SOUND LEGAL ARGUMENTS AREN'T restricted to the jurisdictions in which they were conceived. They’re free to roam beyond borders and find their way, at least implicitly, into the decisions of foreign courts and regulators. This subtle influence has fostered a robust legal harmony among Western nations, and particularly so between Canada and the United States — and yet the courts do manage to surprise lawyers with an occasional discordant note, requiring continual review.
The case summaries that follow aim to make that review a little easier. For the first time, Lexpert® has assembled a “top 10” list of recent Canadian cases with important implications in the United States. Courts and tribunals in Canada have, in the past year or so, pronounced on jurisdiction (Goldhar, Excalibur), the right to a jury trial (Aitkens), franchise rights (Chavdarova), the admissibility of representative communications (Spears), and a host of other matters that merit the serious attention of counsel in the US.
Herewith, a rundown of the top cases with cross-border impact.
Goldhar v. Haaretz.com
Chavdarova v. The Staffing Exchange
Quesnel v. Groupe Jean Coutu
Excalibur Special Opportunities v. Schwartz Levitsky Feldman LLP
R. v. Spears
Eli Lilly v. Canada
Bristol-Myers Squibb Canada v. Teva Canada
R. v. Aitkens
Trump v. Singh
Windsor v. Canadian Transit
GOLDHAR V. HAARETZ.COM
The Ontario Court of Appeal’s split decision in Goldhar v. Haaretz.com, 2016 ONCA 515, may have made it easier for foreign plaintiffs, including those in the US, to sue Canadian publishers, broadcasters and authors outside of Canada. A majority of the three-judge panel in the case ruled that an Israeli newspaper that allegedly defamed a Toronto real estate developer by criticizing his management of an Israeli soccer team could be sued in Ontario.
“Goldhar suggests that anyone can be sued anywhere so long as there is at least one reader of the alleged libel in the foreign jurisdiction,” says Paul Schabas, a partner in Blake, Cassels & Graydon LLP in Toronto, who represented Haaretz.
Schabas postulates the case of an Israeli resident who owns the Toronto Maple Leafs National Hockey League franchise and flies to Canada a few times a year to watch the team play. “The owner would be a celebrity here even if no one ever heard of her in Israel, but on the basis of this judgment, she could sue in Israel, and the Canadian publishers of the alleged libel would have no choice but to defend themselves because any Israeli judgment would likely be enforceable in Ontario,” he says. “From the point of view of the communications industry, that’s tantamount to interfering with the media, and also represents a large financial burden, especially on smaller companies.”
But William McDowell, a partner at Toronto litigation boutique Lenczner Slaght Royce Smith Griffin LLP and counsel for plaintiff Mitchell Goldhar, who owns one of Israel’s most popular soccer clubs, Maccabi Tel Aviv F.C., doesn’t see things that way. “There’s always a burden on the plaintiff to demonstrate that there is a reason for him to vindicate his reputation in his forum of choice,” McDowell says. “It’s not like we have a completely open season.”
Still, according to Schabas, it doesn’t make practical sense to try the case in Canada. “The evidence is that there are 19 witnesses from Israel to be called by the defendant, and suddenly we have to bring everyone to Toronto,” he explains. “Interpreters are going to be necessary and an enormous expense, and the court will be hearing about matters of public interest in Israel that no one here knows anything about.”
Not surprisingly, Schabas prefers the dissent articulated by Justice Sarah Pepall to the majority opinion written by Justice Janet Simmons and concurred in by Justice Eleanore Cronk. “Pepall’s dissent demonstrates that there’s a real danger in taking jurisdiction when we shouldn’t,” the lawyer says. “If Canadian courts were to refuse jurisdiction, our press would be less exposed to other countries taking jurisdiction in cases involving them.”
Haaretz has a print circulation of 70,000 in Israel. But because the evidence established that up to 300 Canadians read the impugned article online and that many of Goldhar’s 200 employees in Toronto had heard about it, Schabas did not dispute that the alleged tort was committed in Ontario as well as in Israel. Instead, he argued that his client had rebutted the presumption of jurisdiction because there was no real relationship or only a weak relationship between the subject matter of the litigation and Ontario.
But the majority concluded that the action did indeed have a “significant connection” to Ontario. “What is important is that the alleged sting of the article is very much related to how Goldhar conducts business in Canada because the article draws a link between Goldhar’s management model and his Canadian business,” Justice Simmons wrote. “Although the main subject of the article may be the management of an Israeli soccer team, the article makes Goldhar’s management model — and its Canadian origins — an integral part of that subject.”
Justice Pepall, however, reasoned that jurisdiction should attach where Goldhar’s reputation had likely suffered most. She also concluded that the analysis of the motions judge, Superior Court Justice Mario Faieta, was faulty. Particularly objectionable was his reliance on Goldhar’s undertaking to pay for the travel and accommodation of Haaretz’s witnesses from Israel. As Justice Pepall saw it, plaintiffs should not “be permitted to buy passage to a forum” due to “his or her financial heft.”
In March, the Supreme Court of Canada granted leave to appeal in the case. In its materials, Haaretz enunciated three issues of national and international importance: whether the publication of defamatory statements on the internet can give rise to a presumption of jurisdiction in the context of a multi-jurisdiction case; what is the appropriate level of scrutiny for the forum non conveniens part of the test for assuming jurisdiction; and whether, in internet defamation cases, the law of the place of “most substantial harm” rather than the law of the place where the tort was committed should apply.
