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> August 2010
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In this issue:
1. Firm and Industry News
2. Expert Testimony: New Federal Court Rules
3. Relying on Standard Business Terms
4. Cross Border Enforcement of Orders and Judgments
1. Firm and Industry News
- August 11, 2010: AIMU Field trip
- September 1, 2010: CBMU Gold Tournament,
Deer Creek Golf Club, Ont.
- September 12-15, 2010: IUMI Conference,
Zurich Switzerland
- September 19-21, 2010: Houston Marine Insurance
Seminar
- September 22-24, 2010: International Marine
Claims Conference, Dublin, Ireland
- September 23-25, 2010: Canadian Transport
Lawyers' Association, Vancouver. Rui Fernandes, Gordon
Hearn and Kim Stoll will be attending.
- November 30th, 2010: CBMU Annual Conference
and Dinner, Toronto
- Rui Fernandes and Gordon Hearn have again
been named to the Who's Who of Shipping Law.
2. Expert Testimony:
New Federal Court Rules
On August 3rd 2010 the Federal Court introduced new
rules governing the use of experts at the trial of an action. The
new rules, set out in SOR/2010-176, provide that an expert may only
testify if certain conditions are met.
A number of jurisdictions, including the Federal Court,
have identified potential concerns with respect to the current approach
to expert testimony before courts, in particular with the independence
of experts. The misapprehension of the role of expert witnesses
in the litigation process can result in experts advocating on behalf
of a party. It has been identified that such an approach diminishes
the reliability and usefulness of the expert’s evidence to
the Court.
Another concern identified was the impact of expert
evidence on the length of proceedings and the corresponding increase
in the cost of litigation to the parties. This increase in cost
raised concerns about the accessibility of the court system to litigants
who have limited financial resources.
The new Federal Court Rules streamline the qualification
of experts and provide a code of conduct clarifying the duties and
responsibilities of the expert witness in relation to the Courts.
The Rules provide greater flexibility to the parties, and to the
Court, thereby enhancing access to justice and ensuring that the
principle of proportionality is taken into account. The core new
Rule provides:
Rule 52.2: An affidavit or statement
or statement of an expert witness shall:
(a) set out in full the proposed evidence
of the expert;
(b) set out the expert’s qualifications and the areas in
respect of which it is proposed that he or she be qualified as
an expert;
(c) be accompanied by a certificate in Form 52.2 signed by the
expert acknowledging that the expert has read the Code of Conduct
for Expert Witnesses set out in the schedule and agrees to be
bound by it; and
(d) in the case of a statement, be in writing, signed by the expert
and accompanied by a solicitor’s certificate.
Failure to comply
(2) If an expert fails to comply with the
Code of Conduct for Expert Witnesses, the Court may exclude some
or all of the expert’s affidavit or statement.
Form 52.2 is to be signed by the expert acknowledging
that the expert has read the Code of Conduct for Expert Witnesses.
The key component to the code is that an expert witness named to
provide a report for use as
evidence, or to testify in a proceeding, has an overriding duty
to assist the Court impartially on matters relevant to his or her
area of expertise. This duty overrides any duty to a party to the
proceeding, including the person retaining the expert witness. An
expert is to be independent and objective. An expert is not an advocate
for a party.
Rule 52.5 provides that a party objecting to
expert testimony may raise an objection by by serving and filing
a document containing the particulars of and basis for the objection.
Rule 52.6 allows the Court to order expert
witnesses to confer with one another in advance of the hearing of
the proceeding in order to narrow the issues and identify the points
on which their views differ.
The Rule does not preclude the parties and their counsel
from attending an expert conference but the conference may take
place in their absence if the parties agree. The Court may order
that an expert conference take place in the presence of a judge
or prothonotary.
A joint statement prepared by the expert witnesses
following an expert conference is admissible at the hearing of the
proceeding . Discussions in an expert conference and documents prepared
for the purposes of a conference are confidential and shall not
be disclosed to the judge or prothonotary presiding at the hearing
of the proceeding unless the parties consent.
These rules mirror the Rules of Civil Procedure for
the Ontario Superior Court.
