Top 10 Business Decisions of 2018

Canadian courts delivered a number of notable decisions that affected Canadian business in 2018, including the Federal Court of Appeal overturning Tsleil-Waututh Nation v. Canada (Attorney General)

While six of Lexpert’s top 10 business decisions from Canadian appellate courts and administrative tribunals in 2018 came out arguably in favour of the business community, that trend was decidedly overshadowed by the results in the two cases that lead the list.

In Tsleil-Waututh Nation v. Canada (Attorney General) (#1), the Federal Court of Appeal overturned the National Energy Board’s approval of the expansion of Kinder Morgan’s Trans Mountain Pipeline, dealing a considerable setback to the petroleum industry. And in R. v. Comeau (#2), the Supreme Court of Canada did not strike down New Brunswick legislation that restricted the import of beer from other provinces, a crushing blow for proponents of interprovincial free trade and the hopes of many that the high court would take a more expansive approach to the issue.

Things do shift, however, as we proceed down the list. The SCC’s nod in favour of the constitutionality of the federal securities regulation scheme in Reference re: Pan-Canadian Securities Regulation (#3) finally provided some teeth to the prospects of a unified securities regime; Interpaving Limited v. City of Greater Sudbury (#4), a decision of the Ontario Divisional Court (from which the Ontario Court of Appeal denied leave), assured contractors subjected to municipal disbarment that due process was an integral part of the regime; and Re Aurora Cannabis Inc. (#5) fulfilled the promise of the new hostile takeover rules by essentially dooming tactical rights plans and the expensive litigation that accompanied them.

Life will be a little riskier for employers, however, with the SCC’s ruling in British Columbia Human Rights Tribunal v. Schrenk (#6), one that broadens employees’ protection from workplace harassment to include the conduct of co-workers. But it will be considerably less risky for businesses sharing information in the deal-making process, with the FCA’s judgment in Iggillis Holdings v. Minister of National Revenue (#7), which preserves common interest privilege in the face of the Canada Revenue Agency’s aggressive determination to access sensitive information by labelling it as “business advice” rather than “legal advice.”

And had Ktunaxa Nation v. British Columbia (Forests, Lands and Natural Resource Operations) (#8) been decided otherwise by defining “freedom of religion” more broadly, a new Pandora’s box of aboriginal rights litigation was surely in the offing.

In Nova Scotia, the province’s Court of Appeal gave meaning to new, more restrictive limitations legislation which had replaced the country’s most liberal prescription regime. Meanwhile, Manitoba’s Court of Appeal caused an unhappy stir for many in the business community with its decision in Brar v. Brar, one that upped the threshold for plaintiffs seeking to rely on the oppression remedy, undoubtedly making life more difficult for deadlocked companies.

Four of our top ten judgments and but two of the top five — less than usual — emanated from the SCC. Two originated in the FCA, and one each in the Ontario Divisional Court, the Nova Scotia Court of Appeal and the Manitoba Court of Appeal. One decision was a joint effort of the Ontario Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan.

From a geographical perspective, BC led the list with three rulings, Ontario had two, and New Brunswick, Québec, Saskatchewan, Alberta, Nova Scotia and Manitoba contributed one each. The total of 11 cases here arise from the fact that one decision, as noted earlier, was a joint effort from Ontario and Saskatchewan regulators.

Our varied top 10 decisions engaged Constitutional, Securities, Employment, Insurance, Personal Injury and Corporate Law, as well as Indigenous and other Human Rights. Here, then, are summaries of our top 10:

1. Tsleil-Waututh Nation v. Canada (Attorney General) (FCA, BC)

While the FCA’s unanimous ruling that the federal government’s consultation process with the Tsleil-Waututh Nation over Kinder Morgan’s proposed expansion of its Trans Mountain Pipeline was flawed has cast a shadow on the future of resource development in this country, it also provides some much-needed clarification regarding the scope of the Duty to Consult and could well serve as a catalyst to further clarification by legislative action.

The impact on the future of resource development, however, was immediate: minutes after the court sent the project back to the National Energy Board (NEB) for further environmental assessment and ordered a new consultation process, Kinder Morgan shareholders voted to sell the pipeline to the federal government.

The case originated with the NEB’s May 2016 report recommending that the federal Cabinet approve the pipeline expansion. The NEB found that the project was in Canada’s public interest and was unlikely to cause significant adverse environmental effects if certain protective measures were implemented.

In November 2016, the Governor in Council issued an Order in Council accepting the Board’s recommendations and approved the project. Numerous Indigenous groups, the City of Vancouver, the City of Burnaby and two non-governmental agencies applied to the FCA for judicial review of the decision to accept the NEB’s recommendations.

