COURT OF APPEAL FOR ONTARIO

CITATION: S.A. v. A.A., 2017 ONCA 243

DATE: 20170327

DOCKET: C60864

Feldman, Simmons and Lauwers JJ.A.

BETWEEN

S.A.

Appellant

and

A.A. and Z.G.

Respondents

William Friedman, Judy Hamilton and
    Mark A. Russell, for the appellant

Harold Niman and Deborah MacKenzie, for the respondent Z.G.

Heard: August 24, 2016

On appeal from the judgment of Justice Emile R. Kruzick
    of the Superior Court of Justice, dated July 14, 2015, with reasons reported at
    2015 ONSC 4397.

By the Court:

[1]

S.A. is A.A.s father, and Z.G.s former father-in-law. For convenience
    and ease of reference, these reasons will refer to S.A. as the father, to A.A.
    as the husband, and to Z.G. as the wife.

A.

Overview

[2]

The trial judge heard two matters that were consolidated, and heard one
    after the other. The trial judge heard the fathers mortgage action against the
    husband and wife, followed by the matrimonial dispute between the husband and
    the wife, and issued consolidated reasons.

[3]

We heard the fathers appeal in the mortgage action and reserved the
    decision. On the wifes motion we adjourned the husbands appeal in the
    matrimonial dispute because he had not complied with the orders of the trial
    judge requiring the payment of spousal support and the posting of security for
    future spousal support payments:
A.A. v. Z.G.
,
2016 ONCA 660. Some weeks later the
    matter came back before the panel, and in light of the husbands failure to
    make the payments, his appeal was dismissed:
A.A. v. Z.G.
,
2016 ONCA 737.

[4]

These are the reasons in the mortgage appeal.

B.

The Facts

[5]

The husband and the wife
were married in 1991. They had a turbulent relationship, with at
    least two separations before the final breakup of the marriage in 2008. They
    lived affluently, with the husband concentrating on business matters, and the
    wife concentrating on raising their son. The wife was qualified in 1995 as a
    real estate sales agent and later as a broker, and worked part time outside the
    home throughout the marriage. The husband owned a company that manufactured
    exterior and interior mouldings for commercial and residential units.

[6]

In April 2005 the
    couple purchased a property for $1,030,000. This was the matrimonial home at
    the date of separation. A first mortgage was registered on the property in the
    amount of $700,000 with HSBC as the lender.

[7]

The couple had the
    original house demolished and began construction of a new home on the property.
    On January 6, 2006 a second mortgage in the amount of $800,000 was registered
    with the father as mortgagee. The mortgage did not require periodic payments or
    the payment of interest, and the principal was due on July 1, 2006.

[8]

The father, husband
    and wife were all parties to the second mortgage. The mortgage was prepared by
    Donald Grant, a lawyer who acted for all three parties. Mr. Grant was well
    known to the family, having been engaged by them on other transactions. He
    advised each of the parties to obtain independent legal advice, but they
    declined to do so.

[9]

A company owned in
    part by the husband, 808276 Ontario Inc. (808), made payments that funded the
    construction of the new home. The father claims these payments were his
    advances under the mortgage. When 808 was originally incorporated, it was owned
    98% by the husband and 2% by the father. The shareholdings of 808 were
    restructured in 1993 and 2003. The father no longer owns shares in 808. On the
    trial judges findings, funds were historically paid to the husband through 808
    and 808 existed largely for the husbands benefit. There was also evidence that
    the father used 808 as an income splitting tool.

[10]

The husband and the
    wife separated on June 12, 2008. The father did not demand repayment of the
    mortgage until August 2008, after the separation. He issued a statement of
    claim to enforce the mortgage against the husband and the wife on November 18,
    2008, the same day on which the husband initiated his divorce application.

[11]

The husband did not defend
    the mortgage action and default judgment against him in his fathers favour was
    entered on March 23, 2009. However, following a trial, the fathers action to
    enforce the mortgage against the wife was dismissed.  That dismissal is the
    subject of this appeal.

C.

The Decision under Appeal

The
    Fathers Mortgage

[12]

The trial judge set the context for the origination of the mortgage, at
    para. 102:

The fathers fears that the marriage was not stable compelled
    him to insist on a marriage contract and then the mortgage. With these
    concerns, the father nevertheless provided funding for the construction.
    Clearly, the father and the husband wanted to protect the husbands interest in
    the property given that it would be an investment in excess of $2 million.

[13]

In the face of two previous separations between the husband and the
    wife, the father was reluctant to finance the construction of the new house
    without financial protection for his son (at para. 71). He initially requested
    that the husband and wife enter into a marriage contract, but the wife refused
    (at paras. 31, 35), even in the face of alleged physical abuse by her husband (at
    para. 72).

[14]

Although the wife refused to sign the requested marriage contract, she
    did sign the mortgage at the husbands insistence, because otherwise the father
    would not have provided the funds to build their new house (at paras. 35-36).
    The trial judge made the following finding of fact: When the wife refused to
    enter a marriage contract, I find the father insisted on this self-serving
    mortgage in an effort to protect his son (at para. 71).

Advances of Money

[15]

The fathers evidence was that during the construction period he advanced
    funds in excess of $900,000 although the face value of the mortgage was
    $800,000 (at para. 45). The funds were paid directly to the husband, the wife,
    the contractors, or the sub-trades.

[16]

The trial judge accepted the evidence of the builders principal that
    the invoice amount for the house construction was $1,147,033.44, and that the
    record shows that some $889,750 of the construction costs came from the sources
    of the father (at para. 79).

D.

The Trial Judges Analysis

[17]

The trial judge provided three reasons for his finding that the
    mortgage was unenforceable against the wife. First, the wife signed the
    mortgage under some form of pressure or duress (at paras. 39, 101(j), (k), (l),
    106). Second, the mortgage was a sham designed to achieve indirectly what the
    husband could not accomplish directly through a marriage contract (at paras.
    100, 104). Third, the father had not proven that the money he provided to fund
    construction of the matrimonial home was advanced under the mortgage (at para.
    96).

E.

Analysis

[18]

We address each of the trial judges findings in order. Our conclusions
    are as follows. First, the trial judge erred in determining the mortgage was
    unenforceable on the basis that the wife signed it under some form of pressure
    or duress. The trial judge did not apply the proper test and the facts do not
    support the finding.

[19]

Second, the trial judge erred in finding that the mortgage was a sham
    from the outset. The trial judge misapplied the sham test.

[20]

Third, however, the trial judge did not err in finding that the father
    had not proven that he made advances under the mortgage. On this ground alone,
    the trial judge was correct in dismissing the fathers action.

[21]

We now explain these conclusions in more detail.

(1)

The Wifes Signature on the Mortgage Was Not Obtained By Duress

[22]

The trial judge did not specify the test he applied in determining that
    the mortgage to the wife was unenforceable on grounds of pressure or duress
    (which term we use in a general sense to catch the matters the trial judge
    addressed).

[23]

The wifes position was that she signed the mortgage with the father
    because she was forced to do so by the husband (at para. 25), and that she
    signed having being coerced by the husband and without independent legal
    advice (at para. 26). The trial judge noted, at para. 27:

The wife maintains that she entered the mortgage in haste and
    without any choice in the matter. She takes the position that given traditional
    [] culture of the family, she obeyed her husband and found herself obliged to
    do as her husband and his father requested.

[24]

The trial judges findings begin at para. 39:

Her evidence, which I accept, is that she reluctantly agreed to
    sign the mortgage. The wife testified that she was afraid and concerned for
    what would happen to her and the couple's plan if she did not accommodate the
    husband and father by entering the mortgage. She also testified that she did
    not want to show any disrespect for the father, whom she liked and esteemed.

[25]

He builds on this, at para. 101(j)  (l), in which he states that the
    wife was told to enter into the mortgage and did not have the benefit of
    independent legal advice; entered into the mortgage pressured by her
    husband; and adds that: The mortgage was imposed on the wife by the father
    and her husband because she refused to enter into a marriage contract with the
    husband. Finally, the trial judge comments, at para. 106: I also accept the [wifes]
    evidence that when she signed the mortgage she did so reluctantly, without
    independent legal advice and feeling pressured by the husband and the father,
    pressure that she felt she could not resist.

[26]

The law will not lightly set aside contracts reached by parties having
    contractual capacity: John D. McCamus,
The Law of Contracts
,
2d ed. (Toronto: Irwin Law, 2012), at p.
    378. Duress is one basis upon which an otherwise valid contract can be rendered
    unenforceable.

[27]

This court set out the test in
Hill v. Forbes
, 2007 ONCA 443, 225
    O.A.C. 74, at para. 12, citing the earlier case of
Stott v. Merit Investment
    Corp
(1988), 63 O.R. (2d) 545, 1988 CarswellOnt 887 (C.A.), at para. 48 (WL
    Can):

But not all pressure, economic or otherwise, is recognized as
    constituting duress. It must be a pressure which the law does not regard
    as legitimate and it must be applied to such a degree as to amount to "a
    coercion of the will", to use an expression found in English authorities,
    or it must place the party to whom the pressure is directed in a position where
    he has no "realistic alternative" but to submit to it, to adopt the
    suggestion of Professor Waddams (S.M. Waddams,
The Law of Contract
(2
nd
ed.,
    1984), at p. 376 et seq.). Duress has the effect of vitiating consent
    and an agreement obtained through duress is voidable at the instance
    of the party subjected to the duress unless by another agreement or
    through conduct, either express or implied, he affirms the
    impugned contract at a time when he is no longer the victim
    of duress.

[28]

Another formulation of the test applicable to economic duress, taken
    from the
Pao On v. Lau Yiu
, [1979] 3 All E.R. 65 (P.C.), and cited in
Stott
,
    at para. 49 (WL Can), is: the victim must have entered the contract
    against his will, must have had no alternative course open to him, and must
    have been confronted with coercive acts by the party exerting the pressure.

[29]

Where duress is alleged, the contractual obligations often demonstrate
    some element of unusual advantage favouring the party with the dominant power.

[30]

The evidence as laid out by the trial judge does not substantiate the
    finding of duress. There is no doubt that the father was the dominant party, in
    the sense that he had the money to which the husband and wife wanted to have
    access in order to build the house, but they were not under any compulsion to
    do so. The wife clearly wanted to have the house built, and giving a mortgage
    was the only way she was going to get access to the fathers money for that
    purpose. Further, there is nothing to suggest that the father abused his
    bargaining power to obtain more favourable terms. He was not obliged to give
    money to the couple. There is nothing in the terms of the mortgage that render
    it unconscionable. There is, for example, nothing like punitive repayment terms
    or a punitive interest rate.