Rule 4.1 deals with the duty of an expert. It provides:
4.1.01 (1) It is the duty of every expert
engaged by or on behalf of a party to provide evidence in relation
to a proceeding under these rules,
(a) to provide opinion evidence that is
fair, objective
and non-partisan;
(b) to provide opinion evidence that is related only
to matters that are within the expert’s area of
expertise; and
(c) to provide such additional assistance as the
court may reasonably require to determine a matter
in issue.
(2) The duty in subrule (1) prevails over
any obligation owed by the expert to the party by whom or on whose
behalf he or she is engaged.
The duty of an expert is primarily to the Court.
Expert reports are to be in accordance with Rule 53.03(2.1):
A report provided for the purposes of subrule (1) or (2) shall contain
the following information:
1.The expert’s name,
address and area of expertise.
2. The expert’s qualifications and employment and educational
experiences in his or her area of expertise.
3. The instructions provided to the expert in relation to the
proceeding.
4. The nature of the opinion being sought and each issue in the
proceeding to which the opinion relates.
5. The expert’s opinion respecting each issue and, where
there is a range of opinions given, a summary of the range and
the reasons for the expert’s own opinion within that range.
6. The expert’s reasons for his or her opinion, including,
i. a description of the
factual assumptions on which the opinion is based,
ii. a description of any research conducted by the expert that
led him or her to form the opinion, and
iii. a list of every document, if any, relied on by the expert
in forming the opinion.
7. An acknowledgement of
expert’s duty (Form 53) signed by the expert.
A trial judge can accept or reject the opinions of
experts. The judge is also entitled to accept part of the opinion
in arriving at a decision. See R. v. Towne Cinema, 1985
CanLII 75 (S.C.C.), [1985] 1 S.C.R. 494 and Connor v The
Queen, [1979] C.T.C. 365, 79 D.T.C. 5256 (F.C.A.).
Rui Fernandes
3. Raising Your Standards: Schenker v. Royal
King on Relying on Standard Business Terms
Standard operating terms are common throughout the
transportation sector.
Whether you are a carrier, a freight forwarder, a load broker or
another piece in the web of transportation and logistics providers,
standard operating terms make good business sense. Modern multi-modal
logistics involves numerous parties carrying numerous goods of numerous
descriptions
between numerous points. Trying to negotiate with every party in
the web would cost significant time and money. Simply put, the ability
to rely on standard business terms fosters predictability and economic
efficiency.
It is true that legal principles and economic efficiency
do not always go handin-hand, but in this case Canadian law has
accepted that a party offering services pursuant to standard business
conditions can rely on those standard business conditions, as long
as fair notice is provided and even if the other party claims they
did not realize the standard business terms would apply.
Infact, this principle, and acknowledgement of its
economic benefits, dates all the way back to Canada’s legal
roots in 16th century English courts where an English judge reasoned
that a party must be able to rely on its standard business terms
by virtue of having provided written notice because “it is
better to suffer a mischief to one man than an inconvenience to
many” because “if a matter in writing may be so easily
defeated, and avoided by surmise and naked breath, a matter in writing
would be of no [great] authority” (Waberley v. Cockerel
(1542), 1 Dy. 51). In other words, a company ought to be entitled
to rely on its standard business terms, as long as written notice
is provided to the other parties it contracts with, even if those
other parties claim they were not aware of the terms.
Recently the Ontario Superior Court of Justice was
asked to test this proposition in Schenker of Canada v. Royal
King Upholstery, 2010 ONSC 1821 (CanLII). In this case, the
plaintiff, Schenker of Canada, was a freight forwarding company
providing logistics services to the defendant, Royal King Upholstery,
an importer and distributor of furniture. This lawsuit concerned
a pair of claims each party was asserting against the other. At
issue was whether Schenker’s standard business governed the
relationship between the parties because Royal King asserted that
it never received them or was sufficiently put on notice that they
would apply.
Schenker was claiming for detention and demurrage
charges arising out of
containers it was exercising a lien over because the defendant had
failed to pay its account. To support this claim, Schenker relied
on its standard business terms that empowered it to exercise a lien
over goods when customers failed to pay, to charge storage fees
on those goods and to eventually sell those goods. Royal King’s
response was that Schenker was not entitled to withhold the containers
because Royal King was never notified about these terms.
