Newsletter > July 2018View/Download this newsletter in PDF
In this issue: 1. News & Upcoming Events 2. Ten Point Action Plan of CTA 3. Independent Contractors Duty to Mitigate Upon Termination 4. Enforcement of Contractual Modifications and Forbearance Agreements 5. Doing Business in Canada – Sale of Goods & Consumer Protection 6. Standard of Review & Interpretation of “Car Blocks” in Rail Regulations
1. News & Upcoming Events
- Fernandes Hearn LLP has been selected as Transport Law – Law Firm of the Year in Canada in the Global Law Experts Annual Awards in the Client Choice Category.
- The Canadian Board of Marine Underwriters Annual Golf Day will take place on August 21st, 2018 at the Richmond Hill Golf Club.
- Port Credit in Water Boat Show, August 24-26, Port Credit Ontario.
- Houston Marine Insurance Seminar, September 16-18, 2018, Houston.
- Ontario Trucking Association Annual Fall Golf Classic, September 18th, 2018, Glen Abbey Golf Club, Oakville.
- Marine & Insurance Claims Association Annual Dinner, October 5th, 2018, New York.
- McGill University / PEOPIL International Aviation Law: Liability, Insurance & Finance Conference, October 19-20, 2018, Ireland.
2. Ten Point Action Plan of Canadian Trucking AllianceThe Canadian Trucking Alliance (*1) believes that the facts surrounding the events of April 6, 2018 Humboldt tragedy (*2) should be used as a catalyst to finally deal with a small segment of the trucking industry that chooses not to adhere to safety regulations. On July 10, 2018, the CTA released its Ten Point Action Plan that highlights how government and industry can work together on improving compliance issues like hours of service, distracted driving, sobriety, carrier evaluation programs along with training and technology recommendations. It recommends implementing the following action plan:
- Introduce regulations this summer to mandate the use of electronic logging devices (ELDs) for all carriers required to maintain a logbook by September-December 2019.
- Consult with the Federal Government, commercial vehicle manufacturing and trucking industry to explore the feasibility of developing regulations requiring the installation of forward-facing cameras in all new and existing federally-regulated commercial vehicles.
- Partner with governments, manufacturers and the trucking industry to assess the availability and feasibility of increasing the use of additional in-cab technologies that monitor distracted driving behaviour of commercial drivers.
- Begin working with the governments, manufacturing and the trucking industry to assess the market readiness of advanced driver assist systems (ADAS), including speed limiters to mandate set speeds on heavy trucks, and determine the role governments can play in increasing the penetration rate of driver assist technology in the marketplace.
- Encourage all provinces to introduce mandatory entry level training (MELT) for commercial truck drivers based on the national occupational standard (NOS).
- Work with governments, trucking and the training industry to develop a distracted driving awareness module for commercial vehicle drivers to be incorporated into all provincial MELT programs and other training programs.
- Explore with the provinces and the federal government ways to expand the use of on-road safety prescreening technology (pre-clearance/pre-screening) to assist provincial enforcement officials in identifying commercial vehicle operators that require further attention and intervention.
- Work with federal and provincial governments to better focus on-road enforcement related to known human factors that contribute to collisions.
- Work with federal and provincial governments to develop a better proactive system to identify trucking companies and drivers that pose a risk to public safety including such measures as mandatory drug and alcohol testing, new entrant education and evaluation programs and anti-avoidance mechanisms.
- Work with federal and provincial governments to develop a ‘best practices’ guide to assist purchasers of transportation services in identifying unsafe operators.