In the result, the FCA quashed the Order in Council and remitted the matter back to Cabinet “to address these flaws and, later, proper redetermination.” What the reasons clearly reveal is that courts will be quite willing to examine the consultation process right to the very end.

While the FCA found that Canada had acted in good faith and selected an appropriate consultation framework, the Duty to Consult had not been adequately discharged and “fell well short of the mark” by failing “to engage, dialogue meaningfully and grapple with the real concern of the Indigenous applicants so as to explore possible accommodation of [their] concerns.”

Maxime Faille of Gowling WLG (Canada) LLP in Vancouver, who with colleagues Scott Smith and Paul Seaman appeared for the Tsleil-Waututh Nation, believes it significant that the FCA was not swayed by the fact that the failings occurred at the last stage of the consultation process, known as Phase III, by which time a great deal of time and money had been expended.

“Shortcuts were taken and we now know that this just can’t happen,” Faille said. “The clear message from the decision is that cutting corners is not on, and that extensive and frequent meetings as well as sitting down and nodding won’t be nearly enough without some meat on the bones of the consultation process.”

Tsleil-Waututh also emphasizes the importance of defining a project’s scope. Here, the National Energy Board had made a “critical error” by unjustifiably excluding maritime shipping from the scope of the project, one that “led to successive, unacceptable deficiencies” in the Board’s report and recommendations.

“As a result, the Governor in Council could not rely on the Board’s report and recommendations when assessing the Project’s environmental effects and the overall public interest,” the court concluded.

Smith believes this aspect of the decision could lead to regulatory reform.

“The case provides key first guidance on how the scope of a project needs to be determined,” Smith said. “In that sense, it may be an impetus for legislative change because none of the laws we have now set out how consultation needs to occur and how it needs to align with the regulatory process.”

2. R. v. Comeau (SCC, NB)

At stake in this important case, which held that s. 121 of the Constitution Act, 1867, did not render unconstitutional New Brunswick’s regulatory limits on importing liquor from other provinces, was nothing less than the fate of myriad interprovincial trade barriers, which august organizations such as the Canadian Chamber of Commerce claim cost Canadians billions.

Section 121 states that “All articles of the Growth, Produce, or Manufacture to any one of the Provinces, shall, from and after the Union, be admitted free into each of the other Provinces.”

“Free,” it turned out, had more elasticity in the hands of constitutional lawyers than rubber did in the hands of the tire industry — so much so that what started as a case that arose from a $292.50 fine for a liquor smuggling offence under a regulatory statute found itself in the Supreme Court, where 23 parties intervened.

The binding precedent on s. 121 was Gold Seal Ltd. v. Attorney-General of the Province of Alberta. In that 1921 decision, the SCC held that s. 121 prohibited only direct tariff barriers, such as customs duties, on goods moving between provinces. The difficulty facing Comeau’s legal team was that the impugned provision of New Brunswick’s Liquor Control Act, s. 134(b), was no such thing. Rather, it was part of a broad regulatory scheme — common to most Canadian provinces — whose overall constitutionality had not been seriously questioned.

Ultimately, the Comeau court ruled that s. 134(b) was valid provincial legislation, reasoning that the applicant had not met the onerous burden of showing that impeding interprovincial trade was the legislation’s primary purpose. But the court also made it clear that any legislative measures — not just direct tariff barriers — that demonstrably had that primary purpose, offended s. 121.

Despite the high burden the SCC had placed on challenges to interprovincial trade barriers, it took only two months from the day Comeau was decided for the Alberta Court of Queen’s Bench to hand down Steam Whistle Brewing Inc. v. Alberta Gaming and Liquor Commission, which struck down Alberta’s beer markup regime as offending s. 121.

Shea Coulson of Dentons Canada LLP in Vancouver, counsel for several wineries who intervened in Comeau, said Steam Whistle isn’t the last stop on the line, either.

Steam Whistle demonstrates that courts will be willing to apply Comeau where governments give benefits to local industries that are not available to out-of-province industries,” he said. “The movement to get rid of interprovincial trade barriers is anything but dead in the water.”

Comeau made it more palatable for the judge to rule as she did in Steam Whistle, because it did clarify that there were non-tariff barriers that were impermissible,” said Arnold Schwisberg of Markham, Ont., who was co-counsel for Gérard Comeau with New Brunswick criminal lawyer Mikaël Bernard, of Campbellton,  and Ian Blue, QC, and Daria Peregoudova of Gardiner Roberts LLP in Toronto.

