Newsletter > December 2008
In this issue:
1. Firm News
2. Mechanical or electrical derangement defined
3. Insurance Act – fire part application
4. Small vessel security strategy
5. Interprovincial enforcement of judgments
6. Warranty clauses and fundamental breach
7. Are Commercial fishing licences property?
8. Class action to watch
1. Firm News
Rui Fernandes and Gordon Hearn have again been listed for the 2009 year in Lexpert in the area of Shipping and Maritime law as well as in the 2009 International Who’s Who of Shipping & Maritime Lawyers.
Rui Fernandes and Gordon Hearn will be attending the Conference of Freight Counsel at its mid-winter meeting in Savannah, Georgia on January 10-12, 2009. The Conference of Freight Counsel is a forum organized by leading freight claims attorneys for the purposes of staying current with case law and legislative developments.
Gordon Hearn will be attending the ‘Chicago Regional Seminar’ of the Transportation Lawyers Association on January 23, 2009. The Chicago Regional Seminar is a continuing legal education forum for lawyers in the transportation law field.
The 70th Annual Marine Club Dinner is being held in Toronto on January 16th, 2009 at the Royal York Hotel. The Marine Club is the fraternity of those persons engaged in, concerned with, or directly interested in, the Water Carrying Trades on the Great Lakes System and connecting waters of Canada
2. Mechanical or Electrical Derangement
Caneast Foods Ltd. v. Lombard General Insurance Co. of Canada
Rui Fernandes reviewed the lower court decision in this matter (Caneast Foods Ltd. V. Lombard General Insurance Company of Canada (2007), 86 O.R. (3d) 385) in the Fernandes Hearn LLP November 2008 Newsletter. The decision of Justice Brown was appealed to the Court of Appeal for Ontario (2008) 91 O.R. (3d) 438.
Caneast Foods Ltd. (“Caneast”) suffered losses when its pickle production plant was shut down by a province-wide blackout. It was insured under an all risks policy issued by Lombard General Insurance Co. of Canada (“Lombard”). Lombard brought a summary judgment motion on several bases including that the loss came within an exclusion in the policy for loss or damaged caused directly or indirectly by “mechanical or electrical breakdown or derangement in or on the premises.”
Justice Brown had concluded, “In my view, (there is case law support for) the conclusion that the phrase “mechanical or electrical breakdown” denotes a failure in the operation of a piece of equipment due to some mechanical or electrical defect in some part or parts of the equipment. It follows that where a machine ceases to operate because of an interruption in its power supply due to a regional blackout on the electricity grid, a mechanical or electrical breakdown of the machine does not occur.”
On the latter half of the exclusion relating to ” mechanical or electrical derangement”, Justice Brown reviewed definitions of the words “breakdown” and “derangement” as well as judicial treatment of same, though the latter had received little judicial attention. His Honour then relied upon the British Columbia Supreme Court decision in Cominco Ltd. V. Commonwealth Insurance Co.,  B.C. J. No. 174 and stated, “Although somewhat cryptic, in my view the Cominco decision reinforces the notion that a “derangement” (which in the case of this Policy operates as an exclusion) involves some problem or defect internal to the piece of equipment.”
Justice Brown then held that an electrical derangement did not include a power failure originating from outside a premise. Lombard appealed.
At the Court of Appeal, Lombard limited its submissions to those concerning that part of the exclusion relating to mechanical or electrical “derangement”. Definitions from the dictionary were once again proffered to argue that a plain meaning of the word was to “disturb the normal state, working, operation or functioning of” something, and, hence, the meaning of derangement was a disturbance of a normal state etc. Because there was a disturbance of the normal state, operation or functioning of Caneast’s refrigeration and processing equipment, there was, Lombard argued, an “electrical derangement” on the premises that engaged the exclusion. Further, counsel attempted to distinguish other case law that seemed at odds with this position. Caneast, in reply argued, very attractively, that it was contrary to common sense (and to the case law) to find that an electrically operated machine breaks down or becomes “deranged” simply because it stops working when there is no electricity.
