Newsletter > January 2009
In this issue:
1. Firm news
2. When is a vessel or structure subject to municipal or provincial law?
3. Ship suppliers’ claim for unpaid necessaries and ranking in priority to mortgage
4. Natural justice and procedural fairness
1. Firm News
Members of the firm and guest speakers participated in the Fernandes Hearn LLP’s 9th Annual Seminar held on January 16th, 2009 at the Royal and Sun Alliance lecture theatre. The firm thanks all its speakers and its sponsors for the event, Royal and Sun Alliance, Liberty International, and Lombard Canada.
Gordon Hearn represented the firm at the Conference of Freight Counsel in Savannah, Georgia on January 11 and 12th and at the Chicago Regional Seminar of the Transportation Lawyers Association on January 23rd.
Rui Fernandes will be a guest lecturer at the University of Denver Law School’s Transportation Law course in February.
2. When is a vessel or structure subject to municipal or provincial law?
Case comment on: Morrison v. Halifax (Regional Municipality), 2008 NSSC 375
On December 10th, 2008 the Supreme Court of Nova Scotia ruled that a floating dock and boat house was subject to a municipal land use by-law restricting the height of the building. The applicant challenged the validity of the by-law as being outside the powers of the municipality taking the position that the structures were subject to federal maritime law.
In its analysis the court held that the first step in a constitutional analysis is to determine the pith and substance of the impugned legislation. Quoting the Supreme Court of Canada in Ordon Estate v. Grail (1998) 3 S.C.R. 437 the court set out the test as:
“It must be determined whether the facts of a particular case raise a maritime or admiralty matter, or rather a matter in which is in pith and substance one of local concern involving property and civil rights or any other matter which is in essence within exclusive provincial jurisdiction under s. 92 of the Constitution Act, 1867. The test for making this determination is to ask whether the subject matter under consideration in the particular case is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence. As is clear from this Court’s recent jurisprudence on the issue, the answer to this question is to be arrived at through an examination of the factual context of the claim.”
The court held that:
“In the present case I find the pith and substance of the relevant HRM By-law relates to land use, development and planning within the Halifax peninsula. Through this enactment, the Municipal Government intended to regulate activities on privately owned land, as evidenced by a notation added to the beginning of the HRM Land Use By-law stating that the provisions do not apply to federally or provincially owned land, or private land used for a federally regulated activity. Section 35, read in conjunction with Sections 1 and 27, intend to regulate the types of buildings on privately owned land within the municipality. These are matters of property and civil rights which are intra vires the Province of Nova Scotia”
The court dismissed the application that the legislation was unconstitutional.
This decision follows a number of prior decisions in various courts across the country dealing with similar issues and with varying results.
Star of Fortune Gaming Management (BC) Ltd. v. British Columbia (Assessor of Area No. 10 – Burnaby/New Westminster),  B.C.J. No. 1563 (B.C.S.C.). The boat in issue was operated as a riverboat casino and was berthed in New Westminster on the Fraser River. Although it was moored most of the time and connected to services on shore, it did disconnect and sail regularly for periods of about an hour each time. After reviewing the authorities, C.L. Smith J., stated at para. 57: “The weight of the authorities indicates that the word “structure” has connotations of permanency and difficulty of movement which would exclude operating marine vessels from its meaning in law. The courts have tended to take a narrower approach than the dictionary definitions might permit, because of the statutory contexts in which the word is used. Construing legislation (such as the Assessment Act) defining as assessable certain kinds of property which would be considered personality at common law, the courts have found that the word “structure” refers to things of substantial size, built or constructed with some permanence such that to remove them from where they are placed is likely to involve taking them apart (for example, in the judgments of Jenkins L.J. in Cardiff Ratings Authority and of Stratton J.A. in the CIBC case). In the Herbstreit case (upon which the respondent relied) the ship was disabled from movement and permanently moored, facts emphasized by Shapiro Co. Ct. J. in his decision.” The court found that the riverboat casino was not a structure for the purposes of the Assessment Act. The judge held that it was a vessel.
