As Chuang v. Toyota Canada Inc. dragged on for years, it presented Toyota’s legal team with an array of tactical and strategic challenges that had to be met head on
Counsel are accustomed to dealing with history. So the fact that the events giving rise to Chuang v. Toyota Canada Inc. stretched back more than 11 years from the outset of trial in October 2013 didn’t faze Tim Pinos of Cassels Brock & Blackwell LLP in Toronto, who represented the defendant Toyota. At the counsel table with him were his colleagues Ted Frankel and Colin Pendrith.
One could say that with 30 years at the Bar, not much could surprise Pinos, a commercial litigation veteran. But it’s more accurate to observe that each case is full of its own surprises. Even when counsel have encountered them previously, each surprise takes the shape of the rich and complex individual contexts that the civil justice process affords. What good counsel have is that surprises, whatever their magnitude or timing, aren’t necessarily setbacks or game-changers: they treat them as tremors, not earthquakes.
The surprises in this case weren’t all new to Pinos. But to varying degrees, they presented tactical and strategic decisions that could well affect the outcome.
As it turned out, Dr. Sylvester Chuang, the plaintiff, was a most wilful litigant: Fred Tayar and Colby Linthwaite of Fred Tayar & Associates Professional Corporation in Toronto were his third set of counsel. Tayar, who, like Pinos, boasted 30 years’ experience, had been preceded by Terrence O’Sullivan of Lax O’Sullivan Scott Lisus LLP and Nina Perfetto of Fogler, Rubinoff LLP in Toronto, who boast almost 70 years of trial experience between them.
A change of counsel frequently hearkens a change of perspective, a tactical shift, a new personal dynamic, some of the above or all of the above. Arguably, nowhere does this have more impact when the change occurs in the middle of a trial, which is precisely what happened here: the plaintiff’s two key witnesses had been examined and cross-examined over the course of a lengthy week when Perfetto withdrew. It was to be almost a year to the day before the trial got going again.
What remained constant, however, excising the necessity for a decision that is at the heart of every case: this was one that was not going to settle, no matter who acted as counsel.
“Quite apart from liability, the two sides were light years apart on the extent of the damages,” Pinos says.
A Long History
Chuang had owned and operated car dealerships since 1988. In 2002, he applied for a Lexus dealership from Toyota, which owned Lexus. Chuang’s application was declined, but about a year later when the successful applicant pulled out because of problems with the proposed site, the auto manufacturer turned to Chuang.
In April 2003, the parties approved a Letter of Commitment (LOC) by which Toyota agreed to enter into its standard form Lexus Dealer Agreement with a company to be incorporated by Chuang. The original agreement established a deadline of October 31, 2004 for the new dealership to open, but by December 2004, construction had not even begun. Nonetheless, Toyota agreed to amend the LOC to extend the deadline for opening to March 31, 2006.
The amended document gave Lexus the right to terminate the LOC “in its sole discretion” if the company “in its sole opinion acting reasonably,” determined that Chuang would not be able to meet certain other deadlines, including completing construction and being open for business as of March 31, 2006; and if certain events actually occurred, including the failure to meet the tendering and financing deadlines. The amended LOC also provided that “If the LOC is terminated,” Lexus was absolved from liability for expenses, losses or damages “of any kind whatsoever” incurred by Chuang “directly or indirectly, in connection with the LOC.”
By letter dated April 20, 2005, Lexus terminated the Letter of Commitment. The letter cited the failure to tender the project by the extended deadline of February 28, 2005; the failure to obtain a firm financing commitment by March 30, 2005, although acknowledging that Cheung had obtained financing in the interim; Lexus’s “view that it is unlikely that excavation and construction will commence now in a timely manner given that [the LOC provided that] tender closes on April 21, 2005”; and that the financing arranged by Chuang required him to “personally finance all cost overruns (which in our view are probably to occur) which may delay or jeopardize” the project’s completion.
“As a result of the foregoing, we have concluded that is unlikely that you will be able to meet some, if not all, of the other conditions set forth [in] the LOC,” the letter concluded. “Accordingly, having considered all of the facts surrounding this LOC, including but not limited to the foregoing … we have decided to terminate the LOC.”
At trial, Tayar and Linthwaite argued that Lexus breached the LOC by declaring it to be terminated without a lawful basis for doing so under the terms of the document; by reason of negligent misrepresentation; and by reason of bad faith.