3. Do Independent Contractors Have a Duty to Mitigate When a Fixed Term Contract Has Been Terminated?The answer: No (or, more accurately, “Maybe not”). In the recent decision of the Court of Appeal for Ontario in Mohamed v. Information Systems Architects Inc. (*1) involving the termination of an independent contractor working under a fixed term contract, the court affirmed the key finding of the summary judgment decision below that a terminated consultant was entitled to damages based on the amount remaining payable for the balance of the unexpired term of his contract, with no duty to mitigate. The facts The facts of this case were reasonably straightforward. The plaintiff was an IT consultant who had left full time employment to pursue contract work with the defendant. The contract at issue was for a term of 6 months and included a provision that the defendant could terminate the contract, inter alia, immediately if it “determines that it is in ISA’s best interests to replace the Consultant for any reason” (emphasis added). The defendant required all of its consultants working for it to submit to a third-party background check. This background check would take 2 to 4 weeks to complete, and in the meantime the consultant began providing services to the defendant. The consultant had already completed a shorter fixed term contract assignment with the defendant and had just begun a new 6-month contract before the background check was completed. Approximately 2 weeks into this new contract, the background check came back, disclosing a prior criminal conviction for assault with a weapon. The report was provided to Canadian Tire, the party for which the plaintiff was providing the defendant’s services under his fixed term contract. When Canadian Tire received the results of the background check, it immediately requested that the plaintiff be removed from the project. The defendant proceeded to terminate the plaintiff’s fixed-term contract, relying on the clause that permitted it to terminate for any reason acting in its best interests. At the time of termination, the plaintiff was only two weeks into his 6-month contract. Upon terminating the agreement, the defendant paid the contractor only for the two weeks of work performed. The decision on the motion The plaintiff contractor then sued the defendant for damages for the remainder of the term of the contract, notwithstanding the contract’s broad termination provision. On the contractor’s motion for summary judgment, the court sided with the contractor. The motions judge relied on the earlier Court of Appeal decisions in Howard v. Benson Group Inc. (The Benson Group Inc.) (*2) and Bowes v. Goss Power Products Ltd. (*3) in concluding that, because there was no enforceable termination provision, damages were to be based on the defined term of the contract, which was 6-months. In the earlier Court of Appeal decision in Benson, which involved an employment contract, the motions judge found that the termination clause limiting damages to the minimums available under the Employment Standards Act was void for vagueness, thus leaving the parties with a fixed term employment contract with the employer having no ability to terminate except for cause. In such contracts, the Court of Appeal held, in both Benson and its earlier decision in Bowes, that an agreement for a fixed term could be treated as “fixing liquidated damages or a contractual amount” (*4), with no resulting duty on the part of the dismissed employee to mitigate. In the earlier decision in Bowes, the contract expressly specified the amount of liquidated damages, which the court thus awarded. In Benson, the court broadened this principle to apply to any contract of a fixed term lacking a termination provision, in which liquidated damages, in the absence of a specific provision, being settled as the amount owed for the unexpired term. In Mohamed, the motions judge similarly held that this would apply whether or not an individual was an employee, dependent or independent contractor. To reach this result, however, the broad termination provisions of the consulting agreement in Mohamed would have to be held unenforceable. The motions judge in Mohamed had in fact ruled that, like in Benson, the termination provisions of the consultant’s contract were unenforceable for vagueness. The decision on appeal Independent contractor agreements differ fundamentally from employment agreements in that termination provisions are not ordinarily subject to the many restrictions regarding reasonable notice imposed by the Employment Standards Act. In theory, this allows for greater flexibility in crafting termination provisions, permitting the inclusion of very broad provisions such as found in Mohamed, whereby the company could terminate the contractor immediately “for any reason” where it determined it was in its best interest to do so. The motion judge’s finding that the clause was unenforceable for vagueness was thus a necessary ruling in awarding Mr. Mohamed damages in the amount of the unpaid balance due for the rest of the term, with no duty to mitigate. Otherwise, the defendant company could have terminated the contractor on short notice without any serious consequences. On appeal, however, the appellant company was successful in challenging the motion judge’s finding that the termination clause was too vague to be enforceable. In the end, however, the defendant’s appeal was unsuccessful. For Mohamed to succeed, he still needed a finding that the firm that retained him had terminated the agreement wrongfully. Ultimately, the Court of Appeal agreed with the motion judge’s alternative finding that the agreement had been terminated in bad faith reliance on the clause permitting termination “for any reason.” It reasoned that, because the contractor had disclosed his criminal record to the company prior to the background check, and prior to doing any work at all, terminating his contract because of his prior criminal