Laboucane v. Brooks,  B.C.S.C. 1247 (B.C.S.C.) In this decision the court held that section 10(1) of the Workers Compensation Act (B.C.) was valid provincial legislation in relation to property and civil rights, and that it applied to a work accident which occurred on a motor vessel moored at a dock in Prince Rupert harbour. Burnyeat, J. stated as follows: “ … I am satisfied that the subject-matter of this case is not integrally connected with maritime matters and does not fall to be resolved under Canadian maritime negligence law. This is a case about an industrial accident, an activity which is not sufficiently connected to navigation and shipping that maritime law extends to it. The fact that the incident took place on a vessel is of no relevance to the negligent acts alleged. No negligence is alleged in the operation of the vessel. Nor is it asserted that the negligent activities in any way interfered with navigation or affected the navigability of any waterway… While there is a connecting factor relating to maritime matters in view of the incident being on a vessel, I am satisfied that any connecting factor is not enough to displace the characterization of the claim of Mr. Laboucane as a personal injury claim arising out of a workplace accident”
Jackson v. Fishers and Oceans Canada et al,  BCSC 1492 (B.C.S.C.):
The plaintiff slipped and fell while walking down a ramp from the shore to a wharf, and suffered a broken ankle. The plaintiff alleged that her injury was caused by the failure of the defendants to exercise the duty of care they owed to her under s.3(1) of the Occupiers Liability Act (B.C.). Held: The “Occupiers Liability Act, even applied to the subject matter of the plaintiff’s claim, does not encroach on Parliament’s exclusive power to legislate in relation to navigation and shipping. As I see it, any effect that the provincial statute has on the federal legislative power over navigation and shipping is only incidental, and does not affect any vital or essential part of the federal power.”
British Columbia (Attorney General) v. Lafarge Canada Inc.  SCC 23:
Lafarge Canada Inc. wished to build an integrated ship offloading/concrete batching facility on waterfront lands owned by the Vancouver Port Authority, a federal undertaking constituted pursuant to the 1998 Canada Marine Act. The Court of Appeal found that the Vancouver Port Authority lands are “public property” within the meaning of s. 91(1A) of the Constitution Act, 1867 and declared the City’s zoning and development by-law to be inapplicable to the proposed development.
Salt Spring Island Local Trust Committee v. B & B Ganges Marina Ltd.,  BCSC 892 (B.C.S.C.): The court held that a floating structure was subject to municipal laws dealing with land use. The court reviewed the case law and stated: “I draw the following principles from these authorities:
(a) a floating structure may be a ship for one purpose and not a ship for another purpose, and registration of the structure as a ship under the Canada Shipping Act is not determinative (Herbstreit);
(b) the fact that a floating structure is not self-propelled does not mean that it is not used in navigation and, hence, not a ship (The “Gulf Aladdin” and Saint John Shipbuilding);
(c) a ship continues to be a ship when at rest and not being actively used in navigation at the time in question (The “Gulf Aladdin”);
(d) depending on the circumstances, a barge can be determined to be a ship (The “Gulf Aladdin” and Saint John Shipbuilding) or determined not to be a ship (Star Luzon);
(e) municipal taxing legislation and zoning by-laws can apply to ships (Herbstreit) or to land covered by water as long as they do not interfere with navigation (Galway and Cavendish (Townships); and
(f) in determining whether a floating structure is a ship, it is relevant to look at the primary purpose or function of the structure (Merchants’ Marine Insurance Company and Star Luzon), the current use of the structure (Le Procureur) and the intent of the owners (Herbstreit). “
R. v. Mersey Seafoods Ltd.,  NSSC 155 (N.S.S.C.): At issue was whether Nova Scotia’s occupational health and safety legislation applied to a fishing vessel based out of Nova Scotia. Held: Nova Scotia’s occupational health and safety legislation should not apply to a fishing vessel regulated under the Canada Shipping Act. Safety aboard ships, including fishing vessels, is, in pith and substance, an essential part of the management of ships, and of maritime law, and is therefore a matter of exclusive federal jurisdiction under section 91(10) of the Constitution Act 1867. Provincial occupational health and safety legislation is not applicable to federally regulated undertakings and activities – and in particular to ships and safety aboard ships
3. Maybe, After all, a Ship Supplier’s Claim for the Unpaid Provision of ‘Necessaries’ will Rank Higher than that of a Mortgagee in a Priority Dispute: Kent Trade and Finance Inc. et al v. J.P. Morgan Chase Bank et al  FCA 399.