Borins J.A., speaking for the court, agreed stating, “I agree with his (Justice Brown) finding… that “breakdown” and “derangement” refer to an internal problem or defect in a machine, and not to the machine’s failure to operate due to an interruption to its power supply caused by a regional blackout. Caneast’s refrigeration did not stop because of some internal defect; it stopped because the power to it was cut off.” Justice Borins also added that, if Lombard had wanted to exclude such blackouts, it certainly could have specifically excluded same.
Borins J.A. acknowledged Lombard’s view that the there was a derangement if the power supply was not functioning properly; however, His Honour held that this was not the case with Caneast. Rather, the electrical supply was not disturbed by the blackout, as there was no electrical supply to be disturbed. Because of the blackout, there was no electrical supply and the equipment failed to operate. Accordingly, there was no disturbance to Caneast’s refrigeration equipment and no “derangement” simply because the electricity was cutoff and the machinery could not operate.
It is now clear that “a mechanical or electrical derangement” is to be interpreted as a “disturbance of the normal state, working, operation or functioning” of something, but it must be more than simply a failure of the machinery to operate resulting from an outside cause unrelated to the actual mechanism itself or its premises. If power failures are not covered, they will have to be specifically excluded in the policy.
Kim E. Stoll
3. A Brief Note on the Application of the Fire Part of the Ontario Insurance Act to Multi-Peril Policies
The question of whether the special statutory Fire Part of the Insurance Act (Part IV of the Insurance Act) applies to multi-peril policies in Ontario is an issue that appears to have been settled by the Supreme Court of Canada decision in KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada  1 SCC 433 (“KP Pacific”). Although, KP Pacific concerned the elucidation of the question concerning application of fire part provisions to multi-peril policies within the context of B.C. legislation, I submit that the considerations enunciated and adopted by the court in support of its holding are equally apposite and, more importantly, binding in Ontario (I note that there is, to my knowledge, no reported decision yet in Ontario specifically applying this holding to the present issue).
KP Pacific, a case that originated in British Columbia, involved a claim for fire insurance and whether a provision that was mandatory for fire insurance governed a multi-peril policy. The court held that the fire insurance part of the British Columbia Insurance Act did not govern a multi-peril policy.
The rationale expressed by a unanimous court in KP Pacific, I submit, is authority for the proposition that all-risks or multi-peril insurance policies are governed by the general provisions of provincial insurance legislation rather than by the specific provisions that apply to fire insurance.
In KP Pacific, the insured claimed for loss by fire under a multi-peril policy. The lawsuit was commenced more than one year after the loss occurred but within one year of filing the proof of loss. The insurer argued that Part V of the British Columbia Insurance Act, the fire insurance part equivalent to Part IV in the Ontario Insurance Act, applied to the multi-peril policy in question. Pursuant to the special provisions in the fire insurance part, the limitation period would extend to one year from the date of the loss. Accordingly, following this argument, the insured’s claim would be time barred. The insured’s position, on the other hand, was that the policy in question, being a multi-peril policy, was not governed by the Fire Part of the British Columbia Insurance Act but rather by the general provisions of that statute. Consequently, the insured argued that the limitation period would be one year from filing the proof of loss. The insurer’s position prevailed at trial and subsequently at the British Columbia Court of Appeal. The insured appealed the matter to the Supreme Court of Canada.
The Supreme Court of Canada categorically held that a multi-peril policy could not be brought within the fire insurance provisions. To do so would result in an exercise of “contrived reinterpretation” and “anomalous consequences”.
In delivering the judgment of the court, McLachlin, CJ, exhorted the provincial legislature to amend the statute to provide specifically for comprehensive all-risks or multi-peril policies. The British Columbia Insurance Act, like the Ontario Insurance Act, is based on the assumption that insurance policies can be classified into categories based on their exclusive or primary subject matter. This assumption, however, is obsolete and incongruous with the modern realities of multi-peril insurance. As the court in KP Pacific put it: “one is driven to conclude that s.119 [the application of fire part section], despite its alterations, is based on the paradigm of discrete categories of insurance policies and is incapable of coherently addressing the modern multi-peril policy.” [brackets and emphasis added].