Schabas expects considerable interest from potential intervenors. “I believe this case highlights issues that the high court in its previous decisions left open for another day,” he says. – J.M.
LEGAL COUNSEL
Blake, Cassels & Graydon LLP (for Haaretz): Paul Schabas, Kaley Pulfer, Emily Bala (formerly)
Lenczner Slaght Royce Smith Griffin LLP (for Mitchell Goldhar): William McDowell, Brian Kolenda, Julian Porter (independently), Ren Bucholz (formerly)
CHAVDAROVA V. THE STAFFING EXCHANGE
US companies that want to avoid becoming accidental franchisees when entering into commercial arrangements in Canada would be wise to read Chavdarova v. The Staffing Exchange, 2016 ONCA 874.
In the 2016 case, the Ontario Superior Court of Justice ruled that, if the relationship between the parties meets the conditions set out in the definition of the word “franchise” in the Arthur Wishart Act, which governs franchise disclosure in Canada, then the relationship between the parties is one of franchisor and franchisee “no matter what terminology the parties have used to describe the relationship.”
That’s potentially a big problem, because while most people think of franchises as fast-food chains, the definition is broad enough to pull in many commercial arrangements — licensing agreements, distribution agreements, agency agreements — and define them as franchise relationships.
The Staffing Exchange, or TSE for short, is an employment agency. But it says that, unlike most regular employment agencies, its clients are not organizations looking for employees; they’re licensees. According to the company, the clients enter into a brokerage license agreement with the company, which entitles them to share a database called the Multiple Career Listing Service, which The Staffing Exchange compares to the Multiple Listing Service in real estate.
Lyudmila Chavdarova signed two agreements with them, one a Certification and Training Agreement, which she received in September 2011, and the other a Brokerage License Agreement, which she received about two weeks later. She paid TSE $29,500 (all dollars Canadian) plus tax for a four-day training course under the certification agreement, which stipulated that anyone taking it would receive 85 per cent of their revenue from placements and contracts negotiated while he or she was a TSE Career Broker. The agreement specifically spelled out this was not a franchisor-franchisee relationship. Under the license agreement, TSE collected all billable amounts invoiced and gave 85 per cent to the licensee. It also set minimum annual billable standards.
In July 2012, TSE sent Chavdarova a “notice of default” that listed, among other things, that she had total billings of $586.84 over the past six months that was “not in line to cover the minimum billings of $80K per year.” In February 2013, TSE’s lawyers gave her notice of termination of the agreement.
Chavdarova, who represented herself in court, eventually wrote back notifying TSE that she was rescinding the “franchise agreement” between them, and claiming that she would exercise her statutory right of action for financial damages. She said that the relationship was that of franchisor and franchisee no matter “what the relationship might be called for other purposes.”
The court agreed, and held it was a franchise relationship partly because of the payment she made to TSE to become a broker. “While the defendant has attempted to dress up the payment as one for training only, there is little doubt that it is, in fact, a fee that must be paid in order to enter into the relationship,” wrote Justice Douglas Gray. He noted Chavdarova’s business also had to be operated in accordance with uniform equipment, systems, methods, procedures and designs, and under TSE’s proprietary marks, saying: “It is also clear, in my view, that the defendant exercises significant control over the so-called licensee’s method of operation.” That included providing billing and invoicing services, collection services, office and accounting support. When she signed the license agreement, he wrote, she was required to acknowledge the necessity of operating her business “in strict conformity with [TSE’s] standards and specifications.”
He concluded that if the relationship meets the conditions set out in the definition of the word “franchise” in the Arthur Wishart Act then the relationship between the parties is that of franchisor and franchisee, “no matter what terminology the parties have used to describe the relationship.” Chavdarova was awarded a refund, plus damages.
Michael Robb, a partner in the class actions group at London, Ont.-based Siskinds LLP, which acted for TSE, says US companies that do business in Canada involving licensed agents, and who want to make sure to avoid getting caught up in the same situation, need to look at “the substance of the relationship rather than the form that you give it.” The Wishart Act is broad, he says, so “you have to be really thoughtful about the substance of the agreement or the arrangement.”
He believes the most obvious way to prevent becoming an inadvertent franchisee is to get legal advice from an experienced Canadian franchise practitioner “and make sure it’s truly a licensing arrangement and not a franchise arrangement. The takeaway for me is, it doesn’t matter what you call your arrangement, the court’s going to look at the substance of it and make a determination.” – S.R.
LEGAL COUNSEL
Siskinds LLP (for The Staffing Exchange): Michael Polvere
QUESNEL V. GROUPE JEAN COUTU
Prospective franchisors from the US and elsewhere in the pharmacy sector, and perhaps in other professional sectors, should welcome a Québec Superior Court judgment that affirms the legality of royalty clauses in franchise agreements, so long as the royalties bear a reasonable correspondence to the value of services or goods that the franchisor provides.
“The position taken by the disciplinary council of the Order of Pharmacists was that the Order’s Code of Ethics was a complete bar to paying a royalty based on a pharmacist’s gross income when part of the income was derived from the sale of medications,” says Réal Forest, a partner in Blake, Cassels & Graydon LLP’s Montréal office.