This is new, unprecedented territory in Canada. Granted, while perhaps limited to the particular facts and circumstances of this case, this recent decision is of great interest to any and all involved in the provision of, or consumption of supplies concerning a ship.
For quite some time now, the Canadian based ship supplier has had reason to cry ‘foul’ when comparing its lot to that of its American based equivalent.
Consider the background to this case, which is not the least bit novel in maritime circles.
A supplier provides fuel or bunkers to a ship [or for that matter, any other material considered ‘necessary’ for the operation of the same]. The ship also happens to be security for a debt owed, by way of registered mortgage[s]. These are but two of different types of claims that may be advanced in an in rem claim against the ship in the Federal Court of Canada. Consider the case where there is a default in a defence by those interested in the ship, or, for that matter, a judgment is registered against the ship. The ship, sued, and ‘served’ as an in rem defendant, is an asset to the credit of the court action. This is, of course, the essence of the ‘in rem‘ claim, being as against the ship, or the ‘thing’ itself [working backwards from the Latin phrase ‘in rem’].
Consider next the relatively common reality, that the value of the claims being filed against the ship exceed her value on a ‘judicial’, or a court ordered sale of the ship as being credit to the law suit[s] in question. The ship is sold so as to liquidate the asset for a ‘fund’. But who gets the money, and in what order?
Our courts have applied the rule that the ranking of claims to the proceeds from the sale of a ship is decided by the law of the forum. That is, as a rule, priority disputes in the courts of Canada would then be determined in accordance with Canadian law.
Under Canadian law, a supplier of necessaries is provided a statutory right in rem, whereby it has a claim against the ship whereby it could, if the occasion warranted, arrest a ship for security in support of its claim. However, in Canada, a claim for unpaid necessaries does not create a maritime lien. Moveover, while such a claim does create a statutory right in rem, this ranks below a mortgage, which in turn is outranked by any ‘maritime liens’ against the vessel. In effect, a claim for necessaries comes in after maritime liens and mortgages in terms of priority.
In the United States
Under American law, a ‘necessaries’ provider is however afforded a maritime lien, by virtue of the Commercial Instruments and Maritime Liens Act, 46 U.S.C. 31342, which provides that with the exception of ‘public vessels’, a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner:
i. has a maritime lien on the vessel;
ii. may bring a civil action, in rem, to enforce the lien;
iii. is not required to allege or prove in the action that credit was given to the vessel.
As such, note, from the perspective of the Canadian ship supplier, the disparity in priority position from that of its American ‘cousin’.
What if, a ship supplier were to incorporate a contractual provision, that, regardless of the vessel’s flag, the location of the supply or the base of the operations of the vessel, that United States law were to apply? Could it take the benefit of this U.S. statute?
Canadian case law precedent has it that foreign maritime liens, including those arising under a United States statute, will be recognized and given the same priority in Canada as would be given to a maritime lien created in Canada under Canadian maritime law, ‘unless opposed to some rule of domestic policy or procedure which prevents the recognition of the right’: Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of),  3 S.C.R. 907. As such, what if a contract otherwise having nothing to do with American interests or a call at an American port, culminated in a law suit in Canada, in our court system, whereby someone wanted to take the benefit of the U.S. statute?
Now We Come to Our Story
This case concerns whether the suppliers of necessaries should be granted maritime liens which would rank in priority over a mortgage claim held by certain mortgagees.
By legal process filed by the mortgagees, J.P. Morgan Chase Bank an J.P. Morgan Europe Ltd., a Liberian flagged vessel, the M.V. LANNER, was arrested in Halifax and it was sold by the Federal Court of Canada in an admiralty in rem action. The ship was owned by a Liberian company, Mystras Maritime Corporation, and was managed by Arrow Co. Ltd. of Greece.