Notwithstanding any differences in language between the two statutes, e.g. the B.C. statute refers to “contracts of fire insurance whether or not a contract includes insurance against other risks”* while the Ontario statute provides that the application of the relevant fire part comprises “insurance against loss of or damage to property arising from the peril of fire in any contract made in Ontario,”** the holding in KP Pacific, particularly as supported by the principled rationale respecting the inadequacy of (anachronistic) classifications informed by an insurance policy’s exclusive or primary subject matters, is equally germane in Ontario.
Furthermore, the rationale applied by the Supreme Court of Canada in KP Pacific case was followed in Newfoundland by the Court of Appeal in Burry v. The Cooperators General Insurance Company (2007), NLCA 52, in Manitoba by the Manitoba court of Queen’s Bench in Audio Works Production Services Ltd. v. Canadian Northern Shield Insurance Co.,  8 W.W.R. 643 and in Alberta in Fenrich v. Wawanesa Mutual Life Insurance Co.,  A.J. No. 458 (Q.B.) [upheld on appeal on other grounds] concerning statutory language virtually identical to that found in the Ontario Insurance Act. Accordingly, all else equal, an Ontario court would likely find no reason at law or policy to distinguish KP Pacific in its application to the provisions of the Ontario Insurance Act. The rationale expressed by the Supreme Court of Canada concerning the infelicities underlying the attempted classification of modern multi-peril policies within the ambit of fire insurance parts applies with equal force in Ontario and, consequently, multi-peril policies governed by Ontario law are unlikely, ceteris paribus, to be brought within the ambit of the fire insurance provisions of the Ontario Insurance Act.
*Application of Part
119 This Part applies to insurers carrying on the business of fire insurance and to contracts of fire insurance, whether or not a contract includes insurance against other risks as well as the risks included in the expression “fire insurance” as defined by this Act, except
(a) contracts of insurance falling within the classes of aircraft, vehicle, boiler and machinery, inland transportation, marine, plate glass, sprinkler leakage and theft insurance,
(b) if the subject matter of the contract of insurance is rents, charges or loss of profits,
(c) if the peril of fire is an incidental peril to the coverage provided, or
if the subject matter of the insurance is property that is insured by an insurer or a group of insurers primarily as a nuclear risk under a policy covering against loss of or damage to the property resulting from nuclear reaction or nuclear radiation and from other perils. **143. (1) This Part applies to insurance against loss of or damage to property arising from the peril of fire in any contract made in Ontario except,
(a) insurance within the class of aircraft insurance;
(a.1) insurance within the class of automobile insurance;
(a.2) insurance within the class of boiler and machinery insurance;
(a.3) insurance (other than marine insurance) against loss of or damage to property,
(i) while in transit or during delay incidental to transit, or
(ii) where, in the opinion of the Superintendent, the risk is substantially a transit risk;
(a.4) insurance within the class of marine insurance;
(a.5) insurance against loss of or damage to plate, sheet or window glass, whether in place or in transit;
(a.6) insurance against loss of or damage to property through the breakage or leakage of sprinkler equipment or other fire protection system, or of pumps, water pipes or plumbing and its fixtures;
(a.7) insurance against loss or damage through theft, wrongful conversion, burglary, house-breaking, robbery or forgery;
(b) where the subject-matter of the insurance is rents, charges or loss of profits;
(c) where the peril of fire is an incidental peril to the coverage provided; or
(d) where the subject-matter of the insurance is property that is insured by an insurer or group of insurers primarily as a nuclear risk under a policy covering against loss of or damage to the property resulting from nuclear reaction or nuclear radiation and from other perils.
4. Small Vessel Security
The U.S. Department of Homeland Security (DHS) announced this year a new Small Vessel Security Strategy (SVSS) designed to close security gaps and reduce risks associated with the potential exploitation of small maritime vessels. The SVSS identifies specific goals for which security efforts can achieve the greatest impact without excessive imposition upon the freedom of operation common to the country’s waterways.
