Source: https://www.fernandeshearn.com/newsletter-2008-november-fernandes-hearn-toronto-law-firm/
Timestamp: 2019-04-19 20:23:37+00:00

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The conference commences at 8:30 am and will be held at the Royal & Sun Alliance Lecture Theater in Toronto.
Kim Stoll has just completed the Advanced ADR Workshop offered by the University of Windsor.
Rui Fernandes will be attending the Grunt Club’s 74th annual dinner in Montreal on December 5th. The Grunt Club dates back to the early 1930`s when a small group of marine-oriented men decided to form a nautical organization primarily to foster the spirit of good fellowship throughout the industry in the Port of Montreal. The name of the club was allegedly derived from the grunts and groans, which bellowed out from the group in response to the suggestions offered by each in attendance. Since its inception in 1931, one of the primary purposes of the Grunt Club has been to promote fellowship amongst its members and associated industries throughout the marine community.
Gordon Hearn represented the firm at the Transportation Law Institute in New Orleans, Louisiana on November 14th and 15th. The Firm made a contribution towards the Habitat for Humanity project in the Hurricane Katrina flood reconstruction. Gordon and other lawyers attending the conference worked on the construction of the “Musicians Village” on November 15th.
(4) To further knowledge of the Water Carrying Trades in the shipping industry of the Great Lakes, both among its members and the general public, and to that end to provide a forum for the discussion and exchange of views on matters affecting the industry.
In the early 1990s, CNR established an elaborate and sophisticated process to design and construct the largest customized tunnel boring machine (“TBM”) of its kind in the world for use in the construction of a tunnel under a river. CNR had insured the project under a builders’ risk policy covering all risks of direct physical loss or damage to all real and personal property of every kind and quality including but not limited to the TBM, plus any consequent economic loss occasioned by delay in the opening of the tunnel. The cost of making good faulty or improper design was excluded.
The design of a suitable TBM was a major challenge, partly because structural steel deflects (bends) under pressure. While differential deflection (adjacent components moving towards or away from each other) is acceptable within stated tolerances, excess differential deflection (deflection beyond acceptable tolerances) could lead to failure. This TBM had to withstand 6,000 metric tonnes of pressure from the soil and water above as it progressed under the river. In addition, the main bearing had to be protected from contaminants. To cope with the design challenge, an experienced tunnel equipment manufacturer was selected to design, engineer, and construct the TBM. A technical committee composed of expert tunneling contractors and consultants was formed to advise on the conceptual design parameters, and the technical committee’s work was guided by a steering committee which provided general guidance. A technical review committee also monitored, reviewed and advised CNR on the project as a whole.
As designed, the TBM was 32 feet (9.5 metres) in diameter and its body was 278 feet (83 metres) long. The cuttinghead rotates on roller bearings while the main bearing generates a hydraulic thrust which drives the cutting tool through the earth. To shield the main bearing from damage, a system of 26 independent seals lubricated by the constant injection of pressurized grease was designed to prevent excavated material from getting into the main bearing and to stop the grease from leaking out. To get to the main bearing, contaminants had to get through all 26 seals. The design tolerances for the seals were precise and demanding, requiring a gap of six millimetres, plus or minus three millimetres, between the rotating cuttinghead and the stationary bulkhead. The best engineering advice indicated that there would be no excess differential deflection and that the configuration of the seals to provide a margin of safety approaching redundancy.
After completion of 14 percent of the tunnel, contamination was detected. Inspection revealed that some seals had been worn and destroyed due to excess differential deflection of the cuttinghead. Operations were halted, the main bearing was cleaned, and modifications were made. The project was then completed without further entry of dirt, but the 229?day delay greatly increased costs. The experts were unable to explain how dirt penetrated the 26 seals while leaving some seals intact.
The insurers denied coverage on the basis of the “faulty or improper design” exclusion. The trial judge held the insurers liable. He found that, despite its failure, the innovative design accommodated all foreseeable risks however unlikely or remote and was not faulty or improper according to the state of the art at the time the design was finalized. The majority of the Court of Appeal set aside that decision, finding that the TBM’s design had been faulty within the meaning of the exclusion provision since the foreseeability standard also mandated that the relevant design succeed in withstanding all foreseeable risks.
