeding strongly favoured finding that the enforcement of the arbitration agreements would compromise the objects of the BIA. There was no prejudice to Peace River if the arbitration agreements were not enforced and proceeding through the court was the more expeditious option of resolving the disputes.

While the Court in this instance declined to stay the civil proceeding, the decision’s significance lies in seeing arbitration and insolvency proceedings sharing common beneficial attributes and departing from the single proceeding model as trumping arbitration clauses, as reflected in the Ontario Court of Appeal’s decision in Mundo Media Ltd. (Re), 2022 ONCA 607, which preceded the Supreme Court’s decision in Peace River Hydro Partners. The Supreme Court’s decision holds that an arbitration should be afforded the usual precedence, unless it can be shown that arbitration would compromise the orderly and efficient resolution of a receivership.

When an Agreement Is Not an Agreement

Concord Pacific Acquisitions Inc. v. Oei, 2022 BCCA 16 is a reminder that whether an enforceable agreement exists requires not only that the parties have objectively intended to enter into a contractual relationship but also that the parties have reached agreement on essential terms that is sufficiently certain to enforce. A majority of the Court of Appeal was not prepared to interfere with the trial judge’s finding of fact that essential terms were not agreed upon to enforce an agreement.

The case arose out of discussions between the parties to develop a large waterfront property in Vancouver that covered 13 acres and contemplated a multi-year, billion-dollar, high density, mixed-use development. Concord (real estate developer) entered into a two-page agreement (“Heads Agreement”) that addressed its purchase of a 50 per cent interest in HK Expo (which indirectly owns the land) from Oei (HK Expo’s Chair), as well as the intended joint development of the lands by the parties. As the parties engaged in further discussions relating to development plans, disagreements ensued. HK Expo terminated the Heads Agreement and Concord sued, asserting the Heads Agreement was an enforceable agreement.

Concord argued that the Heads Agreement set out the terms relating a share purchase for a potential land development and was made by sophisticated businesspeople who chose to make an initial binding agreement in what was to be a long-term business relationship. It contended that they each knew they would have to make incremental future agreements to create the development contemplated in the Heads Agreement, and they deliberately chose to start with a short, binding initial agreement.

The trial judge was satisfied that both parties believed when they signed the Heads Agreement they had entered into a binding contract. However, the trial judge found that the transaction went beyond the sale of shares but was tied to the joint development of the lands. The $500-million share price was contingent on other issues, including treatment of future capital gains tax and the fee Concord would be paid under service contracts for development, construction and marketing of the project. The outcome of these issues could have a potential value or cost to one or the other of the parties of almost $300 million.

The majority of the Court of Appeal held the trial judge’s factual findings were unassailable from a standard of review. It further rejected the argument that the trial judge was substituting a self‑styled business acumen for that of experienced businesspeople. Rather, the trial judge’s findings were found to be rooted in the evidence of what these experienced businesspeople had identified and demonstrated was of fundamental importance to them. For example, the trial judge found that Concord would not have agreed to the Heads Agreement if it could not do the work under the Service Contracts.

The dissenting opinion instead agreed with Concord’s submission that the trial judge failed to properly recognize that the purpose of the Heads Agreement was to set out the terms for Concord’s purchase of 50 per cent of HK Expo. The essential terms the trial judge found to be missing from the Heads Agreement related to the specific future development to be addressed in future agreements and went beyond the purpose of the Heads Agreement. The dissent noted that the parties were sophisticated, experienced businesspeople who intentionally entered into an agreement that was narrow, involved financial risks and was designed to be the first of many agreements in what was a large-scale development. In the dissenting judge’s opinion, the majority decision could frustrate complex deals by creating uncertainty where parties working on complex, multi-billion-dollar, multi-year deals start with a narrow contract that contemplates future incremental contracts.

Leave to appeal to the Supreme Court of Canada was denied.

Restricting the Application of the Tort of Intrusion Upon Seclusion for Cyber Hacks

Litigation following privacy breaches are common. However, the tort of intrusion upon seclusion was held by the Ontario Court of Appeal to not be available against those who have been hacked by an unrelated third party. A trilogy of decisions involves separate companies that managed and stored personal information and suffered a data breach by unidentified third-party hackers.²

An element of the tort of “intrusion upon seclusion” includes a conduct requirement – namely that the defendant must have invaded, or intruded, upon the plaintiff’s private affairs or concerns, without lawful excuse. The Court rejected that a defendant’s alleged recklessness in protecting the personal information of the plaintiffs satisfied this conduct requirement. The defendants’ alleged failure to meet their obligations to protect the plaintiffs’ privacy interests was not the conduct that amounts to an invasion of privacy.

