Friday, 30 March 2012

Direct Actions by Shareholders for Wrongs Done to a Company

Generally, a wrong done to a company is addressed by an action brought by the company or a derivative action under s. 232 of the Business Corporations Act, for which leave was obtained from the court.  Indeed, in numerous cases, actions for misappropriation of corporate funds or oppression claims under s. 227 have been dismissed because the damages were really suffered by the company and not the plaintiff shareholder.

That said, where a company is sufficiently small and closely held, the company and its shareholders have such an identity of interests that an oppression action for what is in effect a wrong to the company may be brought by a shareholder.  This point was recently confirmed in Hundal v. Border Carrier Ltd., 2012 BCSC 447 as follows:
[13]         The plaintiff claims that Bains and Border Carrier conducted the affairs of the company in a manner oppressive to him, contrary to s. 227 of the Business Corporations Act, S.B.C. 2002, c. 57, primarily by diverting Border Carrier’s business and earnings into Royal City. Although a diversion of this kind would amount to a wrong to the company and would usually be brought as a derivative action under s. 232 of the Act, “in a closely held corporation with a small number of shareholders, the same conduct may give rise to either or both remedies because conduct that results in a loss to the company may also have a direct impact on shareholders in their individual capacities”:  Runnallsv. Regent Holdings Ltd., 2010 BCSC 1106 [Runnalls], at para. 44.
It may be noted that, in Runnalssin support of this proposition, Mr. Justice Smith relied on Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, where the court confirmed its earlier decision in Jabalee v. Abelmark Inc., [1996] O.J. No. 260 (C.A.), that:
Equally, although some of the claims in the proposed amended statement of claim could be the subject of a derivative action, they may also make out a case of oppression.  The two are not mutually exclusive.

Thursday, 29 March 2012

Solicitor-Client Privilege: Lawyers' Trust Account Ledgers

In the previous post, I commented on a BCSC decision dealing with solicitor-client privilege attaching to records of lawyers' fees and disbursements.  The court confirmed that such records are presumptively privileged and that the presumption may be rebutted by showing that there is no "reasonable possibility" that disclosure of the records would lead to disclosure of privileged communications.  However, the court also took an expansive view of what can be possibly deduced from such records and, it appears, made rebutting the presumption significantly more difficult if not nearly impossible.

In a decision released two days later in Donell v. GJB Enterprises Inc., 2012 BCCA 135, the BCCA dealt with a similar issue: solicitor-client privilege attaching to lawyers' trust account ledgers.  Although the majority held that, unlike lawyers' fee accounts, such records are not presumed to be privileged, it also held that they are not automatically producible and the court must still apply the following test:
  1. consider whether, in the circumstances, they arise out of the solicitor-client relationship and what transpires within it, that is, communications to obtain legal advice; and
  2. if they arise out of the solicitor-client relationship, the records are presumed to be privileged, but the privilege can be rebutted by showing that there is no reasonable possibility that privileged information could be deduced from the records.
The majority also held that mere payment of funds in contravention of a foreign court order did not necessarily establish that a lawyer who made the payment was a co-conspirator or a dupe of the client if there were questions regarding extra-territorial enforceability of the order.  Accordingly, it was not sufficient to invoke the crime or public interest exception to solicitor-client privilege. 

Wednesday, 28 March 2012

Solicitor-Client Privilege: Lawyers' Fees and Disbursements

Judging by the cases coming out of BC courts over the last two weeks, privilege must be as hot of a topic as judicial independence.  Last week, I reported on a decision dealing with settlement privilege and, on Monday, a decision addressing litigation privilege.  Keeping the trend going, the BCSC and BCCA, respectively, have just released decisions dealing with two specific aspects of solicitor-client privilege:
(i)  School District No. 49 (Central Coast) v. British Columbia (Information and Privacy Commissioner), 2012 BCSC 427 – dealing with privilege attaching to information about lawyers’ fees and disbursements and strengthening, if not making irrebuttable, the presumption that these records are privileged and not producible; and 

(ii)  Donell v. GJB Enterprises Inc., 2012 BCCA 135dealing with privilege attaching to lawyers’ trust account ledgers and holding that although such records are not presumed to be privileged, they are not automatically producible and the court must still consider whether they arise out of the solicitor-client relationship and, if so, whether, by their production, "there is a reasonable possibility that an assiduous inquirer could deduce, infer or otherwise acquire communications that are protected by solicitor-client privilege".

This and the following post will summarize both decisions.

Monday, 26 March 2012

Waiver of Privilege when Evidence Is Destroyed

Privilege, whether solicitor-client, litigation or settlement, is an essential part of our adversarial system.  It is a functional component and, necessarily, helps one party and hinders the other, while overall facilitating the administration of justice.  However, it is not without limits, and its use is still subject to the overriding principles of fairness and equity.  In a previous post, I reported on a recent BCSC decision, which explained that settlement privilege does not apply to egregious threats.