“We saw quite vividly with the U.S.S. Cole attack that violent extremists will not hesitate to use any means, large or small, in their efforts to inflict blows to our maritime assets,” said Homeland Security Secretary Michael Chertoff. “This strategy ensures all small vessel stakeholders across our ports and coastal waterways can play a role in unified threat mitigation efforts and replaces today’s seemingly honor-based neighborhood watch program with an efficient and successful means to combat terrorism along our waterways.” The concern is the domestic use of waterborne improvised explosive devices; conveyance for smuggling weapons (including radiological and nuclear weapons of mass destruction) into the U.S.; conveyance for smuggling terrorists into the U.S.; and waterborne platform for conducting a stand-off attack. Homeland Security classifies a small vessel as any watercraft under 300 gross tons. There are swarms of them. Secretary Chertoff said the Maritime Transportation Security Act requires ships of more than 300 tons to have the Automatic Identification System on board. AIS operates on a standard radio frequency and broadcasts a ship’s name, position, course, speed and other particulars to other vessels and Coast Guard shore stations. The Small Vessel Security Strategy doesn’t go so far as to recommend that every vessel out there have AIS. However, less-costly means such as radio-frequency identification or a system based on cell phones could be something the Coast Guard may consider in the future.
Transport Canada is presently consulting with stakeholders on the development of a “Small Vessel and Facility Security Strategy.”
5. Interprovincial Enforcement of Judgments
A vast amount of the commerce generated out of Ontario will have not only local, but national components. As a result, when disputes arise it is often necessary to decide on the appropriate provincial or territorial jurisdiction in which to bring suit. That decision can be based on contractual provisions or on the “convenient forum” test.
Either way it is always possible, regardless of the appropriateness of the forum chosen, that a successful party will have to take steps in another province or territory to enforce a judgment or costs award. In situations where there is an appeal or right of appeal in the jurisdiction where the judgment was granted one must remain cognizant of certain issues with respect to reciprocal enforcement.
Provinces and Territories, which are reciprocating jurisdictions (i.e. which have in place Reciprocal Enforcement of Judgments Acts (“REJA”)), permit two types of procedures for the enforcement of judgments emanating out of each other. The usual REJA statutes contain provisions to allow for a summary procedure by way of application to quickly move before the court of the forum where enforcement is sought for registration of and execution on orders.
The alternative is to commence an action on the judgment, under common law, and, where applicable, to seek summary judgment.
There is a temptation to use the application procedure contemplated by REJA to facilitate a more expeditious registration and enforcement. However, where an appeal is pending or contemplated, a judgment creditor must consider whether immediate enforcement is necessary. REJA will not permit the reciprocal enforcement of a judgment if it is under appeal or there is a right to appeal in the jurisdiction in which it was granted.
Therefore, if immediate enforcement is required, the judgment creditor needs to determine if the procedure operating where the judgment was granted causes a stay of enforcement on appeal. If there is no automatic stay of a monetary or other judgment under the foreign law, the judgment creditor should bring an action, as the common law will allow a foreign judgment to be enforced, even where an appeal is pending, where REJA will not.
The following are selected relevant cases on this issue:
Morguard Investments v. De Savoye,  3 S.C.R. 1077 [change from restrictive common approach to enforcement to a more liberal approach in recognition of importance of global commerce and need for certainty, particularly in relation to sister provinces]
United States v. Ivey (1995), 26 O.R. (3d) 533 (Gen. Div.) [extension of Morguard principle to truly international setting – enforcement of foreign judgments in Canada]
Four Embarcadero Center Venture v. Mr. Greenjeans Corp. (1988), 65 O.R. (3d) 160, affirming (1988) 64 O.R. (2d) 746 (H.C.J.) [finality not defeated by a pending or contemplated appeal, providing that original court cannot review, modify, reopen abrogate or vary]
Arrowmaster Inc. v. Unique Forming Ltd. (1993), 17 O.R. (3d) 407 (Gen. Div.) [reviews law on requirement of finality and confirms that a pending or contemplated appeal does not defeat finality; only issue is whether original judgment was conclusive and not subject to further modification by original court]
Acme Video Inc. v. Hedges (1993), 12 O.R. (3d) 160 (C.A.) [very brief example of implications of relying exclusively on REJA and strict compliance with REJA provisions]?