Michel Quesnel, a pharmacist and franchisee with the Jean Coutu Group, which boasts 420 franchise stores in Québec, had been the subject of several complaints from the Ordre des Pharmaciens du Québec. The complaints alleged that the royalties he paid to Coutu Group offended the Code of Ethics’ prohibition against profit-sharing with non-pharmacists.
After pleading guilty to the complaints, Quesnel sued Coutu Group. He sought a declaration that the offending provisions in the franchise contract were invalid and claimed repayment of the royalties. Coutu Group, represented by Forest, countered that the provisions were valid.
Justice Michèle Monast ruled in Jean Coutu’s favor. The arrangement, she concluded, did not amount to profit-sharing. The royalty wasn’t calculated as a function of the bottom line, but rather as a percentage of gross sales that reflected the fair market value of the services provided by Coutu Group. These services included planning and operating the pharmacy premises; marketing, human resources and management support services; group purchase arrangements; volume discounts; and reputational benefits arising from the Jean Coutu trade-mark and brand.
The upshot was that the payments to the franchisor did not put the pharmacist’s professional independence in jeopardy. Monast noted that professionals regularly made payments, like rent, that could be calculated in whole or in part against gross revenue. But that did not make the arrangements profit-sharing in nature, nor did they compromise professional independence.
Éric Préfontaine, a partner in Osler, Hoskin & Harcourt LLP’s Montréal office, says the expert evidence tendered in Quesnel was critical to the outcome. “The expert evidence was that the royalties charged by Jean Coutu were on the lower end of the reasonable scale,” he says.
But the saga may not be over quite yet. In mid-2016, before Quesnel was released, Sopropharm, an association of 284 Jean Coutu franchisees, filed a class action seeking to annul two provisions in their franchise agreement, including the royalty provision at issue in Quesnel. The group is looking to recover some $252 million in royalties.
Sopropharm contends that franchisees were overpaying for certain services provided by the franchisor, including advertising, circulars and branded plastic bags. Préfontaine, however, questions the likelihood of the suit’s success. “Apparently the plaintiffs are not renouncing their argument regarding the legality of applying royalties to revenues from the sale of medications,” he says. “But given the strong reasons in the thorough 37-page judgment, I’m wondering what will happen to the class action.”
Meanwhile, Quesnel’s impact could extend well beyond the franchise arena alone. “The case could affect many issues that involve allegations of fee-sharing by professionals like lawyers or doctors,” he says.
It probably wouldn’t take much for the issue to emerge elsewhere in Canada, where fee-sharing is anathema to lawyers and doctors in particular. “The people I talked to in Toronto raised their eyeballs when I mentioned the possibility of a percentage royalty in the case of professionals,” Forest says. – J.M.
LEGAL ADVISORS
Martin Binet (for Michel Quesnel)
Blake, Cassels & Graydon LLP (for Groupe Jean Coutu): Réal Forest, Claude Marseille, Liviu Kaufman
Clyde & Co. Canada LLP (for L'Ordre des pharmaciens du Québec): Caroline Malo, André-Philippe Mallette
EXCALIBUR SPECIAL OPPORTUNITIES V. SCHWARTZ LEVITSKY FELDMAN LLP
It appears to be open season for global class actions in Canada following the Ontario Court of Appeal’s decision in Excalibur Special Opportunities v. Schwartz Levitsky Feldman LLP, 2016 ONCA 916, which certified a global class action despite the fact that most of the proposed class members had little or no connection to the province.
“The case is consistent with rulings from the British Columbia Court of Appeal, particularly in mining cases,” says Margaret Waddell of Waddell Phillips Professional Corporation in Toronto, who was co-counsel for Excalibur. “If the action has a real and substantial connection to Ontario, our courts won’t care where the plaintiffs come from.”
So much so that Canada appears to have one of the broadest — if not the broadest — jurisprudential approaches to jurisdiction in the world. But some lawyers argue that Canadian judgments based on that approach may prove difficult to enforce.
“I agree completely with the dissent in Excalibur, which reasons that our approach to jurisdiction doesn’t take sufficient account of principles of comity,” says Katherine Kay, a litigation partner in Stikeman Elliott LLP’s office in Toronto. “What happens if courts elsewhere will not recognize the real and substantial test and fail to give our judgments preclusive effect? Will that generate more litigation abroad for global class members?”
Excalibur and 56 other investors made private-placement purchases of shares of Southern China Livestock International Inc. (SCLI), a Nevada company. Schwartz Levitsky Feldman (SLF), an accounting firm with offices in Montréal and Toronto, prepared an audit that was included in the private placement memorandum. Subsequently, SCLI became insolvent. Excalibur sued SLF, alleging negligence and negligent misrepresentation in the preparation of the audit.
Excalibur sought certification in Ontario for a class of 57 investors, of whom only two lived in Ontario. Justice Paul Perell of the Superior Court of Justice refused to certify. He reasoned that class members would not have expected their rights to be determined in Ontario when they were “non-residents of Ontario making substantial investments in American dollars in an American corporation in a transaction that was governed by American corporate and securities law.”
On appeal, a split divisional court agreed with Justice Perell. But, in another split decision, the Ontario Court of Appeal reversed the judgments below. As Justice Jean MacFarland, who wrote the majority opinion, saw it, whether class members could reasonably have expected Ontario’s courts to decide their claims was not determinative of whether there was the necessary connection between the action and Ontario. Rather, because the defendant resided, carried on business and prepared the audit in Ontario, a real and substantial connection existed.