The Court further rejected that it was appropriate to hold corporate defendants handling and storing third-party personal information vicariously liable for the conduct of other third-party hackers. It held that to impose liability in such circumstances would create too broad a basis for finding liability for an intentional tort and cited the analogy of a garage operator who leaves the keys in a vehicle, entrusted to his care, depicted as a thief if a stranger stole the car from the garage.

Negligence cannot be transformed into an intentional tort. The plaintiffs can have a remedy against the defendants for breaches of an obligation at tort, under contract or under statute, to protect the private information stored by a defendant from access by third-party hackers causing economic harm to the plaintiffs. But not for intrusion upon seclusion.

In precluding a claim for intrusion upon seclusion, “database” defendants still face liability for negligence, which requires a plaintiff to establish a pecuniary loss, or breach of contract. By contrast, intrusion upon seclusion allows for an award of “moral damages” without the requirement for the plaintiff to have suffered a pecuniary loss. Accordingly, if intrusion upon seclusion had been found to be an available cause of action in these circumstances, it would have expanded the range of liability for businesses storing personal information.

Instead, the Court of Appeal reasoned that to award “moral damages” against a defendant whose database has been hacked by third parties, because of the defendant’s negligence or breach of contract, is contrary to the purposes underlying an award of moral damages. Moral damages are awarded to vindicate the rights infringed, and in recognition of the intentional harm caused by the defendant. According to the Court, these purposes are served only if the damages are awarded against the actual wrongdoer, who is the entity that invaded the privacy of the plaintiff.

Reliability of Information as a Factor in Assessing Materiality for Disclosure

An Ontario Court of Appeal decision from this past year, Wong v. Pretium Resources Inc., 2022 ONCA 549, settles that the reliability of information can be a relevant consideration when a public issuer assesses whether information is “material” and needs to be disclosed for the purposes of claims of misrepresentation pursuant to the civil liability provisions under Ontario’s Securities Act (“OSA”). 

Pretium Resources (“Pretium”) is a mineral exploration company and a reporting issuer. It publicly disclosed the results of a feasibility study for its Brucejack mining project, based on a resource estimate. Strathcona Mineral Services Ltd. (“Strathcona”) was hired to oversee and report on a bulk sample program to test and verify the accuracy of a resource estimate. Pretium publicly announced its plan to conduct the bulk sample program and its retention of Strathcona. In the months that followed, a disagreement arose between Pretium and Strathcona about the accuracy and reliability of the resource estimate. Strathcona urged Pretium to make certain disclosures. Pretium disagreed, countering that Strathcona’s concerns were premature and that the disclosures proposed by Strathcona would be inappropriate as the bulk sample work was not completed. Pretium continued during the period of disagreement to report ongoing results form the bulk sample program and the progress of that program and reiterated that Strathcona’s report was expected later in the year, after compilation of all data.

Eventually Strathcona resigned and, on October 9, 2013, Pretium announced Strathcona’s resignation. On October 22, 2013, Pretium issued a further news press providing a detailed summary of the reasons provided by Strathcona for its withdrawal, setting out its own views. Over the next several days, Pretium’s share price fell by half. Two months later, Pretium released the final results from the bulk sample program which confirmed the validity of the resource estimate. The Brucejack mine entered commercial production in 2017.

A class action commenced asserting misrepresentation in respect of alleged omissions to disclose material facts in Pretium’s disclosures during the period Strathcona had expressed its concerns and in announcing its resignation on October 9^th. The action was certified on consent, and cross-motions for summary judgment were argued in 2020 resulting in the class action being dismissed. The motion judge found the plaintiff failed to prove that Pretium’s failure to disclose Strathcona’s concerns was an omission of a material fact constituting a misrepresentation.