Held (Deschamps, Charron and Rothstein JJ. dissenting): The appeal should be allowed.
Employees are imbued with a number of duties that arise from the implied terms of their employment contracts, including a duty of fidelity, a duty of confidentiality and a duty to provide reasonable notice of resignation. These duties are most often pleaded in cases where an employee resigns his or her employment to take up with a competitor. For a time jilted employers would also plead an employee’s implied duty not to compete unfairly and there developed a lively jurisprudential and academic debate as to whether such an implied duty exists. The recent Supreme Court of Canada case in RBC Dominion Securities Inc. v. Merill Lynch Canada Inc., 2008 SCC 54 has eliminated any doubt – there is no implied duty not to compete unfairly.
The facts of the case are rather simple. A manager of an RBC branch in Cranbrook, British Columbia, coordinated the mass migration of that branch’s investment advisors to a nearby branch of its competitor, Merill Lynch. The RBC branch was decimated.
The trial judge held that the departing investment advisors breached their implied obligation to give RBC reasonable notice of termination of their employment. RBC was awarded a total of $40,000 in damages against the investment advisors for failure to give reasonable notice. The award was calculated based on the profits that the investment advisors would have contributed to RBC during a reasonable notice period of 2.5 weeks.
In addition to these limited damages for a failure to provide notice of resignation, the trial judge awarded a total of $225,000 against the investment advisors for unfair competition. The trial judge held that during the 2.5 week notice period, the departing employees remained subject to their contractual duties and specifically their general duty of fidelity to RBC, which precluded them from competing with RBC during the notice period.
On appeal, the Court of Appeal of British Columbia unanimously upheld the award against the investment advisors for their failure to provide notice, but overturned the trial judges award for unfair competition. In overturning the award for unfair competition, the Court of Appeal strongly asserted the employees’ right to compete with his or her employer upon termination of his or her contract of employment.
The contract of employment ends when either the employer of the employee terminates the employment relationship, although residual duties may remain [i.e. a duty not to misuse a former employer’s confidential information]. An employee terminating his or her employment may be liable for failure to give notice and for breach of specific residual duties. Subject to these duties, the employee is free to compete against the former employer.
To the extent that the trial judge awarded damages on the basis that the employees continued to be under a general duty not to compete, this award of damages was wrong at law.
The Supreme Court of Canada has left no doubt; there is no independent duty not to compete unfairly.
I would be amiss to comment on the Supreme Court of Canada’s decision in RBC Dominion Securities Inc. v. Merill Lynch Canada Inc. without mentioning the court’s reinstatement of the nearly $1.5 million award against the branch manager made by the trail judge.
On first instance, the trial judge awarded damages in the amount of $1,483,239 against the branch manager for loss of profits suffered by RBC as a result of his failure to perform his duties in good faith. The obvious breach of that duty was his coordinating the departure of nearly all of RBC’s investment advisors for Merill Lynch. The award rested on the specific findings by the trial judge that the branch manager’s job description included retaining the investment advisors for RBC. The trial judge found that the branch manager’s acts and failures in breach of his duty of good faith led directly to the circumstances in which the investment advisors left RBC for its competitor.
The Court of Appeal overturned this award against the branch manager on the ground that it had not been properly pleaded and on the further ground that the damages were not ‘proximate’ enough by contract law.
The majority of the Supreme Court of Canada rejected the Court of Appeal’s rationale and reinstated the trial judge’s sizable award.
The majority decision in RBC Dominion Securities Inc. v. Merill Lynch Canada Inc. creates does not create any superadded duties for departing managers or supervisors. In fact, the award against the branch manager is reflective of the unique facts of the case, including the near collapse of RBC’s Cranbrook branch, and, frankly, the branch manager’s incredible display of poor judgment in orchestrating that result. However, the Supreme Court’s willingness to uphold the trial judge’s sizable award against a lowly branch manager nonetheless stands as a stern warning to all managers and supervisors to guard their behaviour when departing an employer for a competitor, especially with regard to employees under their supervision.
A plaintiff has the choice of where a lawsuit is issued. What say might a defendant have on the matter, if the plaintiff sues it away from it’s home base?