Royal King in turn claimed for damage to its property
while in the possession of Schenker. Schenker relied on its standard
business terms to limit its liability. Royal King’s position
was again that Schenker was not entitled to rely on its standard
business terms.
The central factual question in this matter was whether
Royal King had been sufficiently put on notice that Schenker’s
standard business terms would govern their relationship.
Stinson J. found that sufficient notice was provided;
the Court accepted that Schenker had sent a booklet containing its
standard business terms to Royal King, and the Court rejected Royal
King’s evidence that the booklet never arrived. However, what
is interesting is that the Court was prepared to apply the standard
business terms without needing proof or not that the booklet containing
all the terms was ever mailed.
Stinson J. determined that the standard business terms
apply because the credit application signed by Royal King at the
outset of the commercial relationship of the parties “plainly
states that ‘all business is accepted by Schenker… subject
to the Schenker [standard business terms]’”. The court
found that “on that basis alone I am prepared to conclude that
the defendant agreed to ship its goods with the plaintiff subject
to the Schenker [standard business terms]”.
The Court was impressed by the fact that Schenker
provided written notice that its terms would apply that Royal King
signed the document containing the written notice, and that Schenker
followed-up by providing the terms as well. In the end, Schenker
won on all points.
For parties seeking to rely on standard business terms,
take the following key lesson from this case: always provide customers
with written notice that standard business terms will apply. In
the case of Schenker v. Royal King, this written notice carried
the day. Of course, legal matters are not always this straightforward,
and other factors may complicate this rule, but providing notice
of your standard business terms in writing is the first step to
ensuring those terms will carry the day.
Chris Afonso
4. Inside the Complex World of Injunctions and
The Cross-Border Enforcement of Court Orders
Appeal in United States of America v. Yemec [2010
ONCA 414 (CanLII)] provides an interesting review of the considerations
taken into account by our courts in deciding whether to enforce
the order of a foreign court in Canada. The decision also provides
an illustration of the key elements involved in our courts providing
injunctive relief.
This case review offers a peek inside a very complex
– and substantial – piece of litigation. This case illustrates
several important principles of our court system.
The Facts
For over twenty years the defendants [the named defendant
Yemec above being the first of a substantial list] operated a cross-border
telemarketing businesses selling Canadian and foreign lottery tickets
to customers in the United States. The business was profitable:
the mark-up was between five and eight times the initial cost of
the tickets.
In 2002, the United States of America and the United
States Federal Trade Commission [herein collectively the “U.S.
government”] commenced court proceedings in Chicago and in
Ontario to prevent the defendants from continuing to operate these
businesses on the basis that they were illegal. In the Chicago proceeding,
the judge granted a “Temporary Restraining Order with Asset
Freeze and Order to Show Cause Why a Preliminary Injunction Should
not Issue” against the majority of the defendants.
Within a matter of a couple of days thereafter, in
the context of an action brought by the U.S. government in Ontario,
a judge of the Ontario Superior Court of Justice issued a Mareva
Injunction and an Anton Piller Order against the same defendants
being the subject of the Chicago court order. [Simply put, a “Mareva
injunction” is an order prohibiting a litigant from disposing
of or dealing with assets, there being a suspicion that the same
may be or are being dissipated to frustrate a plaintiff from recovering
damages at the end of a law suit. An “Anton Piller order”
is an order of the Court permitting a litigant immediate access
to the records and documents of a litigation opponent, there being
a concern that documents may be lost or destroyed also with the
possible effect of frustrating the claims of the plaintiff].
In due course a different judge of the Ontario Superior
Court set aside the Mareva and Anton Piller orders. In the meantime,
the U.S. government brought a $30 million action in Ontario on behalf
of customers allegedly harmed by the defendants, and also launched
proceedings in Chicago against the defendants, obtaining, in that
action, a permanent injunction restraining the defendants from the
impugned business activities as well as a $19 million judgment against
them.
In 2005 the U.S. government amended its Ontario court
action, [initially commenced to preclude the defendants from undertaking
the ‘illegal’ activity] adding as a claim a request that
the aforesaid Illinois judgment [for $19 million] be enforced in
Ontario.
