Newsletter > August 2010
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.),  1 S.C.R. 494 and Connor v The Queen,  C.T.C. 365, 79 D.T.C. 5256 (F.C.A.).
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.
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.
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.
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.
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