Cross-boarder transactions increase in number and international travel is common- place. As such and invariably incidents will occur or disputes arise of an international nature whereby an Ontario resident, may wish to take suit in Ontario against a defendant, based elsewhere. How, and on what basis will a court in Ontario “exercise jurisdiction” over a such a defendant, allowing the Ontario lawsuit to proceed against it? The question is academic should for any reason the defendant in question consent to the jurisdiction of the Ontario Court. Perhaps that individual or company has confidence in Ontario judicial system. It might be considered more economical for the battle to be waged in an Ontario based on the location of witnesses or other factual considerations. Of course, a defendant might instead challenge the Ontario jurisdiction, if sued here…..
The Charron v. Bel Air Travel Group Ltd. case illustrates the principles that will be applied in such a situation as the court determines how to resolve the issue.
(i) Bel Air Travel Group Ltd., which is an Ontario corporation carrying on business as a travel agency. It offers for sale “all inclusive” vacation packages to Cuba and other Caribbean destinations. The Bel Air representative had recommended Cuba to the Charron family as a good place for scuba diving and it provided brochure materials to the Charron family to review.
(ii) Hola Sun Holidays Ltd. who is a tour operator offering vacation packages to Cuba and, as such, co-ordinates with airlines, hotels and ground transportation to provide a fixed price holiday for travelers. The brochure materials provided by the Bel Air representative to the Charron family was from Hola Sun Holidays Ltd. The Hola Sun brochure advertised the Breezes Costa Verde Resort, which is where the Charron family came to book their vacation and which facility offered scuba diving adventures.
(iii) Breezes Costa Verde, the resort in question, which is owned by the defendant Gaviota Sa (Ltd.), a Cuban company.
(iv) Village Resorts International Ltd., which is the corporate entity carrying on business as Super Clubs Breezes Costa Verde.
(v) Club Resorts Ltd., who operates and manages the Breezes Costa Verde resort and other Cuban properties.
(vi) Individuals were also named as defendants, all being Cuban nationalist. Marine Gaviota provided the scuba diving equipment and personnel for the fateful excursion. The defendant Andres Ricardo was the scuba diving boat captain for the voyage and the defendant Leonardo Ricardo was the scuba diving instructor at the material time.
The Charron family arrived at the Breezes Costa Verde Resort on February 2002. The scuba diving adventure was offered amongst other amenities, as part of the “super inclusive facilities at the resort” and could be signed up for one day in advance. Divers were required to provide a copy of their diving certification and diving logbook. Mr. Charron went diving on February 11, 2002, without incident however on February 12, 2002 he did not return from the dive. The plaintiffs, including Mr. Charron’s estate, filed suit in the Ontario Superior Court, alleging breach of contract and negligence against the various named defendants.
Two of the defendants, Village Resorts International Ltd. (being the corporate entity carrying on business as the Breezes Costa Verde resort) and Club Resorts Limited (the resort manager) brought an application for an order that the action be dismissed or stayed against them on the basis that the Ontario Court did not have jurisdiction over them (being foreign entities), and alternatively, for an order that even if the Ontario Court could exercise jurisdiction over them that Cuba is a much more appropriate and sensible venue for the litigation and accordingly the action should be transferred to Cuba. The Plaintiff’s opposed this application, as did the defendants Bel Air Travel Group and Hola Sun Holidays. They were prepared to have the dispute continue in Ontario. The individual defendants (while served with the Statement of Claim in Cuba) did not respond to this lawsuit and therefore had no representation on this court application.
As mentioned above, the plaintiffs reside in Ontario save and except two of the children who reside in the United States. Based on their American residency they were reluctant to travel to Cuba in the event that a trial was to be held there. They have no issue with respect to traveling to Ontario. The Court also noted that the Charron family noted the advertisement for the Cuban destination through Bel Air Travel in Ontario and that it was Bel Air that booked this all inclusive vacation through Hola Sun, being an Ontario company, (which had an arrangement with Club Resorts Limited to promote the Breezes Costa Verde resort to Ontario residents). Mr. Charron’s plans to scuba dive were known to the Ontario travel agent, and scuba diving was specifically marketed to Ontario as part of the all-inclusive vacation. The Court reasoned that it could be argued that a contract was entered into in Ontario not only for the vacation but also for the specific scuba diving adventure. These factors all weighed heavily in favor of the Ontario Court assuming jurisdiction over the foreign defendants.