In the course of the prosecution of the Ontario court
action, a series of three important applications were filed with
yet another judge of the Ontario Court [who will be referred to
in the rest of this case review as the ‘motion judge’].
In the first application to the motion judge, the
defendants attempted to trigger a certain series of ‘damages
undertakings’ given by the U.S. government when the latter
had secured the injunctive relief against the former. [In our system,
there is a standard requirement imposed upon a litigant ‘landing’
a court order restraining an opponent from doing something, that
the party getting the restraining order provide an undertaking to
pay such damages as may be later awarded by the court to the party
being ‘restrained’ caused by the injunction].
n this application to the motion judge,the defendants
succeeded: the U.S. government was ordered to pay such damages as
could be demonstrated to have been suffered by virtue of the initial
award of the Mareva and the Anton Piller orders in Ontario.
The second application to the motion judge related
to a request for ‘summary judgment’ by the U.S. government
that the 2005 amendment to the action – seeking the enforcement
of the $19 million award against the defendants by the Illinois
court. This motion was dismissed by the motion judge on the basis
that there was a ‘genuine issue’ as to whether the defendants
were denied a “meaningful opportunity” to be heard in
the context of the U.S. proceedings.
The third application involved a request by the defendants
to “stay” the Ontario court action, or, in the alternative,
to strike the damages portion of the claim. The motion judge allowed
the motion in part, staying the original 2002 aspect of the Ontario
action [seeking the $30 million in damages] on the basis that the
U.S. government had no standing to bring an action in Ontario seeking
to recover damages on behalf of a group of U.S. consumers allegedly
harmed by the defendants. In the context of this ruling, it is interesting
to note that the motion judge portrayed the defendants as upstanding
business persons who suffered serious harm on account of the Mareva
Injunction and the Anton Piller orders – which were seen to
have been granted on “bad affidavit evidence’.
[Note: the extraordinary and immediate nature of these orders not
only call for the aforementioned 'damages undertaking’, but
call for the highest good faith and accuracy in the presentation
of evidence to the court in the solicitation for such relief. This
is in large part on account of the fact that these orders were obtained,
as is usually the case, on an ‘ex parte’ basis, which
is elaborated upon below].
The U.S. government in turn painted a very different
picture of the defendants, as persons who have ‘flouted’
U.S. and Canadian law and unfairly taken advantage of consumers.
The U.S. government appealed the outcome of the above
court orders.
The Issues Presented on the Appeal to the Ontario
Court of Appeal
The appeal by the U.S. government raised the
following key issues:
1) Whether the order of the Illinois court should
be enforced in Canada;
2) whether the judge in the Ontario action erred in requiring
the U.S. government to respond to its ‘damages undertakings’
in initially obtaining the “Mareva injunction” and the
“Anton Piller order”, and
3) does, or could, the U.S. government have ‘standing’
to sue in Canada on behalf of a group of American consumers who
were allegedly harmed by the defendants?
It should also be noted that by way of it’s own
appeal [referred to as a ‘cross-appeal’ the defendants
wanted an order finding that the U.S. government’s attempt
to enforce the Illinois court judgment in Ontario was an ‘abuse
of process’, as a distinct basis why should enforcement should
not be allowed.
These vexing questions were referred by way of appeal
and ‘cross-appeal’ to the Ontario Court of Appeal.
At the Court of Appeal
Issue 1: Should the U.S. judgment be enforced in
Canada?
The Court of Appeal reviewed the approach adopted
by the motion judge who initially heard the matter and who had ruled
against the U.S. government’s request that the matter be disposed
of, summarily, in its favour [by way of a ‘motion for summary
judgment’] without the necessity of a trial. The motion judge
had found that there were no ‘genuine issues’ for trial
concerning the usual defences raised in the context of a resident
trying to block the enforcement of a foreign judgment domestically
in the nature of:
- a lack of jurisdiction of the court issuing the
order sought to be
enforced;
- a lack of ‘natural justice’ [i.e. procedural
fairness] or
- there being a ‘public policy’ position
in Canadian law or societal mindset against the enforcement of
the judgment in question.