[31]

As mentioned, the mortgage was prepared by a lawyer who acted for all
    three parties. Mr. Grant testified that he advised each of the parties to obtain
    independent legal advice, but they did not (at para. 41). The mortgage was
    executed in July 2005 and registered on the matrimonial home in January 2006. The
    lawyers reporting memorandum to the father, the husband and the wife was
    excerpted by the trial judge, at para. 43:

As you are aware, the Mortgage is in the amount of $800,000.00
    bears no interest and is to be advanced on an "as need" basis during
    the construction of your new home. It matures on July 1st, 2006. As explained,
    the Mortgage incorporates by reference the Standard Charge Terms No. 200033. We
    reviewed these terms and you appeared to understand same. I also provided you
    with a copy thereof for your records. I understand that the sum of $40,000.00
    has already been advanced.

I further explained that it would be in order for you and for [S.A.]
    to seek independent legal advice but you indicated you did not wish to and
    would not do so.

Finally, I explained that if there arises any difficulty or
    difference with respect to any advance under the Mortgage or its repayment I
    would not be in a position to act for any of the parties hereto.

[32]

Although the trial judge accepted that the wife felt pressured to give
    the mortgage, he did not address the fact that given her employment
    qualifications and experience in real estate, it is highly unlikely that the
    wife did not understand what her rights were in the circumstances. Nor did he
    consider that in refusing to sign the marriage contract, the wife demonstrated
    her independence.

[33]

We respectfully conclude that the trial judges finding that the factual
    circumstances were legally sufficient to constitute duress, and thus render the
    mortgage unenforceable against the wife, amounts to an error in law.

(2)

The Mortgage Was Not a Sham

[34]

As noted by the trial judge, the difficult matrimonial circumstances and
    history gave rise to the fathers desire to protect the money he would provide
    to build the house.

[35]

The trial judge concluded that the mortgage was a sham. He found that
    the mortgage was put in place to trick third party claims, or to recover only
    from the wife if the marriage failed.

[36]

The most commonly cited definition of the sham doctrine is that of Lord
    Diplock in
Snook v. London & West Riding Investments Ltd.
, [1967] 1
    All E.R. 518 (C.A.). He stated, at p. 528, that a sham means:

[A]cts done or documents executed by the parties to the
    "sham" which are intended by them to give to third parties or to the
    court the appearance of creating between the parties the legal rights and
    obligations different from the actual legal rights and obligations (if any)
    which the parties intend to create [F]or acts or documents to be a
    "sham", with whatever legal consequences follow from this, all
    parties thereto must have a common intention that the acts or documents are not
    to create the legal rights and obligations which they give the appearance of
    creating.

[37]

This definition of a sham has been cited many times by all levels of
    Canadian courts, including the Supreme Court of Canada. In
Stubart
    Investments Ltd. v. The Queen
, [1984] 1 S.C.R. 536, 1984 CarswellNat 222,
    at para. 51 (WL Can), Estey J. described the element of deceit as being at
    the heart of the sham doctrine. In discussing the required level of deceit in
Antle
    v. Canada
, 2010 FCA 280, 413 N.R. 128, at para. 20, Noël J.A. held that it
    suffices that the parties to a transaction present it as being different from
    what they know it to be. The majority of cases involving the sham doctrine
    arise in the tax context, but the doctrine has been used in appropriate cases
    to strike down mortgages: see
Moghimi v. Dashi
, 2016 ONSC 2580.

[38]

The trial judge identifies two possible shams at play here. The first
    was to give the mortgage proceeds priority over lien claimants. This is the explanation
    that the wife said her husband gave her at the time he asked her to sign the
    mortgage (at para. 35). The trial judge found this explanation to be plausible
    given the various trades involved in the construction (at para. 38). It was
    one of the reasons specified by the trial judge for finding the mortgage to be
    unenforceable against the wife (at paras. 101, 106).

[39]

The other possible sham was that the mortgage was intended to defeat the
    wifes interest in the increase in the value of the house represented by the
    expended construction funds. But this was the exact purpose of the mortgage and
    would have been quite obvious to the wife, and the basic reason for her reluctance
    to sign it.

[40]

The mortgage here does not meet the requirements of the sham doctrine. To
    the contrary, the transaction was prepared by a lawyer with advice to all
    parties. The mortgage was not a
façade
intended to deceive a third party
    or the courts. The wife was aware of what she was signing, and the legal
    obligations created by her signature. The father fully intended to create a
    legally binding mortgage, even if it was possible that he might never seek to
    enforce it. Far from being a sham, the mortgage created a legally-binding
    obligation on the part of the husband and wife to pay back funds advanced to
    them by the father, which is exactly what it purported to do.

[41]

This case cannot be compared to
Moghimi
, in which the husband
    purported to encumber the matrimonial home with a mortgage from his father, but
    never informed his wife of the existence of the mortgage until separation. In
    that case, the mortgage clearly represented a common intention on the part of
    the husband and the father to defeat the rights of the wife. It is difficult to
    see how the sham doctrine can be applied to a case such as this, where the wife
    is a party to the mortgage prepared by a lawyer with her knowledge and
    participation, and there is no third party being deceived.

[42]

The father was not obliged to provide any funds to the husband and wife.
    The mortgage was a legitimate commercial arrangement by which the father could
    protect the funds he was to provide for the construction of the house for the
    benefit of his son. This is not a nefarious arrangement that deserves the label
    self-serving. In the true sense, any security is intended to serve the
    self-interest of the lender. The nature of the transaction is not more
    suspicious because, had the marriage worked out, the father might have forgiven
    the mortgage eventually.

[43]

Furthermore, with respect, given the operation of the
Construction
    Lien Act
, R.S.O. 1990, c. C.30, in particular s. 78, the explanation that
    the mortgage was intended to defeat potential lien claimants is not plausible.
[i]
The wife was an experienced business woman who had been employed in the
    property development business owned by the father and another owned by his
    brother and would have understood that the existence of the mortgage would not
    necessarily defeat a lien claim.

[44]

The trial judges conclusion that the valid mortgage signed by all
    parties was a sham amounts to an error in law.

(3)

Did the Father prove the advances were made under the mortgage?

[45]

While the mortgage was valid, the father, the named mortgagee, must
    prove that he made advances under it in order to enforce it against the wife.

[46]

It is trite law that a mortgage is only security for the loan of funds
    advanced under it. The term advance does not have a technical meaning. It
    arises most frequently in construction lien cases where the competition is
    between the mortgage lender and lien claimants.

[47]

The meaning of advance was discussed in
Canadian Comstock Co. Ltd.
    v. 186 King Street (London) Ltd
., [1964] 2 O.R. 439, 1964 CarswellOnt 134
    (C.A.). This court affirmed the county court judges interpretation of the term
    as referring primarily to an advance of money.

[48]

The evidence confronted the trial judge with an issue to resolve: did
    the funds purportedly directed by the father to fund the construction
    constitute advances under the mortgage? He concluded they did not.

[49]

To succeed, the appellant must establish that the trial judge made a
    palpable and overriding error of fact in concluding that payments made by
808
to fund the construction were
    not the fathers advances under the mortgage.

[50]

The father had a great deal of difficulty reconstructing the cash flow
    on which he relied to show that he was the source of the construction funds. He
    eventually resorted to a tracing exercise by an expert. The trial judge found the
    tracing evidence to be unconvincing in its specific details because the
    accountant who undertook the task refused to provide the documents referred to
    in his scope of work (at paras. 87-88, 97). Further, we observe that the father
    did not advance funds to the husband and wife, the mortgagors, directly, or at
    their direction to those building the home. There is also no evidence that the
    father observed any of the formalities in the mortgage

[51]

The trial judge concluded, at para. 85, that most of the funds came from
    808.  He noted, I accept that the funding is traced to 808 and the funds came
    from the fathers related company (at para 87).

[52]

The trial judge stated, at paras. 96-97:

The father puts great stock in the tracing of the funds back to
    him.
However, he has not substantiated or corroborated his claim that he
    advanced $800,000 (or any money) under the mortgage
. An analysis of the
    invoices and cheques produced by the father, and purporting to be advances
    under the mortgage, shows that the monies received by the general contractor,
    Pegah Construction, were received from multiple sources. The majority of the
    funds

approximately
    $625,838.96 according to the cheques and invoices produced by the father

came from 808. A portion of the
    alleged advances by the father were paid to D
[]
Inc., a company which was owned by the husband.
    The evidence supports that D
[]
Inc. expended a total of $232,000 on the construction of the home.

Even if I accept the tracing report of Mr. Yabrov,
it does
    not prove that advances of funds made by the father to 808 were made under the
    mortgage
. From the evidence, I am satisfied that the husband always had a
    financial dependency upon the father, from which the husband and wife both
    benefitted. The money which the father provided to 808 benefited the husband
    and the wife. The father now [] obviously regrets any benefit to his former
    daughter-in-law. [Emphasis added.]

[53]

Among the reasons for concluding that the mortgage is unenforceable, the
    trial judge made the following observations, at para. 101(h): A large portion
    of the money later alleged to be advanced under the mortgage came from 808, a
    company in which the father had no interest and in which the husband originally
    held 98% and latterly, at least 24% interest; and, The evidence supports that
    historically funds were paid to the husband through 808 and that the company
    existed largely for the husbands benefit. The trial judge was clearly
    troubled that there had been a history of intermingling of funds between the
    husband and his father, so that it is impossible to say with any degree of
    certainty where the husbands interests stand and the fathers begin (at para.
    89).

[54]

In our view, the funds advanced by 808 to fund the construction cannot
    be both advances under the mortgage, and income to the husband. The trial
    judges uncertainty about the character of the funds comes from the evidence
    about the nature and purpose of 808.

[55]

As the trial judge noted, starting at para. 55, the evidence of the
    fathers accountant Lloyd Raskina was that when 808 was originally
    incorporated, it was owned 98% by the husband and 2% by the father. The shareholding
    was re-structured in 1993 and again in 2003. Mr. Raskinas evidence was that
    808 was used by the father for income splitting purposes. While the father
    and the husband take the position that 808 is the fathers company and he is
    the controlling mind, he owns no shares in it.

