Case commented on: EOG Resources Canada v Unconventional Gas Resources Canada Operating Inc., 2013 ABQB 105 (MC)
This decision interprets the default clause (Article 13) of the Canadian Association of Petroleum Landmen’s (CAPL) Farmout and Royalty Procedure. It confirms that there is no automatic termination of the farmee’s right to earn provided that the farmee has spudded in the earning well; the farmee is entitled to proper notice of default and the opportunity to rectify that default.
UGR as farmor entered into a Farmin and Option Agreement (the head agreement) with EOG under which EOG was to earn a 75% interest in certain lands in return for drilling to completion a horizontal well at its sole cost, risk and expense (the test well). The head agreement incorporated by reference the CAPL Farmout and Royalty Procedure and the CAPL Operating Procedure (1990). EOG spudded in and drilled the test well and was engaged in completion operations between March 9, 2011 and March 20, 2011 but was required to leave the land during a sensitive period for woodland caribou. Some subsequent discussions between the parties about having EOG participate in the drilling of an option well on adjacent lands led to an amendment to the head agreement. The option well was never drilled and the test well was never completed before UGR began to allege that EOG was in breach, ultimately taking the view in correspondence and in the pleadings that as a result of EOG’s breach EOG had lost the right to earn under the head agreement. UGR conceded that if EOG was entitled to notice of default and the opportunity to correct that default then UGR had not provided adequate notice.
EOG sought a declaration that its right to earn under the head agreement in respect of the test well remained valid and subsisting. The Court proceeded on the assumption that EOG had failed to continuously conduct operations to complete the test well (at para 27 and see below).
Master Judith Hanebury concluded that EOG was entitled to notice of default. Article 13 of the Farmout and Royalty Procedure governed the issue. Article 13 deals with a number of different circumstances: (1) a farmee that fails to spud in the test well by the prescribed date loses its right to earn; (2) a farmee that fails to honour other obligations is entitled to notice before losing its interest, and; (3) a farmee that has earned an interest is entitled to the protection of that interest unless its default is in relation to a condition subsequent (at para 47). This situation fell within the second category and accordingly EOG was entitled to notice and the opportunity to cure the default.
There were really two issues in this case: first, was EOG in breach of its obligation to continuously conduct operations to complete the well, and second, if it was in breach did such breach automatically terminate the farmee’s right to earn or was it entitled to notice of default and the opportunity to cure that default. The first issue is evidently a mixed question of fact and law and Master Hanebury was perhaps surprised to have the matter before her in chambers rather than the subject matter of a trial. In response she took the prudent course of action and left that matter for another day, noting that the parties had not provided evidence of practice in the industry relating to continuous operations and therefore concluding (at para 27) that:
Without this law and information the Court risks making a decision that is not sensitive to the commercial realities of the industry and is, simply, a bad precedent. Therefore, for the purposes of deciding the next question I will assume, without deciding, that a failure to continuously conduct operations to complete the well occurred.
Article 13 of the CAPL farmout and royalty procedure deals with default issues under that agreement and the head agreement. Clause 1301 is headed “farmor’s default remedies.” Clause A deals with the farmee’s failure to spud the test well in which case the “Farmee’s right to conduct operations hereunder terminates.” This is all subject to the application of the force majeure provisions of the agreement. Clause B deals with the failure to make overriding royalty payments. Clause C deals with any other defaults under the head agreement or the procedure and specifically provides for the farmor to provide the farmee with a notice “stating the nature of the default.” The farmee must take steps to remedy the default within 30 days failing which the Farmor, may by notice “terminate all or any portion of the interest of the Farmee acquired in the Farmout Lands ….” Clause D provides that termination will not apply to any Working Interest already earned by the farmee thereby making a distinction between this defined term and the more generic term “interest” as used in Clause C. It is perhaps this distinction that leads Master Hanebury to speculate (at paras 37 and 45) that while EOG has earned a vested interest in the lands it does have “a contingent or conditional interest in the lands.”
In sum, the plain language of the agreement suggests precisely the distinction that Master Hanebury made in her judgement: the matter is covered by Clause C. UGR seems to have tried to get around that interpretation of the agreement by relying on two lines of authority. One line of authority comes out of the freehold oil and gas leases. These leases contemplate that they may terminate automatically in some cases without affording the lessee any access to the default clause (i.e. notice of breach and the opportunity to cure the default). Thus, an “unless” lease will terminate automatically during its primary term where the lessee fails to either drill or pay; and pretty much any lease during its secondary term will terminate automatically for failure to produce (or some proxy for production such as operations). Since no duty is engaged there is no default and therefore no right to notice. The most recent case supporting this line of reasoning is Freyberg v Fletcher Challenge Oil and Gas Inc, 2005 ABCA 46. The difficulty with that line of reasoning in this case is two fold: (1) this was not a lease case, and (2) the express language of Article 13. This line of cases may be of assistance to a farmor that seeks to rely on the default described in clause 13.01(A), failure to spud an earning well, but it is hard to see how this line of cases is of any utility in those circumstances in which the agreement itself does not contemplate automatic termination.
The second case on which counsel relied for the proposition that EOG had lost its right to earn was Royal Bank v Joffre Resources Ltd (1985), 38 Alta LR (2d) 216 (QB). The issue in that case was whether Joffre had fulfilled all of its earning obligations under a participation and farmout agreement. In that case the farmor (Pacific) was participating along with the farmee in drilling the wells and consequently was required to provide funds for the drilling operations in accordance with an attached CAPL operating procedure. The operating procedure required Joffre to make adjustments at the close of each month as between actual and estimated costs. Joffre had failed to do that leaving a significant indebtedness to Pacific. Since Joffre was now insolvent the question for the court was whether Pacific had a security interest in the interest that Joffre was earning – or in other words, was Pacific entitled to refuse to execute transfers of the interests that Joffre for properties on which Joffre had drilled wells until Joffre had settled the accounts between the parties. The issue turned on the interpretation of a clause in the farmout agreement which provided that the farmee could only earn provided that it was not otherwise in default under the agreement. Justice Medhurst found that the “agreement” included not just the terms of the farmout agreement but also the attached operating agreement. Since Joffre was in breach of the terms of the operating agreement as noted above it had not completed earning and thus Pacific was entitled to hold Joffre’s interest as security for Joffre’s indebtedness. One of the issues that Justice Medhurst had to address was the question of whether the “no default” provision was a condition precedent to earning that covered all possible defaults even trivial default. As to which Justice Medhurst responded that the default was hardly trivial given the significant sums involved (over $100,000 in 1980s dollars).
But in all of this of course there is no suggestion that Joffre’s default had cost it the right to earn; the case is merely authority for the proposition that a farmee must fulfill all the conditions precedent to earning and that some of those conditions precedent may be imported from attached agreement such as the CAPL operating procedure. In sum, Joffre case provides no support for UGR’s argument and Master Hanebury was surely correct to observe (at para 35) that Joffre is inferentially also authority for the proposition that “a default could be remedied”: quite the opposite of the result for which UGR was contending.
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The amendments to the Land Titles Act that were introduced by the Land Titles Amendment Act, 2008 included one substantive amendment and that was an amendment to section 170, a provision about indefeasibility of title. Little attention has been paid to this amendment; although it is now four years old, the changes it effected, and the amendment’s potential consequences for real estate practice, appear to have been overlooked. On its face, the substantive amendment says that the registered title of a bona fide purchaser or mortgagee is only indefeasible if that party used all reasonable efforts to confirm that the person from whom they took their interest was not an identity thief. It appears to implement a theory of conditional immediate indefeasibility, which would be a significant change to basic principles of our Torrens-style land titles system — if it is effective. However, because the 2008 amending statute changed section 170 in isolation and left intact all of the other provisions in the Land Titles Act that confer immediate indefeasibility on purchasers and mortgagees, it is not clear that the amendment will do what it purports to do.
This lengthy comment proceeds as follows. First I set out section 170 and its 2008 amendment and discuss what that rather obscure provision means in the context of other Land Titles Act provisions dealing with indefeasibility and the concept of indefeasibility itself. Next I provide a summary of the theories of immediate and deferred indefeasibility and the practical differences made on the implementation of each theory. Then I discuss indefeasibility in Alberta prior to the 2008 amendment and which theory is likely implemented here. I then turn to the reasons behind the amendment to section 170 — the mischief it apparently aimed at — so far as these can be discerned from the public record. This is followed by a look at the changes to indefeasibility of title that the 2008 amendment may have made, using three simple hypotheticals. Next I discuss my doubts about whether the amendment to section 170 is likely to be effective in making those changes to indefeasibility and the reasons for my doubts. I then look at current conveyancing practices relevant to the new requirement in section 170 and the changes to real estate practice that the 2008 amendment might require. I conclude with some brief remarks on the folly of tinkering with one of three fundamental principles underlying a complex land titling system and thereby introducing unpredictability into an area of law generally accepted as requiring certainty.
A. Section 170 in Context
Section 170 is in the part of the Land Titles Act that deals with “Assurance Fees,” i.e., compensation for losses caused by errors by the Registrar and for the deprivation of an interest in land. Assurance fees are charged to fund an Assurance Fund, a user-pay fund set up by section 164 of the Land Titles Act and section 1 of the Tariff of Fees Regulation, Alta Reg 120/2000.
Section 170 had been virtually unchanged for more than one hundred years: see section 106 of the Land Titles Act, SA 1906, c 24. Then, in 2008, section 170 became subsection 170(1) and the legislature added a requirement that purchasers and mortgagees make “all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land” if they wanted the protection otherwise offered by the section. Section 170(1), with the 2008 addition underlined, now reads as follows.
Protection of bona fide purchasers and mortgagees
170(1) Nothing in this Act is to be so interpreted as to leave subject to action for recovery of damages, or to action of ejectment, or to deprivation of land in respect of which the purchaser or mortgagee is registered as owner, any purchaser or mortgagee bona fide for valuable consideration of land under this Act on the plea that the purchaser’s transferor or the mortgagee’s mortgagor has been registered as owner through fraud or error, or has derived title from or through a person registered as owner through fraud or error, except in the case of misdescription as mentioned in section 183(1)(e), if the purchaser or mortgagee has made all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land.
Section 170 is only one of several Land Titles Act provisions dealing with indefeasibility, the hallmark of a Torrens system of land registration. In a Torrens land registration system, the state establishes a register of titles to land and guarantees that the person named in that register as the owner of a parcel of land has an indefeasible title, subject only to the mortgages and other encumbrances registered against that title and to a limited number of enumerated statutory exceptions. In the famous Privy Council decision in Frazer v Walker,  1 AC 569 (PC) at 580-81, indefeasibility is described as “…a convenient description of the immunity from attack by adverse claims to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration.” An indefeasible title or registered interest in land is one that cannot be defeated, voided, annulled, set aside or forfeited.
Three principles underlie a Torrens system and combine to create indefeasibility:
The first is the ‘mirror principle’ under which the register is a perfect mirror of the state of title. The second is the ‘curtain principle’ under which the purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register. The third is the ‘insurance [aka assurance] principle’ under which the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. (Marcia Neave, “Indefeasibility of Title in the Canadian Context” (1976) 26 University of Toronto Law Journal 173 at 174)
Sections 60, 62 and 183 of the Land Titles Act are the most important indefeasibility provisions. Section 60 provides that the owner of land shall hold it free and clear of all encumbrances or interests that are not endorsed on the title (i.e., the mirror principle), but recognizes three exceptions: fraud in which the owner has participated or colluded, exceptions implied by section 61, and a claim under a prior certificate of title. Section 62 is the state’s guarantee of title, providing that every certificate of title granted under the Act “is conclusive proof in all courts as against Her Majesty and all persons whomsoever that the person named in the certificate is entitled to the land included in the certificate for the estate or interest specified in the certificate… .” Section 62 also recognizes exceptions: fraud in which the owner has participated or colluded, prior certificate of title, the exceptions listed in section 61, and misdescription. Section 183(1) is the most important section for our purposes. It first sets out a rule, namely, that “[n]o action of ejectment or other action for the recovery of any land for which a certificate of title has been granted lies or shall be sustained against the owner.” It then lists a number of exceptions, situations in which actions for ejectment and other actions for the recovery of land do lie against the owner. That list includes the usual exceptions for fraud, prior certificate of title, section 61 exceptions, and misdescription. Section 183(2) confirms this rule-plus-exceptions structure and the indefeasibility of an owner’s title by providing: “In any case, other than one mentioned in subsection (1), the production of the certificate of title or a certified copy of it is an absolute bar and estoppel to any such action against the person named in the certificate of title as owner or lessee of the land described in it.”
Section 170(1) must be read in the context of these other indefeasibility provisions. It begins with “Nothing in this Act is to be so interpreted…”, so it is put forward as an aid to the interpretation of other provisions in the Act. The Act is not to be interpreted in such a way “. . . as to leave subject to action for recovery of damages, or to action of ejectment, or to deprivation of land in respect of which the purchaser or mortgagee is registered as owner, any purchaser or mortgagee bona fide for valuable consideration of land under this Act… .” This part of the provision describes an immunity, to put it in Hohfeldian terms. If a person is a bona fide purchaser or mortgagee for value of an interest in land for which they are registered as owner, then they have an immunity, i.e., their entitlements cannot be changed by others: “An immunity is one’s freedom from the legal power or “’control’ of another…” (Wesley Newcomb Hohfeld, “Some Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1917) 27 Yale Law Journal 28). In the case of section 170(1), a purchaser or mortgagee’s property rights and other entitlements cannot be affected or destroyed by others once the purchaser’s title is registered or the mortgagee’s interest is registered on title. If a person does not have an immunity, then they have its opposite, a liability, and others can change the purchaser’s or mortgagee’s property rights. Section 170(1) continues on to provide that this immunity that purchasers and mortgagees enjoy is good against “the plea that the purchaser’s transferor or the mortgagee’s mortgagor has been registered as owner through fraud or error, or has derived title from or through a person registered as owner through fraud or error… .” So purchasers and mortgagees enjoy immunity from claims that they acquired their property rights from fraudsters. This recognition of an immunity is followed by one exception — “except in the case of misdescription as mentioned in section 183(1)(e)” — which need not concern us. Then it is followed by the 2008 amendment, which is a condition precedent, making the immunity only available “if the purchaser or mortgagee has made all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land.” But remember section 170(1) begins with “Nothing in this Act is to be so interpreted… .” So it is other provisions in the Act that are not to be interpreted so as to make purchasers and mortgagees liable to claims that they received their title through fraud or error if the condition precedent of “reasonable efforts” is fulfilled.
To summarize, section 170(1) seemingly purports to state that, if the condition precedent of “reasonable efforts” is fulfilled, purchasers and mortgagee can enjoy the immunity granted by other Land Titles Act provisions, such as section 183(2), so that their registered title or interest in land in indefeasible even if they acquired that title or interest from a fraudster or in error.
B. Immediate or Deferred Indefeasibility
A key question that arises under a Torrens land title system is: when does a title that is otherwise impeachable become indefeasible? In other words, at what point does the state guarantee of an indefeasible title or registered interest in land that is the hallmark of a Torrens system attach and a liability becomes an immunity?
Indefeasibility is either immediate or deferred. A title is immediately indefeasible if a bona fide purchaser for value buys property from a fraudster and yet obtains a good title upon registration. Under the deferred indefeasibility approach, a title to property is impeachable until that title is registered in the name of a bona fide purchaser for value who takes from the bona fide purchaser for value who dealt with the fraudster, i.e., there must be an intermediate innocent party.
The differences between the common law position and the contrasting theories of immediate indefeasibility and deferred indefeasibility under land titles legislation are well summarized in Lawrence v Maple Trust Company, 2007 ONCA 74 at paras 14 – 23.
I argue that Alberta’s Land Titles Act provided for immediate indefeasibility, at least prior to 2008, and that the amendments to section 170 appear to change that to a conditional immediate indefeasibility theory.
C. Indefeasibility in Alberta Pre-2008
Which of these three theories applies depends on whether there is land titles legislation in force in the province to oust the common law position and, if so, exactly what the statute says. It is difficult to look to other jurisdictions for answers unless the legislation in another jurisdiction is almost identical to that in Alberta. So, for example, the Ontario Court of Appeal decided in Lawrence v Maple Trust Company that Ontario is a deferred indefeasibility province, but that tells us nothing about the position in Alberta. In Lawrence v Maple Trust Company, the resolution of the issue depended on the effect to be given to section 155 of the Land Titles Act, RSO 1990, c L.5, which basically retained the common law nemo dat principle as the default position by stating that “[s]ubject to the provisions of this Act, with respect to registered dispositions for valuable consideration, any disposition of land or of a charge on land that, if unregistered, would be fraudulent and void is, despite registration, fraudulent and void in like manner.” Alberta’s legislation has nothing similar to Ontario’s section 155.
The Saskatchewan case of Registrar of Regina Land Registration Dist. v Hermanson et al.,  1 WWR 439 (Sask CA), on the other hand, is relevant to Alberta. Saskatchewan’s legislation at the time Hermanson was decided was virtually identical to that of Alberta, in part because both inherited the same land titles legislation when they became provinces in 1905. Hermanson recognized that legislation made indefeasibility of title a fundamental principle of the Torrens system of land registration. Chief Justice Bayda followed the Privy Council decision from New Zealand in Frazer v Walker,  1 AC 569 (PC) to conclude that “‘it is in fact the registration and not its antecedents which vests and divests title’ and that the statute conferred immediate indefeasibility on a bona fide purchaser for value.”
Although the issue has not been specifically addressed in Alberta, following Hermanson the consensus has been that Alberta was most probably an immediate indefeasibility jurisdiction. Indeed, the 2008 amendment to section 170 of the Land Titles Act seems to accept immediate indefeasibility as the rule in Alberta. It says that a person can obtain a title or a mortgage through fraud (i.e., from a fraudster) and still have an indefeasible title.