More particularly, Chuang’s lawyers maintained that the document by its terms required Lexus to act reasonably both in determining whether Chuang would be able to meet certain deadlines and in deciding whether to terminate the agreement. They also alleged that Toyota had negligently misrepresented that it would act reasonably in the event of delay, and that Toyota had failed to act “reasonably, honestly and in good faith” by failing to state all the company’s reasons for terminating the LOC and by delaying communication of the decision to terminate for six days after it was taken.
Pinos’s team countered that the LOC required Lexus to act reasonably only with respect to determining whether Chuang would be unable to meet the specified deadlines; having made that determination reasonably, Lexus had the “sole discretion” to terminate the contract.
The alleged misrepresentations, the Cassels Brock team submitted to the court, were made with regard to future assurances as to how Lexus would act under the LOC; as such, they were not statements of fact and therefore did not support a claim for negligent misrepresentation.
In response to the bad faith argument, the company’s lawyers argued that the LOC did not require the company to state all its reasons for terminating and that Chuang was well aware that matters remained unresolved 12 days before he received the letter of termination, when the company last communicated with him.
Finally, Pinos and his team submitted that even if Lexus had terminated the agreement unlawfully, the exclusion clause shielded the company from liability. For his part, Tayar argued that Lexus could not claim the benefit of a termination provision it had itself breached.
Although Tayar and his team won several important battles, Justice James Spence ultimately dismissed the action. In Chuang’s favour, Justice James Spence found that:
- Lexus had a duty to act reasonably both in determining whether Chuang would be able to meet the LOC’s deadlines and in deciding whether to terminate; and
- Lexus had not acted reasonably in terminating the LOC. Given the timing implications and the level of activity undertaken by Chuang at the time of termination, it would have been reasonable to expect a delay of five to seven months in the completion and opening of the new dealership. A former Lexus employee who had been instrumental in managing the project, however, had testified that a five-month delay was acceptable. The decision to terminate on that basis, therefore, was unreasonable.
In Lexus’s favour, Justice Spence concluded that:
- The claims for negligent misrepresentation failed because there were no misrepresentations of fact;
- The bad faith claim failed because Lexus had no obligation to specify all of its reasons for terminating and had not misled Chuang in any way; and
- Although Lexus had not met its duty to act reasonably, the exclusion clause applied whether the termination had been lawful or unlawful.
The findings are all key to an appeal to the Court of Appeal that was still extant at press time. Whether or not the advocacy judgments taken by either side were right or wrong, therefore, cannot be fully debated until the matter is resolved. But that does not inhibit undertaking their analysis and the thinking behind counsel’s decisions, so here’s a look at some of these issues.
Building the Team
As the trial approached and its magnitude became evident, partner Ted Frankel joined the team. With 10 years as a litigator under his belt, Cassels Brock’s website describes him as a “go-to partner for complicated disputes” in a wide variety of cases.
“Apart from my own cases, I kind of loan myself out to others, much as British barristers do,” he says. “I look at everything from start to finish, but because I haven’t been involved in the interlocutory proceedings, I can bring a fresh set of eyes to the team.”
By way of example, Frankel brought a new approach to the privilege Toyota had claimed for certain documents, particularly meeting notes taken by counsel. “Lawyers’ tendency is to cling to the litigation privilege in the pre-trial phase, but in this case some privileged documents had valuable and rich information that demonstrated just how hard our clients were trying to make a reasonable decision,” he says. “So we decided to make a limited waiver of privilege for certain documents.”
Not surprisingly, decisions of this kind have risk attached. At first, Chuang’s lawyers objected to the use of the documents, but then claimed that Toyota had waived its privilege over a much wider range of documents. “A motion on the matter took the better part of a day, but in the end we prevailed for the most part,” Pinos says.
Another advantage of having a lawyer like Frankel on board was that responsibility for witnesses’ examination-in chief and cross-examination could be divided. “When you divide up the work, you can do more of the preparation by yourself for the witnesses for whom you’re responsible — especially in a witness-heavy case like this when people are talking about their recollections of what they did do and what they didn’t do,” Pinos says. “Doing more of the preparation yourself is not quite as important in a case that is more document-driven than this one was.”
Using more than one lawyer can also help keep the judge involved.
“Tim and I have different styles,” Frankel says. “He’s more dramatic and demonstrative on his feet, I’m more methodical and logic-oriented, and the contrasting styles make things interesting for the judge, more so as a case drags on.”