[56]

The trial judge noted, at para 84:

The evidence of the father and his accountant, Mr. Raskina, was
    that the father put money into 808. The source of these funds was the father's
    business activities, namely management and consulting fees that the father
    earned. It was, then, the father's evidence that he put these funds into 808 so
    that he could share his income with his three children, one being the husband.
    His evidence was that he did so for income tax purposes. His position is that
    in doing so, he did not intend to benefit his daughter-in-law.

[57]

The evidence is that 808 paid the personal expenses of the family
    pre-separation and has paid those of the husband post-separation. The evidence
    amply substantiates the trial judges finding that the financial affairs of the
    father and the husband have been intermingled.

[58]

The trial judge made no palpable and overriding error in concluding that
    the father did not prove that he had made advances under the mortgage, since at
    least some of the funds flowing from 808 appear to be treated as income in the
    husbands hands for tax purposes as part of an income splitting scheme funded
    by the father. As noted, those payments cannot also be advances under the
    mortgage. It was the fathers task to prove that the 808 payments were advances
    under the mortgage. This he failed to do to the trial judges satisfaction.

F.

Conclusion

[59]

In the result, for the reasons set out above, the appeal is dismissed.
    As agreed by the parties, the respondent is entitled to her costs in the amount
    of $25,000.

Released: PL MAR 27 2017

K.
    Feldman J.A.

Janet
    Simmons J.A.

P. Lauwers J.A.

[i]

Priority over
    mortgages, etc.

78. (1)
Except
    as provided in this section, the liens arising from an improvement have
    priority over all conveyances, mortgages or other agreements affecting the
    owners interest in the premises.  R.S.O. 1990, c. C.30,
    s. 78 (1).

Building mortgage

(2)
Where
    a mortgagee takes a mortgage with the intention to secure the financing of an
    improvement, the liens arising from the improvement have priority over that
    mortgage, and any mortgage taken out to repay that mortgage, to the extent of
    any deficiency in the holdbacks required to be retained by the owner under Part
    IV, irrespective of when that mortgage, or the mortgage taken out to repay it,
    is registered.  R.S.O. 1990, c. C.30, s. 78 (2).

Prior mortgages, prior advances

(3)
Subject
    to subsection (2), and without limiting the effect of subsection (4), all
    conveyances, mortgages or other agreements affecting the owners interest in
    the premises that were registered prior to the time when the first lien arose
    in respect of an improvement have priority over the liens arising from the
    improvement to the extent of the lesser of,

(a) the actual value of the
    premises at the time when the first lien arose; and

(b) the total of all amounts
    that prior to that time were,

(i) advanced in the
    case of a mortgage, and

(ii) advanced or
    secured in the case of a conveyance or other agreement.  R.S.O. 1990,
    c. C.30, s. 78 (3).

Prior mortgages, subsequent advances

(4)
Subject
    to subsection (2), a conveyance, mortgage or other agreement affecting the
    owners interest in the premises that was registered prior to the time when the
    first lien arose in respect of an improvement, has priority, in addition to the
    priority to which it is entitled under subsection (3), over the liens arising
    from the improvement, to the extent of any advance made in respect of that
    conveyance, mortgage or other agreement after the time when the first lien
    arose, unless,

(a) at the time when the
    advance was made, there was a preserved or perfected lien against the premises;
    or

(b) prior to the time when the
    advance was made, the person making the advance had received written notice of
    a lien.  R.S.O. 1990, c. C.30, s. 78 (4).

Special priority against subsequent mortgages

(5)
Where
    a mortgage affecting the owners interest in the premises is registered after the
    time when the first lien arose in respect of an improvement, the liens arising
    from the improvement have priority over the mortgage to the extent of any
    deficiency in the holdbacks required to be retained by the owner under Part
    IV.  R.S.O. 1990, c. C.30, s. 78 (5).

General priority against subsequent mortgages

(6)
Subject
    to subsections (2) and (5), a conveyance, mortgage or other agreement affecting
    the owners interest in the premises that is registered after the time when the
    first lien arose in respect to the improvement, has priority over the liens
    arising from the improvement to the extent of any advance made in respect of
    that conveyance, mortgage or other agreement, unless,

(a) at the time when the
    advance was made, there was a preserved or perfected lien against the premises;
    or

(b) prior to the time when the
    advance was made, the person making the advance had received written notice of
    a lien.  R.S.O. 1990, c. C.30, s. 78 (6).

Advances to trustee under Part IX

(7)
Despite
    anything in this Act, where an amount is advanced to a trustee appointed under
    Part IX as a result of the exercise of any powers conferred upon the trustee
    under that Part,

(a) the interest in the
    premises acquired by the person making the advance takes priority, to the
    extent of the advance, over every lien existing at the date of the trustees
    appointment; and

(b) the amount received is not
    subject to any lien existing at the date of the trustees appointment.
    R.S.O. 1990, c. C.30, s. 78 (7).

Where postponement

(8)
Despite
    subsections (4) and (6), where a preserved or perfected lien is postponed in
    favour of the interest of some other person in the premises, that person shall
    enjoy priority in accordance with the postponement over,

(a) the postponed lien; and

(b) where an advance is made,
    any unpreserved lien in respect of which no written notice has been received by
    the person in whose favour the postponement is made at the time of the advance,

but nothing in this subsection affects the priority of
    the liens under subsections (2) and (5).  R.S.O. 1990, c. C.30,
    s. 78 (8).

Saving

(9)
Subsections
    (2) and (5) do not apply in respect of a mortgage that was registered prior to
    the 2nd day of April, 1983.  R.S.O. 1990, c. C.30,
    s. 78 (9).

Financial guarantee bond

(10)
A
    purchaser who takes title from a mortgagee takes title to the premises free of
    the priority of the liens created by subsections (2) and (5) where,

(a) a bond of an insurer
    licensed under the
Insurance Act
to write surety and fidelity
    insurance; or

(b) a letter of credit or a
    guarantee from a bank listed in Schedule I or II to the
Bank Act
(Canada),

in a form prescribed is registered on the title to the
    premises, and, upon registration, the security of the bond, letter of credit or
    the guarantee takes the place of the priority created by those subsections, and
    persons who have proved liens have a right of action against the surety on the
    bond or guarantee or the issuer of the letter of credit.  R.S.O. 1990,
    c. C.30, s. 78 (10); 1997, c. 19, s. 30.

Home buyers mortgage

(11)
Subsections
    (2) and (5) do not apply to a mortgage given or assumed by a home buyer.
    R.S.O. 1990, c. C.30, s. 78 (11).


COURT OF APPEAL FOR ONTARIO

CITATION: Scaduto v. Cucu, 2017 ONCA 224

DATE: 20170320

DOCKET: C62069

Epstein, Benotto and Trotter JJ.A.

BETWEEN

Maria Scaduto and Giuliano Scaduto

Applicants

(Appellants on Appeal)

and

Liviu Cucu

Respondent

(Respondent on Appeal)

Giuliano Scaduto, acting in person

Liviu Cucu, acting in person

Heard and released orally: March 15, 2017

On appeal from the order of Justice Thomas R. Lederer of
    the Superior Court of Justice dated April 15, 2016.

ENDORSEMENT

[1]

The appellants, Maria Scaduto and
    her son, Guiliano Scaduto, object to the operation of a restaurant at a
    property neighbouring theirs. This property was originally a garage with the
    legal address of 2 Romar Crescent. The garage was converted into a restaurant,
    with a "convenience address" of 349 Marlee. The respondent, Liviu
    Cucu, owns the neighbouring property and formerly operated the restaurant.

[2]

The Scadutos took the position
    that the property was not zoned for commercial use and that Toronto had acted
    improperly in allowing a building permit for the conversion of the property. In
    2013, Ms. Scaduto sued Mr. Cucu and Toronto in Small Claims Court seeking
    damages. Her claim was dismissed as being statute-barred. Ms. Scaduto's appeal
    to the Divisional Court was dismissed. Ms. Scaduto attempted to appeal to this
    court but filed out of time, and was unsuccessful in her attempt to obtain an
    extension of time. In 2015, Ms. Scaduto and her son again sued in Small Claims
    Court, this time only against Toronto. Their claim was dismissed. There was no
    appeal.

[3]

In this proceeding, the appellants
    seek an injunction against Mr. Cucu. Toronto is not a party.

[4]

Counsel for Toronto was present on
    the return of the application with a factum and sought to make submissions. Counsel
    for Toronto explained his presence by the fact that he has been advised that
    there would be a motion to add his client as a party. The Scadutos then changed
    their mind and determined not to add Toronto.

[5]

Guiliano Scaduto objected to
    counsel for Toronto being allowed to speak. The application judge appointed
    counsel for Toronto as
amicus curiae

for the purpose of helping the
    court with the history and with the materials.

[6]

The application judge found that
    Guiliano Scaduto's view that the use of the property as a restaurant was
    illegal, was incorrect. His error arose from confusion as to the property's
    proper municipal address. The legal address was 2 Romar, an address zoned to
    permit restaurants.

[7]

The Scadutos base their appeal on
    their argument that the application judge erred in relying on
Joseph

Groia v. Law Society of Upper Canada
, 2014 ONSC 6026 (Div. CT.) in granting Toronto
amicus
    curiae
status. They submit that in
Groia
, the party that was allowed to be
amicus
    curiae
was neutral. Here, Toronto had been
    an adverse party in the two previous proceedings in Small Claims Court, and at
    the appeal in Divisional Court.

[8]

The appellants request that the
    matter be remitted to the Superior Court to be reconsidered by a different
    judge, without Toronto as
amicus
.

[9]

We would not give effect to this
    request.

[10]

Pursuant to r. 13.02:

Any person, may with leave of a judge or at the invitation of
    the presiding judge or master, and without becoming a party to the proceeding,
    intervene as a friend of the court for the purpose of rendering assistance to
    the court by way of argument.

[11]

In
Oakwell Engineering Ltd. v. EnerNorth Industries Inc.
, 2006
    CarswellOnt 9793 (C.A.), at para. 9, McMurtry C.J.O. noted that an
amicus
need not be "impartial", "objective" or
    "disinterested" in the outcome of a case. The fact that the position
    of a proposed intervener is generally aligned with the position of one of the
    parties is not a bar to intervention if the intervener can make a useful
    contribution to the analysis of the issues before the court.

[12]

In our view, it was proper for the application judge to allow Toronto to
    make submissions. Toronto was able to make a useful contribution to the
    resolution of the case, without causing injustice to the Scadutos.
    Additionally, we note that Toronto's ability to assist the court was the result
    of the Scadutos' having informed the City that it was to be added as a party.