So far, so good for the U.S. government, however the
motion judge found that there was a genuine issue for trial concerning
a ‘new’ defence to the enforcement of a foreign judgment
in Canada, namely, the denial of a “meaningful opportunity
to be heard”.
Essentially, the defendants claimed that they were
hampered in their response to the U.S. court action because they
were fully taken up with responding to the aforementioned orders
issued against them by the Ontario judge in the Ontario proceeding.
They also asserted that they lacked access to business documents
and computers making it difficult to find documents and to instruct
counsel. The defendants also claimed to have been hampered in their
defences in the U.S. proceeding on account of bank accounts being
frozen, documents seized and business premises being shut down by
the U.S. government. The defendants in fact had filed evidence before
the motion judge indicating what material they would have filed
in the U.S. proceedings had they had a ‘full opportunity to
present their case’.
In considering this issue, the Ontario Court of Appeal
noted that based on precedent case law established by the Supreme
Court of Canada that the list of available defences to a claim for
the enforcement of a foreign judgment is not ‘closed’,
or limited based what has been accepted, or ruled upon by the courts
in prior cases: the list can be expanded, of fair defence[s] in
appropriate cases. In this regard, the motion judge had noted that
the ‘loss of a material opportunity to be heard’ is different
in scope and content from the ‘natural justice’ defence:
the former relating not to the process itself of the ‘foreign’
court, but to some significant unfairness in the way the litigation
has proceeded or has been conducted.
On the appeal, the Court of Appeal however differed
with the motion judge. There is in fact no ‘new’ defence
in the lack of ‘a meaningful opportunity to be heard’,
or at least this should not be created as a stand alone defence.
The Court of Appeal ruled that “a meaningful opportunity to
be heard” is indistinguishable from the natural justice defence
and that there was no ‘failure of natural justice’ on
the record of the U.S. court proceedings.
Further, the Court of Appeal, upon canvassing details
of steps that were in fact undertaken by the defendants and their
counsel in the U.S. proceeding, ruled that the defendants were in
fact not deprived of a meaningful opportunity to be heard in the
U.S. court proceedings. The record showed significant participation
and involvement in the U.S. court proceedings culminating in the
$19 million judgment now sought to be enforced by the U.S. government.
The Court of Appeal then tackled an interesting issue
relating to the enforcement of the U.S. judgment: whether the Ontario
courts should enforce the injunctive relief component of a U.S.
court order. The Court of Appeal ruled that there was no reason
why this component of the U.S. judgment should not be enforced.
Issue 2: The U.S. government’s appeal of the
order that there be an ‘immediate’ inquiry into the damages
suffered by the defendants stemming from the initial award of the
‘Mareva’ and ‘Anton Piller’ orders in Ontario
Did the motion judge err in ordering the immediate
damages inquiry / determination of the damages suffered by the defendants
flowing from the issuance of, and implementation of these orders?
In this regard, the Court of Appeal reviewed the specific
factual history on how these orders were secured by the U.S government.
In 2002 the U.S. asked for the Mareva injunction from the Ontario
court as it claimed that the defendants were enticing senior citizens
in the United States to purchase packages of tickets in foreign
lotteries, and that the customers were subsequently told that they
had won prizes but must pay significant amounts of money in advance
to claim them on the pretext that it was necessary to pay government
duties or taxes. The Ontario judge who initially awarded this relief
to the U.S. government was satisfied that the U.S. government had
made out a prima facie [or, in plain English, ‘at first blush’]
case of ‘fraud’ in granting the injunction. As mentioned,
as a condition of obtaining the orders, the U.S. government gave
two undertakings to the court, agreeing to ‘abide by any Order
concerning damages that the Court may make if it ultimately appears
that the granting of the Order has caused damages to the defendants
for which the plaintiffs ought to compensate the defendants…’
Having obtained these orders, the U.S. government
raided the defendants’ Toronto premises, seized computers and
more than250 boxes of documents and froze their bank accounts. The
effect was to shut down the defendants’ business virtually
overnight. A year later, another judge of the Ontario court ‘dissolved’
the above initial Mareva and Anton Piller orders, concluding that
the U.S. lacked standing, had failed to make full and frank disclosure
to the first judge hearing the matter [and who had issued the orders],
had failed to establish a ‘strong’ prima facie case that
the defendants’ conduct was fraudulent and had failed to show
that there was a risk of dissipation of assets.