Cavell Insurance Co., Re (2005), 80 O.R. (3d) 500 (C.A.) [modifications of common law enforcement rules where bankruptcy, receivership or limited fund settings; example of problems associated with use of REJA as opposed to common law enforcement principles]
Parsons v. McDonald’s Restaurants of Canada Ltd. (2005), 74 O.R. (3d) 321 [example of issues arising from the recognition and enforcement of foreign class proceedings]?
Alberta Securities Commission v. Maitland Capital Ltd., 30 June 2008 (Ont. Sup. Ct.) [example of issues arising on enforcement of foreign judgment where failure to plead common law and exclusive reliance on REJA; where no automatic stay of proceedings pending appeal in place for foreign judgment]
6. Warranty Clauses and Doctrine of Fundamental Breach
New Brunswick Court of Appeal recently considered the commercial reality of warranty clauses in New Brunswick Power Corp. v. Westinghouse Canada Inc.  N.B.J. No. 364 where New Brunswick Power Corp. (“NB Power”) sought to recover $12.5 million that it expended repairing or replacing defective power transformers. The transformers had been purchased from Westinghouse Canada Inc. (“Westinghouse”) between 1972 and 1975 and had been operational for between 15 and 25 years. The transformers were found to have suffered from a design defect that meant that they did not comply with CSA Standards. Westinghouse sought to rely upon warranty and limitation of liability clauses that it claimed limited its liability to one year after the shipment. The trial judge agreed with Westinghouse that it was protected by the clauses.
The Court of Appeal was asked to interpret the clauses and determine whether they were sufficient to exclude liability. The Court found that Westinghouse could indeed rely upon the clauses, and in doing so made an important common sense commentary on warranties. It stated that “common sense tells us that most manufacturers or suppliers are not prepared to provide purchasers with a forever warranty”. This seems reasonable, particularly with smaller ticket consumer items. However, one may instinctively think that more expensive goods (such as transformers) should come with more extensive warranties and that consumers are entitled to expect an increased level of care in their construction. Conversely, the Court of Appeal stated that when dealing with “million dollar products . . . the thought of the manufacturer assuming liability for an indefinite term and one that could exceed the expected lifespan of a transformer is simply too difficult to accept”. The court was focused on the rationale behind these clauses and seemed to be alert to the cost of manufacture. These goods are likely to have a long lifespan, and given the cost of production, the cost of repair is likely also high. Manufacturers (and their insurers) have an expectation that they will not be exposed to the risk of liability indefinitely.
Yet, despite the above, when is a contractual limitation of liability completely unacceptable? Would it be logical or appropriate for a manufacturer of a very expensive item to limit is liability completely? At the trial level NB Power had argued unsuccessfully that the transformers’ design defects constituted a fundamental breach. Effectively, NB Power attempted to persuade the Court that Westinghouse could not rely on the clauses that limited or excluded its liability because the design defect was a breach that rendered the clause unenforceable. Although this ground was not pursued on appeal, the Court of Appeal felt it was necessary to reflect upon the recent legal uncertainty surrounding the doctrine of fundamental breach. This doctrine has been the subject of some criticism in Canadian courtrooms. However, one can readily understand why a doctrine of this type would be necessary to prevent unreasonable limitations of liability. Although parties (especially sophisticated ones) are free to enter into contracts, the Canadian public has an interest in ensuring that certain unreasonable contracts are unenforceable. Historically, a fundamental breach that could render a contract unenforceable was a breach that went “to the ‘root of the contract'”.
The Court of Appeal summarized the doctrine of fundamental breach as follows:
“once an exculpatory clause is properly construed and found to cover the breach then the exculpatory clause is enforceable unless it can be established the breach was ‘fundamental’ and that it would be ‘unconscionable’ or ‘unreasonable’ to enforce the clause in the circumstances. Whether the unconscionability relates to the formation of the contract or the unreasonableness relates to the result of the application of the exculpatory clause seems to be of no moment; either is sufficient for purposes of nullifying the clause”.