Moreover, the identity of 56 of the 57 class members had been established and there was no serious question that Ontario courts could provide the procedural fairness to which the non-resident members of the class, like all litigants, were entitled. “I agree with Excalibur that [precedent] does not stand for the proposition that an Ontario court should approach the issue of taking jurisdiction in a restrained manner,” Justice MacFarland wrote. “To the extent that the motion judge found that it did, he erred, as did the divisional court majority in upholding that determination.”
Justice Robert Blair, in dissent in the Court of Appeal, agreed that Ontario had jurisdiction to certify a global class, but concluded that it should not do so in this case. Echoing Justice Perell, he noted that an Ontario court would have to decide the claim in an “entirely foreign-related factual matrix.” – J.M.
LEGAL ADVISORS
Paliare Roland Rosenberg Rothstein LLP (for Excalibur): Linda Rothstein, Margaret Waddell (formerly) and Odette Soriano
Blaney McMurtry LLP (for Schwartz Levitsky Feldman): Tim Farrell, Jordan Page
Paliare Roland Rosenberg Rothstein LLP (for Excalibur): Nasha Nijhawan (formerly)
R. V. SPEARS
Any US company that does business in Canada and employs outside accountants would be well advised to have a close look at R. v. Spears, 2016 NSPC 20. The little-followed case out of the Provincial Court of Nova Scotia holds an important lesson, says Al Meghji, a tax litigator at Osler, Hoskin & Harcourt LLP.
No business thinks about tangling with the taxman when it’s starting out. Meghji, who works out of both the firm’s Toronto and Calgary offices, says the decision makes it clear that, unless a company sets up its relationships with outside professionals such as accountants with an eye towards a possible dispute down the road, “it may end up making it more difficult for your litigation counsel in the event of a fight.”
The fight in this case involves Spears Framing, which supplied concrete formwork that was used in construction. Spears ran afoul of the Canada Revenue Agency (CRA) — the equivalent of the Internal Revenue Service — over an outstanding balance of $210,000 in sales tax.
CRA assigned Alex Grover, a collections officer, to the case. Grover dealt mainly with Glenda Power, a certified accountant and owner of Power Accounting, who had been doing Spears’s work for some time. The company had submitted a form to the CRA making her its “authorized representative” when dealing with them — a common arrangement between businesses and their accounting firms.
Power testified that she spoke with CRA officials when they called about Spears Framing, and she cooperated with them when they came to her office to do a trust examination. Grover testified that he spoke with her about the company’s situation several times given that she was its authorized representative — tax matters are otherwise confidential. As part of his duties, Grover made notes of their conversations on an online CRA diary system, including recording whenever she sent him something on the file.
Those notes became the center of a legal storm in terms of their admissibility in a criminal proceeding against the company for willful or attempted tax evasion. Lawyers for the state argued that Power, in her interactions with CRA, was acting as the agent of the company and, as such, her statements as recorded in Grover’s diary entries were admissions against the company.
Find out what is the penalty for tax evasion in Canada with this article.
The defense countered that Power could not be characterized as an agent of the company because she was an independent contractor. It also argued that under the general rule against hearsay, an out-of-court statement is generally inadmissible as evidence to prove the truth of a statement’s contents.
But the court disagreed, and found they were admissible. In her decision, Justice Anne Derrick noted off the bat that Power was not an employee of Spears and that there was no evidence Spears Framing expressly designated her as its agent.
Still, she wrote, “I am entitled to draw reasonable inferences from the evidence about the scope of Ms. Power’s remit as the accountant for Spears Framing.” She noted Power had a broad range of duties for the company, which she continued to discharge even after the company folded, including signing sales tax returns on its behalf.
“I have found no bright lines around the role of independent contractors that precludes them being bestowed with agency powers by the principal who has engaged their services,” the judge wrote, adding that, even though there was no evidence of an express authorization by Spears making Power its agent, “express authorization is not required. Ms. Power was very well informed about Spears Framing and its financial circumstances and obligations, and was comprehensively engaged in dealing with those obligations on the company’s behalf. “[A]s an experienced accountant she would have understood the significance of discussions with CRA.”
The only reasonable inference, Justice Derrick concluded, “is that Power interacted with CRA on behalf of the company as part of her broad range of duties. I therefore have determined that Alex Grover’s CRA diarizations of communications with Ms. Power are admissible into evidence as statements … for the truth of their contents.”
Ted Sawa, a member of the taxation law team at Halifax-based BOYNECLARKE LLP, which acted for Spears, says the takeaway is that companies that use outside accountants, and authorize them to speak to the taxman, need to be very careful about the level of authority they give them.
There are two possible levels, he says: the first allows them to receive information from the tax department; the second permits them to request changes to a tax return. “Consider, if possible, a lower level of authorization. In this case the accountant obviously had a very broad scope with the company and that influenced the judge’s decision.”
So while companies often need to authorize their outside accountants to speak to the CRA — especially if they are not domiciled in Canada — in light of this decision they may want to consider decreasing their level of authority to level one. “To the greatest extent possible, limit the authority of the external accountant to when it’s absolutely necessary.”