The Court noted that the plaintiffs had undertaken to make arrangements in respect of accommodating the defendants, if they were to require evidence from Cubans who might not be able to travel to Canada for trial. The Court also noted the importance presence of insurance coverage, for the defendants seeking to stop the Ontario action. Historically, our Courts are more readily able to play down concerns of economic inconvenience (suffered by a defendant not having its choice of court venue) if it has insurance coverage. The Court also noted that the insurance coverage in question applied to claims advanced in jurisdictions such as Canada, even though the facts in question actually occurred in Cuba, giving further credence to the notion that the defendants reasonably foresaw that they might be sued in a jurisdiction other than Cuba, underscoring Ontario as a reasonable jurisdiction to the lawsuit. In sum, there was no unfairness with the Ontario jurisdiction, particularly in light of insurer of the “moving parties” paying the defence costs.
While there was no evidence filed that a fair trial could not be held in Cuba, there would be significant prejudice to the plaintiffs if the action were to take place in Cuba instead of Ontario. In Ontario the Family Law Act provides for certain remedies for loss of care and companionship, which would not be awarded by a Cuban court. In addition, the principal plaintiffs’ claim for damages for pain and suffering could not proceed in Cuba as it would in Ontario. Accordingly, the plaintiffs would be deprived of certain elements of justice in a Cuban action and there was no corresponding prejudice to the defendants of the action were to proceed in Ontario.
The court noted it as significant, (further grounding the lawsuit as having a reasonable connection with Ontario), that the other corporate defendants sued who were not contesting the Ontario jurisdiction. It would make sense that the lawsuit proceed against the two foreign entities, together with the other defendants in one overall action in the Ontario jurisdiction. Bel Air and Hola Sun were agreeing to the Ontario jurisdiction, (likely on the basis that the all inclusive vacation package was purchased by the Charron family in Ontario.) The court considered this to be a significant factor in indicating that Ontario had a reasonable connection with the facts of the case for the Ontario Court to exercise jurisdiction.
The Court noted that it would be unfair for a company such as the “moving” party defendants to invite Ontario residents to come to Cuba to use their services and then after a claim comes forward in Ontario to assert that they have no connection to Ontario, and to wash its hands of Ontario’s jurisdiction. The Court also noted that the defendants resisting the Ontario jurisdiction are not domiciled in Cuba and there is no information on record as to whether they have any assets there or not. As such, it was fair, in the overall context, that the Ontario court “exercise jurisdiction”.
(g) Whether the action is interprovincial or international in nature.
Finally, as to the eighth and final factor, it was also considered whether or not there are any treaties or conventions suggesting where the action should go to trial. There are no such agreements with Cuba. It being unclear as to whether the defendants resisting the Ontario jurisdiction had any assets in Cuba, the Court noted that it would be unfair to force the plaintiffs to litigate there where, if successful, they might have to take further steps to have the Cuban judgment enforced in the Cayman Islands (where the moving parties are based) if there were insufficient assets in Cuba to answer to any judgment. All things being equal, there being no rules or agreements between Cuba and Canada working against Ontario exercising jurisdiction over this claim, this factor would work in favor of the plaintiffs being able to litigate their claims in Ontario.
It follows from the foregoing that the large majority of the factors weighed in favor of the Ontario Court assuming jurisdiction over the claim and the moving party “foreign” defendants on the basis that Ontario had a real and substantial connection” with the facts of the case.
(vii) would declining jurisdiction deprive the plaintiff of a legitimate legal advantage available in the domestic court where the plaintiff initially took suit?
In a brief and simple analysis, the court noted that the majority of the plaintiffs were in Ontario and that they continued to suffer damages in Ontario. It was arguable that the breach of contact took place in Ontario and that Ontario law may accordingly govern. The foreign defendants resisting jurisdiction are not domiciled in Cuba and it is unclear as to whether or not they have any assets in Cuba. As noted, there was insurance available in Ontario to the foreign defendants and as mentioned, most significantly, the plaintiffs will not have access to all of the legal remedies in the Cuban courts system that they would otherwise have in Ontario.
Accordingly, in addition to finding that in first instance that the court had jurisdiction over the foreign defendants resisting the Ontario Court jurisdiction (on the basis of Ontario having “real substantial connection” to the facts of the case), the Court further reasoned that the Ontario Court was the most appropriate and effective venue for the matter to be worked out.