It will be a matter of analyzing the facts of each individual case to determine when it is unconscionable or unreasonable to enforce a clause that seeks to limit liability. However, it is readily apparent from the above summary that the doctrine remains uncertain and the test will be difficult to apply. In the case in question, the Court considered that the parties were of equal bargaining power, that the transformers were operational for 15 to 25 years (with a reasonable life expectancy of 30 years) and that the application of the clauses did not lead to an unjust, unfair or unconscionable result. The Court found that there was “nothing about the facts of this case that cry out for judicial intervention”. Although the warranty period seems short in this case, it was not so short as to warrant intervention. This conclusion seems reasonable in the circumstances and appears to comply with the expectations of contracting parties in entering into these types of sales agreements. It will be interesting to see how courts treat the doctrine of fundamental breach in the future, particularly when dealing with less sophisticated parties.
As a side note, the Court of Appeal was also asked to overturn the trial judge’s decision on costs. The trial judge had fixed costs at $35,000.00. She had not sought any submissions of counsel with respect to same. Counsel argued that this sum was too low given the amount of damages claimed, the complexity of the case, importance of the issues and the length of trial (5 weeks). The judge did not provide any reason for her award. The Court of Appeal sent the issue back to the trial judge for full consideration. This portion of the judgment is interesting. Although costs awards are discretionary, parties are still entitled to the opportunity to make submissions with respect to quantum and receive proper reasons for the result. These submissions are absolutely necessary. Trial judges are not always aware of the many steps or delays that can occur prior to the trial of an action. It is important that the cost of trial does not become prohibitive and that parties pay the cost of forcing an action to trial without justifiable grounds.
7. Are Commercial Fishing Licences Property?
In Saulnier v. Royal Bank of Canada, a recent Supreme Court of Canada decision, the court ruled that “property”, as defined by Bankruptcy and Insolvency Act (“BIA”) and the Nova Scotia Personal Property Security Act (“PPSA”), was sufficiently broad in its scope to allow trustees and lenders an interest in commercial fishing licences.
This action arose after Benoit Saulnier, a commercial fisher in Nova Scotia, made an assignment in bankruptcy. Following the assignment, the Royal Bank, who had an General Security Agreement with Mr. Saulnier, proceeded to sell his commercial fishing licences to a third party. Mr. Saulnier refused to sign the documents required to complete the transaction and argued that Commercial Fishing Licences were nothing more than privileges granted by the government and, consequently, were not “property” that would fall into the ambits of the BIA and/or the PPSA. Accordingly, he did not believe that the trustee had a right to dispose of these licences.
The Supreme Court of Canada disagreed and upheld the decisions of the Supreme Court of Nova Scotia and the Nova Scotia Court of Appeal, albeit for different reasons.
In reaching its conclusion, the Supreme Court of Canada began by discussing the commercial realities of the fishing industry and the importance of commercial fishing licences to those in the industry. Justice Ian Binnie, writing for a unanimous Supreme Court, wrote:
A commercial fisher with a ramshackle boat and a licence to fish is much better off financially than a fisher with a great boat tied up at the wharf with no licence. Financial institutions looking for readily marketable loan collateral want to snap up licences issued under the federal Regulations, which in the case of the lobster fishery can have a dockside value that fluctuates up to a half a million dollars or more. Fishers want to offer as much collateral as they can to obtain the loans needed to acquire the equipment to enable them to put to sea.
The court continued by stating that the fact that licences have commercial value does not necessarily mean that commercial fishing licences constitute property as statutorily defined. Rather, in order to determine whether in fact commercial fishing licences constitute property, as defined by the BIA and the PPSA, the court advised that one has to look at the purposes of those acts.
In this regard, after reviewing the rules of statutory interpretation the court concluded that the purpose of the BIA is to keep a balance between the rights of the creditors and providing the bankrupt a clean break. In terms of the PPSA the court advised that it was created to allow property holders to use their property as collateral and to allow lenders a way to predict the priority of their claims against particular assets.