D. Why Amend Section 170 of the Land Titles Act?
The 2008 amendment to section 170 is a response to mortgage fraud. The Government of Alberta established the Advisory Committee on Mortgage Fraud in the spring of 2005 to review a report of the Minister of Government Services’ Expert Panel and formulate recommendations to address the then growing incidence of mortgage fraud in Alberta. Among the nine strategies identified by the Expert Panel to combat mortgage fraud was: “Amend the Land Titles Act and associated Regulations, and standardize the practices and policies of the Land Titles Office.” In the meantime, between the report of the Expert Panel and the establishment of the Advisory Committee, a Mortgage Fraud Prevention Task Group had been formed by the real estate industry to develop education and training programs and best practices for industry members.
The Advisory Committee’s Final Report of November 14, 2005 is available from the Legislative Assembly Library here. That Report noted (at 19) that the Land Titles Office is affected primarily by fraud-for-profit activities, at least two of which involved mortgage fraud:
The Advisory Committee discussed six suggestions to address the role of Land Titles in the mortgage fraud process. Only one of those was close to the amendment actually made to section 170, and that was the suggestion (at 20):
That the Land Titles Act be amended to provide that the Assurance Fund protects only those lenders dealing with the true owner. This would require purchasers to ensure that they are dealing with the person named on the certificate of title. This “deferred indefeasibility” system is in place in British Columbia and Ontario.
However, there was no consensus and the Advisory Committee believed that more consultation was required to address this and other potential amendments to the Land Titles Act.
I do not know what happened after that Report, whether there was more consultation, or why section 170 was singled out to bear the burden of protecting “only those lenders dealing with the true owner.” In particular I do not know why all of the concern about mortgage fraud and the practice of lenders led to an amendment that affects purchasers as well as lenders.
Alberta was not, of course, the only jurisdiction whose Torrens land titles system was affected by mortgage fraud. Most recently, the New Zealand Law Commission released its Report on the Review of the Land Transfer Act 1952 (July 2012). It recommended new legislation that retains the essentials of a Torrens system of land registration but introduces some changes to deal with mortgage fraud and other matters. The draft New Zealand Land Transfer Bill includes, in the proposed Clause 11, a duty for lenders to take reasonable steps to check the identity of would-be borrowers, and a power for a court, in cases of clear injustice, to order correction of the register where a registered owner has lost their home through fraud. The Law Commission acknowledges these are “significant” policy changes. Clause 11 is considerably more comprehensive than the amendment to section 170 of the Alberta statute. It sets standards for what amounts to reasonable steps to verify the identity of a mortgagor; makes it a quasi-criminal offence for a mortgagee to fail to advise the Registrar of the steps taken to verify identity and to produce the material relied on when asked to do so by the Registrar; compels lenders to keep their records for 10 years; and explicitly states that failing to take reasonable steps creates an exception to indefeasibility. There are also appropriate cross-references with other clauses in the proposed bill.
E. Indefeasibility in Alberta Post-2008: Three Hypotheticals
As already mentioned, I think the 2008 amendment to section 170 creates conditional immediate indefeasibility. This becomes clearest if we consider a few hypotheticals.
Scenario 1: The fraudulent “purchaser”/mortgagor
Suppose that O owns her home free and clear of all encumbrances. Suppose that a fraudster, F, forged O’s signature on a transfer of land, registered that transfer, used that new title to obtain a mortgage from a financial institution, B Co., which did not participate in the fraud, and then F absconded with the money. Let us assume that B Co., though acting bona fide (i.e., with good faith, with honesty), did not make “all reasonable efforts” to confirm that its mortgagor, F, was the registered owner of the land. If they had, they would have found out that F was indeed the registered owner of the land — the registered owner through fraud, but the registered owner nonetheless.
What can O, the defrauded person, the original owner, do?
Before the amendment to section 170, the original owner, O, would have been able to have their title restored, but it would have been encumbered by the new B Co. mortgage. The title in the name of the fraudster, F, is defeasible under sections 60, 62 and 183(1)(d) of the Land Titles Act because those sections state that fraud in which the owner participated or colluded is an exception to indefeasibility. But under the immediate indefeasibility theory, B Co.’s mortgage becomes indefeasible on registration against title. B Co. took from the person that the Land Titles Office register showed to be the registered owner and their mortgage cannot be impeached. But O should be able to sue the Registrar for the money from the Assurance Fund necessary to pay out that mortgage under section 168(b), which provides:
168. Any person . . . (b) who is deprived of any land or encumbrance or of an estate or interest in any land or encumbrance . . . (ii) by the registration of another person as owner of the land or encumbrance . . . and who by this Act is barred from bringing an action for the recovery of the land or encumbrance or interest in the land or encumbrance, may bring an action against the Registrar for the recovery of damages.
Because of section 170 and the other indefeasibility provisions, O could not have sued B Co. for money or an unencumbered title. The fact that the B Co. acquired its title from a fraudster did not expose B Co. to a lawsuit by the original owner, O.
Does anything change in this scenario because of the 2008 amendment to section 170? The answer appears to be yes, if section 170 is effective. The original owner, O, can still defeat the title of the fraudster, F, and get title to her home back in her name. But can she recover the money to pay off the B Co. mortgage from the Registrar and the Assurance Fund? The 2008 amendment to section 170 appears to leave B Co. liable to an action for the “deprivation of land,” i.e., to the loss of their mortgage, because it is only protected if it made all reasonable efforts to confirm that F was the registered owner of the land, and they did not do so. If B Co. is liable because they failed to fulfill the condition precedent to immunity, then perhaps O cannot recover the money to pay out B Co.’s mortgage by suing the Registrar under section 168 because she is no longer “barred from bringing an action for the recovery of the land.” But what action could O bring against B Co, with whom she has no privity? What is the nature of her cause of action? It is one thing to say that the Land Titles Act does not bar O from bringing an action to recover her land from B Co., but can O sue B Co. to recover the interest in land that B Co. was given by F? None of the typical “real” actions to recover possession, such as an action for ejectment, seem to be apropos. Could a declaratory action to quiet title be brought? Assuming that O could bring an action to clear B Co.’s mortgage off her title, the financial loss for F’s fraud would have been shifted from the Assurance Fund to a financial institution which acted bona fide. In such a case, B Co. probably could not recover from the Assurance Fund, even though section 168 was not amended when section 170 was, because it is at least arguable they were deprived of their mortgage by F’s fraud and their own negligence, and not by any of the events listed in section 168 as triggering the right to bring an action against the Registrar.
Scenario 2: The fraudulent mortgagor
In this scenario, let us assume once again, for simplicity’s sake, that O owns her home free and clear of all encumbrances. This time suppose that the fraudster, F, pretends to be O, and walks into a financial institution, B Co., with false identification documents in order to take out a mortgage on the property. Once that mortgage is registered and the money paid to our identify thief, F, vanishes. Months later, after several mortgage payments are missed, B Co. forecloses and the fraud is discovered. Once again, let us assume that B Co., though acting bona fide, did not make “all reasonable efforts” to confirm that the person they were taking the mortgage from was the registered owner of the land. In this scenario, had B Co. made “all reasonable efforts,” perhaps it would have discovered the identity theft.
What can O, the original owner, do? She has not lost title to her home in this scenario, but she does have a mortgage registered against her title and the mortgagee, B Co., is foreclosing.
As was the case in the first scenario, before the amendment to section 170, under the immediate indefeasibility theory, B Co.’s mortgage would be immediately indefeasible on registration. Its mortgage could not be impeached. But O should be able to sue the Registrar for the money necessary to pay out that mortgage under section 168(b) because she cannot sue B Co. to get rid of that mortgage because of sections 183 and 170.
Does anything change in this second scenario because of the 2008 amendment to section 170? Once again the answer appears to be yes, if section 170 is effective. The 2008 amendment to section 170 appears to leave B Co. liable to an action for the “deprivation of land”, i.e., to the loss of their mortgage, because B Co. is only protected if it made all reasonable efforts to confirm that F was the registered owner of the land, and they did not do so. If B Co. is liable because they failed to fulfill the condition precedent to immunity, then perhaps O cannot recover the money to pay out B Co.’s mortgage by suing the Registrar under section 168 because she is no longer “barred from bringing an action for the recovery of the land.” The question then becomes: can O sue B Co.? And, if not, can she bring herself within section 168?
Scenario 3: The fraudulent “owner”
In this scenario, let us assume that the fraudster, F, pretends to be O, the person who owns their home free and clear of all encumbrances, but not for the purpose of obtaining the proceeds of a mortgage. Let us assume F pretends to be the owner in order to sell the property to a wealthy and unsuspecting purchaser, P, in order to abscond with the purchase price. F would forge O’s signature on a transfer of land to the unsuspecting P and, once the transfer was registered, F would take the money and run. Again, let us assume that P, though acting bona fide, did not make “all reasonable efforts” to confirm that F was the registered owner of the land.
Can O, the original owner, get her home back?
Before the amendment to section 170, O would not have succeeded in getting title to her home back into her name and she would have had to move out — that is exactly what a Torrens system does. The bona fide purchaser for value, P, would have acquired an indefeasible title under sections 60, 62 and 183(1)(d) of the Land Titles Act and the theory of immediate indefeasibility. All O could have done was sue the absconding F and, in his stead, the Registrar under section 168(b) for the value of her home. A cannot sue P.
Does anything change in this scenario because of the 2008 amendment to section 170? Once again, I think it does, if section 170 is effective. If we assume that P did not make “all reasonable efforts to confirm that the transferor . . . is the registered owner of the land” that the amendment requires, then P is “subject to action of ejectment, or to deprivation of the land.” O can defeat P’s title and get title to her home back in her name. Can the hapless P recover his purchase money from the Assurance Fund under section 168? He probably could not, even though section 168 was not amended when section 170 was, because it is at least arguable he was deprived of his title by F’s fraud and his failure to fulfill the condition precedent to immunity, and not by any of the events listed in section 168.
Looking at how the amendment to section 170 might work in practice makes clear why I have characterized the amendment as making indefeasibility conditional, i.e., contingent on the purchaser or mortgagee fulfilling the condition precedent to immunity, i.e., making all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land. And I think the hypotheticals also suggest that the amendments are a way to shift the losses caused by fraud from the Assurance Fund to bona fide purchasers and mortgagees for value. Perhaps that is a laudable goal, but is the cost of changing the behaviour of purchasers and mortgagees an unacceptably high cost to a Torrens system? And is the 2008 amendment the right way to try to effect a policy change to indefeasibility?
F. Is Section 170 Effective?
If section 170 purports to make indefeasibility contingent, can it be effective without amendments to sections 60, 62 and 183 — the fundamental indefeasibility and its exceptions provisions? What is the effect of amending section 170, an interpretive provision, in isolation?
In the hypothetical fraudulent purchaser scenario, I stated that the 2008 amendment to section 170 appears to leave the financial institution open to an action for the “deprivation of land,” i.e., to the loss of their mortgage, because they are only protected if they made all reasonable efforts to confirm that the mortgagor was the registered owner of the land, and they did not do so. xx But section 183(1) of the Land Titles Act, which is in the Remedial Proceedings part of the Act, very clearly sets out only four exceptions to an owner’s indefeasible title — and a mortgagee is an owner of a mortgage and thus an “owner” under sections 1(p) and (r) — and lack of “all reasonable efforts” is not one of those exceptions. Fraud is, but our financial institution acted bona fides, i.e., without fraud. And section 183(2) is clear that unless you can bring yourself within one of the exceptions in section 183(1), “the production of the certificate of title or a certified copy of it is an absolute bar and estoppel to any [action of ejectment or other action for the recovery of any land] against the person named in the certificate of title as owner or lessee of the land described in it.” Section 62 is to the same effect.
What effect can be given to section 170(1) when it appears to be contradicted by sections 183 and 62? Sections 183 and 62 very clearly provide immunity unless one of the exceptions to indefeasibility they list applies. Can they really be interpreted to — following section 170’s “Nothing in this Act is to be so interpreted …” wording — to withhold that immunity if section 170(1)’s condition precedent is not fulfilled?
The assurance principle is one of the three foundational principles of a Torrens land titles system. Changing one of the fundamental principles underlying a Torrens system is not that simple; they are not embodied in just one section. The reforms recommended by the New Zealand Law Commission and described earlier illustrate this complexity.
I should probably note that the alternative to characterizing the amendment to section 170 as creating conditional immediate indefeasibility is to characterize it as adding another exception to indefeasibility. If this is how the amendment is interpreted, it seems to me that it has almost no chance of being effective. The exceptions are clearly listed in sections 60, 62 and 183 (and the fraud exception is also in section 203). I do not see how it can plausibly be argued that those exceptions can be added to by tacking on a “by the way” clause to the end of a section in the part of the Act dealing with the Assurance Fund.
G. Implications for Real Estate Practice
Many purchaser and mortgagees will act through lawyers. It is those lawyers who have to make “all reasonable efforts” to confirm that the transferor or mortgagor is the registered owner of the land so their client can have the protection of section 170. And it is to those lawyers that purchasers and financial institutions will look for compensation if they are deprived of their interest in land without recourse to the Assurance Fund because all reasonable efforts were not made.
Consider again the three hypotheticals set out above, focusing on the role of the lawyer for the mortgagee or purchaser:
Scenario 1: The fraudulent “purchaser”/mortgagor
In this hypothetical, the fraudster, F, forged the signature of the owner, O, on a transfer, registered the transfer and then got a mortgage as the registered owner. It is the financial institution, B Co., which will lose its mortgage if it did not make all reasonable efforts to confirm that F was the registered owner of the land (and if the 2008 amendments are effective). Here, if B Co. or its lawyer does make such efforts, they will confirm that F was the registered owner of the land. The amendment would therefore fail to achieve its purpose of preventing mortgage fraud.
Scenario 2: The fraudulent mortgagor
In this hypothetical, the fraudster, F, merely pretended to be the registered owner, O, using false identification. The financial institution, B Co., will lose its mortgage if it did not make all reasonable efforts to confirm that the mortgagor, F, was the registered owner of the land (and if the 2008 amendment is effective). And in this instance — unlike scenario 1 — F is not the registered owner, but instead an identity thief. As I understand it, the amendment to section 170 was enacted to change the behaviour of financial institutions in exactly this type of case, forcing them to adopt better practices when they initially agree to make the loan. And the amendment should have achieved this behaviour change. Can the mortgagee pass along their obligations to outside counsel? And what would constitute “all reasonable efforts” by a lawyer to verify that the non-client was the mortgagor?
Scenario 3: The fraudulent “owner”
In this hypothetical, the fraudster, F, pretended to be the owner, O, for the purposes of selling the house to P. It is P who will lose his new home and his purchase money if he did not make all reasonable efforts to confirm that F was the registered owner of the land (and if the 2008 amendments are effective). And it is P’s lawyer who will have to make the reasonable efforts required of section 170 in order to protect P, their client. Assuming F is self-represented, how does P’s lawyer meet the section 170 condition precedent?
1) “All reasonable efforts”
The first question is: what are “all reasonable efforts by the purchaser or mortgagee to confirm that the transferor or mortgagor is the registered owner of the land?” I am not aware of any cases considering section 170 since the 2008 amendments came into effect. Neither am I aware of any changes in conveyancing practices as a result of those amendments. Changes have occurred as result of the work of the industry and government mortgage fraud committees, discussed above, but not because of the 2008 amendment per se.
Nonetheless, there are new, uniform and national “best practices” for combatting money laundering, terrorist financing, and mortgage fraud that probably provide the standard for “all reasonable efforts” for lawyers. Rules 118.1 to 118.10 of the Rules of the Law Society of Alberta, on “Client Identification and Verification,” were approved by the Benchers in April 2008, and came into effect at the end of that year. They were based on the “Model Rule on Client Identification and Verification” developed by the Federation of Law Societies of Canada in 2008 as part of a national initiative to fight fraud.
Basically, those rules require a lawyer retained by a client to obtain and record basic contact information for that client: full name, residential and/or business address and telephone number, occupation or type of business. When the legal services that a lawyer is retained to provide include receiving, paying or transferring money, then a lawyer must verify their client’s identify using reliable, independent source documents, data or information. There are many details, including examples of acceptable documentation.
Even though these are national, law society approved standards, and they likely amount to “all reasonable efforts,” more could be done. Certainly lawyers’ insurers want more done to prevent fraud. For example, the Lawyers’ Professional Indemnity Company (LAWPRO), the Law Society of Upper Canada’s provider of professional liability insurance and title insurance, suggests lawyers should be “Digging Deeper” to take steps to cross-check and verify information provided by the client, steps such as cross-checking names, addresses, and phone numbers of the client and other people/entities involved in the matter on Google and other search engines; doing reverse searches on phone numbers; looking up addresses using Street View in Google Maps; calling the entity making the payment or loan and asking if they are aware of the transaction; etc. Are those activities part of “all reasonable efforts”?
(2) All reasonable efforts to verify whose identity?
The main problem with the Law Society Rules is that they are all about a lawyer identifying and verifying the identity of their own client. The 2008 amendment to section 170 of the Land Titles Act require clients or their lawyers to verify the identity of the client on the other side of the transaction — the other side’s client. A purchaser or mortgagee gets the protection of section 170 “if the purchaser or mortgagee has made all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land.”
Does the 2001 Western Law Societies’ Conveyancing Protocol (Alberta) help? After all, one of the goals of the Protocol is to “preserve the integrity of the Torrens land registration system in western Canada” by “enhanced standards of conveyancing practice.” However, the Protocol, like the new Law Society Rules, has lawyers checking their own client, not the other side’s client.