On the heels of that decision, Master Baker, in Brown v. Wilkinson, 2012 BCSC 398, considered various issues concerning solicitor-client and litigation privilege and when waiver of such privilege is required in the interests of justice.  Finding for the Plaintiffs who requested production of certain privileged documents, he found that:

(i) a lawyer is not a "safety deposit deposit box" and solicitor-client privilege does not attach "simply by his or her general or background presence";

(ii) litigation privilege only attaches when, objectively, litigation was contemplated and the predominant, rather than just substantial purpose of a communications was litigation.  An insurer's "fact gathering" serves a dual purpose of preparing for settlement and potential litigation and may not attract litigation privilege; and

(iii) where a party is requested to but fails to preserve evidence, whether or not the failure amounts to spoliation, privilege attaching to documents dealing with such evidence may be waived in the interest of justice.

Wednesday, 21 March 2012

Settlement Privilege Does Not Cover Threats

"Settlement privilege" is a recognized class of privilege that covers "without prejudice" documents or communications created or communicated in the course of, or for the purpose of settlement negotiations.  In Monument Mining Limited v. Balendran Chong & Bodi, 2012 BCSC 389, the court confirmed that this privilege does not attach to "egregious threats".

Tuesday, 20 March 2012

Ontario, We Have a Document Management Problem

This is not specifically BC-related, but it has been a slow news day.  In a scathing judgment (that may be an understatement), Justice Brown of the Ontario Superior Court - Commercial List, characterized the Ontario Courts' document management system as a "scandal" and demanded it to be brought in the 21st century, forthwith:

Thursday, 15 March 2012

Whatever you declare true [in arbitration] shall be held true [on appeal]

Appealing an arbitral award is a difficult task.  Under s. 31 of the Commercial Arbitration Act, to get leave to appeal, the appellant must not only identify a pure error of law, but must also satisfy the court that an appeal may be necessary to “prevent a miscarriage of justice” or is otherwise of particular importance to the public.  Errors of mixed fact and law are not sufficient.

Even when these criteria are satisfied, the decision to grant leave is still discretionary and the court can consider any relevant factor.  As BCCA explained in VIH Aviation Group Ltd. v. CHC Helicopter LLC, 2012 BCCA 125, one factor that may preclude leave is asserting a position on appeal that is inconsistent with the position taken in the arbitration.

SCC: Courts Should Enforce Forum Selection Clauses

In a very brief decision in Corp. v. Canadian American Association of Professional Baseball Ltd., 2012 SCC 9, the SCC confirmed that forum selection clauses are prima facie enforceable and should be respected by the courts:
In Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, this Court confirmed that, in the absence of specific legislation, the proper test in determining whether to enforce a forum selection clause is  discretionary  in nature.  It provides that unless there is a “strong cause” as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains.
The Court also confirmed that filing a Statement of Defence, whether or not that constituted attornment, did not prevent the defendant from bringing an application to stay the proceedings based on the forum selection clause.  This aspect of the ruling, although important for Ontario, is moot in B.C. where procedure for jurisdictional dispute has been codified in Rule 21-8.  In particular, this rule provides that a party who raises an issue of jurisdiction in an application or a pleading filed within 30 days of being served with a Notice of Civil Claim or a Petition, does not attorn to the court’s jurisdiction and may, in the meantime, “(i) apply for, enforce or obey an order of the court, and (ii) defend the proceeding on its merits.”

Tuesday, 13 March 2012

Mortgagee Beware: When Guarantors Do Not Guarantee

In common parlance, "guarantor" (or co-signor) denotes someone who will share a responsibility for a mortgage or a loan.  However, as explained in Kalsi v. Achary, 2012 BCSC 361, merely calling yourself or someone else a "guarantor" in a legal document may not be enough to impose any obligations.

The facts of the case were simple.  The Defendants co-signed a mortgage granted by their friend to the Plaintiff as "guarantors".  However, the mortgage contained no guarantee terms and, when the friend defaulted, the Defendants refused to live up to the alleged "guarantee". As set out below, the court agreed with their position, finding that there was no meeting of minds on their obligations.

No Summary Judgment for Where Law and Fact Intermix

Rule 9-6, dealing with summary judgments (not to be confused with summary trials), is the evolution of the old R. 18.  Part of this evolution is the addition of R. 9-6(5)(c), which gives the court discretion to pronounce summary judgment when the only issue between the parties is a question of law:
(5)  On hearing an application under subrule (2) or (4) [summary judgment application brought by plaintiff or defendant], the court, 
(c) if satisfied that the only genuine issue is a question of law, may determine the question and pronounce judgment accordingly, and
In a chambers decision pronounced last year, and a recent decision denying leave to appeal, the courts have provided some guidance on the application of this provision.