[13]

Moreover, it is abundantly clear that there is no merit to the
    underlying zoning issue in this appeal. Thus, even if the application judge
    erred in allowing Toronto to make submissions as
amicus
, this error
    could not have had any effect on the ultimate outcome.

[14]

With respect to costs, the application judge ordered costs in favour of
    the successful party, Mr. Cucu. We see no reason to interfere.

[15]

The appeal is therefore dismissed.

"Gloria Epstein
    J.A."

"M.L. Benotto J.A."

"G.T. Trotter
    J.A."


COURT OF APPEAL FOR ONTARIO

CITATION: Schulstad v. Schulstad, 2017 ONCA 246

DATE: 20170324

DOCKET: C61349

Weiler, Rouleau and Roberts JJ.A.

BETWEEN

Campbell Karl Schulstad

Respondent (Applicant)

and

Diann Borden Schulstad

Appellant (Respondent)

Pam MacEachern, for the appellant

Ron Paritzky, for the respondent

Reasons concerning costs, supplementary to the judgment
    in
Schulstad v. Schulstad
, 2017 ONCA 95, released on February 3, 2017.

ENDORSEMENT

[1]

On February 3, 2017, we allowed in part the appellants appeal from the application
    judges October 23, 2015 order, and directed that the amount of spousal support
    and insurance benefits, if any, be sent back for determination by another application
    judge. This Endorsement disposes of the costs of the appeal and of the application
    below. The application judge had granted the respondent, as the successful
    party on the application, his partial indemnity costs in the amount of $15,000,
    inclusive of disbursements and HST.

[2]

The appellant submits that the costs order of the application judge
    should be set aside and that the costs of the application below should be awarded
    to the appellant in the same amount of $15,000. In particular, she argues that
    the respondents failure to disclose relevant financial information additionally
    justifies her receiving costs on the application below. The appellant seeks her
    partial indemnity costs of the appeal in the amount of $19,555, inclusive of
    taxes and disbursements. In total, the appellant asks for costs in the amount
    of $34,555.  The appellant maintains that as a result of the appeal, she was
    entirely successful and that costs should follow the event.

[3]

The respondent maintains that he has achieved the greater success
    relative to the appellant and should be awarded costs, for the following
    reasons:  the appellant opposed any reduction to spousal support or insurance
    benefits on the application below; the reduction to monthly spousal support
    from $10,500 to the interim amount of $1,000 is significant and any further
    adjustment will likely be modest; the respondent gained the ability to deduct
    the costs of life insurance premiums from the support. He submits that the award
    of costs to him on the application below should not be disturbed and that he
    should have his costs on the appeal in the further amount of $15,000. In total,
    the respondent asks for costs in the amount of $30,000.

[4]

Both parties rely on offers to settle in relation to spousal support and
    insurance benefits, which they exchanged during a mediation process prior to
    the hearing of the appeal. We do not find that these offers are of assistance
    because the amount of spousal support and insurance benefits has yet to be
    finally determined.

[5]

When an appeal is allowed, the general principle is that the order for
    costs below is set aside and costs are awarded to the successful party on a
    partial indemnity basis. This court has the discretion to depart from this
    approach in unusual circumstances. See
Kipij v. Metropolitan Toronto
    (Municipality)
(1999), 85 A.C.W.S. (3d) 763 (Ont. C.A.), at para. 2; and
Hunt
    v. TD Securities Inc.
(2003), 43 C.P.C. (5
th
) 211 (Ont. C.A.),
    at para. 2.

[6]

Whether the respondents spousal support and insurance obligations
    should be terminated or reduced was the main issue on the application below and
    on the appeal before this court. That the appropriate reduction to the
    respondents obligations remains open for determination by another application
    judge constitutes the kind of unusual circumstances that supports a departure
    from the general principle that the successful party on appeal be granted the
    costs on the proceeding below.

[7]

As a result, while we set aside the application judges costs order, the
    costs of the application below and of any further application to determine the
    final reduced amount of spousal support and insurance benefits are reserved to
    the application judge. This is the fairest approach for the parties because the
    application judge will be in the best position to assess the relative success
    of the parties positions on the application and to take into account the
    significance of any offers to settle.

[8]

The appellant is entitled to her costs on appeal in the amount of $13,000.
    She largely prevailed on the main issue, namely, whether spousal support and
    insurance benefits should be terminated or reduced, although she did take the
    position that there should be no reduction to the original support order.

K.M. Weiler J.A.

Paul Rouleau
    J.A.

L.B. Roberts
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Sipsas v. 1299781 Ontario Inc., 2017 ONCA 265

DATE: 20170331

DOCKET: C61800

Hoy A.C.J.O., Benotto and Huscroft JJ.A.

BETWEEN

Ted Sipsas and Leslie Carruthers

Plaintiffs (Appellants)

and

1299781 Ontario Inc.

Defendant (Respondent)

Justin Winch, for the appellants

David Winnitoy, for the respondent

Heard:  October 4, 2016

On appeal from the order of Justice Kenneth G. Hood of
    the Superior Court of Justice, dated February 3, 2016, with reasons reported at
    2016 ONSC 212.

By
    the Court:

[1]

This is an appeal of an order denying the appellants request for a
    declaration that they own a part of the property that adjoins the property they
    purchased, as a result of adverse possession.

[2]

The appeal is dismissed for the reasons that follow.

Background

[3]

The appellants, Ted Sipsas and Leslie Carruthers, own 173 Gooch Ave.
    (173), which adjoins 171 Gooch Ave. (171). Both properties are in Toronto
    and were converted to Land Titles on October 22, 2001.

[4]

The appellants purchased 173
from Delila
    and Fred Hendricks on September 28, 2007. The Hendricks had purchased the
    property in 1969 from the builder who built their two-storey brick home on the
    property.

[5]

171 was purchased by the respondent, 1299781 Ontario Inc., from the City
    of Toronto on December 18, 2006. It was essentially a vacant piece of land. The
    City had taken ownership of the property as a result of unpaid taxes owed by
    the previous owner, Jennie D. Thompson (Thompson), who owned the property from
    1932 until 2005.

[6]

A dispute arose when the respondent listed 171 for sale. The appellants
    asserted ownership of part of that property as a result of adverse possession
    and took the position that 171 could not be sold if the sale included the
    disputed lands. The appellants commenced an application and obtained a
    certificate of pending litigation that prevented the sale of 171 until
    ownership of the disputed lands was resolved. The application was converted to
    an action that was tried pursuant to the simplified procedure, resulting in the
    order under appeal.

[7]

There is no evidence that the disputed lands were used by Thompson at
    any time between the Hendricks purchase of 173 in 1969 and the Citys
    assumption of ownership of 171, including the disputed lands, in 2005.

[8]

Mr. Hendricks, the prior owner of 173, gave evidence that the builder from
    whom he purchased it built a retaining wall on 171 and enclosed the disputed
    lands with a board fence in 1969, prior to his purchase. He said that he always
    understood from the builder that the disputed lands were part of his property.
    According to Mr. Hendricks, he completed the fencing of the disputed lands by
    1974. In addition, he built concrete steps on the disputed lands by 1970 and
    two sheds in 1979, one that was used as a tool shed and the other as a dog
    house and dog run.

The Trial Judges Decision

[9]

The trial judge noted Mr. Hendricks evidence that he believed the
    disputed lands were part of 173. The trial judge observed that none of the
    purchase and sale documentation from the sale of 173 in 1969 was put into
    evidence. He acknowledged that the Listing Agreement in connection with the
    Hendricks 2007 sale of 173 referred to a Garden Shed being included in the
    sale. However, the agreement of purchase and sale and the statutory declaration
    that were executed when the appellants purchased the property did not refer to
    the disputed lands. He gave more weight to those documents than to the Listing
    Agreement and found that they contradicted Mr. Hendricks evidence that he
    always believed that the disputed lands were part of 173.

[10]

The trial judge found that the evidence as to the current extent and
    state of the fence was unclear, but that it was irrelevant given that adverse
    possession could be established by possession for any continuous ten-year period
    prior to October 22, 2001.

[11]

The trial judge found that the disputed lands were used by the Hendricks
    only seasonally, from approximately November through March. Further, the trial
    judge accepted Mr. Hendricks evidence, at para. 28, that he did not believe,
    when he was using the Disputed Lands from April to October, that he was
    excluding someone elses right to them. It did not concern him. The trial
    judge found that there was no evidence that Thompson was aware of the use of
    her land by the Hendricks, and no evidence as to her intended use of the land
    in any event.

[12]

The trial judge applied the three-part test from this courts decision
    in
Masidon Investments Ltd. v. Ham
(1984), 45 O.R. (2d) 563 (C.A.),
    leave to appeal refused, [1984] S.C.C.A. No. 232. In that case the court held
    that an adverse possession claimant must have:

(1) had actual possession;

(2) had the intention of excluding the
    true owner from possession, and

(3) effectively excluded the true owner
    from possession.

[13]

The trial judge concluded the adverse possession claim failed at the
    first step: the Hendricks use of the land was seasonal and intermittent at
    best, and so did not meet the requirement of constant and continuous usage.
    Accordingly, there was no actual possession of the disputed lands. This
    conclusion was sufficient to dismiss the claim, but the trial judge also
    concluded that the appellants failed to satisfy the second and third steps of
    the
Masidon
test.

[14]

The trial judge noted that enclosure is the strongest evidence of
    adverse possession, and may also lead to proof of intention to exclude and
    actual exclusion of the true owner. However, he found that Mr. Hendricks was
    unable to give evidence as to the state of the fence during the relevant time
    because he never went out to look at it. He noted that this supported the
    respondents argument that the Hendricks had no intention to exclude Thompson.

[15]

The trial judge found there was no evidence concerning Thompsons
    understanding or her intentions as to the disputed lands, and as a result it
    could not be said that both Hendricks and Thompson mistakenly believed that the
    Hendricks owned the land.

[16]

Consequently, the appellants were required to establish inconsistent
    use, following
Masidon Investments
and
Fletcher v. Storoschuk
(1981), 35 O.R. (2d) 722 (C.A.). On this point, the
    trial judge found as follows, at para. 38:

There is no evidence put forward
    by the plaintiffs as to the use or intended use of the land by the defendants
    predecessor in title, Ms. Thompson. The plaintiffs have failed to show that
    what their predecessors in title, the Hendricks, did was inconsistent with the
    form of use and enjoyment that Ms. Thompson intended to make of the land owned
    by her. The plaintiffs have not proven that the use of the Disputed Lands was
    with the intention of excluding the true owner from possession. Nor is there
    any evidence that what the Hendricks did was even known to Ms. Thompson, so
    that there could be an argument that she gave permission to the use of her
    property and the use was adverse to her ownership.