Under Part D of the Protocol, the seller’s lawyer is required to conduct a title search and to “inquire as to the full legal name … of each Seller [and] verify that the Seller is named as the registered owner of the land.” There is no relevant undertaking in the Trust Conditions or Sample Letter to Buyer’s Lawyer, and nothing saying the purchaser’s lawyer can rely on the seller’s lawyer to have completed these investigations. There is nothing about making all reasonable efforts in compliance with section 170 — assuming that the purchaser’s lawyer could rely on the seller’s lawyer doing so.
Under Part E of the Protocol, when a purchaser’s lawyer is issuing a Solicitor’s Opinion, the lawyer has to confirm the title information and the full legal name and marital status of each purchaser/mortgagor. There is nothing in Part D or the Solicitor’s Opinion to Mortgagee that would allow a mortgagee to rely on the purchaser’s lawyer complying with section 170 except the general conclusion that “the mortgage can now be funded and the funds disbursed.” Perhaps something like the following qualification should be noted on Solicitor’s Opinion to Mortgagee: “If the Seller’s lawyer made all reasonable efforts to confirm that the mortgagor is the registered owner of the land and if I am entitled to rely on the seller’s lawyer doing that work.” But what mortgagee would accept such an opinion?
There is an odd disjunction between the requirements of the amended section 170(1) and the Law Society’s Client Identification and Verification Rules and conveyancing practice. The best practices do not appear to satisfy the Land Titles Act requirement that all reasonable efforts to confirm that the transferor or mortgagor is the registered owner of the land be made by the purchaser or the mortgagee. Those Rules and practices are directed at the lawyer’s own client, not the party on the other side.
Prior to 2008, Alberta had a fairly pure Torrens system. With the amendment of section 170, however, I think it is fair to describe the Alberta Land Titles Act in the same unflattering terms as the Ontario Court of Appeal described Ontario’s statute in Lawrence (at para 44) as an “unfortunate hotch potch of ill-matching sections.”
Personally, I do not think that the amendment to section 170 can have the effect it was intended to have. I do not think you can tinker with only one section of a large and complex statute and thereby change one of the fundamental principles underlying that type of statute and introduce a new type of indefeasibility. I expect that someday in the not too distant future we will see a case or two that demonstrates the difficulties of introducing conditional immediate indefeasibility into the Alberta Land Titles Act. It would probably be better to refer the matter to the Alberta Law Reform Institute for their considered opinion and recommendations before that happens.
At the very least the 2008 amendment to section 170 of the Land Titles Act has introduced unpredictability into an area of law usually seen as requiring certainty. The whole point of a Torrens system of land titling is reliability, simplicity, and speed. A Torrens system achieves these goals, in great part, by diminishing an owner’s security of title. By attempting to increase the owner’s security of title through the 2008 amendment to section 170, the Alberta legislature has called into question the Torrens system itself.
I would like to thank my Property Law colleagues — Nigel Bankes, Sharon Mascher, and Nickie Vlavianos — for their generous comments and questions on an earlier draft of this post. All opinions and all errors and omissions are solely my responsibility.
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PDF version: Condominiums, Caregivers and Human Rights
Case commented on: Condominium Plan No. 9910225 v Davis, 2013 ABQB 49
Anyone who has seen the film Amour knows that caring for an ill and elderly loved one can be an impossibly demanding task, both physically and emotionally. Many families turn to live-in caregivers in these circumstances. When those being cared for live in a condominium, and the condominium’s bylaws purport to restrict the use of live-in caregivers, what legal avenues are open to challenge the bylaws, or decisions made on the basis of the bylaws? This scenario arose in Condominium Plan No. 9910225 v Davis. Justice R. G. Stevens dealt with the issue as one of interpretation of the bylaws, but also suggested that human rights legislation was not an option in this type of case. I will argue in this post that human rights legislation does apply in the context of condominiums, and provides an important avenue of redress.
Allen and Adelaide Davis lived together in a condominium unit in Medicine Hat, Alberta from January 2000 to October, 2011. Allen Davis is elderly and blind, and Adelaide Davis has dementia. In the fall of 2009, Allen Davis hired a live-in caregiver, Pacienta Subrado, through the Government of Canada’s Foreign Worker Program for a two year term. Ms. Subrado’s employment contract stipulated that she would assist the Davises with cleaning, meal preparation, laundry, dressing and bathing Mrs. Davis, and medical procedures such as administration of medications and checking blood pressure. Ms. Subrado was to provide 24-hour care, which required her to live with the Davises. The contract also provided that Ms. Subrado’s accommodation costs of $336 per month would be deducted from her pay.
The Bylaws of Condominium Plan No. 9910225 provide as follows:
An owner SHALL NOT:
iv. use or permit the use of his Residential Unit other than as a single family dwelling or for a purpose other than for residential purposes. …
The restrictions in use in these By-Laws have the following purposes:
a. To provide for the health and safety of condominium occupants;
b. To maintain the Residential Units, Parking Units and Common Property Units in such a manner as to preserve property values;
c. To provide for the peace, comfort and convenience of the Owners and occupants;
d. To develop a sense of community.
The Bylaws define “Single Family Dwelling” as “a Unit occupied or intended to be occupied as a residence by one family alone and containing no more than one kitchen and in which no roomers or boarders are allowed”. “Roomer” and “boarder” are then defined as “a person to whom room and board is regularly supplied for consideration.”
The Board of Condominium Plan No. 9910225 (9910225) became aware that the Davises had a caregiver residing with them in December 2009. The Davises were informed that if a complaint was received, the Condominium Board “would have no option but to enforce the By-laws” (at para 6). A motion to revise the By-laws to permit live-in caregivers was rejected by approximately 90% of the voting unit holders at the Condominium Owners Annual General Meeting in May 2010 (it is unclear from the reported decision whether it was the Davises or someone else who brought forward this motion). In September, 2011, 9910225 served a notice upon the Davises to the effect that they must comply with the By-laws, otherwise they would be subject to a sanction of $50 per day starting October 1 for as long as Ms. Subrado continued to live with them. In October 2011, Adelaide Davis moved into a nursing home, but Allen Davis continued to reside in the condo. In November, 2011 the Condominium Board passed a resolution “directing that notice be provided to any owner in violation of the By-laws prohibiting roomers or boarders with notice to allow them to resolve the contravention or vacate their unit by March 31, 2012” (at para 6). Mr. Davis received such notices from the Board by registered mail on December 9, 2011 and February 7, 2012. On April 12 2012, Ms. Subrado was directed by the Board to vacate the premises via a formal notice handed to Mr. Davis. As of August 1, 2012, Ms. Subrado no longer resided in the Davises’ condominium unit.
Condominium Plan No. 9910225 sought a declaration that the Davises were in violation of its bylaws, and an injunction “restricting the use of live-in caregivers or the occupancy of the Respondents’ condominium unit by anyone other than those individuals permitted by the By-laws.” 9910225 also sought a monetary sanction of $10,000 against the Davises, and solicitor-client costs (at para 1).
Justice Stevens began his reasons for decision by noting that condominium bylaws are in essence a contract amongst the owners, citing Condominium Plan No. 931 0520 v Smith, 1999 ABQB 119. He indicated that there were no binding or persuasive authorities on the issue of whether live-in caregivers qualify as roomers or boarders. Applying the “modern principle of interpretation” to the construction of the Condominium bylaws (at para 12), Justice Stevens reviewed the purpose statement in Article 65 as part of the context for interpreting Article 62(a)(iv). He held that in light of the purposes of health, safety, comfort and convenience of condominium owners, Article 62(a)(iv) should be interpreted to permit live-in caregivers “required to provide necessary assistance” to residents (at para 14). He noted that prohibiting a live-in caregiver providing necessary care “could be devastating to the unit holder,” and it was “debatable” whether such a restriction would even provide “marginal enhancement to the other unit holder[s] in terms of property values” (at para 14).
I have no quarrel with this aspect of Justice Stevens’ decision – he took an appropriately contextual approach to the interpretation of the bylaws in a way that protected the interests of all the parties. However, Justice Stevens stated that because the bylaws amounted to a private contract, they were not subject to section 4 of the Alberta Human Rights Act, RSA 2000, c A-25.5 (AHRA), because:
that section prohibits discrimination against any person or class of person with respect of accommodation or facilities that are customarily available to the public, and of course condominium units are not. It is not at all uncommon, for example, for condominium By-laws to discriminate on the basis of age, and it is well established that a condominium corporation is legally entitled to do so (at para 9, citing Condominium Plan No. 931 0520 v Smith at para 6).
It is this aspect of Justice Stevens’ judgment with which I take issue. Section 4 of the AHRA provides as follows:
No person shall
(a) deny to any person or class of persons any goods, services, accommodation or facilities that are customarily available to the public, or
(b) discriminate against any person or class of persons with respect to any goods, services, accommodation or facilities that are customarily available to the public,
because of the race, religious beliefs, colour, gender, physical disability, mental disability, ancestry, place of origin, marital status, source of income, family status or sexual orientation of that person or class of persons or of any other person or class of persons.
At the outset, it must be noted that age is not a protected ground under section 4 (although it is protected for some other areas of discrimination, such as employment – see AHRA section 7). Justice Stevens’ comment that there is “wide acceptance of age restrictions in condominium By-laws” (at para 15) may relate more to the exclusion of age from section 4 than the wholesale exclusion of condominiums from section 4.
There is authority in Alberta for the proposition that section 4 of the AHRA applies to condominiums. In Ganser v Rosewood Estates Condominium Corporation, 2002 AHRC 2, an 87 year old woman with disabilities resided in a condominium, the bylaws of which were amended to allow indoor parking spaces only for those owners who held a valid driver’s license. Ganser was not able to drive because of her disabilities, but her granddaughter and friends used the stall when they were assisting her in attending medical appointments and providing other types of care. Nevertheless, Ganser lost her parking stall in accordance with the revised bylaws, and brought a human rights complaint against the condominium corporation. The Human Right Panel Chair, Deborah Prowse, considered the application of section 3 of the Human Rights, Citizenship and Multiculturalism Act, RSA 2000, c H-11.7 (HRCMA), which was the precursor to section 4 of the AHRA. She noted that the section applies to “persons,” which includes condominium corporations. Moreover, the protection for services “customarily available to the public” could be interpreted to cover condominium owners. According to Prowse:
The relationship between the condominium corporation and condominium owners is created when a person purchases property subject to the management by such a corporation. There are no selection or eligibility criteria other than the willingness and ability to purchase the property. Any member of the general public potentially could be a resident owner. The corporation provides services and the resident owners are the recipients or users of those services. Generally, the corporation provides management services in relation to the upkeep, development and maintenance of the property to the owners (2002 AHRC 2 at 14-15).
Prowse found support for her decision in University of British Columbia v Berg,  2 SCR 353, where the Supreme Court held that ““every service has its own public” and once this ‘public’ is defined, the Act prohibits discrimination against the members of that public on the prohibited grounds” (2002 AHRC 2 at 15, citing Berg at 383). In Ganser, condominium owners were the “public” to whom services were customarily available, so section 3 of the HRCMA applied. Prowse went on to find that the condominium’s bylaws discriminated against Ganser on the basis of her disability, and that the condominium corporation had failed to establish that it had fulfilled its duty to accommodate her.
Condominium Plan No. 931 0520 v Smith, relied on by Justice Stevens in Davis, dealt with an age-based restriction in condominium bylaws, so section 3 of HRCMA, which governed at the time, was clearly inapplicable in that case. Nevertheless, Justice Hawco cited Gay Alliance v Vancouver Sun,  2 SCR 435 for authority that protections of accommodation customarily available to the public apply to “such matters as accommodation in hotels, inns and motels” and not to condominiums, which are governed by private contract between condominium owners and the condominium corporation (1999 ABQB 119 at para 7).
In Gay Alliance, the Supreme Court set out a longer list of the sorts of matters that should be included in provisions such as section 4 of the AHRA (and section 3 of HRCMA before it). According to the Court:
“Accommodation” refers to such matters as accommodation in hotels, inns and motels. “Service” refers to such matters as restaurants, bars, taverns, service stations, public transportation and public utilities. “Facility” refers to such matters as public parks and recreational facilities. These are all items “customarily available to the public” (at 454-55).
In Berg, the Supreme Court noted that Gay Alliance had been interpreted in some subsequent cases to have created an exhaustive list of accommodations, services and facilities. It disagreed with this approach, and further noted the “danger of applying a purely quantitative analysis … to decide that as soon as the public as a whole is reduced to a subset through an admissions or eligibility process, the admitted few lose their identity as members of the public” (at 382). The Court thus rejected “any definition of “public” which refuses to recognize that any accommodation, service or facility will only ever be available to a subset of the public” (at 383). In Ganser, Panel Chair Prowse relied on this qualification of Gay Alliance by Berg, and her reasoning is to be preferred over that of Justice Hawco in Condominium Plan No. 931 0520 v Smith. To reiterate, unit owners are the “public” to whom services are “customarily available” in the context of condominiums, so section 4 of the AHRA applies.
The Davises did not bring a human rights complaint against Condominium Plan No. 9910225. If they had, the Human Rights Commission would have had jurisdiction to consider their complaint based on the adverse impact of the condominium bylaws on the basis of disability under section 4 of the AHRA. Although the Davises’ rights prevailed in Justice Stevens’ decision on the condominium’s injunction application, it is important to clarify that human rights complaints remain an option for other persons in their situation.
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Case Considered: Wrzesien v Arnett & Burgess Pipeliners Ltd., 2013 ABQB 59
The oppression remedy is a statutory right available under section 242 of the Alberta Business Corporation Act, RSA 2000, c B-9 [ABCA] and other corporate statutes in Canada. The remedy is a powerful tool for correcting prejudicial, unfair and oppressive conduct. It is available to shareholders, directors and officers who have been oppressed or unreasonably prejudiced through corporate conduct. Under the legislation a creditor may utilize the oppression remedy only if the court exercises its discretion to find that the creditor is a ‘proper person’ to make an application under the oppression remedy (ABCA, s 239).
In Wrzesien v Arnett & Burgess Pipeliners Ltd. Justice Manderscheid considered a creditor’s ability to bring an oppression claim. The plaintiff, Ed Wrzesien was a creditor and shareholder of the defendant corporation. Wrzesien applied to amend his Statement of Claim to bring forward an oppression action pursuant to section 242 of the ABCA. Wrzesien argued the directors of Arnett & Burgess Pipeliners Ltd. failed to value his shareholdings accurately resulting in a depressed value.
In order bring an oppression claim Wrzesien must show he has standing as a ‘complainant’ under the statute. In considering whether Wrzesien qualified as a creditor Justice Manderscheid cites Builders’ Floor Centre Ltd. v Thiessen (2012 ABQB 86 – I should note in full disclosure I acted as counsel in this case). Master Wacowich gave wide meaning to the term ‘creditor’ in relation to the oppression remedy. It was held that a creditor includes any person with an existing claim or action against the corporation. Further Master Wacowich said a “Court has broad powers to determine that an applicant is a proper person to apply for the oppression remedy. This is a broad power of justice and equity whereby a Court may allow a person who would not otherwise be a “complainant” to take proceedings” (at para 38). Further, in Ed Wrzesien v Arnett & Burgess Pipeliners Ltd. Justice Manderscheid noted the seminal case of BCE Inc. v 1976 Debentureholders in which the Supreme Court of Canada said, “oppression is an equitable remedy. It seeks to ensure fairness… It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair” (2008 SCC 69 at para 68).
In following BCE the Alberta Court of Queens Bench has firmly asserted that it has a broad and equitable discretion to allow an applicant to bring an oppression claim. I question whether this means the class of stakeholders bringing claims under the oppression remedy will expand? I note the work of Igor Ellyn who suggests that the oppression remedy “allows any type of corporate activity to be the subject of scrutiny, and makes the remedy available to a broad class of individuals.” See Igor Ellyn and Karine de Champlain “Shareholders’ Remedies in Canada” Ellyn Law LLP: online here.
I suggest it is tenable for socially active shareholders to enforce environmental objectives that have been pledged by corporations using the oppression remedy. Socially minded investors that consider corporate social responsibility as part of their investment strategy exist. As one example, Northwest & Ethical Investments L.P. (NEI) is Canada’s largest provider of socially responsible mutual funds. See About Ethical Funds, (August 2, 2010) NEI Investments, online here. NEI invests in natural resource sector companies that embrace sustainability. As one example, Suncor Energy Inc. is currently held in two of NEI’s funds. Perhaps one of the reasons is due to Suncor’s commitment to “beyond-compliance environmental performance goals” see Suncor 2012 Report on Sustainability here.
Suncor has spent over a billion dollars developing and implementing a reclamation technology leading one commentator with an environmental NGO to state that Suncor “raises the bar for all companies operating in the oilsands.” See Simon Dyer, “Pembina reacts to Suncor’s proposed new tailings technology” The Pembina Institute (October 23, 2009), online here. At the same time, Suncor has performed a rigorous review of budgetary costs and is cutting half of all projected spending in the Fort McMurray region. See Globe & Mail “Suncor scales back 2013 oil sands spending plan” (December 3, 2012) here. Hypothetically, if the directors of Suncor scaled back their reclamation projects, NEI could bring an oppression claim based on cutbacks to environmental initiatives. I suggest NEI could bring forward this claim even if Suncor was not required to fulfill these environmental initiatives by the regulators.
Whether a complainant could successfully bring forward a corporate social responsibility claim through an oppression remedy is speculative. However, Canadian courts have been willing to use their equitable discretion to include unsecured creditors with a de minimis legal basis to bring an oppression claim. For instance, in Gignac Sutts & Woodall Construction Co. v Harris, (1997 CarswellOnt 2915) the amount claimed by the applicant was founded in unjust enrichment and had not been billed or payment demanded when the action was commenced. Nevertheless, the Court held that the applicants were creditors for the purposes of the oppression remedy. This case was followed by the Alberta Court of Queen’s Bench in Wrzesien v Arnett & Burgess Pipeliners Ltd. and Builders’ Floor Centre Ltd. v Thiessen.