Among the motion judge’s findings were: (1) given the unique mineralization, the only true test of the resource estimate was milling the entire sample; (2) Strathcona’s opinions were unsolicited because another qualified person was to interpret the bulk sample plan results once the entire bulk sample was completed and, if necessary, to adjust the resource estimate; (3) Strathcona’s opinions were inexpert because the approach it adopted assumed uniform mineralization, whereas Brucejack is not characterized by uniform or linear deposits, and Strathcona’s experience preparing mineral resource estimates appeared to be limited to techniques that had been shown to underestimate the Brucejack resource; (4) Strathcona’s opinion was premature because Pretium had repeatedly advised it to wait for the results from the bulk sample before making conclusions; (5) Strathcona’s opinions were unreliable because its views were based on sample results that were not necessarily representative, and the linear measurement resource estimation technique that Strathcona was using was inappropriate for a variable deposit like Brucejack, where most of the gold is highly concentrated; and (6) Pretium acted properly throughout in its handling of Strathcona’s concerns. 

Specifically, Pretium was clear in all public disclosures that the results of the bulk sample plan would not be disclosed until the bulk sample program had been completed and the final report submitted. Additionally, every time Strathcona expressed a concern, Pretium discussed the matter internally and referred it to the qualified person retained to interpret the plan results. The Pretium executives also vetted Strathcona’s concerns with the company’s disclosure committee and discussed them fully at two board meetings. The board concluded on both occasions that Strathcona’s opinions were incorrect, and that it would be misleading to disclose erroneous opinions.

On appeal, the class plaintiff argued that the motion judge erred in treating reliability as a factor in assessing materiality and that reliability of the information should play no role at all in whether those concerns needed to be disclosed so that the market could make up its own mind. The Court of Appeal disagreed and held reliability was a relevant consideration in this case. Specifically, in the present case, what was omitted was not an undisputed fact, but the expression of an opinion. The opinion was offered in the course of, and before completion of, the bulk sample program and not shared by Pretium or others. In determining the materiality of such an opinion to a reasonable investor, it was relevant to consider, among other things, its objective reliability.

The appellant, however, argued that as soon as Pretium chose to talk about Strathcona and the bulk sample plan in its news releases and other disclosures, it was required to disclose Strathcona’s concerns, so long as the concerns were not retracted. The appellant asserted that even if Strathcona’s concerns were not true or accurate, they were from a source that was already within the total mix of information. By remaining silent, the appellant argued that Pretium misrepresented that the bulk sample program was proceeding “business as usual.” Hence, in providing updates on the bulk sample program without disclosing adverse facts, Pretium’s disclosures were misleading.

The Court of Appeal disagreed. None of Pretium’s disclosures suggested that Strathcona was to analyze and report on the bulk sample based on partial results, that the resource estimate would be assessed before the milling of the entire bulk sample was completed, or that Strathcona was expected to opine on the resource estimate. From the outset, Pretium made clear in its public disclosures that the results of the bulk sample program would not be disclosed until the bulk sample had been milled and the final report submitted. The evidence was that the market had adopted, based on the disclosures, a “wait and see” approach. The appellant was unable to point to anything specific in the impugned disclosures that was misleading as a result of the failure to communicate Strathcona’s concerns. The circumstances at hand were different than if the company’s disclosures suggested to the market that Strathcona was expected to express its views on the resource estimate as its work on the bulk sample program progressed – in that situation, the failure to disclose Strathcona’s concerns would have constituted the omission of material information, irrespective of their reliability.

In rejecting the appellant’s position that Strathcona’s concerns should have been made so that investors could have decided what to do with the information, the Court of Appeal noted that securities legislation does not impose on issuers an obligation to disclose all facts that would permit an investor to sort out what was material and what was not. Such an approach was held to overwhelm investors with information and impair their ability to make decisions. Hence, the Court of Appeal found that disclosure of facts that the motion judge found to be objectively unreliable would not have benefitted the “reasonable investor” but would have led to the kind of mischief the OSA seeks to obviate.

The Court Appeal further rejected the appellant’s position that the motion judge’s decision amounted to allowing Pretium’s subjective views or business judgment to determine materiality. Pretium did not base its disclosure decision on the belief that further work on the bulk sample program would provide favourable results. Instead, Pretium believed that the results from the bulk sample program could only be accurate upon completion of the project. This was consistent with the contemporaneous evidence of the behaviour of institutional investors and the market adopting a “wait and see” approach. It may have been a “business as usual” message, but the failure to disclose Strathcona’s concerns did not render any prior statement by Pretium misleading.

Last, the appellant asserted that the fact that Pretium’s share price dropped precipitously after the October news releases confirms that Strathcona’s concerns must have been material. The Court of Appeal rejected this assertion as it would be reasoning backwards from a precipitous decline in the market value of the issuer’s shares to infer that the omitted information was material. The market response, while relevant to materiality, is not determinative. The onus was on the appellant to lead evidence of materiality. In this case, the appellant led no evidence to tie the decline in Pretium’s share price to disclosure of Strathcona’s concerns.