Meghji of Osler says the bumper sticker is be very careful about who you use as your representative in dealing with the Canada Revenue Agency “because what they say to the CRA may become binding on you in the event of litigation. Up to now it was generally thought that if your accountant said something to the CRA while they were trying to solve your tax problem, you were not bound by that in the event that the matter ended up in litigation. This case says: ‘Not so fast. What your accountant or lawyer says might bind you.’
“When business owners and managers leave their tax matters exclusively up to hired professionals, they ought to be aware that those professionals’ statements can be used as evidence against them in court proceedings.” – S.R.
LEGAL ADVISORS
Constantin Draghici-Vasilescu (for the Crown)
BOYNECLARKE LLP (for Darrell Spears): David Bright, Edward Sawa
ELI LILLY V. CANADA
US companies that do business under the North American Free Trade Agreement (NAFTA) will want to read Eli Lilly v. Canada (UNCT/14/2), in which the pharmaceutical giant filed a NAFTA Chapter 11 challenge after losing a patent case before Canada’s highest court. Chapter 11 allows foreign investors to sue the host government if they are subject to unfair and inequitable treatment or unlawful expropriation.
“It’s an important case because that shows the NAFTA dispute-resolution provisions don’t just apply to actions of government officials, but would apply to courts — including the Supreme Court of Canada,” says John Terry, a partner at Torys LLP in Toronto.
The case was originally filed in court over two drugs Eli Lilly already has Canadian patents over: Strattera, used for attention-deficit/hyperactivity disorder; and Zyprexa, an anti-psychotic medicine. The company asserted it had evidence to support new uses for the drugs that warranted extending their Canadian patents. The Canadian patent office granted the patents based on the applications, but they remained subject to challenge. And they were challenged on the grounds there was insufficient evidence to support the company’s claims of new uses.
The Federal Court of Canada agreed. Eli Lilly went all the way up to the Supreme Court of Canada, and lost, before launching a NAFTA challenge in 2016 seeking C$500 million in damages on the ground the Canadian courts’ application of the so-called “promise doctrine” to the two patented drugs contravenes the country’s NAFTA obligations. The promise doctrine allows a patent on a drug to be overturned if even one “promised” argument for getting the patent turns out to be overstated.
The case was closely watched because of the possibility the dispute trade-agreement settlement mechanism would provide a path to avoiding Canadian courts for these types of challenges. But when the tribunal handed down its verdict, it found against the drug company and ordered it to pay the government of Canada millions in costs.
The decision says, in part, that a NAFTA tribunal “is not an appellate tier in respect of the decisions of the national judiciary,” and stressed it is not a NAFTA tribunal’s job to review the findings of national courts. It said “considerable deference is to be accorded to the conduct and decisions of such courts [and] … only in very exceptional circumstances, in which there is clear evidence of egregious and shocking conduct” will it find that appropriate.
Terry, who often litigates trade disputes, says what’s particularly interesting for American counsel is that the NAFTA tribunal felt that even the Supreme Court was not immune from review. “It looked at the Supreme Court decision to look at whether or not it was discriminatory or arbitrary. It made it clear it’s not going to be a court of appeal in cases from the Supreme Court, but it also made clear it was willing to look at the way the law had developed … to make sure there wasn’t anything arbitrary or discriminatory” about a ruling.
Susan Hutton, a partner at Stikeman Elliott LLP in Ottawa, says it’s an important decision because it confirms “the ability of national courts to make changes to a country’s laws without having to compensate foreign investors for losses caused by that change — within reason.”
In the end, ironically, in a case handed down after Eli Lilly was out of options, the Supreme Court of Canada found in AstraZeneca Canada v. Apotex, 2017 SCC 36, that the promise doctrine is “unsound.” The court said that completely reversing a patent because some part if its claims may turn out to have been overstated “is antagonistic to the bargain on which patent law is based wherein we ask inventors to give fulsome disclosure in exchange for a limited monopoly.”
Julie Desrosiers, leader of the global technology and intellectual property group at Fasken Martineau DuMoulin LLP in Montréal, says the case “is important to Americans because the ‘promise of the patent doctrine’ has been used to invalidate many patents in Canada, particularly pharmaceutical patents, over the last 10 years.
“Now that the Supreme Court has ruled that this doctrine has no place in Canadian patent law, it is expected that very few patents will be invalidated for lack of utility. This is particularly important because it means that, if a patent application is filed in Canada based on an American or international filing, it is not necessary to adjust the specifications of the wording in order to avoid some statements being construed by the courts as a promise that needs to be fulfilled.” – S.R.
LEGAL ADVISORS
Sylvie Tabet, Shane Spelliscy, Mark Luz, Adrian Johnston, Mariella Montplaisir, Michelle Hoffmann,Krista Zeman, Christophe Douaire de Bondy, Yasmin Shaker, Maxime Dea, Adrian Johston (for the Government of Canada)
Gowling WLG (for Eli Lilly Canada): Richard Dearden, Wendy Wagner, Anca Sattler, Anthony Creber, Cristin Wagner (formerly), Henry Brown (formerly), Marc Richard, Patrick Smith, Jane Clark (formerly), Livia Aumand (formerly), Melissa Binns, John Norman
Covington & Burling LLP (for Eli Lilly): Marney Cheek, John Veroneau, Alexander Berengaut, James Smith, Nikhil Gore, Lauren Willard
Heenan Blaikie LLP (for Novopharm): Jonathan Stainsby, Andrew Skodyn, Neil Fineberg, Andrew McIntyre, Lesley Caswell, Keya Dasgupta, Andrew Radhakant (all formerly of Heenan Blaikie)
BRISTOL-MYERS SQUIBB CANADA V. TEVA CANADA
“Inventive concept” and the “obvious to try” tests have long been critical, if sometimes elusive, concepts in Canadian patent law. Fortunately, the Federal Court of Appeal’s April 2017 decision in Bristol-Myers Squibb Canada v. Teva Canada, 2017 FCA 76, has brought some much needed clarity to both concepts.