[17]

The trial judge added, at para. 39, that the Hendricks sale of 173
    without mentioning the disputed lands is consistent with this conclusion: The
    Hendricks knew that they had no claim to any of 17[1] Gooch. They knew that the
    property they were selling was only 17[3] Gooch.

Analysis

[18]

Although title to lands registered in Land Titles cannot be obtained by adverse
    possession following the registration of title, title may be obtained by
    adverse possession that can be established for a continuous period of 10 years
prior to registration: s. 51(2) of the
Land Titles
    Act
,
R.S.O. 1990, c. L.5
and s. 4 of the
Real Property Limitations
    Act
, R.S.O. 1990, c. L.15.

Thus, as the trial judge found, the appellants were required
    to establish that the Hendricks adversely possessed the disputed lands for any
    10-year period ending October 21, 2001.

[19]

The appellants submit that the trial judge erred in concluding that the
    appellants failed at the first step of the
Masidon
test because the
    Hendricks use of the disputed lands was seasonal and intermittent at best.

[20]

It is clearly arguable that the Hendricks use of the disputed
    lands was sufficient to establish actual possession. The Supreme Court recently
    reiterated that the requirement that a claimant have actual possession does
    not require continuous occupation:
Nelson v. Mowatt
, 2017 SCC 8, [2017]
    S.C.J. No. 8, at para. 31. The Hendricks could be said to have used the
    disputed lands as a backyard, and backyards are necessarily used on a seasonal
    basis. But even assuming that the actual possession requirement were satisfied,
    the appellants claim would fail on the second step of the
Masidon
test.

[21]

The appellants were required to establish that the Hendricks
    intended to use the disputed lands in a manner inconsistent with the rights of
    Thompson and the use she intended to make of it. There is no question that the inconsistent
    use test makes it more difficult for claimants of adverse possession to establish
    an intention to exclude, especially where, as in this case, the intentions of
    the true owner of the disputed lands are unknown.

[22]

The appellants sought to avoid this problem by arguing that this was a
    case of mutual mistake, rendering the inconsistent use test irrelevant: see
Teis
    v. Ancaster (Town)
(1997), 35 O.R. (3d) 216 (C.A). However, a mutual
    mistake cannot be established on this record. It was not established that Thompson
    was mistaken about anything at all. The appellants could do no more than
    suggest it was
possible
that Thompson also believed that the disputed
    lands were owned by the Hendricks.

[23]

At the hearing of the appeal, the appellants sought to characterize this
    as a case of unilateral mistake, submitting that the Hendricks mistakenly
    believed that they owned the disputed land.

[24]

As noted in
Barbour v. Bailey
,
2016 ONCA 98, 345 O.A.C.
    311, at para. 43, this court has not determined whether inconsistent use is
    necessary in cases of unilateral mistake, although there is Superior Court
    authority that supports the proposition that it is not: see
Marotta v.
    Creative Investments Ltd.
,
[2008] O.J. No. 1399, 69 R.P.R. (4th) 44
     (S.C.).

[25]

This argument was not properly raised on appeal, as it had not been
    argued at trial. But in any event it cannot surmount a factual hurdle.

[26]

At para. 35 of his reasons, the trial judge wrote: Even if I was
    prepared to accept Mr. Hendricks evidence that he was told by the builder that
    the Disputed Lands were theirs and he actually believed this, there is no
    evidence as to what Ms. Thompson believed or what use she intended to make of
    the property. While this may suggest that the trial judge stopped short of
    determining whether the Hendricks believed they owned the disputed lands, he
    clearly found at para. 39, referenced above, that The Hendricks knew that they
    had no claim to any of 17[1] Gooch. It is clear from his reasons as a whole
    that that he was not persuaded that the Hendricks believed that they owned the
    disputed lands.

[27]

The appellants argue the trial judge was not entitled to give any weight
    to the agreement of purchase and sale and the statutory declaration that the
    Hendricks signed because they came after adverse possession had to be
    established. They say the trial judge made a palpable and overriding error by
    not finding  in the face of Mr. Hendricks evidence and the Listing Agreement
    that referred to the Garden Shed  that the Hendricks believed they owned the
    disputed lands.

[28]

In our view, it was open to the trial judge to consider the agreement of
    purchase and sale and statutory declaration in rejecting Mr. Hendricks
    evidence that he believed that the Hendricks owned the disputed lands. We are
    not persuaded that the trial judges conclusion that the Hendricks knew they
    had no claim to 171 is a palpable and overriding error.

A note on
Mowatt

[29]

After this appeal was heard, the Supreme Court released
Mowatt
, a decision concerning the law of
    adverse possession in British Columbia. We refer to
Mowatt

in para. 20, above. In
Mowatt
,
the Supreme Court also noted, citing
Masidon
and other cases, that the inconsistent use requirement appears in
    the jurisprudence of Ontario.  It held that the law of British Columbia
    governing adverse possession does not require a claimant to demonstrate that
    his or her use of disputed lands was inconsistent with the intended use of the
    true owner. At para. 27, Brown J., for the court, wrote: Whether the
    requirement is properly applicable in other provinces remains an open question
    subject to examination of their respective legislative histories, the wording
    of their particular limitation statutes, and the treatment of these matters by
    the courts of those provinces.

[30]

In supplemental submissions following the release of
Mowatt
, the appellants effectively urge this panel to overrule
Masidon

and eliminate the inconsistent use requirement in Ontario,
    without regard to whether there is mutual or unilateral mistake.

However, this panel is not in a position to overrule
Masidon
.

The easement claim

[31]

The appellants argued in their factum that the trial judge failed
    to consider their claim for an easement, but did not pursue the argument at the
    hearing of the appeal. There is no merit to the argument in any event. There
    was no evidence to support the claim that an easement was reasonably necessary
    for the enjoyment of the appellants land. Furthermore, the grant of an
    easement would all but preclude the respondents use of the disputed lands.

Disposition

[32]

The appeal is dismissed.

[33]

The respondent is entitled to its costs on the appeal fixed at the agreed amount of $17,500, inclusive of taxes and disbursements.

Released: AH MAR 31 2017

Alexandra Hoy
    A.C.J.O.

M.L. Benotto J.A.

Grant Huscroft J.A.


COURT OF APPEAL FOR ONTARIO

CITATION:  Szymanski v. Alaimo, 2017 ONCA 254

DATE: 20170329

DOCKET: C62162

Doherty, Brown and Miller JJ.A.

BETWEEN

Francine Szymanski

Applicant (Appellant)

and

Giuseppina Alaimo and Francesco Alaimo

Respondents (Respondents)

Corinne A. Muccilli, for the appellant

Gwendolyn L. Adrian, for the respondents

Heard and released orally:  January 27, 2017

On appeal from the judgment of Justice Douglas K. Gray of
    the Superior Court of Justice, dated April 14, 2016, with reasons reported at
    2016 ONSC 2527.

COSTS ENDORSEMENT

[1]

This is not a case for costs on a substantial indemnity basis.  As
    sometimes happens with this kind of dispute, both sides have pursued and
    defended their positions to the full extent possible.  The respondents partial
    indemnity claim costs are said to be $17,354.08.  Counsel for the appellant has
    not provided the court with a cost outline.

[2]

Having regard to the nature of the issues raised on appeal, the
    respondents quantification of its partial indemnity costs and the outcome of
    the appeal, we order costs to the respondents in the amount of $13,000,
    inclusive of relevant taxes and the disbursements.

Doherty J.A.

David M. Brown J.A.

Bradley W. Miller
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: TSI International Group Inc. v. Formosa, 2017 ONCA
    261

DATE: 20170328

DOCKET: C62420

Juriansz, Lauwers and Hourigan JJ.A.

BETWEEN

TSI International Group Inc.

Plaintiff (Respondent)

and

John
    Formosa, Steffen Nielsen, iFarm Local Inc.,

Richard
    Taylor, Great Life Group Inc. and John Masih,

carrying
    on business as MSM Group

Defendants (Appellants)

Tim Gleason and Sean Dewart, for the appellants

Robert C. Taylor and Allyson Y. Lee, for the respondent

Heard: March 27, 2017

On appeal from the order of Justice W. LeMay of the
    Superior Court of Justice, dated June 8, 2016 and the costs endorsement dated
    July 11, 2016.

APPEAL BOOK ENDORSEMENT

[1]

We are able to dispose of this appeal without addressing the substantive
    grounds of appeal raised.  The motion judge ought to have granted leave to
    amend after striking from the appellants statement of defence and counterclaim
    the defence of clean hands and the counterclaim of abuse of process, and a
    number of paragraphs.  Leave to amend should be denied only in the clearest of
    cases.  The motion judge did not explicitly explain why he refused leave to
    amend.  We are not persuaded by respondents counsels submission that the
    explanation is apparent from reading the reasons as a whole.

[2]

As in
Tran v.  University of Western Ontario
, 2015 ONCA 295, we
    conclude that in the absence of any articulated basis on which leave was denied
    and in the absence of any prior amendment, the appellants should not be
    deprived of the opportunity to amend their pleadings.

[3]

We allow the appeal and vary the order of the motion judge by adding the
    words with leave to amend to paragraphs 1 and 2, and deleting the words
    without leave to amend  is granted and replacing them with the words with
    leave to amend.

[4]

As the no leave to amend argument was advanced on short notice, there
    will be no costs of the appeal.  We decline to interfere with the costs of the
    motion.


COURT OF APPEAL FOR ONTARIO

CITATION: Tamanovski Estate v. Georgieva, 2017 ONCA 225

DATE: 20170317

DOCKET: C62738

Epstein, Benotto and Trotter JJ.A.

BETWEEN

Elena Jirnova, Estate Trustee of the Estate of
    Bill Tamaovski

Applicant (Respondent)

and

Vassilka Georgieva and Edon Haziri, Estate
    Trustee of the Estate of Bill Tamanovski, and in his personal capacity

Respondents (Appellants)

Vassilka Georgieva, acting in person

Edon Haziri, acting in person

Dijana Haziri, acting in person

Felice C. Kirsh and Mitchell J. Rattner, for the
    respondent

Heard: March 13, 2017

On appeal from the judgment of Justice Barbara A. Conway
    of the Superior Court of Justice dated September 15, 2016.