Application of SLAPP Legislation to Defamatory Statements on Social Media Posts

Actions for injurious falsehood and/or defamation risk an early dismissal motion under section 137.1 of Ontario’s Courts of Justice Act (“CJA”) where the proceeding arises from an expression made by the defendant that relates to a “matter of public interest.”³ Comments about businesses and their products are common on various social media sites. Two decisions from the past year underscore the highly factual nature of the essential question in these matters, namely: “Understood in its context, what is the expression really about?”⁴

In Echelon Environmental Inc. v. Glassdoor Inc., 2022 ONCA 391, the statement at issue was a publication of an anonymous critical workplace review on Glassdoor about an individual’s former employer. The Court upheld the lower’s court’s decision that online reviews concerning an individual’s complaints about factors such as a company’s pay, benefit levels, work environment and infrastructure constituted a “private dispute with no real impact on others” and thus was not a matter of public interest. The Court highlighted that whether expression relates to a matter of public interest is determined by consideration of the expression in question, not the topic of that expression. While the Court of Appeal noted that, in some cases, employee speech about workplace issues may well be a matter of public interest, every case must be considered on its own, and the burden is on the moving party to establish that its expression relates to a matter of public interest. As such, the fact that some courts have concluded that reviews of businesses by consumers are a matter of public interest⁵ was not determinative of the outcome in this case.

In Dent-X Canada v. Houde, 2022 ONCA 414, a defendant (who was unhappy with the plaintiff business’s delay in delivering face masks he had ordered) posted on Facebook a statement framed as seeking to locate persons for a class action suit while referred as being “defrauded” and a “fraudster” running the company, among other negative comments about Dent-X. Following the launch of a defamation action, the defendant moved under s. 137.1 of the CJA asserting his Facebook post was a matter of public interest as the statement was in part for the purpose of commencing a potential class action. The Court of Appeal commented that the defendant’s submission confuses an expression referring to a matter of public interest with an expression relating to a matter of public interest. Merely referring to something of public interest (such as a class action suit) is different from relating to a matter of public interest. In considering the posted statement, as a whole, the Court of Appeal did not see any basis to interfere with the motion judge’s conclusion that the statement was really in the nature of a private dispute with Dent-X.

Claims for Pure Economic Loss From an Environmental Spill

The Alberta Court of Appeal in Rieger v. Plains Midstream Canada ULC, 2022 ABCA 28 overturned certification of an action arising from the accidental release of crude oil from a pipeline into the Red Deer River which made its way to Gleniffer Lake, resulting in the closure of the river and lake for recreational use. A proposed class action was brought on behalf of a broad class for loss of use of the public waters and alleged diminution in the plaintiffs’ property values. The plaintiffs did not allege any physical damage to their property or any physical harm to them but merely claimed damages for economic loss.

The Court of Appeal found that physical proximity did not fit with any of the three recognized categories of sufficient proximity for pure economic loss and there was no relationship between the plaintiffs and defendant to establish a novel duty of care. The plaintiffs’ claim further failed to show the defendant’s conduct interfered with a legally cognizable right of the plaintiffs. Their loss of use of Gleniffer Lake was the loss of use of a public place, and their property was not physically damaged by the oil spill.

Calculating Limitation Periods

The general rule in Ontario is a party cannot sue another party after two years from the date that, among other things, the claim was “discovered” and that, having regard to the nature of the injury, loss or damage, a proceeding would be an “appropriate means” to seek to remedy it. This latter requirement was the subject matter of two decisions last year.

In Thermal Exchange Service Inc. v. Metropolitan Toronto Condominium Corporation No. 1289, 2022 ONCA 186, the question arose whether an action to collect unpaid invoices, in a “running account” that went as far back as 2008, were barred by the Limitations Act. Thermal Exchange serviced the HVAC units in the condominium corporation’s building. The trial judge found that Thermal Exchange was operating on the basis that the condominium corporation had one running account, and whenever funds were received, they were credited to that one account. From 2008 onward, Thermal Exchange would not send individual invoices but instead sent a single, semi-annual “batch” invoice. It believed that the condominium corporation paid the invoices out of its operating budget, and then sought reimbursement from the unit owners on whose behalf the work was done. In fact, the practice of the condominium corporation was to invoice the owner of the unit for which the work had been done. If the condominium corporation received payment from the unit owner, it would in turn pay Thermal Exchange; if it did not receive payment, it would not pay the invoice. Thermal Exchange first became aware of its mistaken understanding in November 2016 when the condominium’s property manager advised that the condominium corporation was not responsible for payment of the invoices. A statement of claim was filed in August 2017.