Lessons Learned
The third member of the team, Colin Pendrith, was in law school when the facts giving rise to Chuang v. Toyota arose. He joined Cassels Brock as an associate after his call to the Bar in 2011. “I got involved in the case about six or eight months before the trial started,” he says. “My job was to do the heavy lifting, sift through the documents, reach out to potential witnesses and ensure that everyone had been interviewed.”
Here are some lessons Pendrith learned:
- Strategy is important above all: “So much of it is strategy.”
- Prepare intelligently: “Get yourself up to speed on every fact and detail, and be prepared for everything. But then apply your judgment in deciding how to use the information: ask yourself if you have to go the extra mile and don’t try to hit a home run when you only need a single.”
- Always keep the client’s business goals in mind: “The biggest challenge and one that all the lawyers I run into struggle with is that clients expect you to be competent in every possible area and know every detail and legal argument; at the same time, they want to spend as little money as they can. So you have to learn to be efficient; spend more time only on the more important aspects; find ways to solve issues without doing extra work; and keep in mind that you can always put another precedent into your submission, but if you have the right one, that’s all you need.”
- Judges and lawyers don’t always think the same way: “One of the reasons you need to be prepared for everything is that what you think will resonate with the judge is not necessarily what the judge thinks is most important. The majority of this trial was spent on arguments relating to whether the termination was reasonable and in good faith. Very little of the evidence involved the limitation of liability issued, but in the end, that’s what the case turned on.”
- Stay on top of the law to the bitter end: On the evening before written submissions were due, the Supreme Court of Canada released Bhasin v. Hrynew, a landmark and controversial decision that, for the first time in common-law Canada, pronounced that contracting parties have a legal duty to perform their contractual obligations honestly and with regard to the legitimate expectations of the other parties. “There are no more excuses for not catching late-breaking decisions, because everyone gets email updates as soon as they are released,” Pinos says. “Our initial anxiety here was that the decision would change our argument, but that morphed into confidence as we delved into it and realized that it only imposed duties of honesty and meeting legitimate expectations.”
The Lengthy Delay Between the Events and the Trial
Apart from issues relating to witnesses’ memory that both sides encountered, Lexus’s legal team had another problem: of the two key witnesses, one had retired and the other had left the company for a position somewhere else.
“Long delays often mean that issues regarding the involvement of certain witnesses arise, and that raises the dicey questions of whom to bring back into the fold as the de facto representative of the company,” Frankel says.
The retired witness did not present a problem. But the second witness, Yves Gionet, who was the head of dealer development at the relevant time, hadn’t been with Lexus for a number of years. “He politely declined to talk to us, but it was hard to tell if he was hostile,” Pinos recalls. “My impression is that he was uncomfortable being involved, but I wasn’t sure whether that was because he was disengaged or whether he had some friendliness to the other side.”
The initial decision was not to subpoena Gionet. “We constantly reviewed that decision as we got ready for trial, but in the end we decided to stick with it,” Pinos says. “In a case like this, you have to decide between calling too few witnesses, in which case you’re taking the chance that the court will draw a negative inference from someone’s absence, and calling too many witnesses, in which case inconsistencies can arise.”
The final decision became easier when Gionet appeared on the witness list submitted by Perfetto at the pre-trial hearing. That meant Gionet might be available for cross-examination. As well, by that time, Pinos’s team had decided that they could explain the contractual relationship and the termination process through the evidence of two other witnesses.
The decision worked out. Tayar called Gionet for the plaintiff, largely because Gionet could testify that the dealer development department wanted the arrangement to go forward and that he himself wasn’t comfortable with the decision to terminate. This evidence went both to the reasonableness of Lexus’s conduct and supported the negligent misrepresentation allegations because it suggested that Chuang’s claim about receiving “assurances” had some credibility.
Pinos chose not to attack Gionet. “The overriding strategy in cross-examination is not to cause damage to your own case,” he says. “I thought the evidence that Gionet gave as to misrepresentation was fairly weak and I didn’t want to upset that by pushing him in the wrong direction.”
Instead, using documentary evidence in support, Pinos conducted a constructive cross that demonstrated that the decision to terminate, albeit not unanimous, was nonetheless arrived at by consensus after being discussed at length.
“It was more important to show that the process occurred and that the decision was a considered one than it was to try to prop up the ultimate decision to terminate as a unanimous consensus,” he says.