Kent Trade and Finance Inc. supplied fuel oil to the ship, while she was in Spain, through an unknown supplier. This company also supplied fuel to the ship while she had called at Halifax, Nova Scotia, through a Canadian supplier. Both contracts, whereby this fuel was provided, contained a provision that they were to be ‘subject to the laws of the United States of America.
Praxis Energy Agents S.A. was another claimant. It is a corporation based in the British Virgin Islands. Through a supplier, this company provided fuel to the ship at a port in Trinidad. This contract also contained a provision that it would be governed by the laws of the United States.
There was a third claimant. CP 3500 International Limited is a Cypriot company. It arranged for a supplier in Singapore to provide combustion catalysts to the ship while in Singapore. This contract contained a clause stipulating that ‘All disputes [under the contract] … shall be submitted to binding arbitrators … all in accordance with Washington State law”.
The above ‘necessaries’ claimants claimed that they enjoyed maritime liens by virtue of their contractual American ‘choice of law’ clauses. Therefore, they argued, their claims to the vessel’s proceeds should be satisfied ahead of the J.P. Chase mortgage on the ship.
Relevant Judicial History
Being at the Federal Court of Appeal level, it is important to note what happened ‘below’.
In first instance, the Prothonotary of the Federal Court Trial Division ruled that the suppliers did not enjoy the status of maritime lien claimants. He ruled that the suppliers in fact came behind the mortgage claim, because the mortgage holders were not parties to the supply contracts and as such the private affairs of the supply contracts [only being between the ship and the suppliers] could not dictate whether American law [specifically, the ‘supplier friendly’ statute above] applied.
The Prothonotary addressed, through a ‘conflicts of law analysis’ [that is, asking what law should apply] the facts of each transaction involving the suppliers to determine if the United States had the closest and most substantial factual connection in relation to other countries. [This is a test, or analysis, frequently employed on ‘conflicts of law’ analysis.]
The prothonotary ruled that there was no real American connection to the facts of the case, and as such, it could not apply. As no other body of law was put forward nor proven as applicable, he applied the above noted Canadian law to the dispute, ruling that the mortgage claimant recovers before the necessaries providers.
This result was upheld on appeal to a judge of the Federal Court, Trial Division, who ruled that choice of law clauses in supply contracts would be determinative as to what law applied only if the vessel’s owner was personally liable under the supply contract in question. The judge ruled that there was insufficient evidence to prove that the vessel’s manager had the authority to bind the vessel’s owner. Further, and in any event, in then applying the ‘closest and most substantial connection’ test the judge upheld the finding that American law did not apply to the transactions.
Undeterred, the suppliers appealed to the Federal Court of Canada. They wanted the contractual provisions that American law was to apply, with the benefits brought along with it, to be enforced.
The Deciding Majority’s Analysis at the Federal Court of Appeal
As detailed below, this case was disposed of by a ruling of two of three judges. The third dissented in large part. His analysis is discussed below.
The majority of the Court ruled as follows.
Whenever a Canadian court is asked to apply the law of another country, it must apply a ‘choice of law’ analysis, using Canadian conflict of law rules.
As a general rule, the first step will then be to determine the specific nature of the dispute, as different choice of law rules apply to different categories of claim. In identifying the nature of the dispute, the court reviewed the essence of the maritime lien, defined as a “true, substantive right in the property of another…. being an ancient creature … having not equivalent in the common law.” The Court further commented that “This is a secured, in rem right against a vessel, arising without registration or other formality when debts of a specific nature are incurred by or on behalf of a ship. The lien creates a charge which “goes with the ship everywhere, even in the hands of a purchaser for value without notice, and has a certain ranking with other maritime liens, all of which take priority over mortgages.””
While Canadian law does not afford a maritime lien for the supply of necessaries, other jurisdictions do, such as the United States, as mentioned above.