Given these developments, I suggest it is a reasonable extension to permit a socially active shareholder such as NEI to bring forward an oppression claim based on environmental concerns. However, there will need to be further case law on point to determine whether the oppression remedy may become a tool for corporate social responsibility to gain legal teeth.
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Case Considered: Sun Indalex Finance, LLC et al. v United Steelworkers et al., 2013 SCC 6
On February 1, 2013, Supreme Court of Canada (“SCC” or “Court”) released its much awaited decision, Sun Indalex Finance, LLC et al. v United Steelworkers et al. The case involved a company, Indalex, that was pursuing restructuri ng proceedings under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”). Prior to its restructuring, Indalex had been failing to meet its employer contribution obligations to the company’s pension plan and when the pension plan was wound up, there was a deficiency in the funds.
During its restructuring, Indalex obtained debtor-in-possession (“DIP”) financing to fund its operations and when it subsequently sold its business, the proceeds of the sale were not enough to pay its creditors. The members of the pension plan claimed that the shortfall in the pension plan entitled them to a super-priority, such that their claim would be paid before the DIP lenders.
There were two main findings by the Court. With regard to the deemed trust, the Court was split but it upheld the finding of the Ontario Court of Appeal that a deemed trust had arisen under the Pension Benefits Act, RSP 1990, c P-8 (“PBA”) in favour of the pension holders for the wind-up deficiency payments. However, the SCC overturned the Ontario Court of Appeal in its finding of the priority of the deemed trust, unanimously maintaining that the deemed trust would not be granted super-priority over the DIP lenders.
The Court also unanimously agreed with the Ontario Court of Appeal in its findings on the existence of a fiduciary duty owed by Indalex as administrator of the pension plans, and on Indalex’s breach of that duty. A majority of the Court, disagreed, however, with the Ontario Court of Appeal’s remedy for that breach, finding that the imposition of a constructive trust was not appropriate.
Indalex Limited (“Indalex”) is a wholly owned Canadian subsidiary of a U.S. company, Indalex Holding Corp. (“Indalex U.S.”). In 2009, both companies ran into financial trouble and in March 2009, Indalex U.S. filed for Chapter 11 bankruptcy protection in Delaware and one month later, in April 2009, Indalex applied for a stay under the CCAA. The stay was granted in an initial order by Morawetz J. and FTI Consulting Canada ULC was appointed as the monitor (“Monitor”). Pursuant to this order, Indalex obtained protection under the CCAA.
At this time, Indalex was the administrator for two registered pension plans, one for its salaried employees (“Salaried Plan”) and one for its executives (“Executive Plan”) (collectively referred to as the “Plan Members”). Both plans faced funding deficiencies, in the amount of $1.8 million for the Salaried Plan and $3.0 million for the Executive Plan.
On April 8, 2009, Indalex was authorized to borrow US$24.4 million from the debtor-in-possession lenders (“DIP charge”) and grant them priority over all the other creditors in that amount. The DIP financing was necessary to support Indalex’s business until the sale could be completed, as the sale of Indalex and Indalex U.S. as a going concern was how the reorganization would be achieved under the CCAA and Chapter 11. In June 2009, Indalex applied for authorization to increase the DIP loan amount to US$29.5 million, which the court granted.
To effect its sale, Indalex commenced a bidding procedure, through which SAPA Holdings AB (“SAPA”) bid US$30 million. At the time, the Monitor estimated the liquidation value of Indalex’s assets to be US$44.7 million. SAPA did not intend to assume responsibility for the pension plans’ wind-up deficiency. When Indalex and Indalex U.S. brought motions before the courts for the sale to be approved under the terms of SAPA’s bid, the Plan Members opposed it. Their grounds for opposition were as follows:
The court approved the sale on July 20, 2009 and directed the Monitor to make a distribution to the DIP lenders. The sale proceeds resulted in $30.9 million. The Monitor distributed US$17.0 million to the DIP lenders, paid certain fees and withheld $6.75 million in reserve for the Plan Members, pending the outcome on their arguments on their rights to the proceeds of the sale. As Indalex had owed $27 million to the DIP lenders, the payment of $17 million left a shortfall of $10 million. Indalex US covered the shortfall, as it had guaranteed the DIP lending agreement. Since Indalex U.S. was subrogated to the DIP lenders’ priority, it became the highest ranking creditor of Indalex, with a claim of $10 million.
The Plan Members brought motions in August 2009, for a declaration that a deemed trust in the amount of the unfunded portion of the pension liabilities existed, which would be enforceable against the proceeds of the sale. Such a deemed trust would give priority to the Plan Members over the secured creditors pursuant to section 57(4) of the PBA and section 30.7 of the Personal Property Security Act, RSO 1990, c P-10 (“PPSA”).
History of Proceedings
At trial, Campbell J. dismissed the Plan Members’ motion, finding that the deemed trust did not apply to the wind up deficiencies. The Plan Members appealed. The Ontario Court of Appeal allowed the appeal and found a deemed trust pursuant to the PBA, with respect to the wind-up deficiencies. It also found that the Executive Plan’s members had a claim arising from Indalex’s breach of fiduciary obligation, which resulted in a constructive trust. The Ontario Court of Appeal maintained that imposing a constructive trust would not harm the DIP lenders but rather, would only affect Indalex US. With regard to priority, the Court of Appeal found that the constructive trust had priority over the DIP charge.
The Monitor and Sun Indalex, a secured creditor of Indalex US, appealed to the SCC and raised four issues:
Scope of Deemed Trust
The Court had to consider whether the deemed trust arising under section 57(4) PBA extended to the wind-up deficiencies. Section 57(4) of the PBA states:
57. . . .
(4) Where a pension plan is wound up in whole or in part, an employer who is required to pay contributions to the pension fund shall be deemed to hold in trust for the beneficiaries of the pension plan an amount of money equal to employer contributions accrued to the date of the wind up but not yet due under the plan or regulations.
Section 75 PBA imposes an obligation on the employer of a wound up plan to pay into the pension fund an amount equal to the total of all payments that are due or that have been accrued and have not been paid (s 75(1) (a)) and under section 75(1) (b), there is a formula for calculating the amount that must be paid to ensure the fund can cover its liabilities upon wind up.
The majority found that the wind-up deficiency contributions are subject to a deemed trust as of the date the pension plan is wound up. It does not cover the deficiency in the pension plan which is not being wound up.
Priority of Deemed Trust and DIP Charge
The Court unanimously found that the DIP charge had super priority, which prevailed over the PBA deemed trust.
Fiduciary Duty and Remedy
The majority of the Court generally agreed that Indalex had breached its fiduciary duty as plan administrator but that the constructive trust imposed by the Ontario Court of Appeal was not the appropriate remedy.
I wish to address two issues with regard to this case. First there has been an uproar about the priority afforded to the DIP lender in relation to the pensioners, with the view being that the pensioners should have been afforded a higher priority as opposed to being superseded by large commercial lenders. Under this issue, I will discuss what makes pensioners (and employees) vulnerable creditors, the type of protection we have for these creditors and the reason for DIP priority.
Second, the Court found that a deemed trust did arise in favour of the pensioners. In this case, the deemed trust did not take priority over DIP lenders due to the doctrine of federal paramountcy. Two questions will be addressed here. First, will the amendments to the CCAA have an effect on similar cases in the future? Second, what is the type of priority afforded to deemed trusts in relation to secured creditors other than DIP lenders?
I. DIP Lenders v. Pensioners
a. Pensioners as Vulnerable Creditors
On the first issue, there has been much criticism about the lack of protection for pensioners, most recently in response to the Indalex decision. Most of the criticism is aimed at the preference for larger creditors over pensioners. For example, Terence Corcoran questions why creditors are entitled to priority status over pensioners and maintains that “the legal and financial professionals who work the lucrative insolvency field in Canada have a list of reasons to put banks and other lenders ahead of employees and pensioners, none of which deserve the reverence and support they’ve received from Ottawa” (“Pensioners victims of inaction in Ottawa”, National Post, February 5, 2013, here). Similarly, Dave Coles maintains “Bankruptcy laws that prioritize wealthy creditors over pensioners are fundamentally unjust” (“Pensions need better bankruptcy protection, “Winnipeg Free Press, February 7, 2013, here).
Certainly, uproar over the seeming protection of larger creditors, typically banks, at the expense of the pensioners, seems justified. Pensioners, like employees, are vulnerable creditors. Vulnerable creditors are creditors who are not in a position to protect themselves against the bankruptcy of the company and they rarely have access to information that would allow them to assess the risk of their employer becoming bankrupt and to consequently structure their affairs in anticipation. Such self-protection can come in many forms, usually unavailable to vulnerable creditors. For example, creditors can diversify their lending portfolios, or they can ask for higher interest rates when lending. They can also demand access to information about the debtor’s financial position.
In contrast, employees and pensioners cannot demand information about their employers’ finances, and even if they could, they still have limited recourse to protect themselves. While pensioners may have invested their money in various places throughout their lives, in most cases, their biggest return will come from the company’s pension plan into which they paid throughout the course of their employment. They pay into a pension according to the company’s requirements; while they may have some options as to the structure of their plans, they do not typically have a choice about paying into the pension plan. They cannot diversify employment and therefore pension plans in the same way a lender can diversify a lending portfolio. They cannot demand an interest rate to protect themselves against the possibility of the failure of the plan.
b. Protection for these Vulnerable Creditors
Employees are also vulnerable creditors, and they face similar types of issues; Parliament has attempted to address those issues through legislation. Canada has recently introduced the Wage Earner Protection Program Act (SC 2005, c 47, s 1 as amended by SC 2007, c 36, “WEPPA”) to make payments to eligible individuals for unpaid wages earned six months prior to their employers’ bankruptcy or receivership (ss 4-5, WEPPA). Under the WEPPA, if an eligible individual receives a WEPP payment by the Crown for unpaid wages, the Crown is subrogated to the claims to which that employee is entitled under the Bankruptcy and Insolvency Act (RSC 1985, c B-3, ss 81.3-81.4, “BIA”). The BIA gives unpaid employees a limited super-priority against the current assets of the employer, for an amount up to $2000 (ss 81.3 & 81.4 BIA).
A similar type of protection was considered for pensioners but was rejected in the report of the Standing Senate Committee on Banking, Trade and Commerce, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (November 2003, here) (“Report”). The Report acknowledged the vulnerability of pensioners but maintained that retirement benefits can be accessed from other sources (Canada/Quebec Pension Plan, Old Age Security and Guaranteed Income Supplement programs, and possible private savings and RRSPs) and concluded by noting that while greater protection might be desired by some, that protection “must be balanced against the interests of others” (Report, page 98). In that same Report, the Senate Committee recommended that the legislation be amended to protect employees in the way that was subsequently codified in the WEPPA.
While the WEPPA does not directly address pension contributions, the BIA and CCAA were amended to provide protection for employees with regard to pension contributions. The BIA creates a charge to secure unpaid pension contributions with regard to prescribed pension plans in a bankruptcy and receivership (ss 81.5 and 81.6, BIA). The charge ranks above any other claim against the bankrupt’s assets (which is not limited to current assets, unlike the WEPPA charge) except the right to recover thirty-day goods, the charge in favour of suppliers of agricultural goods, the WEPPA charge, and the source deductions related to income tax, Canada Pension Plan, Employment Insurance, or the provincial equivalents. There is no limitation on the pension contribution charge, neither in amount of the claim nor in the time period in which the claim may be made.
c. Reasons for DIP Priority
While it may seem unfair that commercial creditors are entitled to priority over pensioners, this situation is necessary if financially troubled companies are going to attempt to restructure rather than declaring bankruptcy. And DIP lenders are vital to restructuring. The reason DIP lenders get a super priority is because they take on an enormous risk by lending to an insolvent company that has already given a security interest in all its present and after acquired assets. But companies that are attempting to restructure are, by definition, financially troubled. There is no guarantee that the restructuring will work but the restructuring attempt can only succeed if the company can borrow money. This means that no one will take on that risk without a guarantee that the loan will be repaid and in the absence of anyone taking on that risk, companies cannot restructure. Such a guarantee is not possible without a super priority, as insolvency is, by definition, the state of being unable to pay one’s debts as they become due. Accordingly, unless a lender has a higher priority, it is unlikely the lender will be repaid anywhere near the full amount of the loan, if anything at all. As the Senate Committee noted, “insolvency – at its essence – is characterized by insufficient assets to satisfy everyone, and choices must be made” (Report, page 99).
As unfair as it may seem, and it is unfair to those who are expecting payments from their companies after retirement, unless the regime is structured in this way, there will never the potential for companies to emerge from dire financial situations. If claims are allowed to supersede a DIP charge, potential DIP lenders have no incentive to lend to a sinking company, which all but guarantees the company’s failure. These choices are difficult and on their face, seem to be feeding into the public outcry against big corporations who profit at the expense of individuals. The Court itself noted, “the harsh reality is that lending is governed by the commercial imperatives of the lenders, not by the interests of the plan members or the policy considerations that lead provincial governments to legislate in favour of pension fund beneficiaries” (Indalex, para 59). And when faced with the alternative, which is a potential undermining of our restructuring regime as a whole, a different path is difficult to justify.
II. Deemed Trusts
The main issue in this case was the priority of the deemed trusts in relation to the DIP charge. On this, the SCC held that the DIP charge given under the CCAA had priority over the provincial deemed trust based on the doctrine of paramountcy (Indalex, para 60). The PPSA requires pensioners to be paid before the secured creditors, but the Amended Initial Order in this case provided that the DIP charge ranked in priority to “all other security interests, trusts, liens, charges and encumbrances, statutory or otherwise” (Indalex, para 60). Being that priority was court-ordered under the CCAA, it has the same effect as statutory priority. And the inconsistency in the federal and provincial statutes gives rise to a different order of priority. Once the doctrine of federal paramountcy is applied, the claims by the DIP lenders supersede the pensioners’ claims.
This decision was made pursuant to the CCAA as it was prior to the 2008 amendments. One of the questions that remain is whether the amendments would have any effect on the decision. Also, this decision discusses deemed trusts and their priority in relation to DIP lenders. Will secured creditors, other than DIP lenders, also have that priority over provincial deemed trusts in situations outside formal bankruptcy proceedings?
First, it is helpful to lay out the priorities under the different legislation, depending on the proceeding being utilized, as there are different priorities afforded to creditors, depending on the applicable legislation.
a. In Provincial Legislation
In this case, the PBA creates a provincial deemed trust (s 57(4)). The Ontario PPSA subordinates a security interest in an account or inventory or its proceeds to the interest of a person who is the beneficiary of a deemed trust arising under the PBA (s 30(7)). So the priorities are clearly set out under provincial legislation: in a situation involving the PBA and PPSA, the provincial deemed trusts take priority over secured creditors.
b. Provincial and Federal Legislation: the BIA
Once federal legislation becomes applicable, however, things change. Under the federal BIA, the treatment of trusts depends on their nature. The BIA exempts trust property in the hands of the bankrupt from being distributed to creditors, meaning trust property is not available to be distributed to secured creditors (s 67(1)(a) BIA). However, deemed trusts in favour of the Crown get different treatment. The BIA holds that property of the bankrupt shall not be regarded to be held in trust, notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for the Crown, if the trust would not be so regarded in the absence of that statutory provision (s 67(2) BIA). There is an exception to this, with regard to statutory deemed trusts for source deductions, such as Canada Pension Plan, Employment Insurance premiums and unremitted income tax (s 67(3) BIA).
While the BIA provision clearly lays out the treatment of deemed trusts in favour of the Crown, issues can arise with deemed trusts that arise in favour of parties other than the Crown, such as those arising under pension legislation. However, the case law indicates that those trusts get the same treatment. A case commonly cited on this issue is British Columbia v Henfrey Samson Belair Ltd. (1989), 59 DLR (4th) 726 (SCC) (“Samson”), where the Court determined that if the property deemed to be in trust by the province under the Social Service Tax Act (RSBC 1979, c 388) formed a true trust at common law, then the property would be exempt from distribution, thereby affirming the provision in the BIA. The Samson case has given rise to two interpretations, a narrow one which benefits ordinary unsecured creditors for whom a deemed trust is created (since they are not the Crown), and a broader one which maintains that any deemed trust created by provincial legislation, in favour of the Crown or not, must meet the common law requirements of trust law in order to obtain priority over secured creditors pursuant to the BIA. The broad view has been adopted by the Ontario Court of Appeal in Re Ivaco Inc. (2006), 275 DLR (4th) 132 (Ont. CA).
c. Provincial and Federal Legislation: the CCAA
The issue here is that while the priorities of deemed trusts in relation to secured creditors under the BIA might be clearly set out, it is not the case under the CCAA, another federal statute. If this were a case where the debtor initially proceeded under the CCAA, only to fail and end up under the BIA, then the BIA priorities would govern. But in this case, Indalex proceeded to sell its assets under the CCAA, not the BIA, leaving open the question of how the priorities would be interpreted. This can be moderated if courts permit claimants to obtain bankruptcy orders after liquidating pursuant to the CCAA, as doing so would trigger the rule in the BIA and annul the deemed trust (see Rod Wood, Bankruptcy and Insolvency Law, p.415; Re Ivaco Inc., supra).
