Law Times

Law Times • march 21, 2016 Page 7 www.lawtimesnews.com COMMENT Sattva questioned for contracts of adhesion BY JENNIFER POCOCK S ince the release of the Supreme Court of Canada's decision in Sattva Capital Corp. v. Creston Moly Corp., there has been a lot of discussion about the "factual matrix" mentioned in the decision to be considered in the interpretation of a contract. However, the Court of Appeal for Ontario in MacDonald v. Chicago Title Insurance has recently distinguished Sattva in the context of standard form contracts and other contracts of adhesion. In a stark move by the Court of Appeal, MacDon- ald shis the pendulum back towards the historical approach of interpreting contracts and away from the approach adopted in Sattva. In fact, the retreat away from Sattva was already apparent in Alberta and British Columbia where pro- vincial appellate courts have cited the unique factual circumstances underpinning the Supreme Court's deci- sion in limiting its application. It appears that Ontario is now following suit. In Sattva, Justice Rothstein, writing for a unani- mous seven-member panel, departed from the histori- cal view that the standard of review on appeal from a lower court's decision involving the interpretation of a contract is correctness. Recognizing changes in the Ca- nadian jurisprudence and the emerging trend towards greater emphasis on contextual factors as part of the court's analysis in interpreting contracts, Justice Roth- stein called for the abandonment of the historical ap- proach. Sattva ruled that as courts must determine the facts surrounding a contract as part of the factual matrix or surrounding circumstances, the question on appeal is closer to a question of mixed fact and law than a ques- tion of law. e appropriate standard of review is sub- ject to palpable and overriding error as opposed to cor- rectness. Sattva carved out that in "rare" occasions a question of law can be extricated from the contractual interpreta- tion process. ese circumstances may arise when the courts below applied an incorrect legal principle, failed to consider a required element of a legal test, or to give consideration to a relevant factor. However, MacDonald outlines yet another area to those listed in Sattva where contractual interpretation will be closer to a question of law and subject to the cor- rectness standard of review. MacDonald may open the door for appeals involving contracts of adhesion and other standard form contracts as they will now be sub- ject to the lower standard of review on appeal. MacDonald holds that the "importance of the fac- tual matrix is far less significant, if at all in the context of a standard form contract or contract of adhesion where the parties do not negotiate the terms." For con- tracts that are presented on a "take-it-or-leave-it" basis, the search to find the intention of the parties in the sur- rounding circumstances, or factual matrix, is "wholly inapplicable" and illusory. e Court of Appeal stated succinctly in MacDonald that the "rationales in Sattva that support adopting a deferential standard of review do not apply to contracts of this type, as the factual ma- trix does not meaningfully assist in interpreting them and their construction has broad application." ese statements in MacDonald and others seem to illustrate the Court of Appeal's internal dilemma re- garding the "modern approach" to contractual interpre- tation adopted in Sattva. In certain cases, it appears that the Court of Appeal would advocate for the traditional correctness standard even if there have been changes to the legal landscape. is calls into question whether the traditional approach is nonetheless the better one to take for certain types of contracts despite old concerns over widespread illiteracy and frequent civil jury trials being obsolete. e facts in MacDonald illustrate an example where the correctness standard still makes more sense. e Court of Appeal found that the appellants had been presented with pre-printed contracts that the respon- dent insurer, Chicago Title, had with a wide variety of customers who also purchased the same insur- ance policy. Since the policy was the same, the in- terpretation of the title insurance contract at issue would then apply equally to the appellants as with the other customers. On this basis, in MacDonald, the Court of Appeal held that interpretation of the contract was "of general importance and had precedential value in a way that the interpretation of other contracts may not." As such, another distinguishing factor between questions of law and mixed fact and law of precedential value did not ap- ply in this case as in others involving interpretation of contracts that have very limited precedential value be- yond that of the parties. Although MacDonald was decided in the insur- ance context, this decision has significant ramifications for parties that have been found to be subject to stan- dard form contracts or where the essential provisions of a contract were imposed or drawn up by one of the parties and was not negotiable. For example, franchise agreements have been held by the Court of Appeal in Shelanu Inc. v. Print ree Franchising Corp. to be contracts of adhesion where franchisees are disadvan- taged by their inability to negotiate more favourable terms with the franchisor. An earlier 2015 decision from the Court of Appeal in 2176693 Ontario Ltd. v. Cora Franchise Group Inc. held that the interpretation of a franchise agree- ment in light of the statutory provisions of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3 is reviewable on the standard of palpable and overrid- ing error. As a result, it is likely that parties to a franchise agreement will argue for the application of MacDonald for their next appeal if the issues involved in the inter- pretation of the franchise agreement do not meaning- fully engage the statutory scheme. LT u Jennifer Pocock is a litigator practising in Toronto at Teplitsky Colson LLP. She has a broad-based commercial litigation practice with