The Court noted that this is confusing territory. Maritime transactions for the supply of necessaries may involve a multitude of jurisdictions. Fuel might be supplied to a vessel under a contract between parties in different countries, negotiated in one but performed in another. Notwithstanding that maritime liens arise, in effect secretly, by the ‘operation of law’ and not by virtue of a contact between parties, the Court stated that the choice of law clause in a supply contract should generally govern maritime transactions, including the rights which may arise from those transactions, in the interest of adding ‘order’ and ‘certainty’ to the private rights and the enforcement of same for parties to such contracts. In essence, should a contract clause not be enforced if clear and unambiguous?
At common law, the courts give effect to parties choosing a legal system or body of law as governing. Where there is an express or an implied choice of law by the parties to a contract, such law will normally govern the contract and rights and obligations generated by the contract. Absent an express or implied choice of law by the parties, the proper law of the contract is then to be determined by assessing which jurisdiction has the closest and most substantial connection.
In noting that maritime liens are not created by a contractual agreement between parties, the Court noted the apparent incongruity of having the same govern simply by virtue of a contract between the parties. As such, the Court expressly left open in its analysis the possibility that where a maritime transaction is so strongly connected to a jurisdiction that the law of such country might govern rather than and notwithstanding there being a choice of law clause in the relevant contract.
This said, the Court disagreed with the Federal Court judge hearing the initial review of the matter, in finding that – regardless of whether legally relevant or necessary – on the facts of the case there was a contractual link between the owners of the ship and the suppliers in question.
Accordingly, on the basis that there was no one single jurisdiction having a clear and overriding connection to the claims over any other country, and on the basis that the owner of the ship was seen to have been privy to the supply contracts, it was held that the ‘proper law’ of the Kent Trade and Praxis contracts, based on the Canadian ‘choice of law’ rules [the parties expressly agreeing on the point] was American law. As concerns the CP3500 contract, there was no explicit choice of law clause, however the arbitration clause inferred an intent that the forum of the arbitration also indicate the proper law of the contract. Accordingly, the CP3500 contract would also be subject to American law.
The Application of American Law
A question emerged as to whether there was a problem in articulating exactly what the American law was, to be applied in the proceeding. While the above noted statute seemed perfectly clear enough, a question was raised as to whether there was a divergence between various U.S. judicial districts as to whether a maritime lien could exist, under the above noted statute, for the purposes of American law, where a non U.S. supplier has provided necessaries to a foreign vessel in a foreign port. In effect, can foreigners, in a foreign transaction, simply ‘borrow’ a U.S. choice of law clause to claim the benefit of the statute? What would the U.S. courts do, if confronted with a question in the United States? Is there a principle to be applied, that the protection of the statute sought by the suppliers is that the statute should be applied only for the protection of American suppliers, that is, for goods supplied at an American port? Case law cited at this hearing indicated that at least one U.S. judicial district is of this view, whereas another cites the broad and expansive wording of the statute as creating a maritime lien regardless of where the services were provided…
Disposition of the Case …
Based on the most recent case law from the United States, [suggesting that U.S. law would recognize a maritime lien for necessaries, where, under a supply contract governed by U.S. law, a foreign supplier provides goods or services to foreign vessels in a foreign port], the majority of the Federal Court of Appeal ruled that the suppliers in this case in effect could take, and did enjoy, the elevated ‘ranking’ benefit over the mortgage claimants to the judicial sale proceeds from the M.V. LANNER. Granted, this case law came from one particular judicial circuit, where the [albeit, older] case law from another circuit disagreed, having adopted the aforementioned ‘restrictive’ principled approach in not approving of the creation of a maritime lien for services provided outside of U.S. waters. As mentioned, the majority of the Federal Court of Appeal went with the most recent U.S. case as establishing what the U.S. law is, in the broad ‘reach’ of the statute, and, having found that U.S. law was incorporated into the subject supply contracts ruled in favour of the suppliers.