3. Reference re: Pan-Canadian Securities Regulation (SCC, Que)

After striking down the federal government’s first attempt to create a national securities regulator, the SCC unanimously dismissed a challenge from Québec to the feds’ second stab, ruling that both the proposed cooperative pan-Canadian securities regulation system and the proposed Capital Markets Stability Act were constitutional.

“The result is that Canada will be more in line with other Western nations, virtually all of whom have a single securities regulator,” said Luis Sarabia of Davies Ward Phillips & Vineberg LLP in Toronto.

The Court ruled that the voluntary cooperative system did not unduly fetter provincial discretion to regulate securities in the province, nor was it an impermissible delegation of provincial legislative authority. Similarly, the Capital Markets Stability Act fell within Parliament’s trade and commerce powers, as its “pith and substance” was the regulation of systemic risk across Canada’s capital markets.

The key components of the Cooperative System are: a national securities regulator called the Capital Markets Regulatory Authority (CMRA); the Capital Markets Act, a standard provincial statute administered by the CMRA that would govern the day-to-day aspects of securities regulation and that each province would mirror in its own legislation; a complementary federal statute, the Capital Markets Stability Act (CMSA), aimed at regulating systemic risk in the economy; and a Council of Ministers comprised of provincial cabinet members and the federal Minister of Finance who would supervise the CMRA and its board and propose amendments to the Capital Markets Act.

“The hope is that we can get all the provinces to agree on a framework they can live with, and in doing so establish and realize the goals of managing monetary and systemic risk,” Sarabia said. “There are of course parties who are not in agreement with the current proposal, but now that the Supreme Court has decided on its constitutionality perhaps everyone can find a way to work within the system.”

4. Interpaving Limited v. City of Greater Sudbury (Ont. Div. Ct.)

With this split decision — one from which the Court of Appeal denied leave to appeal — Ontario’s Divisional Court filled a significant gap in the limited judicial guidance that was available to how public entities should handle disbarments.

“In the context of a procurement market worth billions of dollars, this is the first case that provides clarity to how municipalities and others should deal with bidders who are facing the penalty box for behaviour that could lead to disqualification,” said Robin Linley in Blake, Cassels & Graydon LLP’s Toronto office, who with colleagues Nicole Henderson and Christopher Di Matteo represented the City of Sudbury. “This is an area of law that was not at all well-developed.”

Using its authority set out in a procurement bylaw, Sudbury excluded Interpaving, a road paving company, from bidding on projects for four years. The City relied on three grounds for disbarment, all of which were listed in the bylaw: Interpaving had sued the City; there was evidence of poor performance; and Interpaving had been abusive and threatening to City staff.

After receiving notice of the disbarment, Interpaving met with the City twice and made written submissions challenging it, but the City persisted. The company then sought to strike both the decision and the bylaw. The Divisional Court upheld both, but in doing so imposed a duty of procedural fairness, albeit a limited one, on the City. The majority of the court also ruled that in this case, any unfairness had been cured by the subsequent reconsideration.

“The court grappled with the competing interests of procedural fairness and the principle that they were dealing with a discretionary commercial decision that did not involve an adjudication of rights, inasmuch as contractors have no right to obtain contracts from the City,” Linley said. “But the court did state that contractors had a fundamental right to be heard and to know why they had been disqualified, and that clarity is new to the jurisprudence.”

5. Re Aurora Cannabis Inc. (OSC & Financial and Consumer Affairs Authority of Saskatchewan)

If there was any doubt that poison pills or shareholders rights plans were going to face formidable challenges under the new hostile bids regime set out by the Canadian Securities Administrators in National Instrument 62-104 – Take-Over Bids and Issuer Bids, Re Aurora Cannabis has without question eliminated that doubt.

“This decision, which is definitive on the issue, put a stake in the heart of poison pills,” said Brett Harrison, who with colleagues Paul Davis, Stephen Brown-Okruhlik and Leila Rafi of McMillan LLP in Toronto, and Geoff Moysa, then with McMillan and now an investment manager and legal counsel in Bentham IMF’s Toronto office, represented Aurora.

This first decision by securities regulators — to consider both an application to cease-trade a tactical rights plan and an application for exemptive relief — is a clear demonstration of regulators’ determination to protect the new regime.

“One of the key things regulators wanted to achieve with the new regime was to put an end to having virtually every hostile bid result in a rights plan hearing,” Davis said. “The decision does say that such hearings are possible, but in my view they will occur so rarely that rights plans are effectively extinct.”

The case arose when Aurora, a producer and distributor of medical marijuana, made an initial offer for CanniMed Therapeutics Inc. with a view to entering the recreational market for cannabis in Canada. When CanniMed rejected the offer, Aurora made a hostile bid; CanniMed responded by adopting a shareholder rights plan that prevented Aurora from buying additional shares and by imposing a number of terms on Aurora’s bid that were more burdensome than the ones provided for in the takeover bid regime.

