BLG Monthly Update - October 2012

The BLG Monthly Update is a digest of recent developments in the law which Neil Guthrie, our National Director of Research, thinks you will find interesting or relevant – or both.

ADMINISTRATIVE LAW

Does the duty of fairness extend to non-parties affected by a regulatory decision?

Up to a point, said the Manitoba Court of Appeal in 2127423 Manitoba Ltd o/a London Limos v Unicity Taxi Ltd, 2012 MBCA 75. London Limos applied for, and was granted, taxi licences by the provincial taxicab board. The application was opposed by two competitors, Unicity and Duffy's Taxis. They challenged the board's decision on the grounds that they had received only summary information about the London Limos application (they were denied access to detailed information, specifically the business plan of their competitor) and that the board had failed to provide reasons for its decision. This, they contended, amounted to a breach of natural justice and the regulator's duty of fairness to them.

The Manitoba Court of Appeal held that while the board clearly owed a duty of fairness to parties in proceedings before it, any duty owed to non-parties like the objectors was of a lesser character. The board was not required under its governing legislation to hear their objections at all, although it allowed them to participate. It was misconceived for the objectors to expect the same level of disclosure that a party would receive, given that they did not have to make or defend a case that was being adjudicated. Not being directly affected by the licensing decision, they could expect 'reasonable' disclosure of what London Limos was asking for – but it was unreasonable for them to demand confidential business information. The fact that the objectors had failed to ask for written reasons when they first challenged the board's decision was not fatal to their case, but it was a relevant factor that suggested they understood the rationale for the decision without needing written reasons. In the circumstances, a simple order from the board was enough.

[Link available here].

ARBITRATION

What happens when the parties' choice of arbitral seat doesn't exist?

An unsatisfactory result in this case, anyway: Control Screening LLC v Technological Application and Production Co (Tecapro), HCMC-Vietnam (3d Cir, 26 July 2012). Control Screening, a New Jersey company, agreed to supply X-ray machines to Tecapro, an enterprise owned by the government of Vietnam. Their agreement had an arbitration clause stating that disputes that could not be resolved between the parties would be arbitrated at the 'International Arbitration Center of European countries'. Herein lay the problem when the parties wanted to invoke the arbitration clause: there is no such thing as the International Arbitration Center of European countries (or Countries, even). Tecapro initiated arbitration proceedings in Belgium; Control Screening did so in New Jersey – and sought to enjoin the Belgian arbitration.

The New Jersey district court concluded that 'the only reasonable interpretation' of the arbitration was that either party could seek to arbitrate in its home jurisdiction, granting Control Screening's motion. On appeal by Tecapro, the 3d Circuit relied on the New York Convention, which both the US and Vietnam have ratified, and which provides that an express agreement to arbitrate will be found unenforceable where it is 'null and void' because of some underlying mistake. The reference to the non-existent forum was clearly such an error, although it did not vitiate the parties' intent to arbitrate somewhere; the forum-selection clause was severable from the rest of the agreement. The Federal Arbitration Act, which also applied, permits a district court faced with an agreement that specifies no forum to compel arbitration only within its own jurisdiction – so the court below was correct to say the arbitration had to proceed in New Jersey. But wasn't it clear that the parties wanted arbitration to occur in Europe, presumably as a compromise between Vietnam and New Jersey?

BANKING/CONTRACTS

Bank fees can be penalties, even where not related to customer's breach

The High Court of Australia has stated that bank fees – even where they do not arise on breach of contract by the customer – may still be penalties (and thus unenforceable): Andrews v Australia and New Zealand Banking Group Ltd, [2012] HCA 30. The plaintiffs in this class action sought the recovery of various fees charged by the bank: 'honour' (processing), dishonour, non-payment and over-limit fees, as well as late payment charges. Late payment charges, being payable upon breach of contract, were clearly penalties and were not at issue before the High Court. The judge at first instance found that the other charges were not payable on breach or as a result of an event which the customer had an obligation or responsibility to avoid, concluding that it was not necessary to consider whether they were capable of being characterised as penalties. The plaintiffs argued that they should be characterised in that way, because they were imposed on the occurrence of events and were 'out of all proportion' to any loss or damage incurred by the bank, for services that were essentially 'with no content'.