The court did stay the action as against the defendant Village Resort Internationally Limited carrying on business as Super Clubs Breezes Costa Verde simply on the basis that there was no real cause of action as against it but that the claim would continue as against Club Resorts Limited (the actual resort manager and operator) and accordingly this matter is now proceeding towards trial as against all remaining defendants.
This case is a nice illustration of the principles that will be applied by an Ontario Court in trying to achieve the fine balance between international cooperation and not asserting heavy handed on unfair jurisdiction over foreign entities on the one hand and in trying to provide access to justice for Ontario residents coming before the court with claims rising from accidents occurring abroad.
Recent amendments to the Rules of Civil Procedure in Ontario and Alberta, as well as other jurisdictions, relating to electronic records and e-discovery processes, have significant implications for litigants in relation to discovery obligations and the potential for prejudice to the prosecution or defence of claims. As discussed below, the developing obligations put significant new demands on insureds and insurers where the claim (or notice of claim) gives rise to potential insurance coverage.
In Ontario, the recently introduced Ontario E-Discovery Guidelines, combined with the expanded definition of “document” in the Rules of Civil Procedure to include “data and information stored in electronic form” (Rule 1.03), requires litigants to locate, preserve, list and produce potentially massive amounts of material for the purpose of discovery, even in routine cases. In Alberta, Practice Note 14, combined with the expanded definition of “Record” (R. 186) in the Alberta Rules of Court, triggers a similar obligation.
The foregoing amendments and changes in civil practice grew out of the work initiated by the Sedona Conference (see www.thesedonaconference.org) and its related Sedona Canada Principles, which were developed to respond to the explosion in the amount and nature of information being created and facilitated by the introduction of computer technology in business.
One of the fundamental concepts which is highlighted by all of the amendments and the Sedona Conference work is the dynamic nature of electronic data, relative to the relatively static nature of the traditional paper records which businesses maintain. Data and records can be found in various formats – active work, where files are continually modified (potentially after litigation is commenced), in archive or backup storage and on individual devices (whether laptops, Blackberries, or the like). The facility with which such material is reproduced and stored ensures that volumes of information are duplicated, forwarded, copied and stored in multiple locations.
Further, the type of information which is available (i.e. metadata) which can be gleaned from the actual electronic document, including dates of creation, authorship, identity of recipients, and their receipt or review, dates of modification, etc…, may be relevant and, depending on the case, critical to mounting a full defence against, or advancing the prosecution of, a claim.
Over the next several issues of this Newsletter, I will trace some of the specific implications of the expanded e-discovery process in relation to the mutual obligations between insureds and insurers. The focus of this edition will be on the obligations arising upon receiving notice of a potential claim and the requirement to enforce a “Litigation Hold” to preserve records.
Parties involved in litigation have always been subject to an overarching obligation to maintain relevant records or risk being accused of spoliation of evidence – with implications for adverse inferences being drawn against the party guilty of the destruction, as well as other potential sanctions. To that extent, the new guidelines and the Sedona Canada Principles do not change the law. What does arise, however, in the e-discovery environment is a significant expansion of the nature, type and volume of records which may be caught by the obligation. The expansion of those records carries with it expanded risks if parties fail to recognize what is required and to address their obligations.
The Ontario Guidelines, which are expressly referenced by the Alberta Practice Note, combined with the Sedona Canada Principles, provide guidance with respect to the preservation obligation.
As indicated above, the demands to preserve documents or records requires an assessment of a wide-variety of data types, storage locations, involved personnel, as well as the applicable applications to retrieve such information (if it relates to out-of-date or older archived records), all of which must be assessed against what might be ‘relevant’ to the actual or threatened litigation. For the litigant, this will likely mean engaging their Information Technology personnel, along with the personnel who may have records or information pertaining to the case, and assessing all of the available sources with their counsel.
Significant difficulties arise when the claim is only threatened and any sense of what may be ‘relevant’ may remain illusory. In such cases, judgment calls are made within the litigant’s organization which may or may not accurately reflect what ultimately becomes the issue in the litigation. If judgments are incorrect, the litigant may be exposed to allegations of spoliation and sanctions may be sought or enforced.