record was found to be not in good faith. Employees and independent contractors In its ruling, the Court of Appeal directly considered whether the principle from Benson – that where a fixed-term contract provides either expressly or implicitly for a penalty for early termination, that penalty is payable with no duty to mitigate – should be restricted to the sphere of employment contracts, or alternatively be expanded to include individuals working under independent contractor agreements (*5). Unhelpfully, the Court of Appeal expressly refused to decide this issue. Instead, it simply noted that it was appropriate in this case to do so, citing the two “rationales” from its earlier decisions in Bowes and Benson for why the penalty for breaking a fixed term contract should be damages based on the unexpired term, being: 1) that it was “analogous” to a genuine liquidated damages clause, and 2) because this remedy was a means of “ensuring fairness and certainty for workers” (*6). Conclusion While there is still a fair amount of uncertainty regarding when Ontario courts may choose to extend the Benson principles to the independent contractor context in the wake of the ruling in Mohamed, it is at least clear that the courts are leaning towards shaping the common law to give more generous remedies to “workers” who, not being employees, cannot therefore rely on the statutory protections afforded by the Employment Standards Act. There is little question, then, that the decision in Mohamed gives the courts broader license to do just this. The chief lesson to be drawn at present is that commercial actors that wish to retain independent contractors for the sake of flexibility will now have to exercise greater care, both in how they draft termination provisions, and when they invoke them, where fixed-term contracts are concerned. It may now also be more prudent to consider including express liquidated damage clauses in fixed term contracts to displace the presumption that damages for termination are to be fixed in the amount payable for the balance of the unexpired term. Oleg M. Roslak Endnotes (*1) 2018 ONCA 428 [Mohamed]. (*2) 2016 ONCA 256 [Benson]. (*3) 2012 ONCA 425 [Bowes]. (*4) Benson at para. 33. (*5) Mohamed at para. 25. (*6) Mohamed at para. 26.
4. Contractual Modifications & Forbearance Agreements May Be Enforceable Even if Nothing of Value is ExchangedThe three classic elements of a valid contract at common law are (i) offer, (ii) acceptance, and (iii) “consideration”. The first two elements are intuitive: someone must propose and agreement and a second person must accept the offer. The third element, that of “consideration”, requires that something of value be given by each party. You have to give something to get something, otherwise the agreement is gratuitous and it will not generally be enforceable. Despite the need for consideration, or value, to be exchanged, courts will not usually look into the merits of a bargain. In other words, courts are loath to correct bad deals. Thus, consideration can be nominal. In old English law reports, the cases speak of the exchange of a metaphorical peppercorn as being sufficient consideration to support the enforceability of a contract. In one tongue-and-cheek comment from an English jurist, it was once said that “peppercorn[s] do not cease to be good consideration [even] if it is established that the [recipient] does not like pepper and will throw away the corn. (*1) Traditionally, this requirement for consideration has extended to contract amendments. In order to change the terms of a contract, a new peppercorn ought to be given. However, this was turned on its head in a recent decision of the British Columbia Court of Appeal, which held that a borrower’s repeated promise to repay a loan “next year” was an effective modification to the original agreement, even though no fresh consideration was given. In Rosas v. Toca, the British Columbia Court of Appeal was faced with a seemingly unjust situation. (*2) The plaintiff had loaned $600,000, interest-free, to her friend so that the friend could buy a house. The new home-owning friend never repaid the loan, but had promised, “I will pay you next year”. These promises went on for several years, after which the plaintiff finally commenced an action for recovery of the principal. The claim was issued six years and seven months after the money was originally repayable. The defendant argued that the action was time-barred, as the former BC Limitation Act applied, and it contained a six-year limitation period. In other words, the plaintiff was seven months too late. (Under the current Limitation Act, the limitation is just two years.) Up until now, forbearance agreements have always required consideration. In effect, the promise to defer enforcement has not constituted consideration for the extension of a repayment obligation. Thus, it is good practice to include a specific tolling provision to defer a limitation period in any formal forbearance agreement, at least in jurisdictions where that is permitted. In the Rosas case, the Plaintiff was in a tough spot, as she had deferred enforcement on the gratuitous promise of later payment, but she had no agreement in place to toll the limitation period. She framed her action in “unjust enrichment”, or, alternatively, a declaration that she had an equitable interest in the house. However, those claims were vulnerable to the limitations defence. Given the foregoing, the Honourable Chief Justice of British Columbia, Mr. Justice Bauman, held that “[t]he time has come to reform the doctrine of consideration” so that “[w]hen parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns.” (*3) In other words, he held that “a lack of fresh consideration will no longer be determinative.” (*4). The other two justices of a three-member panel agreed. His Lordship considered several English decisions, including Williams v. Roffey Bros., where a general contractor has promised a subcontractor