Before 2016, during several conversations about non-payment of invoices, the property manager told Thermal Exchange that she was “working on” the invoices, she was terribly busy and was unable to deal with the matter immediately. The trial judge found that the assurances that she was “working on it” led Thermal Exchange to the reasonable belief that its problem would be remedied without the need to commence a claim.

The Court of Appeal dismissed the condominium corporation’s appeal. The Court found that the condominium corporation created a barrier to Thermal Exchange receiving payment (it would not pay unless it first received payment from the unit owners and was not taking any steps to getting the unit owners to pay), prevented Thermal Exchange from understanding the nature of the problem, and led Thermal Exchange to believe that it would take care of the problem. With respect to the condominium corporation’s argument that it never promised unequivocally to pay the invoices (but was simply stringing Thermal Exchange along), it was significant that the case involved indebtedness incurred in the course of a running account. Within that context, the condominium corporation gave Thermal Exchange no reason to believe it was disputing the invoices. Instead, it conveyed that the delays were the result of other demands on the property manager’s time. In these circumstances, it was reasonable for a person in the position of Thermal to rely on the assurances of the property manager and hold off on commencing an action.

With respect to arbitration agreements subject to alternative dispute resolution terms before the commencement of the arbitration, in Maisonneuve v. Clark, 2022 ONCA 113, the Ontario Court of Appeal upheld the lower court’s decision that it was not evident that the arbitration was “appropriate” until it was clear that the dispute could not be resolved through negotiations. The issue arose in the context of a term in a release that provided that, “If the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution” [emphasis added]. The Court of Appeal found it was open to the application judge to have found that the use of the word “then” in the arbitration clause added a temporal component that made the clause “both temporal and condition.” In response to the challenge that the application judge’s decision based on simply the word “then” would lead to uncertainty with respect to the application of limitation periods to arbitration clauses because it will be difficult to ascertain when negotiations are at an end, the Court simply noted that it was open to the appellants to have let the respondents know at any time that no further negotiations would take place, triggering the start of the limitation period. Moreover, the Court added that parties are free to agree to arbitration clauses that are more specific about the steps and timing leading to arbitration. As such, an attempt at informal resolution was a prerequisite to arbitration. In reaching this conclusion, the application judge relied on the wording of the arbitration clause and the context of the negotiations leading up to the settlement.

Prerequisites to a Reverse Summary Judgment Order

A “reverse” summary judgment motion occurs when a judge grants summary judgment against the party that brings a motion for summary judgment. Reverse summary judgments may be granted even where a cross-motion for summary judgment has not been filed.

However, in Graham v. Toronto (City), 2022 ONCA 149, the Ontario Court of Appeal reiterated that, before a reverse summary judgment is granted, the motion judge must inform the impacted party of this risk. Otherwise, unfairness could result from the granting of an order against a responding party who never had the opportunity to make submissions on the issue. Consequently, the Court of Appeal laid out a number of guidelines to ensure that the process of “reverse" summary judgment motions remains fair to all parties:

• at the start of a motion hearing, the judge can inquire whether a reverse summary judgment will be sought;
• if, during the hearing, the judge forms the view that he or she might grant a reverse summary judgment, the judge should so inform the parties to allow them to respond; and
• if, during preparing reasons disposing of the motion, the presiding judge forms the view that granting a reverse summary judgment might be appropriate in the circumstances, the judge should so inform the parties and afford them an opportunity to make further submissions.

However, the Court of Appeal’s decision in Graham also suggests that the motion judge’s notice can be functional and not necessarily direct.

In this case, while preparing reasons, the motion judge emailed counsel and advised that she usually referred to “some well-established precedents” in her summary judgment decisions. She identified four decisions and pinpointed references to paragraphs in each. The motion judge further asked counsel to inform her if they wished to make submissions on the cases. Counsel advised that they did not. One of the cases identified that the paragraph cited by the motion judge was a prior decision holding that it is permissible for a motion judge to grant judgment in favour of the responding party, even in the absence of a cross-motion for such relief. Based on that, the Court of Appeal held that the motion judge’s email put counsel on notice that she was considering granting a reverse summary judgment, as there was no other plausible reason for the reference. As counsel were afforded the opportunity to make submissions, the Court of Appeal found no unfairness arising from the motion judge granting a reverse summary judgment.