The case revolved around atazanavir, a drug used to treat human immunodeficiency virus (HIV) and acquired immunodeficiency syndrome (AIDS). But the poor bioavailability of atazanavir in its free-base form limited its use. So Bristol-Myers formulated and marketed a bisulfate salt of atazanavir, known as Reyataz. Teva objected to the validity of two patents, the “Compound Patent” and the “Salt Patent,” listed on the patent register against Reyataz. Teva contended that the invention was obvious in both cases.
At trial, Justice Anne Mactavish found that the Compound Patent claims were neither obvious nor anticipated. But she nonetheless agreed with Teva that the Salt Patent claims were obvious. The inventive concept in the patent, she concluded, was the anhydrous crystalline solid form of the drug, whose stability improved its bioavailability compared to the free-base version. But Justice Mactavish found that the improved bioavailability was obvious and that the other characteristics of the salt were inherent to it and not an invention.
Bristol-Myers appealed. The company argued that, since Mactavish had decided that each of the elements of the inventive concept could not be predicted, she was bound to decide the “obvious to try” test in its favor. The Federal Court of Appeal agreed that the Salt Patent was obvious. But the court also found that Justice Mactavish erred in focusing on the salt’s properties in articulating the inventive concept. Instead, the inventive concept was the solution taught by the patent, which was the creation of a product that was pharmaceutically acceptable because of its enhanced bioavailability.
Still, the Salt Patent was obvious because its inventive concept was indistinguishable from the prior art. If there were any differences, “the common general knowledge of the person skilled in the art” could discern them. Although it was unnecessary in this case to apply the “obvious to try” test, the inventive concept articulated by the appellate court would also have been obvious to try, as evidenced by the nature and extent of the meager effort required to formulate the salt.
Steven Mason, a partner in McCarthy Tétrault LLP’s Toronto office, who was part of the firm’s team representing Bristol-Myers, says that the result was “disturbing” to his client. “This was an invention that was unknown and unpredictable, involving a particular salt with important pharmacological properties that could not have been foreseen, and that resulted in a drug that was very useful and very important for the treatment of a deadly condition,” he says. “But the court said that the fact that the outcome couldn’t be predicted and that the result was a surprise was not enough to establish patentability. But how can something be obvious if you have no idea what the result would be?”
So while Bristol-Myers managed to stave off Teva’s entry to market with its generic drug, its success was limited. “It’s true that the court cut the baby in half by finding that the patent on the compound was valid but that the patent on the salt was not,” says Donald Cameron, who heads Bereskin & Parr LLP’s litigation group in Toronto. “But Teva still got to market about 20 months earlier than it could have had the salt patent not been ruled invalid. It’s just another example of generics coming at innovators and trying to get in on the market for a remunerative drug as early as possible.” – J.M.
LEGAL ADVISORS
McCarthy Tétrault LLP (for Bristol-Myers Squibb Canada): Andrew Reddon, Steven Mason, David Tait, Sanjaya Mendis, Martin Brandsma
Aitken Klee LLP (for Teva Canada): Marcus Klee, Jonathan Stainsby, Scott Beeser
R. V. AITKENS
The proposed Financial CHOICE Act in the US would do many things — from defanging the Dodd-Frank Wall Street Reform and Consumer Protection Act to sending fewer securities cases to US Securities and Exchange Commission administrative tribunals and instead sending them into federal court, which often means a jury trial. In Canada, jury trials are all but unheard of for securities fraud, a decision recently tested and reinforced by the country’s highest court.
In R. v. Aitkens, 2017 SCC 14, the Alberta Securities Commission charged Ronald Aitkens with trading in securities without registration; distributing securities without a prospectus; making false or misleading statements in an offering memorandum; and perpetrating a fraud on investors. Under Alberta’s Securities Act (and the Canadian provinces and territories have largely coordinated statutes), the maximum penalty for securities violations is five years less a day, plus fines of up to C$5 million.
What difference does that day make? A world of difference, if you’re the defendant. Canada’s Charter of Rights and Freedoms stipulates that an accused only has the right to a jury trial in cases where the penalty is five years or more. Aitkens brought a Charter challenge, arguing that he faced a more severe punishment than five years of imprisonment because of the potential for a fine as well; therefore he was entitled to a jury trial.
His lawyers argued that Alberta’s Provincial Court lacks the jurisdiction to conduct a jury trial, and the question of whether the Court of Queen’s Bench has jurisdiction to conduct a jury trial over a provincial offense is a question of law to be determined only by the Court of Queen’s Bench, so they applied for an order that his case be transferred to the superior court.
The Provincial Court of Alberta denied the application. Jury trials for securities cases in Canada are “almost non-existent,” says Jeffrey Leon, a partner and co-head of litigation in the Toronto office of Bennett Jones LLP.