bonus money for finishing on time so that they would avoid certain penalties for late completion. (*5) Although the subcontractor’s obligation had already existed, the English Court of Appeal found that the general contractor obtained “practical benefits” from the bonus-payment agreement and so it was enforceable. Similarly, His Lordship considered various Canadian cases, including the New Brunswick Court of Appeal’s decisions in Robichaud v. Caisse populaire de Pokemouche (*6) and Greater Fredericton Airport Authority v. NAV Canada. (*7) In the former, a credit union agreed to accept part payment of a debt in order to discharge a judgment registered against the debtor’s house. The Court found that the agreement was enforceable, as the financial institution had obtained a “practical benefit”. In the latter case, NAV Canada agreed to install equipment for a new runway on condition that the airport authority pay the cost, even though NAV Canada already had an obligation to service the facility. In the NAV Canada case, the New Brunswick Court of Appeal explicitly decided to “build upon” the English Court of Appeal’s judgment in Williams v. Roffey Bros., holding that a contract could be varied without fresh consideration so long as it was not procured under duress. However, on the facts, it found that NAV Canada had secured the agreement under duress. After also reviewing foreign law and academic commentary, Bauman, C.J., commented that he was “persuaded that the legitimate expectations of the parties in the case of a modification to a going transaction should be protected” and that, in any event, there were “practical benefits” flowing to the plaintiff, who gained “the benefit of maintaining her relationship with her friend Ms. Toca”, which had been the motivation for granting the loan in the first place. (*8) Finally, his lordship also found that the enforcement of modification agreements would permit parties to adapt to changing circumstances. (*9) He commented that it made commercial sense in the modern age. It is not yet clear if other jurisdictions will follow British Columbia’s lead, or how the Rosas decision will be treated outside of the debor-creditor context. However, the decision might be seen as a part of a trend by which Canadian courts have become particularly interested in protecting fairness and the reasonable expectations of the parties. Following Sattva Capital Corp. v. Creston Moly Corp. (*10) – where the Supreme Court of Canada famously crafted a new duty of good faith in contractual performance – courts have been more ready to assess the circumstances of contractual performance, even if those factors ought not “overwhelm” the words on a page. This Rosas case is a good example of this trend. After all, the British Columbia Court of Appeal could have simply held that an agreement to defer enforcement can indeed constitute consideration for a term extension. The fact that the Court was willing to attack the underlying doctrine of consideration is significant. Alan S. Cofman Endnotes (*1) Chappell & Co. Ltd. v. Nestle Co. Ltd.,  A.C. 87 (H.L.), per Somervell L.J. (*2) 2018 BCCA 191. (*3) Ibid. at para. 4. Also see para. 183. (*4) Ibid. (*5) , 1 All E.R. 512 (C.A.). (*6) (1990) 69 D.L.R. (4th) 589 (N.B.C.A.). (*7) 2008 NBCA 28. (*8) Supra note 2 at paras. 176-77. (*9) Ibid. at para. 180. (*10) 2014 SCC 53. 5. Doing Business in Canada – Part 10 (*1) – Sale of Goods & Consumer Protection Part 1 – Sale of Goods Domestic Rules The primary legislation applicable to sale of goods contracts in Canada are the various provincial Sale of Goods Acts. These have been enacted or adopted in all provinces and territories, except in Québec, where the regulation of the sale of goods is governed by its Civil Code. Although the law in Québec is operatively similar to the rest of Canada (in a practical sense), significant structural and procedural differences exist. The discussion below focuses on Canadian common law jurisdictions. In addition to the Sale of Goods Acts, there are a number of other pieces of legislation that relate to the sale of goods, notably the provincial Personal Property Security Acts, which regulate security and security interests against property other than real estate and Consumer Protection Acts, which may apply to certain transactions (requiring the disclosure of certain information, or implying terms and conditions into sale of goods contracts). International Rules The UN Convention on Contracts for the International Sale of Goods 1980 (“CCISG”) was implemented in Canada by the International Sale of Goods Contracts Convention Act 1992. The CCISG has subsequently been incorporated into provincial legislation by all Canadian provinces and territories. The CCISG governs contracts for international sales of goods between businesses, and excludes sales to consumers, sales of services and sales of certain other goods. Sale of goods contracts subject to the CCISG in Canada often exclude the applicability of the CCISG. It is excluded most commonly because parties are unfamiliar with its application. Parties generally prefer to choose Canadian law or equivalent contract law of another jurisdiction. In international sale of goods transactions, parties generally tend to prefer to apply one or the other’s domestic laws rather than applying provisions based on the CCISG. Incoterms The International Chamber of Commerce international commercial terms (Incoterms) 2010 are commonly used for drafting sale of goods contracts in Canada. In addition, Canadian banks involved in international sale of goods transactions typically adopt the Uniform Customs and Practice for Documentary Credits and the Uniform Rules for Demand Guarantees, where applicable. Common Law In Canada, the substantive elements required to create an enforceable contract are governed by common law. For a contract to be enforceable under common law, five elements must be present:
- a) Intention to create legal relations.