… but not without a ‘Dissent’
Mr. Justice Pelletier disagreed with the above disposition of the case by the majority. He found that there was not one discernable trend in the United States, whereby courts would necessarily rule that the effect of the aforementioned American statute is to confer a maritime lien on a foreign supplier of necessaries to a foreign ship in a foreign port. It could go either way, he ruled, based on which judicial district one was litigating in the United States. As such, the necessary ‘proof of the foreign law’ failed on the part of the supplier litigants, who were seeking to prove it. The proof of foreign law failed, not because of the conflicting opinions of the experts called by the parties to ‘prove’ what the U.S. law was, but because the state of the law with respect to maritime liens is, at present, seen to be determined by the circuit in which the arrest and sale of the ship occurs. Had the arrest and sale occurred at a specific U.S. port the case law for that circuit would have been applied on point. Where, however, such as this case, where the arrest and sale occur outside the United States, and no tie to any particular circuit is proven, then the U.S. law applicable to that transaction has not been proven.
Where there is no proof of the foreign law, then the law of Canada will apply, by default. The law of Canada does not recognize a maritime lien for the supply of necessaries to a vessel so that the claims of Kent Trade and Finance Ltd. and Praxis Energy Agents S.A. to priority over the claims of the ship’s mortgagees should be dismissed.
The dissenting judge however found the situation as concerns the CP35000 claimant to be different. The choice of law clause relied upon by that party cited the law of the state of Washington. Washington is located in a particular judicial district in the United States which has ruled that the protection of the above cited Maritime Lien statute would extend to the case of a foreign entity providing necessaries to a foreign ship at a foreign port. As such, judicial precedent for Washington being ‘friendly’ to the CP35000, as a supplier, in the favorable and expansive ‘reach’ of the Maritime Lien statute, the dissenting judge ruled that American law as would be specifically applicable in Washington – was both incorporated into that particular supply contract, and had been proven. Thus the interpretation of the U.S. statute would apply in favour of this particular claimant, who should get the benefit of maritime lien status.
The case for both Kent Trade and Finance and Praxis Energy Agents S.A. however would be dismissed by this judge, because the contracts did not invoke any particular circuit jurisdiction in the United States, leaving in effect a vacuum of proof as to what particular interpretation of the statute in question should be taken. Given this vacuum of proof, with the particular wording [i.e. only a general incorporation of U.S. law] these two parties accordingly failed in their claims. They did not ‘prove’ U.S. law as applying, because no particular interpretation [from amongst the above options] was ‘proven’. Thus, their claims came to be decided under Canadian law, by default, for the absence, or vacuum of proof.
While the decision of the dissenting judge immediately above is quite interesting, and certainly with at least some merit, all of the supplier claimants succeeded in their dispute against the mortgagees by virtue of the disposition by the majority of the Federal Court of Appeal.
?The foregoing makes for some interesting waters to be charted by drafters of supply contracts for Canadian entities in the time period to come. Until Canadian statute law is enacted providing similar ranking benefit, resort may be had to invoking U.S. law, however one has to be careful in tracking exactly how that law is evolving on the question of its ‘foreign’ reach and in the wording of contract provisions.
4. A Primer on Natural Justice and Procedural Fairness
Law’s origin is multifaceted. In Canada and most commonwealth countries, the law is a product of legislation and the common law. The common law is itself an amalgam of principles that have been applied over the ages by our courts. The principles of natural justice and procedural fair are a fundamental pillar of the common law. These principles dictate a level of fairness for parties to administrative or adjudicative decisions. The principles of natural justice and procedural fairness are most often applied in circumstances where the procedures of a particular administrative or adjudicative process are not prescribed or are particularly lax.
Many of the principles of natural justice and procedural fairness are captured in ancient maxims dating back to antiquity, including audi alteram partem (“hear the other side”) and nema judex in causa sua (“no one can be the judge in his own case”). In essence, the principles of natural justice and procedural fairness provide a level of basic procedural requirement that ensure decision makers act with a modicum of fairness. At the very least, the principles of natural justice ensure that we have an opportunity to make our case and that we be heard by an unbiased decision maker.