Sunday, 11 March 2012

Practice Point: How to Garnish TD Bank?

When it comes to pre or post-judgment garnishment under the Court Order Interest Act, the Registry is notoriously fickle.  Even a smallest defect in service of the Garnishing Order or the 10-day Notice of Payment under section 13 of the COEA can result in the Registry refusing to release funds without a court order and require an application to a Master.  For example, I've had the Registry refuse to accept service on a judgment debtor's solicitor, even though he specifically acknowledged service; and refuse to accept service on a director as service on a corporation, even though this is specifically permitted under s. 9 of the Business Corporations ActIn the last situation, the Registry purported to require service on the corporation's R&R office.

In any event, this brings us to service of garnishing orders ("GO") on banks generally, and TD Bank, specifically.  To effect (hopefully) valid service of a GO, you will want to follow these simple steps:

Thursday, 8 March 2012

Courthouse Library Makes Available Extensive Online Library

BC Courthouse Library now has an amazingly useful new free service called the Online ReadingRoom. What is it?  Well, if you are BC Lawyer, the ReadingRoom allows you to access, free of charge, from your PC or mobile device, a plethora of content including:

- 127 Irwin Law e-books;
- over 1,500 journals available through HeinOnline (note that the cost of HeinOnline has become prohibitive to many smaller firms);
- English Reports;
- US Legislation; and
- Historical Canadian legislation.

In essence, most electronic resources available at the Courthouse Library can now be accessed from your PC. Apparently, this service has been online since mid-January but, in my experience, has not been given the public attention it deserves.

Without further ado, read more here and sign up for free here.

Wednesday, 7 March 2012

Mareva Injunctions Against Trust Assets

No Mareva injunctions against trust assets... at least, apparently, without a good reason.

In The Owners, Strata Plan No. VIS3578 v. Canan Investment Group Ltd., 2012 BCSC 339, Madam Justice Wedge confirmed that Mareva injunctions are generally subject to the same rules as registration of judgments under s. 86 of the Court Order Enforcement Act: assets held by a party in trust for someone else are not exigible and are excluded from execution. However, she did appear to leave some room for argument that, in appropriate circumstances, even trust assets could be restrained.

Rules for Written Arguments in BCCA Chambers

Apparently faced with a growing number of litigants who want to use written arguments in the Court of Appeal chambers, the court has recently issued the following formal guidelines:
  1. Written argument should be no more than 3 pages;
  2. Applicants should file and serve their written argument with the Notice of Motion and supporting materials; and
  3. Respondents should file and serve their written argument no later than noon of the business day before the hearing date.
Full document here.

On a related note, BCSC and BCCA offer a unified RSS feed for latest announcements, which can be quite useful for updates on latest Practice Directions and Administrative Notices.

Monday, 5 March 2012

BCCA Restates Principles for Admissibility of Extrinsic Evidence

In Athwal v. Black Top Cabs Ltd., 2012 BCCA 107, the court provided some welcome clarity regarding situations when extrinsic evidence is admissible to interpret a written contract and the kind of evidence admissible in each situation:
  1. whether or not the contract is ambiguous, extrinsic evidence, generally restricted to circumstances known by both parties, “is admissible for the purpose of determining the meaning of the words of the contract as they would be understood by an “objective reasonable bystander” in the circumstances of the parties”; and
  2. if the meaning of a provision remains ambiguous “after the contextual inquiry into the circumstances in which the agreement was reached”, the court may consider “extrinsic evidence of what was said, done or known by the parties when the contract was made … for the purpose of determining the parties’ common intention.” 
The court also explained that “ambiguity” arises when “the meaning of the words is vague, inconsistent or in conflict with other provisions of the contract, redundant, or overly general”.

In coming to the above conclusions, the court relied on Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 and Black Swan Gold Mines Ltd. v. Goldbelt Resources Ltd. (1996), 25 B.C.L.R. (3d) 285 (C.A.)

Intent is Still Required under the Fraudulent Conveyance Act

As many may recall, in the now-seminal decision in Abakhan & Associates Inc. v. Braydon Investments Ltd., the BCCA held that, notwithstanding the language of section 1 of the Fraudulent Conveyance Act, a claimant does not need to prove dishonest or morally blameworthy intent on the part of the transferor.  All that's required is proof of any intent to place assets out of reach of existing or possible future creditors.

Abakhan was a commercial case, where the defendants structured their affairs in a certain way before engaging in a new business venture.  In Mawdsley v. Meshen, 2012 BCCA 91, the court considered application of the post-Abakhan FCA to estate planning.  Specifically, the court considered and and rejected two arguments: (1) that effect of a transaction - defeating creditors - is sufficient to invalidate the transaction under the FCA without proof of intent to defeat creditors; and, (2) that the FCA should apply to invalidate inter vivos transactions intended to defeat future claims under the Wills Variation Act.