The Court of Appeal agreed with the motion judge that
this was not an appropriate case for the court, in it’s discretion,
to depart from the ‘strong presumption that a party who gives
an undertaking to obtain an interlocutory injunction should be held
to the undertaking’. The Court of Appeal thus affirmed the
general rule that ‘whenever the undertaking is given, and the
plaintiff ultimately fails [on the claim itself, at the end of the
day] an inquiry as to damages will be granted unless there are special
circumstances to the contrary’.
The Court of Appeal found three reasons why the U.S.
government should not be permitted to resile from its undertaking.
First, the Mareva injunction and the Anton Piller
order were dissolved as a result of the U.S. government’s wrongful
conduct in obtaining the orders – which were obtained on an
‘ex parte’ basis [that is, without notice to, and therefore
without the presence of the defendants so as to give them the opportunity
to reply in opposition to the request for same].
Second, the U.S. submitted that there should be no
damages inquiry because the defendants operated illegally in Canada
in the United States, and it is contrary to public policy to recover
damages from the termination of an illegal business. The Court of
Appeal rejected this argument on the basis that the U.S. government
was aware of the general nature of the defendants’ business
at the time it sought the ex parte orders. In essence then, after
wrongly obtaining the ex parte orders, the U.S. governing was now
being seen to be trying to avoid an inquiry into the damages on
the basis that the undertakings were worthless from the outset because
there can be no damages flowing from the termination of an illegal
operation. The Court was not prepared however to countenance this
argument as this would undermine the serious nature of a damages
undertaking.
Third, while there may be a legitimate basis to question
the amount of any damages alleged to have been sustained by the
defendants, their claim to the same was not ‘plainly unsustainable’
such that the inquiry process should not be embarked upon. Accordingly,
the Court of Appeal left matters to be referred to a ‘damages
inquiry judge’ to determine in due course whether the defendants
sustained any compensable damages.
Issue 3: The Standing Issue
Recall that the ‘motion judge’ concluded
that the U.S. government did not have standing to sue in Canada
on behalf of a group of unnamed American consumers for damages allegedly
caused by the defendants. This part of the claim pertained to the
2002 Ontario court action claim for $30 million in damages and injunctive
relief.
The Court of Appeal did not end up having to address
this issue, by virtue of the fact that counsel for the U.S. government
announced on the hearing of the appeal that if the Court did allow
the appeal with respect to the enforcement of the U.S. court order
in Ontario, then the U.S. government did not intend to pursue any
of the monetary claims in the 2002 statement of claim filed in the
Ontario court.
As indicated above, the Court of Appeal allowed the
appeal on the issue of enforcing the U.S. court order, and accordingly
it was not necessary to decide the issue of the U.S. government’s
standing to sue in Canada for the damages said to have been suffered
by various individuals.
The Cross-Appeal: Was there an Abuse of Process by
the U.S. government?
The Court of Appeal reasoned that this argument is
really one and the same as that advanced by the defendants, that
there was a denial of natural justice and a violation of public
policy by the U.S. government. On the basis that these defences
to enforcement of the U.S. judgment were not met, there was accordingly
no ‘abuse of process’ by the U.S. government. The defendants
failed with this line of argument.
Conclusion
Accordingly this very complex case was resolved on
the following bases:
1. The U.S. government prevailed on the appeal,
with an order issuing that the U.S. court order could be enforced
in Ontario against the defendants.
2. The U.S. government was unsuccessful on its appeal
of the damages inquiry process on its ‘damages undertakings’:
the process was to then start on a determination of what if any
damages the defendants suffered by virtue of the dissolution of
the Mareva and Anton Piller orders as initially were issued, ex
parte, in Ontario at the request of the U.S. government.
The court ordered that the ‘damages inquiry’
take place right away and that upon the conclusion of that process
it would then be followed by the enforcement process of the U.S.
court order in favour of the U.S. government. In light of the ‘divided
success’ on this appeal, the Court did not order costs payable
by any party to the other.
Gordon Hearn
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