This guarantee of some level of procedural fair dealing is created by the judicial imposition of a duty of fairness on public administrators and adjudicators, including ministry officials, administrative tribunals and judges. In Canada, the level of procedural fairness expected of decision makers will vary depending on the circumstances of a particular case and/or forum.
In the seminal case on the subject, Baker v. Canada (Minister of Citizenship and Immigration),  2 S.C.R. 817, the Supreme Court of Canada set out an non-exhaustive list of factors relevant to determining the content of a decision maker’s duty of fairness, including (1) the nature of the decision being made and process followed in making it; (2) the nature of the statutory scheme and the terms of the statute pursuant to which the body operates; (3) the importance of the decision to the individual or individuals affected; (4) the legitimate expectations of the person challenging the decision; (5) the choices of procedure made by the agency itself. It is these factors that a reviewing court will consider when deciding whether a party to an administrative or adjudicative decision was extended sufficient procedural fairness.
Because our more formal adjudicative processes (i.e. our courts) operate under rigid procedural rules, the principles of natural justice and procedural fairness are most often raised in the context of regulatory and/or administrative decisions made by government officials and administrative tribunals.
A recent example of the application of natural justice in such a context is the case of 1657575 Ontario Inc. o/a Pleasures Gentlemen’s Club v. The Corporation of the City of Hamilton, (2008), 92 O.R. (3d) 374 (C.A.). In that case, the appellant operated an adult entertainment parlour in Hamilton. The City’s Director of Building and Licensing recommended a hearing to consider revoking the appellant’s license on the basis that it had not actively carried on business within a reasonable period of time following the issuance of its license. Acting on the Director’s recommendation, the City sent the appellant a notice of hearing scheduled before the licensing committee. The notice referred to the recommendation, but it did not include the grounds for the recommendation as required by the applicable by-law. Prior to the hearing, Counsel for appellant requested disclosure of the evidence the city intended to rely upon at the hearing. The Director and the City failed to respond to adequately respond to these requests and instead set out in correspondence the general issues to be addressed at the hearing and some of the documents it expected to rely upon. The appellant was never provided with any of those documents in advance of the hearing. The hearing proceeded and the licensing committee voted unanimously to recommend to city council to revoke the appellant’s license. City counsel accepted and implemented that recommendation. The appellant sought judicial review of the decision before the Ontario Divisional Court and when it lost in that forum appealed to the Ontario Court of Appeal.
Applying the Supreme Court’s case in Baker to the circumstances, the Court of Appeal found that disclosure is a basic element of natural justice at common law and, in the administrative context, procedural fairness generally requires disclosure unless some competing interest prevails. In rendering its decision, the Court of Appeal quoted favourably the following passage from the Principles of Adminsitrative Law, David Jones and Anne De Villars, 4th ed. (Scarborough, Ont.: Thomson Carswell, 2004:
The courts have consistently held that a fair hearing can only be had if the persons affected by the tribunal’s decision know the case to be made against them. Only in this circumstance can they correct evidence prejudicial to their case and bring evidence to prove their position. Without knowing what might be said against them, people cannot properly present their case.
Moreover, the Court followed the Divisional Court’s rationale in Waxman v. Ontario (Racing Commission),  O.J. No. 4226, where it found that the failure to make proper disclosure has the effect of rendering the process “irretrievably tainted with unfairness from the outset”. The Court essentially found that the decision of the licensing committee was in effect void and of no effect as a result of its breach of its duty of fairness.
As in most cases involving the breach of procedural fairness, the Court refused to consider of whether the result would have been the same had there been no unfairness. Instead, the Court set aside the licensing committee’s recommendation and the city council’s resolution revoking the appellant’s license. The ultimate effect of the Court’s decision was the reinstatement of the appellant’s license.
This decision is somewhat anomalous because, in most cases of a breach in procedural fairness, a court having found a breach will return the matter to the relevant decision maker or tribunal for a proper rehearing. Nonetheless, 1657575 Ontario Inc. o/a Pleasures Gentlemen’s Club v. The Corporation of the City of Hamilton is a good and concise example of the application and effect of the principles of natural justice and procedural fairness.
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