In Indalex, the Court noted that courts do favour the interpretation of the CCAA “in a way that affords creditors analogous entitlements” (Indalex, para 51) but determined that that “does not mean that courts may read bankruptcy priorities into the CCAA at will” (Indalex, para 51). Finding that, the Court went on to conclude that the provincial deemed trust under the PBA applies in CCAA proceedings, subject to the doctrine of federal paramountcy, because of the Amended Initial Order, and noting that that means that when there is a CCAA liquidation proceeding, the PPSA may determine the priorities rather than the federal scheme under the BIA (Indalex, para 52), since analogous priorities are not set out in the CCAA.
d. Potential Issues under CCAA
As noted earlier, priorities with regard to deemed trusts under the BIA are not the same as under a CCAA restructuring, which could be problematic.
The Indalex decision was made pursuant to the CCAA as it existed prior to 2009, when many amendments were proclaimed, including the addition of provisions about interim financing (DIP financing). Interim financing is now provided for in the CCAA, and the provisions state that a court may make an order ranking the security or charge in priority of any secured creditor (s 11.2(2), CCAA). It is unclear whether a deemed trust will fall under the claim of a secured creditor. The definition of “secured creditor” under the CCAA does not appear to encompass beneficiaries of deemed trusts. If it doesn’t capture them, there would be no inconsistency between the two statutes on the priority of deemed trusts, making the doctrine of federal paramountcy inapplicable and potentially leaving the door open to having deemed trusts take priority to DIP financing.
The Court itself noted that when there is a CCAA liquidation proceeding, the PPSA may determine the priorities, rather than the federal scheme under the BIA (Indalex, para 52). Aside from the inapplicability of federal paramountcy, an additional problem is that the provincial PPSAs and pension benefits legislation are not identical in their treatment of deemed trusts in relation to security interests arising under the PPSAs. In situations outside a formal bankruptcy proceeding, this could result in different treatment of pension benefits in different provinces depending on the wording of the provincial legislation, so long as it is not inconsistent with the interim financing provisions in the CCAA. While federal bankruptcy legislation does allow for different treatment of certain issues between the provinces, such as, for example, provincial exemptions, ideally the imposition of the federal scheme would allow for as few disparities as possible.
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Case considered: Smith v St. Albert (City), 2012 ABQB 780
In January, 2013, Alberta Court of Queen’s Bench Justice Terry Clackson ruled that a recent St. Albert bylaw that restricted the sale of drug paraphernalia must be struck down, because the bylaw fell outside the jurisdiction of the municipality (i.e., it was ultra vires). The bylaw in this case prohibited the display or sale of more than two products from a list of banned items, including pipes, marijuana grinders or products which display an image of a marijuana leaf. Business establishments that sell these and other forms of drug paraphernalia are sometimes referred to as “bong” or “head” shops, and exist in many municipalities across Canada.
It is significant to note that Criminal Code (RSC 1985, c C-46) section 462.2, addresses drug paraphernalia when it provides:
462.2 Every one who knowingly imports into Canada, exports from Canada, manufactures, promotes or sells instruments or literature for illicit drug use is guilty of an offence and liable on summary conviction
(a) for a first offence, to a fine not exceeding one hundred thousand dollars or to imprisonment for a term not exceeding six months or to both; or
(b) for a second or subsequent offence, to a fine not exceeding three hundred thousand dollars or to imprisonment for a term not exceeding one year or to both.
Section 462.1 provides the following pertinent definitions:
“consume” includes inhale, inject into the human body, masticate and smoke;
“illicit drug” means a controlled substance or precursor the import, export, production, sale or possession of which is prohibited or restricted pursuant to the
Controlled Drugs and Substances Act;
“illicit drug use” means the importation, exportation, production, sale or possession of a controlled substance or precursor contrary to the Controlled Drugs and Substances Act or a regulation made under that Act;
“instrument for illicit drug use” means anything designed primarily or intended under the circumstances for consuming or to facilitate the consumption of an illicit drug, but does not include a “device” as that term is defined in section 2 of the Food and Drugs Act;
“literature for illicit drug use” means any printed matter or video describing or depicting, and designed primarily or intended under the circumstances to promote, encourage or advocate, the production, preparation or consumption of illicit drugs;
“sell” includes offer for sale, expose for sale, have in possession for sale and distribute, whether or not the distribution is made for consideration.
The Saskatchewan Court of Appeal in R v Spindloe, 2001 SKCA 58,  5 WWR 239, held that section 462.2 did not offend section 7 of the Canadian Charter of Rights and Freedoms for being too vague or overbroad. In particular, the definition of “instrument for illicit drug use” was not unconstitutionally vague, as the Court could determine on a case by case basis whether section 462.2 applied, after it was refined and restricted by them as necessary. Mr. Spindloe also argued that the definition was overbroad, as it encompasses and prohibits instruments designed for other legal purposes. However, in criminal matters the Crown bears the burden of showing that an instrument is designed primarily or intended for illicit drug use, and the Court held that this permits legal items to be set apart from the ones intended for illicit drug use in any given case (Spindloe, para 90).
Ironically, part of the motivation for passing the drug paraphernalia bylaw was the perception of the St. Albert City Council that the Criminal Code section 462.2 prohibitions of manufacturing, promotion or sale of instruments for illicit drug use were “ineffective” at curbing the trade in goods or devices that may be used in conjunction with illicit drug use, because the vendors could argue that these items were not illegal, and would often sell them with a disclaimer that they were to be used in “conjunction with tobacco or legal herb” smoking (Smith, para 5). Further, councillors were concerned that the drug paraphernalia establishments were “moving out from ‘big city’ Alberta to smaller cities and towns” (Smith, para 2).
The bylaws were passed under the Municipal Government Act of Alberta (RSA 2000, c M-26), which allows municipal councils to pass bylaws for municipal purposes respecting the health, safety and welfare of people and the protection of people and property (MGA, s 7) (Smith, para 5). The local RCMP were consulted about creating a list of goods and practices that, if available or practiced at a single place of business, may have the cumulative effect of encouraging the use and trade of illicit drugs (Smith, para 5). The Business Licencing Bylaw was amended to include (Smith, para 7):
h) “restricted product” means any of the following:
(i) a product that displays a marijuana plant,
(ii) a device intended to facilitate smoking activity, including a pipe (metal /glass blown, plastic, wood), water bong or vaporizer,
(iii) a type of grinder (electric or manual),
(iv) a type of digital weigh scale,
(v) a detoxifying product (including a drink, pill or other product) marketed for masking drug effects or making such effects undetectable through tests; (BL9/2012)
In the Chad Smoke Shop, the owner sold a number of items which could be categorized as “restricted products” in his store. Smith wrote to the City asking for guidance about how he might comply with the new bylaw. The City then sent him a copy of the amended bylaw, together with a Notice to Comply. He was also notified that his store would be inspected on May 15, 2012, to ensure that he had complied with the notice (Smith, para 8).
After the inspection on May 15, 2012, Smith was issued a violation ticket under the new bylaw. On May 18, 2012, the City issued a notice that effective May 26, 2012, Smith’s business licence would be seized and would be suspended for five days. The City also notified him that he could appeal this action to the “Appeal Committee” (Smith, para 10).
While Smith did appeal the ticket, he also applied to the Court of Queen’s Bench under section 536(1)(a) of the Municipal Government Act to quash the amended bylaw on four grounds. Three of the grounds were that the bylaw(s) violated his rights under the Canadian Charter of Rights and Freedoms (sections 2(b), 7 and 15). However, the Court did not rule on these grounds, because it found that the bylaws were ultra vires the City’s jurisdiction because they are in pith and substance legislation relating to criminal law, which is under the federal government’s jurisdiction.
Justice Clackson first looked at the pith and substance of the legislation. He examined the intrinsic purpose and extrinsic evidence regarding the legislative history and actions of the City in implementing the bylaw. While the City argued that the purpose of the bylaw was to promote safety, health and welfare of the citizens, the court found that the bylaw had the “look and feel of a morality legislation” (Smith, para 20). In addition, the Court found that the legislation was “plainly designed to address the perceived enforcement difficulties associated with the Criminal Code provisions relating to items which might be considered drug paraphernalia” (Smith, para 20). The Court was further supported in this view by the fact that the City had consulted with the police in the drafting of the bylaw. All of this supported the conclusion that the amending bylaw was in pith and substance criminal law legislation (Smith, para 20).
With regard to the effect of the bylaw, Justice Clackson held that the legal effect of the bylaw was to prohibit certain items from being sold in a certain way and at a certain location. He noted that enterprises of a certain size were not captured by the bylaw, at least not as intended targets (Smith, para 23). The practical effect was to preclude the licensing or successful operation of “bong or head shops” (Smith, para 25). He noted that while it was possible that the health and welfare of St. Albert citizens might be improved by the bylaw because they may not have easy access to some of the tools which might assist their involvement with narcotics, this indirect effect was quite uncertain (Smith, para 25).
A further practical effect of the bylaw is that the conduct addressed by the ineffective Criminal Code provisions was more effectively addressed by the amending bylaw. Justice Clackson noted that the imposition of criminal type penalties are within the authority of the province to enact, provided they had a legitimate and constitutional provincial purpose (Smith, para 26).
Because the impugned bylaw was about criminal law, in both legal and practical effect, the Municipal Council had exercised a power that was plainly beyond the competence of the municipality and therefore ultra vires. Thus, the bylaw amendment must be struck down. (Smith, para 27).
It is interesting that there were both division of powers and Charter arguments raised in this case, but the division of powers issue held the day. It demonstrates that both types of issues are important in constitutional law cases.
The City of St. Albert has indicated it will be appealing this case. See: Mariam Ibrahim “St. Albert to appeal ruling that struck down bylaw” (18 January 2013) Edmonton Journal online here.
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Case considered: Kasten Energy Inc v Shamrock Oil and Gas Ltd, 2013 ABQB 63
In this case Justice Lee granted Kasten’s application to appoint a receiver\manager over all of the assets of Shamrock, including Shamrock’s Crown oil and gas lease. Kasten was a secured creditor of Shamrock claiming under a general security agreement (GSA) over Shamrock’s present and after acquired personal property. In the course of making his decision to appoint a receiver Justice Lee concluded that Shamrock’s lease was an intangible form of personal property. Kasten brought its application for the appointment of a receiver\manager Kasten under section 13(2) of the Judicature Act, RSA 2000, c J-2 rather than under section 65(7) of the Personal Property Security Act, RSA 2000, c P-7 (PPSA).
Shamrock held a Crown oil and gas lease on which there was a producing oil well. Shamrock had granted security to Kasten’s predecessor in interest in the form of a GSA in relation to all its present and after acquired personal property, in order to secure an existing indebtedness. A meeting of Shamrock creditors in response to a Notice of Intention to Make a Proposal pursuant to the Bankruptcy and Insolvency Act, (BIA) RSC 1985, c B-3 resulted in Court approval (over Kasten’s objections) of a proposal to allow Shamrock’s parent company (Stout) to recover its capital investment after which net revenues would be paid 80% to secured creditors and 20% to unsecured creditors. Several months later Kasten issued a demand for payment along with a Notice of Intention to Enforce Security under section 244 of the BIA. Following that, Kasten brought this application for an Order appointing a Receiver and Manager of Shamrock’s assets and undertaking under section 13(2) of the Judicature Act which provides as follows:
An order in the nature of a mandamus or injunction may be granted or a receiver appointed by an interlocutory order of the Court in all cases in which it appears to the Court to be just or convenient that the order should be made, and the order may be made either unconditionally or on any terms and conditions the Court thinks just.
Justice Donald Lee granted Kasten’s application and appointed a receiver and manager of all of the current and future assets, undertakings and properties of Shamrock until Kasten and other creditors (secured and unsecured) are paid in full. The GSA under which Kasten claimed authorized the appointment of a Receiver and thus it was not necessary for Kasten to show irreparable harm if a receiver were not appointed. The Order was restricted to preclude the Receiver\Manager from selling the property without further approval from the Court and the effect of the Order was postponed until April 1, 2013 to afford Shamrock the opportunity to succeed in its efforts to sell the property.
This is the second case in recent years in which there are published reasons supporting the appointment of a receiver\manager of oil and gas assets, although the context of the two cases is very different: see BG International Limited v Canadian Superior Energy Inc, 2009 ABCA 127 and my post on that decision here. Both cases acknowledge that the decision to order the appointment of a receiver should not be lightly undertaken and any case dealing with the application of a statutory power as broad as section 13(2) of the Judicature Act is always going to be fact driven. What makes this case remarkable are Justice Lee’s comments on the nature of a Crown oil and gas lease.
The balance of this comment reviews that part of Justice Lee’s reasons and then offers some thoughts on what might have led Justice Lee down this particular garden path.
Justice Lee on Crown oil and gas leases
Drawing upon the reasoning in the Supreme Court of Canada’s decision in Saulnier v Royal Bank of Canada, 2008 SCC 58 (a case dealing with a commercial fishing licence) Justice Lee held that Shamrock’s Crown oil and gas lease “is a proprietary interest within the purposive contemplation of Alberta’s Personal Property Security Act.” And further “Shamrock’s oil and gas lease is covered by the GSA and Alberta’s PPSA in the category of ‘intangibles’ [defined as personal property other than goods, chattel paper, investment property, a document of title, an instrument and money.” The reason for this seems to be that “during the term of the oil and gas lease/licence, Shamrock, the leaseholder has a beneficial interest to the earnings from its oil and gas lease ….”.
With respect this must be wrong. A freehold oil and gas lease is a lease is a profit à prendre for an uncertain term (Berkheiser v Berkheiser,  SCR 387) as is a Crown oil and gas lease in Alberta (R v Industrial Coal and Minerals,  4 WWR 35, rev’d on other grounds,  5 WWR 103 (Alta. App. Div)). And there is a good reason for this. The words of grant in the province’s standard form petroleum and natural licences and leases grant a set of rights which perfectly match the elements of a profit: i.e. the right to go on to somebody else’s property and win, work and remove a valuable resource. The Crown owns the corporeal estate (i.e. the oil and gas in place) and the lessee has an incorporeal right in relation to the oil and gas in place. Once severed from the ground, title to the oil and gas in place passes to the lessee as personal property. The lessee doesn’t have a beneficial interest in the Crown’s oil and gas in place because it doesn’t need a beneficial interest – it has a legal profit à prendre.
Why this garden path?
One possible answer might well be that counsel led Justice Lee down this particular garden path. I infer this from the summary of Kasten’s submissions reported at paragraph 17 to the effect that:
The Applicant notes that Shamrock’s argument on the issue of whether the GSA covers the oil and gas in the ground along with the right to extract the minerals distracts from the main issue of whether this Court should appoint a Receiver in the circumstances of this matter. Kasten argues that there is no doubt that a Crown oil-and-gas lease is a contract that contains a profit à prendre, which is an interest in land: Amoco Canada Resources Ltd v Amax Petroleum of Canada Inc, 1992 ABCA 93 at para 10,  4 WWR 499. Nevertheless, leases have a dual nature as both a conveyance and a commercial contract; and as such, are subject to normal commercial principles: Highway Properties Ltd v Kelly, Douglas and Co Ltd,  SCR 562 at 576,  2 WWR 28. The contract is assignable and subject to seizure.
Thus, while counsel for Kasten acknowledges that a Crown lease is a profit he also wants to characterize it as a contract, relying, interestingly enough on a commercial lease case, the Highway Properties decision, which is not a case dealing with a profit. Highway Properties stands for the proposition that a lessor in a commercial lease can take the benefit of the contractual remedy of repudiation for an anticipatory breach where a tenant abandons the premises before the end of the term. It is no authority for the proposition that a lease is a form of personal property. Commercial leases still have to registered\caveated in the Land Titles Office and Crown petroleum and natural gas leases are registered with the Department of Energy.
But was it necessary for Justice Lee to shoehorn an oil and gas lease into the category of personal property in order to reach the conclusion that he had the authority to appoint a receiver\manager? Now I am not much of an insolvency lawyer but there is nothing in the language of the Judicature Act which suggests that this was necessary; and after all the Court appointed receiver will have to act in the interests of all the parties and will presumably be bound by the terms of the Court approved proposal. The fact that Kasten’s security was confined to personal property might affect the willingness of the Court to approve a sale by the receiver\manager of property that was not subject to the security interest, but it is less clear that Justice Lee needs to conclude that Shamrock’s principal asset is covered by the terms of the security instrument before acting on the terms of the Judicature Act. There was some discussion in the case that any decision to appoint a receiver\manager should take into account the “nature of the property,” but the discussion of that point revolved (at para 22) around whether or not the receiver\manager would have the necessary expertise to operate the property. In sum, I don’t think that Justice Lee needed to go down this particular garden path at all but I would certainly be interested in hearing from readers with more expertise in insolvency law and practice than I can claim.
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PDF version: Limitation Periods and the Subjective Element
Case Considered: Boyd v Cook, 2013 ABCA 27
As my University of Calgary law professors repeat time after time, a missed limitation date is one of the few things you cannot fix as a lawyer. So, when I came across this recent Alberta Court of Appeal case, naturally I paid close attention. The underlying claim was an investment in an unsuccessful development project. Mr. Cook induced Mr. Boyd to invest in a mortgage company. The majority of the funds were used to invest in a development project that Mr. Boyd had flatly refused on several occasions to invest in. Mr. Boyd filed a Statement of Claim. Mr. Cook sought summary dismissal on limitation grounds. A Master dismissed the summary dismissal application (2012 ABQB 284), which was upheld by a chambers judge. It looked like the parties were going to trial. However, the Court of Appeal decided to allow the limitations defense.
Mr. Boyd, was a “sophisticated businessman” who was familiar with land developments; “reading financial and development statements and reports and evaluating land investments was part of his daily fare” (at para 6). Mr. Boyd and Mr. Cook knew each other previous to this investment opportunity. When Mr. Cook discussed investing in a certain land development, Mr. Boyd “said he did not like the idea at all, wanted nothing to do with it, and would not recommend that anyone else invest in it” (at para 7). However, Mr. Cook was successful in getting Mr. Boyd to invest in a mortgage company. What Mr. Boyd did not know was that 60% of the mortgage company’s funds were invested in the very project that Mr. Boyd wouldn’t “touch with a 10-foot pole” (at para 14). Mr. Boyd learned for the first time the true nature of his investment in March 2009, the same time he was notified that the project was in trouble. Mr. Cook assured Mr. Boyd that the investment was safe. Mr. Boyd took steps to get more information. The issues with the property were not resolved. Mr. Boyd filed his Statement of Claim on June 16, 2011.