APPEAL BOOK ENDORSEMENT

[1]

Bill Tamanovski died on August 4, 2015. His Will permitted his common
    law spouse, Ms. Georgieva, to remain in his home, provided that only she and
    the two tenants live there. Section 3(c)(iii) of the Will provides:

[U]nder no circumstances shall anyone be permitted to occupy
    the Residence, other than my common law spouse and the tenants as permitted in
    subsection 3(c)(ii). if my common law spouse shall breach the terms of this
    provision, the trust set up for her shall be terminated and the residence shall
    be dealt with in accordance with the provisions of subsection 3(c)(v).

[2]

Ms. Georgieva and her family are currently occupying the house, as well
    as the two tenants.

[3]

Justice Conway found that the terms of the Will were breaches because
    Ms. Georgieva's family was living at the property. Justice Conway terminated
    Ms. Georgieva's right to remain in the property. She also removed Mr. Haziri as
    an estate trustee, having found that he was in a conflict of interest.

[4]

We find no error, neither factual nor legal, in Justice Conway's
    reasons. The record fully supports her interpretation of the Will and her
    factual findings that the terms of the Will were breached. The record also
    supports Justice Conway's conclusion that Mr. Haziri was in a conflict of
    interest.

[5]

The appellant seek to adduce fresh evidence on appeal. We are not
    satisfied that the evidence meets the test for the admission of fresh
    evidence.

[6]

Accordingly, the appeal is dismissed. Everyone other than the two tenants
    shall vacate the premises no later than 5:00 p.m. on April 13, 2017.

[7]

Costs are payable to the respondent in the amount of $2,000, inclusive
    of disbursements and HST.

[8]

Approval as to form and content of this court's order is dispensed with.


COURT OF APPEAL FOR ONTARIO

CITATION: Thorne v. Hudson Estate, 2017 ONCA 208

DATE: 20170310

DOCKET: C62769

Hoy A.C.J.O., Gillese and Brown JJ.A.

BETWEEN

Donna Thorne, on her own behalf and as litigation
    guardian of Breanna Pacquette a minor, Simone Pacquette, a minor, and Owen
    Thorne, a minor, Kyle Thorne, Ryan Thorne and Sarah Thorne

Plaintiffs

and

Patricia Hudson, Executrix of the Estate of
    Maxwell B. Hudson, deceased, 1419937 Ontario Inc.,
1205055 Ontario Limited
    carrying on business as Aviation Technical Consultants, Corporate Aircraft
    Restorations Inc., Maurice Nesbitt
, John Bayes, 735922 Ontario Limited
    carrying on business as Canadian Aero Engine & Accessories,
Teledyne
    Continental Motors, Inc.
, and
Teledyne Technologies Incorporated

Defendants (
Appellants
and
Respondents
)

Hilary C. Book, for the appellants

Timothy B. Trembley, Robert J. Fenn and Ashleigh L. Tomlinson,
    for the respondents

Heard: March 6, 2017

On appeal from the judgment of Justice Edward M. Morgan
    of the Superior Court of Justice, dated September 7, 2016, with reasons
    reported at 2016 ONSC 5507.

ENDORSEMENT

[1]

During the course of a flight from Oshawa, Ontario to Wilmington,
    Delaware in May 2007, a twin-engine Beech aircraft lost power in its left
    engine. The plane crashed shortly after aborting an attempted emergency landing
    at an airfield in Dunkirk, New York. The two pilots and the passenger were
    killed.

[2]

The estates of the deceased commenced actions. The action by the
    passengers estate has settled. The trial of the claims by the pilots estates
    is scheduled to be heard next January 2018, in Toronto.

[3]

The estates are suing the companies that inspected and maintained the
    engine  the respondents, 1205055 Ontario Limited c.o.b. Aviation Technical
    Consultants (ATC) and Corporate Aircraft Restorations Inc., together with its
    employee, Maurice Nesbitt (collectively CAR). As well, the estates are suing the
    manufacturer of the engine, the appellant Continental Motors, Inc. (CMI, formerly
    known as Teledyne Continental Motors Inc. and Teledyne Technologies
    Incorporated).

[4]

ATC and CAR assert third party and cross-claims against CMI alleging (i)
    the improper design and manufacture of the engine and replacement parts, (ii) misleading
    repair instructions, and (iii) the failure to warn about certain engine
    failures.

[5]

Following the conclusion of examinations for discovery, CMI moved for
    summary judgment on the basis that the claims asserted against it were barred
    by the United States federal
General Aviation Revitalization Act of 1994
(GARA), Pub.L. No. 103 298, 108 Stat. 1552 (codified at 49 U.S.C. § 40101
    notes). In general terms, GARA bars a civil action against an aircraft
    manufacturer for damages for deaths arising out of an accident involving an aircraft
    which is brought more than 18 years after the date of delivery of the aircraft
    to its first purchaser. In the present case, there is no dispute CMI originally
    delivered the aircraft in early 1968. CMI argued that since the aircraft
    crashed in New York State, GARA applied and barred the various claims against
    it.

[6]

The motion judge dismissed CMIs summary judgment motion and declared
    Ontario law applies to these proceedings. CMI appeals.

ANALYSIS

[7]

The parties agree the motion judge correctly concluded that the
    principles set out in
Tolofson v. Jensen
, [1994] 3 S.C.R. 1022 govern
    the choice of law in tort. In
Tolofson
, the Supreme Court of Canada
    held, at p. 1050, that the law to be applied in torts is the law of the place
    where the activity occurred, i.e., the
lex loci delicti
.

[8]

CMI submits the tortious activity occurred in New York State, where the
    plane crashed. ATC and CAR contend the crux of their claims against CMI involve
    allegations of negligent misrepresentations contained in the repair
    instructions CMI periodically published to the respondents and which they
    followed to repair and maintain the engine. Pointing to the decision of this
    court in
Central Sun Mining Inc. v. Vector Engineering Inc
.
,
    2013 ONCA 601, 310 O.A.C. 391, at para. 34, that the tort of negligent
    misrepresentation occurs where the misinformation is received or acted upon,
    they submit the tortious activity occurred in Ontario where they received CMIs
    repair instructions and performed maintenance on the engine.

[9]

After carefully reviewing the pleadings, the motion judge concluded, at
    para. 31, that:

The crux of the claims and cross-claims against CMI is not
    negligence in the production of the engine that malfunctionedRather, the
    claims against CMI are in the nature of negligent misrepresentation, and take
    aim at the allegedly faulty instructions issued by CMI from time to time in the
    form of bulletins and manuals for the repair and overhaul of its engine.

[10]

We see no palpable and overriding error in that characterization of the
    crux of the claims against CMI. ATC and CAR squarely plead misrepresentation
    and the failure to warn against CMI.

[11]

Given that characterization of the crux of the claims against CMI, it
    follows that we see no palpable and overriding error in the motion judges
    conclusion that Ontario law applies to the negligent misrepresentation claims.

[12]

Moreover, the record does not support CMIs argument that GARA would bar
    the claims against it in the event New York law applied. In his reasons, the
    motion judge referred to the two expert opinions adduced on the scope of GARA. Both
    experts considered the decision of the United States Court of Appeals, Ninth
    Circuit, in
Blazevska v. Raytheon Aircraft Co.
, 522 F.3d 948 (2008).
    In that decision, at para. 8, the Ninth Circuit Court of Appeals stated:

GARA only regulates the ability of a party to seek compensation
    from general aviation airplane manufacturers
in American
    courts
. See GARA §2(a). It is not a statute governing the substantive
    standards involved in tort claims. GARA merely eliminates the power of any
    party to bring a suit for damages against a general aviation aircraft
    manufacturer,
in a U.S. federal or state court
,
    after the limitation period. The only conduct it could arguably be said to
    regulate is the ability of a party to initiate an action for damages against a
    manufacturer
in American courts
 an entirely
    domestic endeavor. Congress has no power to tell courts of foreign countries
    whether they could entertain a suit against an American defendant. It would be
    up to any foreign court to determine whether it wanted to apply GARA to
    litigation occurring within its borders [Emphasis added.]

[13]

In light of the Ninth Circuits interpretation about the limits of GARAs
    application, we see no palpable and overriding error in the motion judges
    conclusion, at para. 36, that this is not a case where CMI deserves judgment
    based on an application of GARA.

DISPOSITION

[14]

For the reasons set out above, we would dismiss the appeal. The parties
    agree that ATC and CAR, as the successful parties, are entitled to their costs
    of the appeal in the amount of $12,000 each, inclusive of HST and
    disbursements.

"Alexandra
    Hoy A.C.J.O."

"E.E.
    Gillese J.A."

"David
    Brown J.A."


OF APPEAL FOR ONTARIO

CITATION: Tippel (Re), 2017 ONCA 256

DATE: 20170327

DOCKET: C62503

Doherty, Huscroft and Miller JJ.A.

IN THE MATTER OF:  AUSTIN TIPPEL

AN APPEAL UNDER PART XX.1 OF THE
CODE

Dean Embry, for the appellant

Rachel Young, for the respondent

Julie Zamprogna-Ballès, for the Southwest Centre for
    Forensic Mental Health Care, St. Josephs Health Care London

Heard:  March 24, 2017

On appeal against the disposition of the Ontario Review
    Board, dated July 5, 2016.

APPEAL BOOK ENDORSEMENT

[1]

This is a difficult case.  The appellants conduct, while troubling, is
    close to the line in terms of satisfying the significant threat to the safety
    of the public requirement.

[2]

The evidence before the Board has been supplemented by fresh evidence referring
    to an event in December 2016.  We are satisfied that the record before the
    Board and the fresh evidence provides a basis upon which the Boards order
    could be justified.

[3]

The possibility of a conditional discharge was not considered by the
    Board or counsel.  It may be that there are no terms which could make the
    appellants release appropriate.  It is, however, imperative that on the next
    review all possibilities, including a release on terms be fully addressed by
    the parties and the Board.  We note that the appellant was at liberty on
    conditions for about four years (2008-2012).  He apparently functioned
    appropriately on a conditional discharge for some time.  That experience may
    assist in developing terms that could adequately protect the public while
    permitting the appellant to live in the community.

[4]

The appeal is dismissed.


COURT OF APPEAL FOR ONTARIO

CITATION: Unger v. Unger, 2017 ONCA 270

DATE: 20170331

DOCKET: C62497

Feldman, Sharpe, and Roberts JJ.A.