But the securities commissions cease-traded the rights plan, denied Aurora’s request to shorten the minimum deposit period, allowed Aurora to acquire up to five percent of the available CanniMed shares during the course of the takeover bid, and found insufficient evidence that Aurora and certain locked-up shareholders were acting “jointly or in concert.”

6. British Columbia Human Rights Tribunal v. Schrenk (SCC, BC)

Fair enough that employers must take responsibility for discriminatory behaviour by their own employees. But do they have to keep any eye on individuals employed by others as well?

That appears to be the result of this divided judgment from the SCC in a case that originated as a human rights complaint under BC’s Human Rights Code, which prohibits discrimination “regarding employment … whenever that discrimination has a sufficient nexus with the employment context.”

“Employers need to be aware that they now have ultimate responsibility for providing a proper, respectful workplace that won’t submit employees to discrimination, and that this responsibility may well extend to the conduct of others connected to the workplace who may impact their own employees,” said David Wong, who with colleagues Mark Andrews, QC, and Stephanie Gutierrez in Fasken Martineau DuMoulin LLP’s Vancouver office, represented Edward Schrenk.

Schrenk, a site foreman and superintendent employed by the primary contractor on a road improvement project, made discriminatory remarks to the complainant, who worked for an engineering firm hired to supervise the project for the municipality that owned the land. The complainant brought a human rights complaint against Schrenk, Schrenk’s employer and the complainant’s own employer.

Schrenk and his employer argued for the dismissal of the complaint against them on the basis that conduct by someone who lacked employment-related authority over the complainant was not conduct “regarding employment” for the purposes of the Code.

But as the SCC saw it, Schrenk’s conduct was in fact covered by the legislation: under its wording, employment discrimination claims were not limited to direct employers, but to anyone who was “integral” to the workplace itself including customers, contractors and suppliers. “This contextual interpretation furthers the purposes of the Code by recognizing how employee vulnerability stems not only from economic subordination to their employers but also from being a captive audience to other perpetrators of discrimination, such as a harassing co-worker,” the court stated.

The extent to which Schrenk applies will depend on the wording of the provincial statute under consideration. As it turns out, Ontario, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and the Northwest Territories have similar provisions to those found in the BC Code. Tribunals and courts in the federal jurisdiction, Ontario, Quebec, and Nova Scotia have already applied Schrenk. Alberta, by contrast, limits discrimination in employment to prohibited conduct by “employers.”

7. Iggillis Holdings v. Minister of National Revenue (FCA, Alberta)

For at least a decade, Canada’s transactional lawyers had been operating under the assumption that confidential information already protected by privilege that they had agreed to share with colleagues on the other side of a deal, or with others who had a common interest, would not lose its privileged status.

Then came the lengthy, reasoned 2016 Federal Court judgment from Justice Peter Annis, who refused to recognize common interest privilege in the transactional context. On application by the Canada Revenue Agency (CRA), he ruled that privilege had been waived and ordered production of a legal memorandum addressed to the tax implications of a sale transaction.

“That was a shock because it was contrary to existing case law and created enormous uncertainty about sharing privileged opinions with the other side in a deal,” says Jeff Galway in Blake, Cassels & Graydon LLP’s Toronto office.

Fortunately, the FCA saw it differently, reaffirming and clarifying the traditional view of parties’ ability to share privileged communications in order to advance a commercial transaction.

“Everybody across the country was waiting for this decision, because if Annis’s ruling had been upheld, it would have changed the practice around how deals are done,” says Joel Nitikman in Dentons Canada LLP’s Vancouver office, who represented Iggilis. “It certainly would have severely restricted discussions between deal lawyers on tax issues.”

Recently, the SCC rejected the CRA’s application for leave to appeal. That came as no surprise to Maureen Littlejohn in Davies Ward Phillips & Vineberg LLP’s Toronto office.

“The underlying decision was an outlier in looking at transactional common interest from a policy standpoint, so the FCA just restored the status quo,” she said.

Still, Alexander Cobb in Osler, Hoskin & Harcourt LLP’s Toronto office notes that common interest privilege could be expanded further, as in the case of companies who are sharing information in furtherance of a common lobbying effort. “The public interest protected in the transactional context is the interest in getting transactions done,” he said. “The public interest in ensuring that lawmakers have the benefit of a thought-out analysis from their constituents is probably worthy of equal protection.”