The chambers decision was unreported, but was quoted in the Court of Appeal decision. The chambers judge agreed with the Master that the test was a “subjective/objective assessment that is best done after having an opportunity to assess the credibility of the witness” (para 1).
Before delving into this particular case, the Court discussed the purpose of having a limitations defense (para 4):
Limitations statutes exist for a purpose. They are not mere tidiness, nor a trick to give defendants windfalls or bargaining points. Limitations legislation, so-called “statutes of repose” exist to give some certainty in their lives to all those who may at some time be sued. That is not only true of businesses and professional people, but also ordinary citizens who can ill afford the mental and emotional stress of threats or lawsuits. It is a nuisance and an expense to have to keep voluminous records in perpetuity. Allowing large potential threats to hang over heads for a generation sterilizes capital and impoverishes businesses. What is worse, it is unjust to sue people once their former ability to defend themselves has evaporated. In many types of claim, a prima facie case is easy to prove.
Section 3 of the Limitations Act, RSA 2000, c L-12 sets out the relevant test:
3(1) Subject to section 11, if a claimant does not seek a remedial order within
(a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known,
(i) that the injury for which the claimant seeks a remedial order had occurred,
(ii) that the injury was attributable to conduct of the defendant,
(iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding …
the defendant, on leading this Act as a defence, is entitled to immunity from liability in respect of the claim.
The issue on this appeal was whether Mr. Boyd “in the circumstances ought to have known” on June 16, 2009 “that the injury, assuming liability on the part of the defendant, [warranted] bringing a proceeding.”
The Court of Appeal, unlike the lower decisions, found that credibility was not an issue. In discussing the test, the Court said (at paras 20 and 28 respectively):
The Supreme Court has introduced a small subjective element into this otherwise objective test of “ought to have known.” The “circumstances” include the knowledge and interest of the particular plaintiff.
The test is largely objective, that of the reasonable person in the same circumstances
The Court also discussed the meaning of “warrants bringing a proceeding.” An obvious reason for an injury not warranting bringing a proceeding is that the cost of litigation would likely exceed the amount of recovery (at para 13). The Master found that Mr. Boyd knew by mid-June 2009 that, due to the fraud, it would be “highly unlikely” the investment money would be recovered but the amount of the loss could not be ascertained. The Court said it was not necessary to know the quantum of loss, just that there was enough information to calculate that the “amounts likely lost would be big enough to sue for” (at para 33).
The Court also made the point (at para 21) that the
Alberta Rules allow a plaintiff to discontinue his lawsuit unilaterally until a very late stage. He or she may have to pay some party-party costs to the defendant, but in the early stages those would ordinarily not be heavy. And often the plaintiff can negotiate his or her way out of those costs: a discontinuance is usually very attractive to a defendant.
The Court found that Mr. Boyd would have been capable of doing the calculation to determine whether the likely loss warranted bringing a proceeding more than 2 years before the Statement of Claim was filed. The limitations defense was allowed and the action was dismissed summarily. There was no reason to delay in filing since Mr. Boyd had the option to discontinue under the Rules. If after questioning the “suit then looked shaky, discontinuing then would not be seriously expensive for a man of Mr. Boyd’s position” ( para 21).
As a student trying to avoid future Law Society phone calls about missed limitation periods, what can I take away from this case?
First, when the limitation “clock” starts running is largely objective, but there is a small subjective element that should not be forgotten. Time might start ticking differently for a sophisticated versus a lay client since what they ought to have known given their particular knowledge and interests could arguably be different. It will be important to know my client.
Second, it will be important to think of the cost and benefit of litigation since the limitation period will not start to run until the injury warrants bringing a proceeding. The likely amount of recovery is not necessary, only that it will exceed costs. If the client first comes to my office with an issue that does not warrant bringing a proceeding, it will be important to revisit the issue from time to time to track whether possible recovery has exceeded the costs threshold.
Third, there is little harm in playing it safe and filing the Statement of Claim well within the limitations deadline since the claim can be discontinued unilaterally until a very late stage. It may cost the client some money, but it would probably be better than having the entire claim dismissed for a limitation period issue.
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PDF version: A Charter Right to Search Google
Decision considered: R v McKay, 2013 ABPC 13
The Internet has transformed society in so many ways. Even the ways we find information and the sources we rely upon have been fundamentally transformed. It appears our legal systems need to adapt to this new reality.
In R v McKay, 2013 ABPC 13 (CanLII) the Alberta Provincial Court had the occasion to consider these issues in the context of a charge under the Criminal Code. The accused had been pulled over, a breathalyzer was applied and then he was taken to the police station. At the police station he was given a toll free number, to the Yellow Pages and the 411 service.
The accused made a toll free call but was not satisfied with it and did not realize he still had a right to counsel. After further testing was done on the accused he was charged under s. 253(1) (a) and 253(1) (b) of the Criminal Code.
In a voir dire proceeding the accused alleged a breach of his rights under Sections 7, 8 and 10 of the Charter of Rights and Freedoms and specifically that he was not given a reasonable opportunity to exercise his right to counsel and that the accused was not provided with a full range of resources and access to sources of information which reasonably were or ought have been made available to him to contact a lawyer, including internet access.
In assessing the evidence before the Court Judge Lamoureux stated:
We are at an unprecedented time in human history. The real world exists parallel to and in tandem with the virtual world. It is uncontroverted that the vast majority of individuals born after the year 1980 first look to the virtual world for information, for education, for access to services, before they consider access to anachronistic services such as paper telephone directories and numbers posted on a wall. The computer generation considers the internet, the cell phone, the iPad, the Smartphone, essential partners in daily life. The average 19 year old looks to Google as a source point for much of the information necessary to carry on daily life. Google mapping, driving motor vehicles with the assistance of Google, access to restaurants, access to medical care, access to Universities and educational information, and access to lawyers, along with millions of other items of information are all contained on the metasource – Google. Indeed Google seeks as one of its missions to become the source of original information for the world.
So what happens when a 19 year old is arrested and has never faced the prospect of trying to get legal advice before providing potentially incriminating evidence to a police officer? This Court takes judicial notice that the average 19 year old will look to the internet for information to get legal advice before checking White Pages, Yellow Pages or 411. In fact the accused himself has testified that he did not at the material time, even know what 411 was.
The evidence before the Court was that the 19 year old accused’s primary means of seeking information on services he did not know was to use the Google™ search engine. The evidence showed that had the accused had access to the internet and done a search he would have come up with the names of numerous experienced top Calgary criminal defense lawyers including addresses, telephone numbers, email addresses and other educational information concerning the services they provide. The Court also noted that the information on Google™ may be more current and more detailed than a name and a phone number in the Yellow Pages, the White Pages, 411 or the toll free number.
The Honourable judge found at s. 10(b) Charter breach had been established. She stated:
S. 10(b) of the Charter impresses both informational and implementational duties on police who arrest or detain an individual. The informational duty was satisfied in this case. The implementational is indeed two fold as the Crown indicates in its excellent written Brief. The first implementational duty is “to provide the detainee with a reasonable opportunity to exercise the right (except in urgent and dangerous circumstance)”. R. v. Bartle, 1994 CanLII 64 (SCC), (1994) 92 CCC (3d) 289 (SCC), at 301. The second implementational duty is to “refrain from eliciting from the detainee until he or she has had a reasonable opportunity (again except in cases of urgency or danger).” R. v. Bartle, supra.
The Court noted that the question of what is a reasonable opportunity is contextual and fact specific. In this case and with this young tech savvy accused the Court found that:
[the] accused was not given a reasonable opportunity to exercise his right to access a lawyer, by failure of the police to provide concurrent access to the internet along with 411, the toll free number and the paper telephone directory. In the year 2013 it is the Court’s view that all police stations must be equipped with internet access and detainees must have the same opportunities to access the internet to find a lawyer as they do to access the telephone book to find a lawyer.
So, the transformative changes of the internet and the coming of age of an internet savvy generation will affect traditional approaches of how an accused can exercise her or his Charter rights.
* This blog was originally posted on Slaw and is reposted with permission <http://www.slaw.ca/2013/02/19/a-charter-right-to-search-google/>
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PDF version: Migratory Birds and the City
Decision considered: Podolsky v Cadillac Fairview Corp.  O.J. No. 581 (QL) [Note as of date of writing this decision is not available online at Canlii or the Ontario Court of Justice]
In this recent decision of the Ontario Court of Justice, Justice Melvyn Green finds the corporate defendant property developers and managers not guilty of charges laid against them by Ecojustice as a private prosecutor under the federal Species at Risk Act, SC 2002, c 29 as well as the Ontario Society for the Prevention of Cruelty to Animals Act, RSO 1990, c O.36 and the Environmental Protection Act, RSO 1990, c E.19. The substance of these charges is the physical harm or death suffered by migratory birds when they collide with urban buildings. Justice Green rules the prosecution established beyond a reasonable doubt that the defendants committed the actus reus of the offences, and he also finds the defendants established on the balance of probabilities that they took reasonable steps to avoid the bird collisions. Accordingly, Justice Green acquits the defendants on all charges.
This decision is of relevance to ABlawg for a number of reasons, and my comments will be restricted to these two points: (1) migratory bird collisions with urban buildings is also a problem in Calgary, and the City of Calgary has Bird Friendly Urban Design Guidelines (the “Calgary Guidelines”) that identify and discuss the problem (see here) and (2) this is the first reported judicial decision interpreting section 32(1) of Species at Risk Act and Justice Green gives us some insight into how that provision will be interpreted going forward.
The charges in question flow from statutory provisions which establish so-called regulatory offences. I am not going to canvass the applicable legal principles that apply in a prosecution of these type of offences, and I direct readers to my earlier ABlawg posts discussing the 2010 prosecution of Syncrude concerning migratory birds (see here) and my comment on R v Syncrude Canada Ltd, 2010 ABPC 229 published in volume 49(1) of the 2011 Alberta Law Review at pages 237 to 244.
To begin with, I would say that I thoroughly enjoyed reading Justice Green’s decision. The judgement provides an excellent summary of the bird collision problem – its causes and implications – and the judgement is also well-organized, succinct where it needs to be, and provides clear analysis. No doubt this is the result of well-prepared counsel and a judge who grapples with the arguments and issues placed before him.
The prosecution led evidence as to the extent of the bird collision problem. According to their experts, at least one billion birds meet their death in the United States every year due to collisions with buildings. It is apparent that local groups study the problem in various municipalities. The Toronto group known as FLAP – the Fatal Light Awareness Problem – recorded close to 5000 collisions in the Greater Toronto Area during 2010 – and according to the evidence at trial at least 826 of these collisions occurred at property owned and managed by the defendants.
The cause of these collisions is, as one would expect, the result of a combination of factors. Buildings located in municipalities that are within the fly way for migratory birds will be more susceptible to this issue. Buildings located in or close to wooded areas or wetlands will be more susceptible than others. The reflective glass used in modern skyscrapers exacerbates the problem by creating an illusion of a clear path for the birds.
The Calgary Guidelines note the city is located within 2 continental migratory bird flyways that involve somewhere between 5 and 10 billion birds and over 150 species. The Guidelines refer to a somewhat dated study (1995-1997) that counted 411 bird deaths resulting from building collisions in downtown Calgary. The Guidelines also note that the Bow River valley attracts migratory birds which, in turn, attracts birds to the downtown core. The Guidelines note that 78% of recorded collisions during the 1990s study were associated with buildings that have reflective glass. As well, the Guidelines state that one of the birds collected in the 1990s study was an Olive-sided Flycatcher which is a species listed as threatened under the Species at Risk Act. Thus the Calgary Guidelines would suggest that the facts supporting the prosecution in this Ontario case are likely found in Calgary too. The Guidelines include a number of design measures which are thought to reduce the number of bird-building collisions, some of which are also canvassed by Justice Green including the application of window film.
Section 32(1) of the Species at Risk Act states “no person shall kill, harm, harass, capture or take an individual of a wildlife species that is listed as an extirpated species, an endangered species or a threatened species.” Section 97(1) makes it an offence to contravene section 32(1) and provides for fines against corporate defendants for up to $300,000 in a summary conviction and $1,000,000 for an indictable offence. Section 100 states the defence of due diligence is available to a person charged under section 32(1). And section 102 sets out factors which may be considered in sentencing, including in clause (b) whether the offender committed the act inadvertently.
Justice Green considers these Species at Risk Act provisions collectively in paragraphs 72 and 73 of his judgement. His interpretation includes the following key points:
Justice Green finds the prosecution met its onus of proving beyond a reasonable doubt that the defendants committed the physical elements of the section 32(1) offence (at para 85). Several of the birds killed during the time period set out in the Information laid by Ecojustice were members of a species listed as threatened under the Species at Risk Act. The evidence established these deaths occurred as a result of the birds impacting with the defendants’ buildings. The fact that these deaths were unintended by the defendants was not relevant to establishing the actus reus. Justice Green was satisfied that the reflective glass caused the birds to mistakenly view the reflection as an extension of a nearby wooded area. The evidence also established that the defendants had been aware of the bird collision problem caused by reflective glass on their buildings for some time.
Justice Green then goes on to find the defendants avoid culpability under the Species at Risk Act for the death of the listed birds because they had taken reasonable steps to avoid the problem. The defendants led evidence to establish a significant commitment to address the bird collision problem. In particular, Justice Green noted the defendants:
The message here with respect to endangered species is much the same message that was delivered by the successful prosecution in R v Syncrude. There are adverse impacts on other species that flow from the built human environment and the law does not expect us to completely eliminate these adverse impacts. However we have evolved to the point where some of these adverse impacts are recognized by our legal system – particularly in the case of a species legally recognized as endangered or threatened with extinction – and the law does require that we take reasonable measures to prevent harm to individuals of these species. Like oil sands operators in Alberta, building owners must pay special attention to bird deterrence. Empty promises will not suffice to avoid legal liability.
As I was writing, a link to the trailer for an upcoming film by Chris Jordan landed in my inbox. Jordan’s film documents the impacts of modern life on birds. The trailer for the film depicts the problem in a much more powerful way than I could ever hope to in words. It provided some inspiration for this blog – so I thought I’d share it here: http://www.midwayfilm.com/.
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News Release commented on: Alberta Government, “Province seeks input on new energy regulator” (February 13, 2013)
The Government of Alberta announced on February 13 that it will be holding public consultation sessions as part of its process to develop the new regulations under the Responsible Energy Development Act. Public consultation sessions are taking place in 18 communities across the province and began on Wednesday, February 20. A list of the 18 sessions can be found on the Alberta Energy “Regulatory Enhancement Project” web page. The Calgary session will take place on February 25, 2013 from 9:00 a.m. to 12:00 p.m. at the Glenmore Inn and Convention Centre, 2720 Glenmore Trail SE.
Anyone wishing to participate but unable to attend a scheduled session on such short notice can complete an online survey.
The announcement notes that the Alberta Energy Regulator is expected to begin operations in June of 2013. For more on the Responsible Energy Development Act, including the critical role of regulations, see previous ABlawg posts:
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Case commented on: Canadian Natural Resources Limited v Jensen Resources Ltd, 2012 ABQB 786
In the early 1980s the Government of Alberta decided to make a clearer distinction in its tenure regime between grants of conventional petroleum and natural gas (PNG) rights and grants of oil sands rights. In implementing this policy the province went so far as to redefine the rights contained in existing Crown PNG leases. But in return, it allowed the affected PNG lessees to apply for a form of oil sands tenure for the rights that had been excluded from the PNG leases. That’s what happened in this case and the issue was whether Jensen’s gross overriding royalty (GOR) which clearly applied to the PNG leases also carried over to the oil sands rights. Justice Jo’Anne Strekaf held that it did.
Jensen Resources claimed a GOR on oil sands production in three sections of land (sections 1, 4 and 32). The GOR agreement provided (at para 5) that
The [GOR] interest herein conveyed shall attach to and encumber the Petroleum and Natural Gas Lease above described, and any renewals or extensions thereof, or any new leases which may be executed in lieu thereof, subject to the terms of this agreement.
At the time that the GORs were granted (1978 – 1980), the grantor (Kissinger) held three separate Crown PNG leases for the three sections which included oil sands rights. Subsequently, with the passage of the Oil Sands Conservation Act (now RSA 2000, c O-7) the Energy Resources Conservation Board issued Oil Sands Area Order 3 (1984) which “deemed the hydrocarbon substance, with the exception of natural gas and coal, found in certain geological zones from the top of the Mannville formation through to the base of the Woodbend formation in the Athabasca, Cold Lake, and Peace River areas” to be oil sands. This Order included the lands under the three PNG Leases and had the effect of reducing the rights held under the three PNG Leases (at para 39). A contemporaneous Information Letter (IL 84 – 15) issued by Alberta Energy and Natural Resources contemplated that holders of Crown PNG leases that were affected by Oil Sands Area Orders would be able to apply (at para 40) for “a substitute oil sand agreement … to the whole or any part of the location upon completion of a well located on the location… where the “hydrocarbon substance” is able, in its naturally occurring viscous state, to flow to a well and has sustained recoverability to the satisfaction of the minister.” Kissinger’s successors in interest took advantage of this policy and as a result acquired either an oil sands lease (OSL) (sections 1 and 4) or an oil sands prospecting permit (OSPP) for lands that included section 32. Ultimately an OSL was also issued for the section 32 lands. The OSLs all became vested in CNRL.