BETWEEN

Jeremy David Unger

Appellant
(Applicant)

and

Victoria Ambre Unger

Respondent

Michael J. Stangarone and Kristy A. Maurina, for the
    appellant

Andrew Feldstein and Nick Slinko, for the respondent

Heard: March 27, 2017

On appeal from the final order of Justice Laura E. Fryer
of the Superior Court of Justice,
dated
    June 27, 2016,
with reasons reported
    at 2016 ONSC 4258.

ENDORSEMENT

[1]

The appellant appeals the dismissal of his application against his
    former spouse, under Articles 3 and 12 of the
Convention on the Civil
    Aspects of International Child Abduction
, 25 October 1980, C.T.S. 1983/35;
    19 I.L.M. 1501 (Hague Convention) and s. 46(5) of the
Childrens Law
    Reform Act
, R.S.O. 1990, c. C.12, for a declaratory order that their child
    is habitually resident in Israel and that she was wrongfully retained by the
    respondent in Canada, and for an order that their child be returned to Israel.

[2]

Article 3 of the Hague Convention states that a removal or retention of
    a child is wrongful where:

a)       it is in breach of rights of custody attributed to a
    person, an institution or any other body, either jointly or alone, under the
    law of the State in which the child was habitually resident immediately before
    the removal or retention; and

b)       at the time of removal or retention those rights were
    actually exercised, either jointly or alone, or would have been so exercised
    but for the removal or retention.

[3]

Article 12 of the Hague Convention requires the mandatory return of the
    child if the removal or retention is determined to be wrongful. Under s. 46(5)
    of the Act, an application may be made to a court in pursuance of such a
    return.

[4]

There are limited defences to the operation of Articles 3 and 12. For
    instance, where the habitual residence of the child has changed, a defence
    against an application for his or her mandatory return to the former habitual
    residence will be available. Further, Article 13(a) of the Hague Convention provides
    that the mandatory return of the child is not required where the person having
    the care of the child had consented to or subsequently acquiesced in the
    removal or retention of the child.

[5]

From February 2014 to August 2015, the appellant and the respondent
    lived in Israel with their daughter. In August 2015, they travelled to Toronto,
    Ontario to visit the respondents parents and to allow the respondent to seek
    medical treatment for various, serious medical issues. At the end of three
    months, the appellant returned to Israel; the respondent and their daughter
    remained in Toronto.

[6]

The application judge found that while the parties were in Toronto, they
    mutually agreed to change their habitual residence from Israel to Ontario, but
    that the appellant later changed his mind and decided to remain in Israel, and
    wanted the respondent and their daughter to return to Israel as well. The
    application judge also determined that the appellant had acquiesced in the
    respondent and their daughter remaining in Ontario. As a result, the
    application judge determined that she was not bound to order the return of the
    daughter to Israel.

[7]

The application judges determinations that the daughters habitual
    residence is Ontario and that the appellant had consented to or acquiesced in
    Ontario as the daughters habitual residence are factual findings that are
    subject to considerable deference on appeal:
Baggot v. Balev
, 2016
    ONCA 680, [2016] 405 D.L.R. (4th) 98, at para. 53;
I. (A.M.R.) v. R. (K.E.)
,
    2011 ONCA 417, [2011] 106 O.R. (3d) 1, at para. 88.

[8]

The appellant submits that the application judge made palpable and
    overriding errors in her consideration of the evidence and findings of fact
    with the result that she erred in determining that the appellant had consented
    to or acquiesced in Ontario as the habitual residence of his daughter.

[9]

We disagree.

[10]

The application judge carefully and thoroughly reviewed the evidence
    presented by the parties. Her findings that the appellant had consented to or acquiesced
    in Ontario as his daughters habitual residence were open to her on the record.
    In particular, the application judge looked to the appellants own conduct and
    communications with the respondent and others to support her findings. For
    example, in a text message exchange with the respondents sister on November
    17, 2015, after his return to Israel, the appellant wrote that he was [t]rying
    to get everything in order, and cope with leaving and that the plan is to be
    in Toronto until further noticewhich basically means forever.  In later
    texts to the respondent in December 2015, the appellant advised that he would
    come to Toronto from time to time to visit, asked her to find him a place in
    Toronto where he could stay, and forwarded employment training opportunities
    for the respondent in Toronto.

[11]

The appellants main complaint is that the application judge should have
    weighed the evidence differently and in his favour. This is an entirely
    fact-driven appeal and the appellant asks this court to reassess the evidence
    on the application. That is not our task. Appellate review of a decision under
    the Hague Convention is not a hearing de novo or an invitation to re-litigate
    the matters determined on the application:
I. (A.M.R.)
, at para. 88.

[12]

We see no error in the application judges dismissal of the appellants application.
    There is no basis to interfere.

[13]

Accordingly, the appeal is dismissed.

[14]

The parties agreed that, as the successful party on appeal, the
    respondent is entitled to costs in the amount of $10,000, inclusive of
    disbursements and taxes. Given the relative modest means of the appellant, we
    order that the appellant shall have six months to pay the costs awarded to the
    respondent.

K. Feldman J.A.

Robert J. Sharpe
    J.A.

L.B. Roberts
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: United States v. Equinix Inc., 2017 ONCA 260

DATE: 20170331

DOCKET: C61818

Hoy A.C.J.O., Doherty and Miller JJ.A.

BETWEEN

Attorney General of Canada on behalf of the
    United States of America

Applicant / Moving Party (Respondent)

and

Equinix Inc.
*

Respondent (Appellant)

and

Megaupload Inc.

Respondent / Responding Party (Appellant)

Matthew Gourlay, for the appellant Megaupload Inc.

Monika Rahman and Nancy Dennison, for the respondent

Heard:  February 7, 2017

On appeal from the order of Justice Michael G. Quigley of
    the Superior Court of Justice, dated December 14, 2015, with reasons reported
    at 2015 ONSC 7803.

Doherty J.A.:

[1]

This appeal comes to the court pursuant to leave to appeal granted by
    Feldman J.A. under s. 35 of the
Mutual Legal Assistance in Criminal Matters
    Act
, R.S.C. 1985, c. 30 (4th Supp.) (the Act).

The Issues

[2]

The appeal raises two questions.

1.

Did the application judge have the jurisdiction under s. 15(2) of the
    Act to make an order directing that the seized material be examined by an FBI
    clean team for the purposes of preparing a report to assist the court in
    determining what order, if any, should be made under s. 15(1) of the Act?

2.

If the application judge had that jurisdiction, did he err in exercising
    it by allowing the FBI clean team to examine the material?

The Act

[3]

Before turning to the facts of this case and the issues raised on appeal,
    a brief primer on the operation of the Act is helpful.

[4]

Under the Act, countries that have the appropriate treaty with Canada,
    like the United States, can seek the assistance of the Minister of Justice (the
    Minister) in locating and obtaining evidence, believed to be in Canada, relevant
    to a criminal investigation in the foreign country.  The Minister can approve
    the use of various investigative techniques, including a search warrant.  If
    the Minister authorizes his agent to seek a search warrant, the application is
    made to the Superior Court.  The judge may issue the warrant if the
    prerequisites in s. 12 of the Act are met.

[5]

The issuing judge must fix a date after the proposed execution of the
    warrant for a hearing to consider whether the warrant was properly executed and,
    if so, whether the seized material should be sent to the foreign jurisdiction
    (s. 12(3) of the Act).  The peace officer who executes the warrant prepares a
    report for the judge to consider on the return date.  The report includes a description
    of the things seized.  The person from whom the material was seized and any other
    person who claims an interest in the material is entitled to notice of the
    hearing and to make submissions at the hearing (ss. 12(4), 15(1) of the Act).

[6]

At the hearing held under s. 15(1) of the Act, the judge must decide
    whether to order the seized material sent to the foreign jurisdiction.  If the
    judge is not satisfied that the warrant was executed in accordance with its
    terms, or is satisfied that a sending order should not be made, the court may
    return the material to the person from whom it was seized, or to a person
    lawfully entitled to the material.  If the judge is satisfied that the warrant
    was executed according to its terms and there is no reason why the order should
    not be made, the judge may order the material sent to the foreign jurisdiction:
    see
R. v. Gladwin
(1997), 116 C.C.C. (3d) 471 (Ont. C.A.), at para. 8.
    A judge making a sending order under s. 15(1) may impose any terms and
    conditions that the judge considers desirable.

[7]

Section 15(2), the focal point of this appeal, states:

At the hearing mentioned in subsection (1), the judge may
    require that a record or thing seized in execution of the warrant be brought
    before him.

[8]

Read literally, s. 15(2) allows the judge, before deciding whether to
    make a sending order under s. 15(1), to order a physical object or document, seized
    pursuant to the warrant, brought before him or her for examination.  On this
    appeal, the court must decide whether the reach of s. 15(2) extends beyond that
    literal meaning.

Background and Prior Proceedings

[9]

In December 2011, the U.S. Department of Justice sought the Ministers
    assistance in an ongoing investigation involving allegations of criminal breach
    of copyright.  The U.S. investigators (the Intellectual Property Rights Unit of
    the FBI) alleged that the appellant and its officers and employees were
    facilitating criminal copyright infringements and related money laundering
    transactions, on a massive scale, through several websites operated and
    administered by the appellant.  According to the investigators, the relevant
    websites had some 50,000,000 daily users.  Investigators estimated the
    copyright holders losses at approximately $500,000,000 over a given two-week
    period.

[10]

The investigators learned that the appellant leased computer servers in
    Toronto.  They believed that these servers contained copyrighted content and
    other information relevant to the investigation.  The U.S. authorities asked
    the Minister to obtain a search warrant authorizing the seizure of the
    servers.

[11]

The Minister approved the U.S. request and, on January 18, 2012, a
    Superior Court judge issued a search warrant authorizing the RCMP to search the
    business premises and seize the servers.  The RCMP executed the warrant and
    seized 32 servers.  They have been in the RCMPs possession since they were
    seized.

[12]

In January 2013, the Minister applied for an order under s. 15 of the
    Act, directing that the 32 servers be sent to the United States.  On the application,
    the appellant acknowledged that the warrant had been properly issued and that
    the search had been executed in accordance with the terms of the warrant.  The
    appellant submitted, however, that the servers contained a mass of information,
    much of which was the property of third parties and had no possible relevance
    to the U.S. investigation.  The appellant argued that information on the
    servers irrelevant to the U.S. investigation could not be sent to the United
    States under s. 15 of the Act.