The court then examined the wordings of definitions for “property” in the case of the BIA and “intangible” and “personal property” in the case of the PPSA and concluded that they were drafted in such a way as to have very wide application in order to sweep up a variety of assets that would not constitute “property” at common law.
Following the determination of what the purposes of those acts were and looking at the scope of the definitions, the court preceded to draw out what interests that were being conferred by a fishing licence. The court held that “The holder acquires the right to engage in an exclusive fisher under the conditions imposed by the licence and, what is of prime importance, a proprietary right in the wild fish harvested there under, and the earnings from their sale.”
The court admitted that Mr. Saunier was likely right in that if commercial licences were nothing more than privileges then they would not likely fit under the definitions of “property” as defined in the BIA and/or the PPSA; however, the court concluded that because they in fact consist of a bundle of rights and that the pecuniary rights bear a resemblance to a profit à prendre (which is the right to procure something off of the land of another person) and that this is undeniable a property right then it necessarily follows that the commercial fishing licence is a right in terms of both the BIA and the PPSA.
The court then addressed the argument that “property” cannot be so broadly defined as to fetter the Minister’s powers to grant and revoke licences, as provided by the Fisheries Act. The court concluded that the Minister would still have the powers to grant or revoke a licence, as is reasonable, regardless of whether it is granting and revoking the licences of the trustee or the original owner of the licence. Moreover, when it comes to renewal the Minister still has the rights to accept or deny the renewal of the licence and the trustee simply steps into the shoes of the bankrupt and takes the licence “warts and all”.
This drafting coupled with the purpose of the Acts and the fact that it does not fetter the Minister’s power, led the court to conclude that commercial fishing licences would constitute a “property” as defined by the BIA and the PPSA.
At first blush it appears that the court has provided a balanced decision. It provides commercial fishers more security to offer if they are attempting to obtain loans and provides creditors more assets to liquidate in the event that they are forced to recover funds that are owed by insolvent parties. The concern arises with the ambiguity created by the broadened definitions of what constitutes “property” in terms of the BIA and the PPSA and the fact that those who are suffering the financial hardships may be forced to incur the costs of litigation or surrender their assets unjustly while the scope of the term is ascertained.
8. Class Action Case to Watch
Peter De Wolf v. Bell ExpressVu Inc. and Bell ExpressVu LP, 2008 CanLII 46218 (ON S.C.) is an interesting class action case. If Peter De Wolf is ultimately successful in his action, it will likely have an effect on the way service providers deal with late paying customers.
Mr. De Wolf was a customer of Bell ExpressVu. He was a subscriber to their satellite television service. He was also periodically late in paying his Bell ExpressVu bills. When his payment was late he was charged a one-time interest payment and, after a certain period of time, he would also be charged a further fee of between $19 or $25. Bell ExpressVu described these fees as ‘administration fees’ in its service agreements and claimed that they were charged to recover the collection costs associated with customers’ late payment.
Mr. De Wolfe sued Bell EpressVu as a representative plaintiff on behalf of a class of late paying Bell ExpressVu customers. His claim was that the ‘administration fee’ was in fact interest in excess of the criminal rate established under the Criminal Code.
Without boring the reader with the actuarial realities of the case, Mr. De Wolfe presented evidence on certification demonstrating that if the fees were interest he was charged an annual rate of interest of anywhere between 200% and 348%, which exceeds the criminal rate of 60%.
Mr. De Wolfe’s action was certified as a class action. Then both he and Bell ExpressVu brought summary judgment motions on the question of whether or not the ‘administration fee’ was ‘interest’ under the Criminal Code. Relying on a number of cases including Garland v. Consumers’ Gas Co., 1998 CanLII 766 (S.C.C.), Mr. Justice Perell found that it was.
Mr. Justice Perell’s finding certainly does not decide the case. Not only has his decision been appealed, but if the decision stands there are a number of other substantive issues the court will have to grapple with, including what damages were suffered and how they are to be distributed to the class.
This is case worth watching. Not only because it may dictate a change in the way service providers deal with late paying customers, but also because it may result in any number of copycat actions against other service providers who have levied similar fees from late payers.
[Fred Fischer was the counsel who certified the case as a class action]
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