Aitkens appealed, and his appeal was lumped in with R. v. Peers, 2015 ABCA 407, another securities case using the same legal argument. The difference is, Peers had another Alberta Provincial Court judge who had permitted the transfer to the Court of Queen’s Bench, which promptly punted the case back.
Both Aitkens and Peers turned to the Alberta Court of Appeal. But the appellate court held that “a maximum penalty of ‘five years less one day’ does not become a ‘more severe punishment’ just because some collateral negative consequences are added to it.” The court wrote that “from a purposive perspective, that is not enough to change the offence into one that is ‘serious’ enough to warrant a jury trial,” noting the maximum penalty of five years less a day was deliberately chosen to avoid jury trials in complex securities prosecutions.
Both cases were appealed to the Supreme Court of Canada, only to be tersely dismissed: “We conclude that the appellant was not entitled to a trial by jury, substantially for the reasons of the majority of the Court of Appeal.”
Wendy Berman, a litigator at Cassels Brock & Blackwell LLP, says US counsel should pay attention because it means violations such as securities fraud, insider trading and illegal distributions “could impact officers” of companies inter-listed on US and Canadian exchanges. “The bottom line is that individuals charged with securities law violations, including officers and directors of public companies … will be tried by judge alone.”
Darryl Cruz, a Toronto litigator at McCarthy Tétrault LLP, intervened for the Canadian Constitution Foundation, which wanted the right to a jury trial “for a case as serious as this.” He says US companies with divisions in Canada that employ Canadians should be aware of the ruling because, while he doesn’t know the full US scope in the area, “my belief is they’re always entitled to a jury trial down there. That’s certainly not our situation; it’s the exact opposite. So securities law offenses will be prosecuted in provincial courts in trials before a judge only. The Supreme Court had the opportunity to expand the right to a jury trial in Canada, and they declined.” – S.R.
LEGAL ADVISORS
Walsh LLP (for Ronald Aitkens): Brendan Miller, Joshua Sutherland
Don Young, Lorenz Berner, Robert Stack (for Alberta Securities Commission)
Robert Normey (for the Attorney General of Alberta)
Marianne Zoric, Jeanette Gevikoglu (for the Attorney General of Canada)
Matthew Horner, Jennifer Luong (for the Attorney General of Ontario)
McCarthy Tétrault LLP (Canadian Constitution Foundation): Darryl Cruz, Brandon Kain, Byron Shaw, Atrisha Lewis
Hugh Craig, Carlo Rossi (for the Ontario Securities Commission)
Sylvain Leboeuf (for the Attorney General of Québec)
Robert Stack, Don Young (for the Alberta Securities Commission)
Nathan Whitling, Steven Fix, Alexander Millman (for Jeremy Peers)
Wolch, Watts, Wilson & Jugnauth (for Robert Peers): Gavin Wolch
Adrienne Wong (for the Alberta Securities Commission)
Wolch Hursh deWit Silverberg & Watts: Hersh Wolch
Heather Currie (for the Alberta Securities Commission)
TRUMP V. SINGH
At press time, according to widely reported polls, President Donald Trump’s popularity was slipping as he faced a barrage of negative media reports in the United States. As it turns out, his brand wasn’t doing that well in Canadian courts either.
In March 2017, the Supreme Court of Canada refused to hear an appeal from an Ontario Court of Appeal (OCA) judgment that ordered the return of a C$250,000 deposit to warehouse worker Sarbjit Singh, who had refused to close on the sale of a unit in the Trump International Hotel & Tower in Toronto. The units ranged in price from C$784,000 to C$843,000. The OCA also ordered that damages be paid to homemaker Se Na Lee for negligent misrepresentation. Lee claims she lost almost C$1 million after purchasing a unit.
The hotel, which is not owned by President Trump, licenses his name and is operated by one of his companies. Both plaintiffs relied on allegations that the units were marketed under false pretenses, with promised returns ranging from 7.74 per cent to 20.9 per cent. Sales representatives provided some 200 investors with a document called “Estimated Return on Investment” that contained projected occupancy rates and profits ranging from C$18,000 to C$63,000 annually.
At trial, Justice Paul Perell of the Ontario Superior Court of Justice ruled that the estimates were just opinions or forecasts, albeit “uninformed,” “ill-informed” and “essentially just pick-a-number speculations about what might be charged and what might happen in the marketplace.” But he concluded that the plaintiffs had failed to establish that they relied on the misrepresentations.
On appeal, the OCA took a different view. It ruled that, although the estimates were “for discussion purposes only” and “not a guaranteed investment program,” they still contained misrepresentations in their assertion that the estimates were based on the best information available, and that the hotel would be profitable immediately.
The court also ruled that various exclusionary clauses that limited investors’ ability to sue were unconscionable, unenforceable and amounted to “a trap to these unsurprisingly unwary purchasers.” The positioning of the exclusionary clauses in the documentation, the plaintiffs’ lack of sophistication and the overall circumstances surrounding the marketing and sale all contributed to the plaintiffs’ failure to understand that the defendants were limiting their liability.
“The court of appeal was prepared to help these unsuspecting investors who lost their shirts despite the wording in the documents,” says Sandra Forbes, a partner in Davies Ward Phillips & Vineberg LLP’s Toronto office.