[13]

Pardu J., as she then was, heard the application:
United States of
    America v. Equinix Inc.
, 2013 ONSC 193.  She noted that the data on the
    servers was estimated to be the equivalent of the data found on 100 laptop
    computers.  She further indicated that, under Canadian case law, a warrant
    authorizing a seizure of a computer did not necessarily authorize the seizure
    of everything stored on the computer.  Pardu J. concluded that, before a sending
    order could be made, the court required assistance in separating the content on
    the servers relevant to the U.S. investigation from the irrelevant content.  She
    said, at para. 16:

[t]he appropriate balance of the state interest in gathering
    evidence and privacy interests in information can be struck by an order that
    the servers be brought before the court pursuant to s. 15(2) so that the court
    can make an order refining what is to be sent.  By this, I do not mean that at
    this stage the servers must physically be delivered to the courthouse.  The
    application for a sending order is adjourned without a fixed return date,
    returnable on 7 days notice.
If counsel are unable to
    agree as to how the scope of relevant material is to be defined then the matter
    may be brought back before a judge of this court for determination of that
    issue.
[Emphasis added.]

[14]

The parties were unable to agree on a method of sorting the relevant
    material from the irrelevant material on the servers.  They found themselves back
    before the court in April 2015 seeking directions.  The Minister proposed that an
    FBI clean team would sort the material and draft a report for the court.  The
    application judge described the Ministers proposal at para. 6 of his reasons:

So, in order to virtually "bring" the servers before
    this court in accordance with Justice Pardu's endorsement, the clean team would
    examine that evidence forensically, and provide a written summary of it to this
    court. The clean team will be comprised of American FBI trained personnel who
    have had no involvement in the case for which the evidence is being sought. In
    their report, they would also describe whether and to what extent evidence on
    those servers is relevant to the charges that are being prosecuted in the United
    States.

[15]

The Minister outlined a variety of conditions designed to ensure that
    the U.S. authorities investigating the alleged copyright infringements would
    not have access to any information on the servers until that information was
    ordered sent to the United States.  The Minister also provided a letter from
    the United States Department of Justice, indicating that U.S. justice authorities
    routinely used clean teams to review material that contained potentially
    privileged information before that material was turned over to investigators.

[16]

Counsel for the appellant agreed that some kind of process like that suggested
    by the Minister was appropriate to help the judge in sorting out the relevant
    from the irrelevant material on the servers.  Counsel submitted, however, that
    the process should not be done by an arm of the American government, and
    particularly not by the FBI, the same agency that was investigating the
    copyright allegations.  Counsel submitted that there were independent experts who
    could perform the same function as the FBI clean team, and that the court should
    require the Minister to retain an independent expert to provide the necessary
    summary of the information contained on the servers.

[17]

The application judge accepted the Ministers position and directed that
    the FBI clean team examine the servers and prepare a report to assist the sending
    judge in deciding what material should be sent to the United States.  He placed
    several conditions on his order, intended to protect the integrity of the data
    on the servers, to ensure that the information on the servers did not find its
    way to the American investigators before a sending order was made, and to allow
    representatives of the appellant to oversee the process.

[18]

The application judge gave three reasons for accepting the submission
    that the clean team should examine the servers and prepare the report.  First,
    he held that using a clean team would not compromise the privacy interests of
    the appellant or any third parties.  On his analysis, at para. 17, the privacy
    interests stemming from the search and seizure of the servers was not the
    issue, as the parties were agreed that the warrant was valid.  In his view, at
    paras. 14-18, the extent of any intrusion on privacy interests would depend,
    not on the involvement of the clean team, but on the terms of any s. 15
    sending order the judge might ultimately make.

[19]

Second, the application judge, at paras. 19-20, rejected the appellants
    submission that the FBI clean team might share information with the U.S.
    investigators, or otherwise not comply with any order made.  He found this rationale
    for rejecting the Crowns proposed order offensive to the principles of
    international comity and mutual cooperation.  The application judge observed,
    at paras. 21-26, that the operation of the Act was premised on those principles
    and was intended to facilitate the effective investigation of international
    criminal activity.

[20]

Third, the application judge referred, at paras. 27-32, to the potential
    costs of examining the servers and preparing the necessary report.  The
    parties cost estimates suggested that the FBI clean team could do the necessary
    work at less cost than an independent expert.  The estimates offered little insight
    as to the amount that would be saved by using the clean team, but indications
    were that savings would not be significant.  The application judge wrote, at
    para. 27, that the costs associated with examining the servers were not a
    central consideration, but rather part of the balancing exercise.

Issue #1:  Did the Application Judge have Jurisdiction to Make
    the Requested Order under Section 15(2) of the Act?

[21]

The jurisdictional question was not raised before Pardu J. or the
    application judge.  Counsel accepted that a judge, acting under s. 15(2) of the
    Act, had the power to make the order sought by the Minister.  The jurisdictional
    question was raised on the leave application in this court.  In raising the
    issue, the appellant relied on
United States of America v. Bin
, 2015
    BCSC 2381, decided two days after the application judge released his reasons.

[22]

In
Bin
, U.S. investigators, specifically the FBI, sought
    Canadian assistance in an ongoing criminal investigation.  The RCMP obtained a
    warrant under s. 12 of the Act.  It seized various digital devices containing
    over 300,000 pages of documentation and data.  Much of the information was in
    Chinese.  Some of the information involved very technical matters relating to
    aircraft technology.

[23]

The RCMP sought an order under s. 15(2) of the Act allowing
    an FBI clean team to examine and translate the material and provide a report
    for the judge who would ultimately determine whether any of the material should
    be ordered sent to the United States under s. 15(1).  For present purposes, the
    order sought in
Bin
i
s indistinguishable
    from the order under appeal.  The judge in
Bin
held that he had no jurisdiction to make that order
    under s. 15(2).

[24]

In his factum, counsel
    for the appellant argued that this court should follow
Bin
.  However, in oral argument, counsel did not rely on
Bin
and did not take
    the position that the order under appeal could not be made under s. 15(2) of
    the Act.  Instead, counsel focused on his argument that the order permitting an
    FBI clean team to review the material should not have been made.

[25]

I think counsel was
    correct to abandon the jurisdictional argument.  Section 15(2) exists to assist
    the judge in making a determination under s. 15(1).  Sometimes the
    determination will require an examination of the material.  In cases like this
    one, an effective examination of the material can only be made by a judge who
    has the necessary technical and expert assistance.  Physically bringing the
    material seized before the judge, without more, does not assist the judge in deciding
    what order should be made under s. 15(1).  The power to direct that the
    material be brought before the judge includes, by implication, the power to
    make the orders necessary for the judge to carry out her role in assessing the
    material under s. 15(1).  Counsel for the Minister put it well in her factum,
    at para. 46:

If a sending hearing judge is entitled to examine the material
    at issue to fulfil his or her role under s. 15(1) then the respondent submits
    that s. 15(2) must include the jurisdiction to order that voluminous contents
    of digital devices be brought before [the] court in a meaningful way that
    allows for a review.

[26]

I would add that, although I do not agree with the
    interpretation of s. 15(2) put forward in
Bin
, I do agree with the holding in
Bin
that the judge who issued the search warrant could
    have made a similar order under s. 12(2) of the Act.  That section allows the
    judge who issues the warrant to impose conditions on the execution of the
    warrant.  I see no inconsistency or interpretative impediment to a reading of
    the Act that allows both the judge who issued the warrant and the judge acting
    under s. 15 to enlist the appropriate technical and expert assistance needed to
    promote the effective operation of the Act.

Issue #2:  Did the Application Judge Err in Making an Order
    Allowing the FBI Clean Team to Examine the Material?

[27]

The application judge exercised a discretion in making the order he
    did.  This court can interfere with the exercise of that discretion only if the
    application judge failed to consider relevant principles, considered irrelevant
    principles, or exercised his discretion in an unreasonable manner.

[28]

With respect to the application judges careful reasons, I think he erred
    in failing to consider the proposed orders effect on the appearance of
    fairness and, in particular, the appearance of the sending judges
    impartiality.

[29]

The judge had to decide what material, if any, should be ordered sent to
    the United States.  The appellant and the American investigators, the FBI,
    stood in a strongly adversarial position with respect to the order that should
    be made.  The judge, because of the nature of the seized material, needed help
    in determining what order should be made. The judge needed someone who could
    prepare a report outlining the nature of the material so that the judge could
    decide what part of the material, if any, should be sent to the United States.

[30]

The report inevitably would significantly influence the nature and scope
    of any order made by the judge.  In my view, it is offensive to the appearance of
    fairness, and specifically the appearance of judicial impartiality, to have an
    entity closely associated with one of the adversaries provide the judge with
    the necessary report.  In coming to that conclusion, I make no assumption that
    the FBI clean team would not comply with whatever conditions the court
    imposed.  My concern is with the appearance of fairness and impartiality.

[31]

If a judge asked to make a s. 15(1) order needs assistance in examining
    the seized material, the judge should start from the premise that anyone
    retained for that purpose should be independent of the interested parties.  If a
    party claims that an associated entity should be allowed to review the material
    and prepare a report for the judge, that party bears the onus to justify use of
    an associated entity.

[32]

For example, there could be cases in which the foreign investigative
    authorities have a particular and unique expertise that would be valuable in
    examining the seized material: see
Bin
, at para. 19.  In that
    situation, it may be open to the judge to allow the expert associated with one
    of the parties to review the material and prepare the necessary report under
    the appropriate safeguards.

[33]

There is no suggestion that the FBI clean team brings any unique
    expertise to the task at hand.  During oral argument, the court was advised
    that lawyers involved in discovery for complex litigation  assembling and examining
    millions of electronically stored documents  routinely engage entities to perform
    functions like those the FBI clean team proposes to provide in this case.

[34]

Cost considerations may be relevant in deciding who should be appointed
    to assist a judge in examining seized material.  I agree with the application
    judge, however, that cost considerations cannot play a leading role.  I would
    think that any cost difference, between using an entity affiliated with one of
    the parties and an independent entity, would have to be prohibitive before it
    could justify appointing the affiliated entity.  The evidence in respect of
    costs placed before the application judge does not come close to justifying a
    departure from the presumption in favour of appointing an independent party to
    assist the judge in reviewing the documents.

Conclusion

[35]

I would set aside the order of the application judge.  The parties are
    effectively back in the position they were after the order of Pardu J.  If the
    parties cannot come to an agreement as to how to implement her order, they must
    seek further directions from the Superior Court.  That court will have these
    reasons.

Released: AH  MAR 31 2017

Doherty J.A.

I agree Alexandra Hoy A.C.J.O.

I agree Bradley W. Miller J.A.

*
Equinix Inc.
    did not participate in the appeal.