8. Ktunaxa Nation v. British Columbia (Forests, Lands and Natural Resources Operations (SCC, BC)

Given Canadian courts’ inclination to ensure that Aboriginal rights have real meaning, the SCC’s measured decision in Ktunaxa, which provides a context for Aboriginal spiritual rights, has been welcomed by developers and resource companies.

“Spiritual rights are an important and recurring issue with regard to vast tracts of land and come up frequently in discussions and negotiations,” said Bryn Gray of McCarthy Tétrault LLP in Vancouver, who with Toronto colleagues, the late Neil Finkelstein and Brandon Kain represented the intervener the Canadian Chamber of Commerce. “All the more so because claims based on these rights can be made on the basis of bare assertions rather than proven claims.”

This novel case arose in the context of a ski resort development in BC. The Ktunaxa Nation argued that the proposed site was a sacred area, one that the Grizzly Bear Spirit, a spiritual figure of considerable significance, inhabited. Developing the site, the Ktunaxa claimed, would infringe on their religious rights.

But seven of the nine judges on the SCC panel who concurred in the unanimous decision didn’t see it that way. They reasoned that the Ktunaxa were not seeking protection for their religious practice or their ability to act in accordance with that practice or belief — a protection to which they were entitled. Rather, they were seeking protection for the Grizzly Bear Spirit itself and the subjective meaning they derived from their belief in the Spirit — protection not embraced by the Charter’s grant of freedom of religion.

9. Barry v. Halifax (Regional Municipality) (NSCA)

For years, Nova Scotia had one of the most liberal limitation regimes in the country. That changed in 2015, when the new Limitations of Actions Act came into force. It was only in June 2018, however, that the province’s highest court released Barry, its first interpretation of the statute.

The claim arose when Mary Barry sued Halifax after she was injured on a transit bus. A year after Barry filed her claim, she sought to join Royal & Sun Alliance Insurance Company of Canada as a defendant. The motions judge refused her application, holding that the two-year limitation period had expired.

Barry then relied on s. 12 of the Limitations of Actions Act, which gives courts discretion to disallow limitation defences in personal injury claims where the prescription period “creates a hardship to the claimant,” a factor that must be balanced against the “hardship to the defendant.” The legislation directs courts to consider all the circumstances of a case, listing nine specific non-exclusive factors that must be taken into account.

The motions judge did not apply s. 12 and the Court of Appeal concurred, citing the key elements of the “saving provision” as requiring the court to consider all of the enumerated factors in assessing hardship; putting the burden of proof on the claimant; and requiring parties to tender admissible evidence on the issue.

Ultimately, the court concluded that:

“It is clear that the intent of the above provisions is to provide an insurer with early notice of a claim. This provides an opportunity to understand and investigate its potential exposure. By asking to disallow the limitations defence, Ms. Barry is not only seeking to set aside her obligation to bring an action when required, but to excuse her other obligations. These provisions exist for a reason and I conclude that depriving RSA of the early notice the Legislature directed would serve to negatively impact its ability to defend the claim.”

The upshot is that while the saving provision is a holdover from previous legislation, it will be applied very differently.

“For all intents and purposes, limitation defences were of little value under the previous legislation,” says Wayne Francis of Ritch Williams & Richards in Halifax, who represented Royal & Sun Alliance. “With Barry, our Court of Appeal confirmed that the current Limitation of Actions Act has greatly narrowed the circumstances where a limitations defence will be disallowed.”

10. Brar v. Brar (Man CA)

The Manitoba Court of Appeal has taken it upon itself to narrow the scope of the provincial oppression remedy in a dispute between two brothers who were equal owners in two corporations, each of which operated a gas station in Winnipeg.

“The case caused quite a stir, both because the appropriateness of the oppression remedy was not raised by counsel and because our firm has used the remedy successfully in at least 10 similar cases since 2005,” says Dave Hill of Hill Sokalski Walsh LLP in Winnipeg, who represented Billy Brar.

The case arose when the brothers’ relationship deteriorated and they reached an oral agreement to separate their business interests. They created a share purchase agreement (SPA) to which the corporations were not parties. Sid Brar got cold feet after signing the documents and never sent the SPA to Billy for signature.

As it turned out, Billy had been operating the companies under the assumption that he was sole owner since the verbal agreement was reached. But more than a year later, Sid asserted an interest in the corporations.

Billy sought oppression relief under s. 234 of the Canada Business Corporations Act and succeeded at first instance. But the Court of Appeal reversed the decision, holding — without having heard from counsel on the issue, which had not been raised — that the case involved a breach of contract between two people, rendering the oppression remedy inappropriate.

“The court seemed to think that some harm to the companies, who were not parties to the SPA, was necessary,” Hill said.