Indeed, commentators suggest that Trump v. Singh, 2017 ONCA 34, marks a change in the OCA’s approach to the doctrine of unconscionability and puts some limitations on the “buyer beware” principles that have dominated the jurisprudence.
Mitchell Wine of Levine Sherkin Boussidan Professional Corporation in Toronto, who represented Lee and Singh, says the OCA ruling helps unsophisticated investors going forward. “Had the Court of Appeal upheld Perell’s ruling, the door would have been open for developers to rely on unfounded projections,” he says.
Wine also says that the decision will support the claims of two dozen other investors who are looking to have their deposits returned. – J.M.
LEGAL ADVISORS
Danson & Zucker (for Donald Trump, Talon International): Symon Zucker, Melvyn Solmon, Nancy Tourgis
Levine, Sherkin, Boussidan (for Sarbjit Singh): Mitchell Wine, Kevin Sherkin
Klaiman Edmonds LLP (for Donald Trump, Talon International): Mark Klaiman, Jennifer P. Wu (formerly)
WINDSOR V. CANADIAN TRANSIT
Lawyers in the US and their clients understand the implications of a bifurcated court system that distinguishes federal courts from state courts. Jurisdictional and other complexities abound, so confronting a Canadian system that also shares jurisdiction between the Federal Court of Canada and provincial superior courts ought not to present conceptual difficulties for Americans doing business in Canada.
But the systems only look similar at first blush. “The federal courts in the US have a fairly broad and diverse jurisdiction, which is designed to avoid the home court advantage that could arise from suing in a particular state court,” says Jeffrey Leon, a litigation partner in the Toronto office of Bennett Jones LLP. “But that’s not necessarily the case in Canada.”
Indeed, it’s frequently a fine line in Canada that separates the jurisdiction of the federal and provincial courts. A recent case in point is Windsor v. Canadian Transit, 2016 SCC 54, a decision of the Supreme Court of Canada (SCC) that evidences, through its 5-4 split, just how fine that line can be. “The case demonstrates the importance of US lawyers getting advice on the distinctions between our constitutional division of powers and court systems, and those that exist in the US,” Leon says.
The Canadian Transit Co. (CTC) was a federally incorporated body that owns the Canadian half of the Ambassador Bridge connecting Windsor and Detroit. The CTC owned more than 100 unoccupied residential properties near the bridge. Because the company intended to use the land on which the properties were located in conjunction with its ownership and maintenance of the bridge, it boarded up the houses.
The houses did not measure up to the City of Windsor’s property standards. The city issued repair orders. CTC refused to comply and took the position that the dispute was properly adjudicated in the Federal Court of Canada because the Ambassador Bridge, from a constitutional perspective, was a “federal undertaking.” CTC sought a declaration from the Federal Court that the company’s rights under its enabling legislation, the federal CTC Act, immunized it and its federal undertaking from the city’s bylaws.
Federal Court Justice Michel Shore disagreed. The Federal Court, he noted, was a statutory court whose powers were circumscribed by the Federal Courts Act. He could find nothing in the statute that bestowed jurisdiction in these circumstances. Accordingly, the Ontario Superior Court of Justice’s inherent jurisdiction made it the proper forum for determining whether CTC was subject to the city’s orders.
CTC appealed to the Federal Court of Appeal and won. A unanimous Bench ruled that s. 23(c) of the Federal Courts Act, which grants the Federal Court jurisdiction concurrent with provincial superior courts when a remedy is sought “under an act of Parliament or otherwise” in relation to “works and undertakings connecting a province with any other province or extending beyond the limits of a province.”
But on further appeal, the SCC restored Justice Shore’s decision. The majority saw the Federal Court’s role restrictively, emphasizing that a statutory court without inherent jurisdiction must “not overstep this limited role.” In the majority’s view, s. 23(c) of the Federal Courts Act did not apply because CTC’s claim was not brought under federal law.
Contrarily, the minority urged a broad construction of the Federal Court’s jurisdiction, citing Parliament’s intention in creating the court and particularly its role as a national trial court. “The dissenters took a more contextual approach in the sense that they saw the court as giving the public recourse to a court of national jurisdiction,” Leon says.
Christopher Williams, a litigation partner at Aird & Berlis LLP in Toronto, who represented the City of Windsor, said the decision is of broad significance because it applies to a host of federal undertakings in municipalities, including railways and communications towers.
“What the case means is that parties dealing with the application of municipal bylaws to their activities must bring their disputes about the constitutional power of the municipality to affect them in the provincial courts,” he says. “In particular, it allows municipalities seeking to enforce their bylaws against federal undertakings to seek relief in local courts.” – J.M.
LEGAL ADVISORS
Aird & Berlis LLP (for Corporation of the City of Windsor): Christopher Williams, Courtney Raphael, Jody Johnson
Torys LLP (for the Canadian Transit Company): John Laskin, James Gotowiec
Michal Minkowski (for the Corporation of the City of Mississauga)
Ratcliff & Company (for the City of Burnaby and Union of British Columbia Municipalities): Gregory McDade
Sean Gaudet, Marc Ribeiro (for the Attorney General of Canada)
Stéphane Émard-Chabot (for the Federation of Canadian Municipalities)
Osler, Hoskin & Harcourt LLP (for the Canadian Transit Company): Larry Lowenstein, Laura Fric, Kevin O'Brien, Pierre-Alexandre Henri