Reaching back to Roman law and the historical development of equity, the High Court noted that the penalties doctrine operates even where there is no express contractual promise to perform a condition. A promise that a condition will be satisfied may, in substance, be a penalty – and subject to equitable relief. That said, contracting parties may agree on a higher payment for further rights or services, and such an 'alternative stipulation' will not be considered a penalty. An example comes from an older Australian case where a contract for a single screening of a film provided that any additional screenings were subject to a fee that was four times the original one, but which was not a penalty: Metro-Goldwyn-Mayer Pty Ltd v Greenham, [1966] 2 NSWR 717. Whether the specific fees charged by the bank in Andrews were in relation to valid alternative stipulations or were, in substance, penalties was not decided by the High Court but remitted to the Federal Court for determination.

[Link available here].

CIVIL PROCEDURE/CLASS ACTIONS/SECURITIES

Ontario judge breathes new life into claim for secondary market liability

Limitation periods are intended to offer 'repose' to potential defendants, and they do – but, as often as not, they generate confusion and legal bills. In September 2006, Silver and Cohen commenced an action against IMAX Corp. and IMAX executives, alleging that the company had made misrepresentations in its secondary market disclosure. The plaintiffs advanced common law claims and indicated in November 2006 that they would seek leave to bring statutory claims under Part XXIII.1 of the Ontario Securities Act (OSA). The motion to seek leave for the OSA claims was served on the defendants in February 2007 and subsequently amended. Delays ensued, apparently because of the voluminous and complex nature of the motion record and because the leave motion was heard with other motions, including one to certify the action under the Class Proceedings Act (CPA). In December 2009, leave for the Part XXIII.1 claims was granted and the class action certified. Leave to appeal those decisions was ultimately denied in February 2011. In December 2011 the plaintiffs amended their statement of claim to include the statutory causes of action under the OSA, pleading new facts which had arisen since 2006 but generally along the lines of their November 2006 notice of motion. The defendants asserted that the Part XXIII.1 claims were barred by the three-year limitation period in the OSA, relying in part on the decision in Sharma v Timminco Ltd, 2012 ONCA 107, where it was held that leave to bring such a claim must have actually been granted in order to invoke the provisions of the CPA which suspend a limitation period that would otherwise apply.

Van Rensburg J distinguished Sharma on its facts: there, the plaintiff had not even brought a motion for leave under the OSA; in the IMAX case, the plaintiffs had moved expeditiously, delivered their notice of motion and argued the motion itself within the three-year period. Any delay was outside the control of Silver and Cohen and the parties seemed to have operated under the assumption that the limitation period had been suspended. If it hadn't, the plaintiffs argued that the court had the discretion to grant leave retroactively, under the 'special circumstances' doctrine, and to amend the statement of claim to make it effective within the limitation period. The defendants also relied on Green v CIBC, 2012 ONSC 3637, where Strathy J declined to apply the doctrine of special circumstances in a similar case. Van Rensburg J rejected the plaintiffs' argument that there was no limitations issue at all: they clearly needed to have obtained leave for a Part XXIII.1 claim, not merely to have pleaded it. The judge agreed, however, that she had the inherent jurisdiction to back-date the leave order to make it effective within the limitation period and thereby avoid injustice, distinguishing Green on the facts of its chronology. She also disagreed with Strathy J that this jurisdiction was displaced by the statutory scheme under Part XXIII.1. The doctrine of special circumstances did not need to be invoked. Retroactive relief was warranted on the facts before the judge, and leave to amend the leave order and the statement of claim granted as of December 2008, when the leave motion was concluded.

Given the departures from Green and Sharma, this one will probably go to the Court of Appeal.

[Link available here, here and here].

CONFLICT OF LAWS

Tort claims arising from events in Iran dismissed

Zahra Kazemi, a...