The Revolving Door of Plaintiffs’ Counsel
After the termination, Lexus awarded the dealership to another party. Chuang’s original suit, brought by O’Sullivan, sought an injunction restraining Lexus from proceeding with the new arrangement. In 2007, the Ontario Superior Court dismissed the injunction application, agreeing with Pinos that the claim to force the grant of the dealership was likely to fail.
Many lawsuits die following losses of injunction application. This one stalled, but sputtered along. O’Sullivan eventually conducted the discoveries, but then Perfetto and Fogler, Rubinoff took over.
“The changes in counsel were partly responsible for why the case went on for so long, and there were also long periods where the plaintiffs were not pursuing it,” Frankel says. “Toyota was content to sit around in the wings waiting to see what happened instead of incurring costs.”
O’Sullivan’s departure, however, wasn’t nearly as jolting as Perfetto’s self-recusal one week into the trial, after the plaintiff’s two main witnesses had testified. “On the Monday morning of the second week, Perfetto told ourselves and the judge in chambers that an ethical issue had arisen between herself and her client and that she had to withdraw,” Pinos recalls.
They were then at what he calls a “tricky” juncture. “Because Nina said it was an issue between herself and her client, we could have made her disclose the particulars to the judge in our absence, in which case we’d be taking the chance that she would say something that would cause a mistrial and force the judge to withdraw — in which case we would lose a week of evidence before an experienced judge we respected,” he says. “Or we could have taken her at her word and adjourned for however long it took Chuang’s new lawyers to get up to speed.”
Counsel had to make their decision on the spot. “We might have asked for some time to consider our position, but Ted and I were communicating with our eyes and there was a clear consensus that we didn’t want to lose the judge or the investment we had in the trial to that point,” Pinos says. “We were also pleased with the way the cross-examinations had gone and we didn’t want to have to take another crack at the can: as senior lawyers say, ‘you only get one real shot at cross-examination, after that the witness knows where you’re coming from.’”
Pinos didn’t think it necessary to seek instructions from his client on this point. “There’s not a lot most clients can contribute to trial strategy and most would defer to counsel’s judgment,” he says. “I might have asked for time if both Ted and I hadn’t felt so clearly that the trial should continue, but we did.”
All this transpired on November 4, 2013. It wasn’t until October 23, 2014 that the trial got going again. But, from the perspective of the Cassels Brock team, there was a significant silver lining. “A one-year break gave us a unique chance to consider the majority of the plaintiff’s case and prepare our evidence and submissions to meet it very carefully,” Pendrith says.
Momentum
Still, lengthy delays during the course of a trial bring cause for concern as well as advantages. “A big issue for us was concern that the court would have forgotten the good things that happened during the first phase,” Pinos says. “But even more worrisome was that by the end of the first, we had completed our detailed preparation of the witnesses, and that’s something that gets lost immediately when there’s a delay.”
In other words, when witnesses are asked to return, they’re essentially being asked to study again for the same exam. “The fear is that they just won’t be as engaged as they were the first time around, especially when the facts are 10 years old,” Pinos says. “To some degree you’re at the mercy of the witness and the trick is to develop a relationship that motivates both yourselves and them to work hard,” he says.
For Frankel, it’s all about re-establishing momentum. “Momentum is very important if you think of a trial as a form of storytelling where the listeners are anxiously awaiting the conclusion,” he says. “When you have that big interruption, the listener becomes a little less engaged in the story.”
The upshot was that the Cassels Brock team felt a need to reinforce some fundamental themes. “This case wasn’t just about a business relationship that had been expressed on paper, but about trust, about the person you’re investing in and – from Toyota’s perspective – the betrayal the company felt when Chuang continuously disappointed them by failing to keep promises that he made,” Frankel says.
The upshot is that there was more repetition in the second phase than there would have been had the lengthy delay not occurred in the first place.
“After a year has passed, you tend to forget how well the evidence came in and you want to make the same points to refresh the judge’s mind,” Pendrith says. “So we were very thorough in emphasizing what had gone in already, not to the point that we changed who we called as witnesses or how many witnesses we called but in the way we emphasized the first phase every chance we got, and especially in our oral and written submissions.”
So, was it all worth it? As previously stated, the case was under appeal at press time, with a hearing expected in September 2015. But that doesn’t appear to have dimmed the triumph of the initial victory.
“When the decision comes out, it’s like winning a round in the Stanley Cup playoffs,” Frankel says. “There’s this moment of happiness not only because you’ve dealt with the dispute effectively and your client has won, but because it vindicated the efforts and the long hours and the toll it took on your family.”