Oil has been produced from section 4 since May 1997 and from section 1 since December 2003. Neither CNRL nor its predecessors have paid any royalties to Jensen in respect of such production. Oil has been produced from section 32 lands since May 1999. CNRL and its predecessors have paid royalty on the section 32 production. In all of these cases production was obtained by conventional means albeit under the terms of the OSLs rather than the PNG leases. Jensen had no actual knowledge of production from the section 1 and 4 lands until 2007.
By originating notice Jensen sought a declaration that it was entitled to a royalty on the OSLs pertaining to the three sections of land and an accounting from CNRL for all royalties not paid since production commenced. CNRL in turn commenced an action claiming that Jensen had no royalty interest in any of the producing properties and sought to recover all royalties paid in relation to the section 32 lands.
Justice Jo’Anne Strekaf concluded that Jensen’s GOR applies to the sections 1 and 4 OSL and to the section 32 OSL on the basis that the OSLs were issued in place of the PNG Leases with respect to the Mannville zone for those sections. CNRL’s action was dismissed. While an applicant for oil sands rights needed to complete additional steps and while the OSLs were not automatically issued to the PNG leaseholders and the issuance of the oil sands rights was not expressly stated to be “in substitution” for the removal of the Mannville zone from the PNG leases resulting from the issuance of the Oil Sands Area Order 3, that (at para 55) was the substance of the arrangement.
Jensen’s recovery was subject to the 10 year limitation period of section 3(1)(b) of the Limitations Act (RSA 2000, c L-12). Jensen was not precluded from recovery by the discoverability rules of section 3(1)(a) of the Act. In particular, Jensen was entitled to expect that the royalty payor would honour its obligation (at para 68). There was no clear information that the royalty payments were improper. Absent that, a royalty interest holder should not be expected to be required to take positive steps to ensure that they are being correctly paid.
This seems to be an appropriate result. The original leases conferred rights to hydrocarbons in the Mannville which were removed as a result of Oil Sands Area Order No. 3. The clear policy of the government was to ensure that PNG lessees obtained substitutionary oil sands rights if they wished to, whether in the form of a permit or a lease. The relevant IL expressly referred to such substitutionary rights being issued under what was then section 8(1)(f) of the Mines and Minerals Act (RSA 1980, c M-15) which provided that:
8(1) The Minister may:
(f) if he consider that the circumstances warrant it, agree with a lessee to grant an agreement to the lessee in substitution for an agreement held by the lessee.
Thus, as a matter of contract, it seems clear that, as between the original parties to the GOR, the grantor of the GOR was contractually obliged to ensure that the GOR continued on as against the new oil sands tenures which now conferred the rights that were originally contained in the PNG leases. But the parties to this litigation were not the same parties. The issue is easy on the benefit side of the equation since the benefit of the GOR was expressly assigned to Jensen Resources Ltd. But what of the burden?
There is little if any discussion of this in the decision and unfortunately Justice Strekaf does not give us a complete picture of the chain of title. There is some discussion of the chain at paragraphs 14, 15 and 20 which suggests that some of the early changes in ownership were the result of corporate amalgamations in which case existing contractual obligations would continue. But it is not clear that the subsequent changes in ownership can be explained in the same way. CNRL, for example, acquired its interests in the OSLs “through its acquisition of assets from Petrovera Resources Inc” (at paras 15 and 21) and that sounds more like acquisition by way of a purchase and sale agreement than it does by way of a corporate amalgamation. And if that is the case then it would seem that Jensen has an additional challenge, at least in relation to the sections 1 and 4 lands where CNRL had never paid a royalty.
To succeed Jensen must be able to make the burden of the positive promise (to apply the royalty to the new agreement) run against CNRL. And to do that it must show that that promise is a legal or equitable interest in land that binds CNRL. Since the lands were Crown lands the interests would be unregisterable and so the interests in land (if established) would bind automatically (if legal) or with notice (if equitable). There is no discussion of this point in the case. Perhaps counsel was prepared to concede that the proprietary language of the GOR was so obvious that the GOR clearly established the intention of the parties to create this GOR as an interest in land as laid down in Bank of Montreal v Dynex Petroleums Ltd,  1 SCR 146. But is that enough? Or does Jensen also need to show that the additional promise to attach the GOR to the new lease also qualifies as an interest in land? If so that would be much more challenging. It may also be that the decision can be explained (and there is a strong hint of this at para 71 referring to the Agreed State of Facts) on the basis that CNRL, because of contractual commitments made to a predecessor in title, simply conceded that it would be liable if the original contracting parties would have been liable.
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Decisions Considered: Alberta Wilderness Association v Alberta (Environmental Appeal Board), 2013 ABQB 44; Water Matters Society of Alberta et al. v. Director, Southern Region, Operations Division, Alberta Environment and Water, re: Western Irrigation District and Bow River Irrigation District (10 April 2012), Appeal Nos. 10-053-055 and 11-009-014-D (A.E.A.B.), (the “EAB Standing Decision”).
Over the past decade, Alberta Environment has amended water licenses held by irrigation districts (IDs) to allow these IDs to allocate water for commercial purposes other than irrigation. Some question the authority of Alberta Environment to approve these amendments under the Alberta Water Act, RSA 2000, c W-3. The general argument here is that such change-of-purpose license amendments should be handled as a transfer of license allocation under the Water Act. And this argument is grounded on several points, including that by using the license amendment route rather than a transfer the conservation holdback provision of the Water Act is avoided and the amendment approach involves significantly less opportunity for public oversight over water management. This latter point has borne out further as public interest groups have been consistently denied standing to contest these approvals by Alberta Environment and the Alberta Environmental Appeals Board (EAB). The summary point is that Alberta Environment and the EAB assert public interest groups do not qualify as “directly affected” by a license amendment, and thus have no standing to file a statement of concern with Alberta Environment and/or a notice of appeal with the Board under the Water Act to challenge the legality of these amendments.
In May 2011 Alberta Environment granted a change-of-purpose license amendment to both the Western Irrigation District and Bow River Irrigation District to expand allowable uses. As with the earlier ID license amendment processes, Alberta Environment and the EAB denied public interest groups standing to challenge the legality of the process under the Water Act. What set this standing dispute apart from the earlier ones is that here, in addition to arguing they were directly affected by the Alberta Environment license amendment decision, the Alberta Wilderness Association, Water Matters, and Trout Unlimited argued the EAB should grant them public interest standing to challenge the legality of the license amendment under the Water Act. The EAB denied having the authority to grant public interest standing in the EAB Standing Decision. The groups sought judicial review on this point, and in a recent decision Justice Hall upheld the EAB’s ruling that it does not have authority to grant public interest standing. The issue decided by Justice Hall in this case is: “Does the EAB have jurisdiction to hear an appeal from Applicants who were not directly affected by the decision of the Director (Alberta Environment), on the basis that the Applicants are to be granted public interest standing?” The answer is no.
The environmental law clinic at the Faculty has been working with Ecojustice on this issue for a while now – see my overview of clinic work from last year on ABlawg here. During this past semester, we had 3 JD students contribute to the applicant’s memorandum of argument filed with the Court for the judicial review in front of Justice Hall. Each student was responsible for developing legal arguments for one of the three issues: (1) what standard of review should the Court apply; (2) what jurisdiction does the EAB have to grant public interest standing; (3) would the groups here qualify for public interest standing if the EAB had jurisdiction to grant it. As it turns out, only the first two issues were ultimately considered by Justice Hall, and so I won’t comment on (3).
Standard of Review – true questions of jurisdiction do exist
Our research in the clinic led us to the view that the question on whether the EAB has authority to grant public interest standing was a true question of jurisdiction and thus subject to review on the correctness standard. The applicable law here is essentially that a true question of jurisdiction is to be found only in limited cases where the administrative decision-maker in question must determine whether its governing statutory scheme provides it with the authority to embark on a particular inquiry (Alberta (Information and Privacy Commissioner) v Alberta Teachers’ Association, 2011 SCC 61 at para 33). In the alternative, we felt the question of whether a statutory tribunal can grant public interest standing would be a question of central importance to the legal system as a whole and outside the specialized expertise of the EAB and thus subject to the correctness standard.
Alberta Environment argued the standard of review applied by the Court here should be reasonableness – in other words, that the Court should defer to the EAB on this question. In support, Alberta Environment cited the usual suite of decisions wherein Alberta courts have deferred to the EAB on standing cases (e.g. Court v Alberta (Director, Bow Region, Regional Services, Alberta Environment), 2003 ABQB 456 and more recently Westridge Utilities v Alberta (Director of Environment, Southern Region), 2012 ABQB 681). Alberta Environment also noted the presence of a strong privative clause in the EAB’s governing legislation – section 102 of the Environmental Protection and Enhancement Act, RSA 2000, c E-12 (EPEA).
Justice Hall agrees that the question here is a question of whether the EAB can grant public interest standing to a party who does not meet the “directly affected” test for standing under the Water Act is a true question of jurisdiction and that the applicable standard of review is correctness (at para 12).
What jurisdiction does the EAB have to grant public interest standing – none
The normal case for standing to challenge Alberta Environment license decision under the Water Act begins with a person who files a statement of concern under section 109 who demonstrates they may be directly affected by a pending license decision. Alberta Environment applies this section such that a person’s statement of concern must be “accepted” before it is considered. That acceptance by and large involves an assessment of whether the person can demonstrate they may be directly affected by the pending license decision. Assuming Alberta Environment issues a decision that is adverse, the person may then file a notice of appeal to the EAB under section 115 of the Water Act. The directly affected test also applies at this stage as section 115 states a person who is directly affected by the license decision may file the notice of appeal to the EAB. Readers interested in how “directly affected” has been interpreted by the EAB and the Alberta courts should consult my colleague Nigel Bankes’ 2006 article entitled “Shining a light on the management of water resources: the role of an environmental appeal board” (2006), 16 Journal of Environmental Law and Practice 131 at 160-171. The short of it is this test is highly factual and requires an applicant to demonstrate a measure of proximity and causal connection to the issue at hand. Public interest groups generally need not apply.
So the interest legal twist in this case was the applicant public interest groups sought to appeal the Alberta Environment license decision to the EAB not as a “directly affected” person but rather under the doctrine of public interest standing. This is novel ground because to our knowledge the authority of a statutory decision-maker like the EAB to grant public interest standing has not been considered by a superior court in Canada. Those readers familiar with public interest standing will recall that the doctrine has been developed and applied by the Canadian judiciary as a means for a person who is not otherwise directly affected to appear before a superior court – not an administrative tribunal. The most recent articulation of the public interest standing doctrine coming from the Supreme Court of Canada is found in Canada (Attorney General) v Downtown Eastside Sex Workers Against Violence Society, 2012 SCC 45 – see the ABlawg comment written by Theresa Yurkewich and Christina Lam here.
The argument that the EAB has legal authority to grant public interest standing to the applicants was based on essentially three grounds: (1) an interpretation of sections 95 and 96 of EPEA; (2) the principle of legality that no exercise of public authority is completely immune from legal scrutiny; (3) the need to preserve scarce judicial resources. In his reasons for decision, Justice Hall only mentions ground (1) and dismisses it in short order holding that the statutory provisions that govern this case are found in the Water Act not EPEA (at para 27).
The primary statutory argument by the applicants was that section 95(5) in EPEA sets out two categories of scenarios for how the EAB should deal with a filed notice of appeal. Section 95(5)(a) provides a list of scenarios in which the EAB may dismiss a notice of appeal whereas section 95(5)(b) sets out scenarios where the EAB shall dismiss a notice of appeal. Notably the scenario in this case was one listed in clause (a) as being where the notice of appeal is submitted by a person the EAB does not believe is directly affected by the license decision under section 115 the Water Act. The argument by the applicants was that the legislature’s use of the word “may” in clause (a) as compared to the use of the word “shall” in clause (b) indicates an intention by the legislature that the EAB has the discretion to forego dismissing an appeal commenced under section 115 of the Water Act even though the person submitting the notice of appeal is not directly affected. If the legislature had intended that the EAB not have this discretion, it would have listed such a scenario under clause (b). The applicant’s noted the EAB itself has made such distinction in an earlier case (See Re Bildson (19 October 1998) Appeal No. 98-230-D)).
Justice Hall dismisses this argument by holding that section 95 of EPEA does not govern the EAB in this case, but rather it is the Water Act that governs the EAB’s jurisdiction to hear this appeal because it concerns a decision by Alberta Environment to amend a Water Act license (at para 27). Earlier in his reasons, Justice Hall also states the EAB jurisdiction to sit an appeal concerning matters arising from the Water Act comes from that statute not EPEA. I find this troubling, if simply because the EAB is constituted by EPEA. Section 95 is found within the part of EPEA that establishes the EAB and heading above section 95 states “powers and duties of Board.” Even Alberta Environment in its written argument sets out section 95 of EPEA as setting out the general powers and authorities of the Board.
There is no doubt this issue is a thorny one. And it is not entirely certain that section 95 of EPEA grants the EAB the authority to grant public interest standing. And it is beyond question that the EAB does not enjoy inherent jurisdiction and can only have those powers granted to it by its enabling legislation. But when it comes to assessing what powers and duties are held by the EAB, I would not have thought that provisions of the Water Act should govern or that Part 4 of EPEA that establishes and constitutes the EAB would not deserve some detailed interpretation on a question such as this.
Justice Hall decides the case on this statutory interpretation issue, and so he does not consider the other 2 grounds raised by the applicants. For me, this is the most disappointing aspect of his decision. This case presented a real opportunity to be at the cutting edge of the law, and in choosing not to even address the principle of legality ground Justice Hall’s decision becomes very uninspiring.
The rule of law dictates that all exercises of public authority must find their source in law. The Supreme Court of Canada and the Alberta Court of Appeal have recently confirmed the nexus between public interest standing with the principle of legality. See for example Canada (Attorney General) v Downtown Eastside Sex Workers Against Violence Society, 2012 SCC 45 at para 31. And closer to home in the words of Chief Justice Fraser:
If the legality principle is to be meaningful, there must be a way to hold government itself accountable where government actions do not comply with legality, including the rule of law. The route Canada has taken is to grant public interest standing to citizens or groups, in appropriate cases, to challenge government action on the basis it does not comply with the legality principle. (Reece v Edmonton (City), 2011 ABCA 238 at para 171).
The argument here is that link between public interest standing and the rule of law is just as applicable to the EAB as it is to a superior court. This is because the EAB is an appellant body distinct from line decision-makers. But for the creation of the EAB and its appellant powers under EPEA, a question concerning the legality of a water license amendment issued by Alberta Environment could be brought directly to a superior court by judicial review and that court would have the power to grant public interest standing to the applicants.
The result of Justice Hall’s decision is that because the legislature saw fit to create the EAB to hear environmental appeals flowing from designated statutory regimes including the Water Act, public interest standing is not available to challenge the legality of a water license amendment. And moreover, Alberta Environment can insulate itself from legal scrutiny in water allocation decisions by dismissing all statements of concern submitted under the Water Act in relation to a pending license decision. Surely it was not the intention of the legislature that the creation of the EAB would be such a roadblock to asserting the rule of law to hold Alberta Environment accountable. Yet, that is the very message and result of this case.
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On January 25, 2013, Alberta Justice Minister Jonathan Denis spoke to a crowd of about 50 people gathered by the Sheldon Chumir Foundation for Ethics in Leadership and the Rocky Mountain Civil Liberties Association. The audience included lawyers, educators, government folks, NGO representatives, and advocates for human rights and civil liberties. Minister Denis delivered remarks on current human rights and civil liberties issues in the province and also took questions from the audience. His remarks and the Q + A covered issues concerning access to justice, the government’s position on the fate of sections 3 and 11.1 of the Alberta Human Rights Act, RSA 2000, c A-25.5 (AHRA), Alberta’s new drinking and driving law, and peaceful protests, all of which will be explored in this post.
The Minister began by articulating his commitment to access to justice. He noted ways in which the province is attempting to deal with access to justice issues, for example by allowing justices of the peace to hear criminal matters on first appearance, by increasing the number of provincial court judges, and by providing access to the Minister himself (in this regard, he mentioned his meeting with members of lesbian, gay, bisexual, and transgender communities targeted for hate crimes). The Minister emphasized the government’s commitment to creating a climate of acceptance, tolerance and equality in the province.
Next, Minister Denis addressed the controversy surrounding section 3 of the AHRA, which prohibits publications and notices that are discriminatory (section 3(1)(a)), and those that are likely to expose person(s) to hatred or contempt on the basis of a range of protected grounds (section 3(1)(b)). The Minister asserted what appeared to be his own view that by continuing to prohibit hate speech under the AHRA, the government is creating a forum for those forms of expression. He also noted other arguments against the hate speech provision, including those that the law is too vague, that it unreasonably limits freedom of expression, and that hate speech is already covered under the Criminal Code. At the same time, the Minister noted that repeal of section 3 as a whole (which was supported by some political leaders at the time of the last provincial election (see Rocky Mountain Civil Liberties Association Alberta Civil Liberties blog post here), would also do away with section 3(1) (a), which is a longstanding, important provision that is replicated in almost every other human rights statute in Canada. Ultimately, the Minister indicated that the government will not determine the fate of section 3 until the Supreme Court of Canada decides the appeal in Whatcott v Saskatchewan (Human Rights Tribunal), 2010 SKCA 26, where a similar section of the Saskatchewan Human Rights Code, SS 1979, c S-24.1, is being challenged as contrary to freedom of religion and expression under the Charter. Whatcott was heard in October 2011, and is the longest outstanding SCC decision at the moment. The Alberta Human Rights Commission was one of many interveners in the case (see SCC case information here).