an emphasis on franchise disputes and appeals. u SPEAKER'S CORNER Lifting a stay for wrongful dismissal damages A n order for the payment of money in lieu of notice is an order that creates a fixed debt obligation. A wrongfully dismissed employee who obtains a judgment requiring his former employer to pay damages may be unable to enforce it until appeal is determined. When a notice of appeal seeking to vary an award of wrongful dismissal damages is filed, it results in an automatic stay of the judgment. To lift a stay is a complex endeavour. A recent employment case in point is Antunes v. Limen Structures, 2016 ONCA 61, where the Ontario Court of Appeal was asked to lift a stay in respect of the wrongful dismissal damages. Having taken the contextual factors into account, the ONCA lifted the stay, while criticizing "scorched earth" trial and appeal tactics taken by the former employer. In Antunes, John Antunes successfully sued Limen Structures Ltd. for wrongful dismissal. On June 2, 2015, he was awarded $104,228.54, which was equivalent to eight months' salary for five months of employ- ment, pre-judgment interest of $3,504.25, and $500,000 representing the value of his shares and costs in the amount of $37,500. In June 2015, Limen filed a notice of appeal asking the judgment to be varied by setting aside the award of damages for $500,000. Pursuant to Rule 63.01(1) of the Ontario Rules of Civil Procedure, the effect of the delivery of a notice of appeal is an auto- matic stay of the judgment pending appeal. In response, Antunes brought a motion, under Rule 63.01(5) of the Rules, to li the stay in respect of the wrongful dismissal damages, pre-judg- ment interest, and costs, because those awards were not appealed. In an attempt to defeat the mo- tion, Limen filed a supplemen- tary notice of appeal, challenging the awards that Antunes sought to enforce. Although the supple- mentary notice of appeal had been filed months aer the origi- nal notice of appeal had been filed, Rule 61.08 of the Rules entitles an appellant to amend a notice of appeal without leave before the appeal is perfected. At the liing of a stay motion, Antunes successfully asserted that Limen's supple- mentary notice of appeal had no merit and was served solely for the purpose of but- tressing its claim to a stay as a way to stave off payment. Antunes had a legitimate con- cern that any delay in enforcing the judg- ment would make it more difficult to collect upon it, because Limen's financial position continued to deteriorate and that it might be insolvent by the time the appeal was argued. e ONCA found Antunes' fears not to be unreasonable, because there was Limen's own evidence pointing towards insolvency. e ONCA explained that the stay of execution imposed by Rule 63.01 intended to offer some protection to former employ- ers against payments, which they might not eventually be obligated to make, thus put- ting it to the uncertainties of recovery. e discretion as to whether an order should be stayed pending appeal must be exercised to promote the overall interests of the administration of justice. is requires the ONCA to con- sider a number of contextual factors, such as: the grounds of appeal; the parties' position at trial; what has happened since the trial; the general circum- stances of the case, including the trial judge's reasons; and the probable delay between trial and appeal that cannot be con- trolled by the parties. e test for liing a stay in- volves the balancing of three principal factors: (a) financial hardship to the respondent if the stay is not lied; (b) the ability of the respondent to repay or provide security for the amount paid; and (c) the merits of appeal. In respect of the first fac- tor, the ONCA was satisfied that Antunes had made out a case for financial hardship, mainly because of his inability to secure per- manent employment for 17 months follow- ing his dismissal, which caused him to incur extensive debt. In respect of the second fac- tor, the ONCA accepted Antunes's admis- sion that he does not have the ability to repay any substantial amount collected from Li- men. In respect of the third factor, the merits of the appeal, the ONCA found them to be weak, which Limen implicitly acknowl- edged through its belated amendment of the notice of appeal. It further opined that Li- men's argument that the trial judge erred in law by awarding Antunes eight months' pay in lieu of notice aer a five-month service was not one of law but of the weight, which the trial judge accorded to the Bardal factors. Having found that Antunes demonstrat- ed financial hardship, the ONCA lied the stay in respect of the award of wrongful dis- missal damages, pre-judgment interests, and the costs. In the process, the ONCA criti- cized Limen for managing its affairs in such a way as to minimize its financial exposure to Antunes. e ONCA acknowledged that businesses can find themselves in financial difficulty for many reasons having nothing to do with the wrongful dismissal claim of a former employee; but in coming to its deci- sion, it took a particular note of the "scorched earth" trial and appeal tactics by Limen. Antunes illustrates that the liing of stay motions is limited to cases of de- monstrable and unusual hardship to former employees and where a reason- able measure of protection can be af- forded to former employers. In most cases, the merits of the appeal will have a bearing upon success of the motion. If an appeal is devoid of merit and is perceived as a tactical manoeuvre to buy time to, for example, dissipate as- sets, the automatic stay may be lied and former employer may be directed to pay money into court or its former employee's counsel's trust pending the disposition of the appeal. LT u Nikolay Chsherbinin is an employment and immigration lawyer at Chsherbinin Litigation and author of "The Law of Inducement in Canadian Employment Law." He can be reached at 416-907-2587 or by visiting nclaw.ca. Labour Pains Nikolay Chsherbinin

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