- b) Offer and acceptance.
- d) Capacity to contract.
- e) Lawful purpose.
that the definition of car block in section 2 of the Interswitching Regulations must be read as 60 or more cars that, as a block, could be interswitched with a reasonable number of hook-and-haul movements at an interchange and are destined to, or originate from a single shipper at a siding (Interpretation Decision at para. 78).The CTA indicated that:
[t]he reasonable number of hook-and-haul movements inevitably falls to be determined on a case by case basis in light of the factual circumstances of each case (Interpretation Decision at para. 78).The CTA found that the interswitching in this case qualified for the lower car block rate. (Interpretation Decision at para. 112). The CTA added that:
the necessity to break a car block for placement in the interchange tracks is not, in and of itself, a relevant consideration in determining eligibility of the car block rate” but “that it is rather the manner and extent of handling of the traffic at the interchange that determines whether the car block rate is available. Entitlement to the car block rate is lost if there is a requirement to marshall and/or classify cars at the interchange (Interpretation Decision at para. 109).In this case, the CTA found that the interchange did not require marshalling and/or classification of cars and so the car block rate applies (Interpretation Decision at para. 112). CN appealed to the Federal Court of Appeal. Standard of Review Justice Near, of the Federal Court of Appeal, dealt with the standard of review at paragraph 82 of the decision:
The standard of review for decisions where the CTA interprets its home statute is reasonableness (Canadian National Railway Company v. Emerson Milling Inc., 2017 FCA 79 at paras. 59–61; Canadian National Railway v. Canadian Transportation Agency, 2010 FCA 65 at paras. 27–29; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61 at para. 30). This extends to the delineation of its own jurisdiction in applying its home statute (Bell Canada v. Canada (Attorney General), 2017 FCA 249 at para. 9). This is not a true question of jurisdiction and so does not attract correctness review. As the Supreme Court explained in West Fraser Mills Ltd. v. British Columbia (Workers’ Compensation Appeal Tribunal), 2018 SCC 22 (West Fraser Mills):
Where the statute confers a broad power on a board to determine what regulations are necessary or advisable to accomplish the statute’s goals, the question the court must answer is not one of vires in the traditional sense, but whether the regulation at issue represents a reasonable exercise of the delegated power, having regard to those goals…
West Fraser Mills at para. 23; see also Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2018 SCC 31.
As long as the CTA’s decision demonstrates “justification, transparency and intelligibility within the decision making process” and “falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”, the Court will not intervene (Dunsmuir v. New Brunswick, 2008 SCC 9 at para. 47,  1 S.C.R. 190.The Federal Court of Appeal found that it was reasonable for the CTA to find that it had jurisdiction to interpret a term found in regulations made pursuant to its enabling statute. It also found that it was reasonable for the CTA to determine that, because section 127 of the Act authorized the CTA to make an interswitching order and section 111 defines interswitch in accordance with the regulations made under paragraph 128(1)(b) of the Act, the Agency had jurisdiction to interpret terms found within those regulations. Justice Near added:
 The Interpretation Decision found, and I agree, that the text of section 2 is silent as to whether an interswitching operation must occur in a single movement. Importantly, however, there is nothing in the text of section 2 that precludes an interpretation that allows for interswitching to occur in multiple movements. In this case, then, the context and purpose will be determinative.  The CTA found that the context and purpose of the Interswitching Regulations—namely to provide shippers with relief in the context of a near monopoly—militates against a definition of car block that bestows all power to determine what rate to charge on the appellant.The Court found that it was reasonable for the CTA to look to the text, context, and purpose of the Interswitching Regulations and, in doing so, the CTA’s interpretation considered the interests of both railway companies involved in an interswitching operation. It arrived at the above interpretation based on its expertise in this area The appeal was dismissed. Rui M. Fernandes Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
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