Stay of Proceeding Remedy for Failing to Immediately Disclose Settlement Agreements

Last, although not giving rise to a new legal principle, it is impossible to exclude among our key takeaways from 2022 a principle that underlay seven separate Ontario Court of Appeal decisions⁶ last year. These appeals raised the scope and application of the rule from Handley Estate v. DTE Industries Limited, 2018 ONCA 324 that parties entering into agreements which entirely change the adversarial landscape of the litigation must immediately disclose the settlement agreement to the non-settling defendants. Among other things, these cases settle that the remedy is not discretionary and failure to have provided the required disclosure will result in an automatic stay of proceeding.

In Handley, the Court of Appeal settled that a plaintiff’s obligation to immediately disclose settlement agreements to non-settling defendants is not limited to pure Mary Carter⁷ or Pierringer⁸ agreements. Instead, the disclosure obligation also extends to any agreement between parties to a lawsuit that has the effect of changing the adversarial position of the parties into a co-operative one (e.g., the settling defendants agreeing to provide affidavits or other forms of evidence, subjecting themselves to cross-examination). In other words, the question to ascertain whether a settlement agreement triggers this disclosure requirement is whether the terms of the settlement alter the relationship between any of the parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation.

The 2022 decisions reinforce that the disclosure obligation is immediate and comprehensive. The application of the term “immediate disclosure” in a particular case will be fact-dependent, but it does not mean “eventually” or “when it is convenient.” For example, in Hamilton-Wentworth District School Board v. Zizek, more than three months passed and in Tallman Truck Centre Limited v. K.S.P. Holdings Inc., three weeks passed before the existence of the settlement agreement was disclosed to the appellant. Both situations constituted a failure to notify the appellant immediately.

Likewise, the disclosure obligation is not satisfied by simply providing notice that a settlement has been reached. Both the existence of the settlement and the essential terms of the settlement that have changed the landscape of the litigation must be disclosed to the other parties. If a non-settling defendant may have been aware of the existence of a settlement at some earlier point is of no assistance. It is not enough to simply notify the affected parties and the court that an agreement affecting the litigation landscape has been reached. How the litigation landscape has been changed must be part of what has been disclosed. Accordingly, while not every term of the agreement must have been disclosed, the elements of the settlement that change the litigation landscape must have been disclosed. The Court of Appeal’s decision in CHU de Québec-Université Laval v. Tree of Knowledge International Corp. reflects how this inquiry can be very fact-specific and satisfied even though a copy of the settlement agreement has not been immediately made available. In that case, the Court found that the essential terms had been disclosed within the text of an email sent a day after the settlement agreement was signed.

The fact the non-settling defendants had not yet pleaded in the action, or the settlement agreements are conditional, does not defer the obligation. As found in Hamilton-Wentworth District School Board v. Zizek, delay because the settling parties needed to seek direction from the court regarding the implementation of the settlement did not excuse failure to immediately advise the non-settling defendants of the agreement. Nor is it a requirement that the delayed disclosure of the agreement have been part of a sham or other egregious process which misleads the Court or non-settling parties as to the true position of the parties. Non-disclosure amounts to an abuse of process, and prejudice to the non-settling defendant is not a condition to the proceeding being stayed.

Confidentiality clauses in the agreements also do not excuse this disclosure requirement.If the plaintiff to a litigation agreement subject to a confidentiality obligation is unclear whether the agreement has the effect of changing the adversarial position of the contracting parties, thereby attracting the mandatory disclosure obligation, a plaintiff can move promptly for directions from the Court.

Aird & Berlis represents clients in all types of business disputes, and members of our advocacy team are recognized in various legal directories for their experience in corporate/commercial, securities and class action defence litigation. For an overview of our work for clients in these areas and more information about our advocates, see Commercial, Corporate & Securities Litigation (airdberlis.com) and Class Actions (airdberlis.com). Our review of key class action decisions from last year can now be accessed through the publications section of the Aird & Berlis website at Class Actions: Key Developments in 2022 (airdberlis.com).

[1] Namely, (a) an arbitration agreement exists; (b) court proceedings have been commenced by a “party” to the arbitration agreement; (c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and (d) the party applying for a stay does so before taking any “step” in the court proceedings.