Spoliation is the destruction or material alteration of evidence, or potentially the failure to preserve property for another’s use as evidence in litigation that is pending or reasonably foreseeable (Osepchuk v. Tim Hortons 1645,  A.J. No. 542, 2003 ABQB 364 at paras. 43-44). Spoliation creates the rebuttable presumption that the evidence would have been unfavourable to the party that destroyed it (St. Louis v. Canada (1896), 25 S.C.R. 649 at 652-653).
In the discovery setting, inappropriate records preservation or counsel’s failure to advise the litigant of the records preservation obligation, may affect the litigant’s chances for success in its claim or defence. This risk becomes particularly acute where electronic records and data are concerned, given the volume, nature and ease of erasure or modification of such material, and where the scope of what may be relevant remains uncertain.
1. Spoliation currently refers to the intentional destruction of relevant evidence when litigation is existing or pending.
2. The principal remedy for spoliation is the imposition of a rebuttable presumption of fact that the lost or destroyed evidence would not assist the spoliator. The presumption can be rebutted by evidence showing the spoliator did not intend, by destroying the evidence, to affect the litigation, or by other evidence to prove or repel the case.
3. Outside this general framework other remedies may be available — even where evidence has been unintentionally destroyed. Remedial authority for these remedies is found in the court’s rules of procedure and its inherent ability to prevent abuse of process, and remedies may include such relief as the exclusion of expert reports and the denial of costs.
4. The courts have not yet found that the intentional destruction of evidence gives rise to an intentional tort, nor that there is a duty to preserve evidence for purposes of the law of negligence, although these issues, in most jurisdictions, remain open.
5. Generally, the issues of whether spoliation has occurred, and what remedy should be given if it has, are matters best left for trial where the trial judge can consider all of the facts and fashion the most appropriate response.
6. Pre-trial relief may be available in the exceptional case where a party is particularly disadvantaged by the destruction of evidence. But generally this is accomplished through the applicable rules of court, or the court’s general discretion with respect to costs and the control of abuse of process.
The combination of the potential for sanctions (including dismissal of claims and striking of defences) where spoliation is found with the problems inherent in electronic records management and discovery raises several concerns and issues which insureds and insurers must consider.
For Underwriters, it is essential that an insured’s document retention policy be scrutinized and, where applicable, protocols identified to deal with potential claims if and when they arise. Most organizations do not have consistently maintained or enforced document retention policies (although there are a plethora of regulations requiring same). It is important to understand the risk associated with document management for two reasons, namely, (1) the risk to litigation if documents or records are destroyed contrary to policy or regulation and in the face of pending litigation and (2) the costs associated with putting in place a litigation hold for the organization (eg. who will bear that cost and will it be covered under the subject policy) and who will bear the cost of reviewing the insured’s records for relevance and privilege. The geometric expansion of the volume, nature and location of records and documents entails sharply increased costs associated with the records management in the litigation. Both Underwriters and the insureds will want some certainty on who is bearing that risk and what premiums may be applicable as a result.
For the Insurer as claims manager, it will be imperative to address document preservation and litigation holds immediately upon notification of a potential claim. This will require an assessment of what protocols the insured is adopting for the litigation hold, as well as documenting what is perceived to be ‘relevant’ in the identification of records. Maintaining a written record of the considerations of what is relevant may allow the insurer (and the insured) to mount a defence to an argument that there was intentional destruction if, in good faith, relevance was assessed with counsel and appropriate protocols were put in place. Similarly, an early evaluation of what may be relevant will allow for the determination of the scope of the litigation hold, including whether a forensic copy of records, backup tapes, hard drives or other items are necessary.
Insurers should also be aware of the potential prejudice which may arise if an insured reports a claim late or fails to put in place an appropriate litigation hold. The ease with which documents and records can be erased or modified, or relevant metadata deleted or overwritten, raises the risk of prejudice to new levels over the traditional paper-based litigation.
Lastly, Insureds must be alive to the risks of failing to develop an organization-wide document retention policy or to put in place an appropriate litigation hold when litigation is threatened. The risks of a loss of coverage (whether defence costs or indemnity) where spoliation is alleged which causes potential prejudice to the Insurer’s position can best be mitigated by appropriate and written litigation holds at the earliest stages.

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