Minister Denis also noted the lack of clarity surrounding the scope and constitutionality of section 3(1)(b) of the AHRA following the decision in Lund v Boissoin, 2012 ABCA 300. In an earlier decision in Lund (2009 ABQB 592), the Alberta Court of Queen’s Bench held that in order to ensure that it was within provincial powers, section 3(1)(b) should be read down to require that allegations of hate speech be linked to other discriminatory practices in the AHRA, for example those relating to employment or accommodation (see 2012 ABCA 300, at para 21, and my ABlawg post on the ABQB decision, here). The ABQB also found that hate speech must indicate an intention to engage in discriminatory behaviour or seek to persuade another person to do so, and that there must be evidence establishing a likelihood that the message might cause a prohibited discriminatory practice (see 2012 ABCA 300, at para 22). Based on this narrow reading, the ABQB found that section 3(1)(b) was not ultra vires, nor did it violate the Charter. On appeal, the constitutional issues were not directly before the Court of Appeal, yet it found that the ABQB’s interpretation of section 3(1)(b) was not supported by the language of the AHRA and amounted to an “inappropriate use of the constitutional remedy of “reading down”” (at para 42). In the ABCA’s opinion, section 3(1)(b) must be interpreted as a freestanding limit on hate speech (at para 43), and the ABQB should have considered its validity and its compliance with the Charter in that light rather than reading it down to ensure its constitutionality (at paras 53, 55). This leaves the constitutionality of Alberta’s hate speech provision up in the air.
On the subject of Alberta’s new drinking and driving law, Minister Denis addressed section 88 of the Traffic Safety Act, RSA 2000, c T-6. This section allows peace officers to require a person whom they believe on reasonable and probable grounds to have driven a motor vehicle with over 50 mg of alcohol in their blood to surrender their operator’s licence, which is then suspended for a period of at least 3 days, depending on whether it is their first suspension. The Minister indicated that the government considered driving to be a privilege, not a right, and noted that the law is not aimed at social drinkers. He also suggested that Alberta’s law was less intrusive than similar laws in BC and Ontario, which allow the imposition of fines in addition to driving suspensions. The Minister indicated that the law is currently being challenged for its constitutionality, but did not provide further details. If any readers have details about this challenge that you are willing to share, please do so by posting a comment to ABlawg.
The last topic of the Minister’s prepared remarks was the right to peaceful protest (which is actually a freedom in Hohfeldian terms, but I will use the Minister’s terminology here). Minister Denis indicated that he supports this right and thinks we should facilitate it. At the same time, limits will need to be placed on this right when its exercise poses public safety concerns, like a blockade on a highway might do.
The Minister did not address section 11.1 of the AHRA in his prepared comments, but that section came up in the Q + A. Section 11.1 requires Alberta school boards to “provide notice to a parent or guardian of a student where courses of study, educational programs or instructional materials, or instruction or exercises … include subject?matter that deals primarily and explicitly with religion, human sexuality or sexual orientation.” Teachers receiving written requests from parents or guardians that students be excluded from such instruction must permit the students to opt out. Section 11.1 has been widely criticized, including in ABlawg posts by Linda McKay Panos (see here and here). Minister Denis was asked to respond to concerns that the section has a chilling effect on teachers who wish to engage their students in discussions of issues related to sexuality and sexual orientation, and that it impairs the right of children and youth to receive a broad based education. The Minister disputed that the section is having such “unintended consequences,” and noted that it protects parental rights to instill morality in their children, which is not the role of the state. He also suggested that there have been no complaints made under section 11.1 since it came into force. This is not correct. Two parents in Morinville, Alberta brought complaints under section 11.1 based on the lack of secular public education available in Morinville at the time. In January 2012, the Morinville Press (see here) reported that the Alberta Human Rights Commission had dismissed the complaints on the basis that they would be better addressed in another forum (see AHRA section 22(1.1) for the authority of the Commission to refuse to accept complaints in this way). The Morinville complaints were aimed at a different problem, and it is difficult to envision how the chilling effect of section 11.1 on public education might be challenged, unless a student could prove that he or she is being deprived of education involving issues of sexuality, sexual orientation or religion in a way that is discriminatory under the Act. Parents are not likely to file complaints unless school boards or teachers violate section 11.1, but those complaints would only reinforce the potential chilling effect of the section (as noted by participants at the January 25 event). Whether further complaints are filed or not, this does not seem to be an issue that the government is prepared to respond to at the moment.
Other questions at the forum focused on the government’s support for civil legal aid, how it is responding to poverty and homelessness issues, its willingness to work with NGOs, and the problems faced by persons with foreign degrees in having their credentials recognized in Alberta.
Minister Denis is visiting our law school on February 12, 2013 to deliver the William A. Howard Lecture on the topic of “Peaceful Assembly, Public Protest and the Law.” It will be interesting to hear him expand his thoughts on this topic, and hopefully, to take further questions on current human rights and civil liberties issues in Alberta.
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PDF version: ABlawg 5th anniversary challenges
As noted in a previous post, February 2013 marks the fifth anniversary of the launch of ABlawg. We have already encouraged our readers to subscribe, and to get your colleagues to subscribe, which you can do here or by following us on Twitter. Help us double our readership to over 1200 subscribers!
Our new challenge is to ask readers to tell us about your favourite post(s) from the past five years, which you can do by directly commenting on that post or by posting to our comments page here. How to decide on your favourite, given that there have been nearly 600 posts to ABlawg in the past five years? Perhaps you will choose the post that has been the most useful to you, be that in advising your clients, supporting a legal argument in a paper or factum (or judgment!), or advocating for a particular outcome outside the practice / writing of law. Or maybe you will choose the most irreverent or controversial post, one that made you re-think your position on a legal or policy issue. Perhaps you are aware of the impact that ABlawg posts have had on the development of law or policy, and you will make your choice on that basis. Or maybe the post with the catchiest title, or with the most interesting links or attachments have won you over. Consider as well the series of posts we’ve written, including those on Bill 2, the Responsible Energy Development Act, and our series of posts on the most significant cases of the 2000s.
Whatever your choice, please let us know about your favourite posts, and your reasons why they are your favourites. Although we reserve the right to maintain our academic freedom, we also aim to please our readers, and would love to know what you enjoy about ABlawg. Tell us!
PDF version: Represented Adults and Solicitor-Client Privilege
Considered: Wayne v Wayne, 2012 ABQB 763
The Adult Guardianship and Trusteeship Act, SA 2008, c A-4.2 (AGTA), applies to persons over the age of 18 who are unable to make personal or financial decisions for themselves, a person the statute calls a “represented adult.” There has not been much judicial consideration of the statute which came into force on October 30, 2009; there appears to be fewer than a dozen cases interpreting only a relatively small number of the statute’s provisions. That is one reason why Wayne v Wayne is of interest. Another reason is that the issue in Wayne v Wayne is intrinsically interesting, at least to the legal profession, because it is about the ability of a trustee appointed to manage the financial affairs of a represented adult to gain access to information otherwise protected by solicitor-client privilege from the file of a represented adult to whom a lawyer gave legal advice.
Doreen Margaret Wayne (Mrs. Wayne) suffers from dementia. She currently lives in Vancouver, but resided in Calgary until 2006. Two of her three children are still living: the Applicant, William, and John. On September 2, 2010, the British Columbia Supreme Court declared that Mrs. Wayne was mentally incapable of handling her own financial affairs — in Alberta, a “represented adult” — and appointed her son William as the committee of her estate — in Alberta, the trustee of her estate.
In 2003, Mrs. Wayne had appointed her other son, John, as her Attorney under an Enduring Power of Attorney and as her Agent under a Personal Directive. Four years later she appointed John as the executor of her new June 6, 2007 Will, which left John the residue of her estate. The Enduring Power of Attorney, Personal Directive and Will were drafted by Hugh A. McQueen, Q.C., formerly of the Calgary law firm of Stones Carbert Waite LLP, and now retired. Those documents and materials relevant to their preparation and execution made up the file that the court-appointed trustee, William, wanted access to — the “estate file.”
Stones Carbert Waite LLP gave William copies of Mrs. Wayne’s Will, Enduring Power of Attorney, and Personal Directive but took the position that it had a duty to claim solicitor-client privilege over the rest of her estate file.
Why did William want the rest of the estate file? Mrs. Wayne had owned a home in Calgary. It was sold for $300,000 in March 2009 when its assessed value was $659,000. The house was re-sold six months later for $542,000. No realtor was involved in the March 2009 sale by Mrs. Wayne and we are not told who arranged it or who the buyer was. We are only told that William was concerned about Mrs. Wayne’s capacity at the time of the sale.
William had already asked the Court of Queen’s Bench for an order for production of the estate file, back in February 2011. Williams’ request for the file was based on the fact that Stones Carbert Waite LLP acted as Mrs. Wayne’s lawyer on her estate matters and may have provided her with advice about the house sale. The Court denied his request, however, on the basis of a lack of relevance between the estate file and the real estate transaction. William subsequently filed a statement of claim challenging the house sale, but this application was not brought as part of that action.
John was not opposed to a certified copy of the estate file being provided to William’s lawyer, so long as a certified copy of the file was also provided to his lawyer at the same time. Justice Mahoney does not rely on this lack of opposition; nor, in the end, does he grant John the same access as he grants William.
The question was whether a trustee of a represented adult has full access to the material in a lawyer’s file that is otherwise protected by solicitor-client privilege. Did AGTA sections 55 and 72(4) or the common law waive solicitor-client privilege between the represented adult and his or her solicitor? Does a trustee step into the shoes of a represented adult so as to be able to waive the privilege on their behalf?
William relied on the provisions of the AGTA. Section 55 of that statute governs the property subject to a trusteeship order and the authority of the trustee with respect to that property. It is sweeping in its scope, excluding only real property outside Alberta, and expressly puts the trustee into the shoes of the represented adult for the purposes of dealing with the represented adult’s financial matters.
AGTA section 72(4) governs a trustee’s access to the represented adult’s personal information and this is the statutory provision that turned out to be pivotal. Access under section 72(4) is conditional and must be determined on a case-by-case basis:
72(4) A trustee is entitled to access, collect or obtain from a public body, custodian or organization personal information about the represented adult that is relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee (emphasis added).
The law firm relied upon their professional responsibility to assert solicitor-client privilege and obtain direction from the court whenever there was any uncertainty about the scope of the privilege or the trustee’s authority. They also pointed to relevant provisions in the Protection of Personal Information Act, SA 2003, c P-6.5 (PIPA), but that statute allows the disclosure of personal information about an individual without the consent of the individual if the disclosure of the information is authorized or required by a statute of Alberta or of Canada” (section 20(b)(i)), and specifically provides in section 61(1)(e) that any right or power conferred on an individual by the Act may be exercised “if a guardian or trustee has been appointed for the individual under the Adult Guardianship and Trusteeship Act, by the guardian or trustee if the exercise of the right or power relates to the powers and duties of the guardian or trustee…” (emphasis added). In the end the PIPA did not play a determinative role; it merely facilitated the determinative role of section 72(4) of the AGTA.
Justice Mahoney began with a brief look at solicitor-client privilege (at para 29): “A communication made between a lawyer and a client, in the course of seeking or providing legal advice, and intended by the parties to be confidential, is protected by solicitor-client privilege.” He noted that the solicitor-client privilege has been characterized as a “fundamental and legal right” (at para 29, quoting Solosky v The Queen,  1 SCR 821 at 839) and that “it must be as close to absolute as possible to ensure public confidence and retain relevance” (at para 30, citing R. v McClure, 2001 SCC 14 at para 35).
The main question was whether the AGTA overrides solicitor-client privilege. Justice Mahoney held that the intent to do so had to be clearly stated in the legislation (at para 33, citing Canada (Privacy Commissioner) v Blood Tribe Department of Health, 2008 SCC 44 at para 11,  2 SCR 574).
As already mentioned, PIPA was not determinative of the issue (at paras 34-36). Justice Mahoney held that the net effect of sections 20 and 61(1)(e) of PIPA was that a law firm may, not must, disclose personal information about a represented adult to that person’s trustee but only if, for example, the disclosure of information was authorized or required by the AGTA.
What did the AGTA authorize or require? The key provision is section 72(4) which states that a trustee is entitled to obtain from a law firm the personal information about the represented adult that is relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee. Justice Mahoney held (at para 38) that section 72(4) requires that the trustee demonstrate that there is a rational connection between the personal information sought and the trustee’s exercise of authority and the carrying out of his or her duties and responsibilities. That is the test for access to material covered by a solicitor-client privilege.
Justice Mahoney found (at paras 39-42) that William had met that test. He had sued to challenge the March 2009 house sale at $240,000 less than its assessed value on the basis of his duty to exercise his authority in the represented adult’s — or her estate’s — best interests. William had therefore established that the estate file was relevant to the exercise of his trustee duties. However, we are not told exactly what linked the estate file with the house sale that allowed Justice Mahoney to conclude the former was relevant to the latter
That did not conclude the matter. Justice Mahoney then began to review some of the common law principles of solicitor-client privilege. Why he discusses solicitor-client privilege second is unclear, especially as the statutory scheme he analyzes first seems to have been written with solicitor-client privilege in mind. In particular, the point that the intent to override the privilege must be clearly stated in the legislation suggests that the reverse order would be more analytically coherent.
Justice Mahoney began (at para 43) with the principle that the privilege survives the client, even though Mrs. Wayne was not deceased. In the event of the client’s death, according to Ronald Manes and Michael Silver, Solicitor-Client Privilege in Canadian Law (Markham: Butterworths, 1993) at 178, it is the executor or administrator of the deceased’s estate who steps into the deceased’s shoes and asserts or waives the privilege, but, according to the Supreme Court of Canada in Geffen v Goodman Estate,  2 SCR 333 at para 58, confidentiality of communications between solicitor and client enures to the deceased’s next of kin, heirs or successors in title. Rather confusingly, Justice Mahoney then quotes from Bre-X Minerals Ltd (Trustee) v Verchere, 2001 ABCA 255 at para 23, where the Court of Appeal noted that “[d]isclosure in estate cases has been allowed to promote the deceased client’s wishes and true testamentary intentions through disclosure of privilege communications” but that the exception in Geffen “should not be misinterpreted as authority for a widespread, case-by-case assessment of requests for waiver of privilege by third parties… .” Unfortunately, there is no summary or reconciliation of these case authorities and it is difficult to understand what it is we are to take away from this part of the judgment.
Justice Mahoney then turned to judicial interpretation of British Columbia’s Patients Property Act, RSBC 1996, c 349. There is no Alberta case law relevant to the issue of a trustee’s access to materials otherwise covered by solicitor-client privilege, but there is some British Columbia case law on a trustee’s ability to assert or waive privilege or otherwise gain access to the materials in represented adult’s file under the Patients Property Act. In Re: Elsie Jones Fawcett Estate, 2009 BCSC 1306 at para 12, the Court held that a committee stands in the place of an incapable person and therefore has the authority to make decisions with respect to the patient’s property, including legal files. However, this conclusion was based on section 15(1)(a) of the Patients Property Act, which gives a committee “all the rights, privileges and powers with regard to the estate of the patient as the patient would have if of full age and of sound and disposing mind… .” Access under section 72(4) of the Alberta statute, on the other hand, is conditional on the personal information being “relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee.” In addition, a different British Columbia Supreme Court case had decided the same issue to the contrary. In Re Palamarek, 2010 BCSC 1894 at paras 40-41, the Court held that the common law principle that successors in title can receive and take ownership and control of solicitor-client privilege did not govern in all circumstances and that a committee “does not have an untrammelled right in all circumstances to deal with the privilege of the patient.”
In the end (at para 52), the common law principles relating to solicitor-client privilege did not alter the result. Instead, Justice Mahoney found that section 72(4) of the AGTA governed, and it had conditioned a trustee’s access to materials otherwise covered by solicitor-client privilege to material “that is relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee.” Thus Justice Mahoney’s finding (at para 42) that William had established that the estate file was relevant to the exercise of his trustee duties meant that William was granted access to Mrs. Wayne’s estate file at Stones Carbert Waite LLP notwithstanding solicitor-client privilege.
Considered apart from the unusual factual background, Justice Mahoney’s reasons seem to reflect an appropriate application of the governing statute in light of the principles of solicitor-client privilege. Justice Mahoney is correct to acknowledge that normally the communications at issue here would be privileged, and would remain privileged even after Mrs. Wayne’s death. Privilege can be overridden by statute, but such statutes are to be narrowly construed. The result here, where the materials are made available to the trustee but only to the extent necessary for the discharge of the trustee’s mandate, seems to be an appropriately narrow interpretation of the statutory scheme. It does not give every trustee an unfettered right to the represented adult’s legal files, but it does ensure that a trustee has access to those files to the extent necessary to represent the represented adult’s interests. Justice Mahoney’s decision provides a helpful precedent for Alberta trustees and lawyers, providing a test for trustee’s access to material covered by a solicitor-client privilege: can the trustee demonstrate that there is a rational connection between the personal information sought and the trustee’s exercise of authority and the carrying out of his or her duties and responsibilities?
The more challenging question is on the facts of this particular case. As noted, access to the file was denied to William by the court in the context of his action challenging the real estate transaction. Yet the reason for the access here seems to be almost the same as would have been asserted there – there is no other interest of Mrs. Wayne’s that William seems to be pursuing here. It is therefore difficult to see quite why the file was not accessible in that litigation on the grounds of relevance, but was accessible here on the grounds of relevance. The only difference between the two applications is that William filed a statement of claim challenging the house sale after the court first turned down his access request, but this application was not brought as part of that action. But the estate file still appears to have been closed in June 2007 when the Will was signed and the house sale went through in March 2009. What connects the two? The judgment does not explain the difference between the two results. It is thus a less helpful example of the application of the relevant test to the facts.
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