Court Of Appeal Summaries (June 22-26, 2015)

Hello everyone. Below are summaries of this week's OCA civil decisions (non-criminal). There was a decision this week involving an interesting, but ultimately unsuccessful, claim for civil conspiracy in an airline pilot union dispute; the Court of Appeal confirmed that for a claim to survive bankruptcy under subsection 178(1)(d) of the Bankruptcy and Insolvency Act, any fraud, embezzlement, misappropriation or defalcation on the part of the bankrupt debtor must have occurred in the context of a fiduciary relationship with the creditor; there is an administrative law decision in the context of the setting of natural gas prices by the Ontario Energy Board; other topics covered include the power of the court to compel a plaintiff to undergo a medical examination and prescriptive easements.

Special mention goes to our own Ian Epstein who successfully resisted an appeal from a decision of a motions judge to dismiss the claim against our client as disclosing no reasonable cause of action.

Berry v Pulley, 2015 ONCA 449

[Hoy A.C.J.O., Watt and Brown JJ.A.]

Counsel:

Zarnett, G. D. Smith and P. R. Merchant for the appellants

S. Waller and L. Storms for the respondents

B. Shell and S. Sagle forN the third party respondent

Keywords: Torts, Unlawful Act Conspiracy, Loss of Chance, Labour Law, Union Members' Right to Dissent, Pilots, Standard of Review, Palpable and Overriding Error

Facts:

In the late 1980s, the trade union Canadian Airline Pilots Association ("CALPA") initiated a process to merge pilot seniority lists at Air Canada and five regional airlines. An arbitrator ultimately composed the final list, which required Air Canada's agreement to be implemented. Within days after the list was finalized, Air Canada pilots voted to leave CALPA and join a new union called the Air Canada Pilots Association ("ACPA"). The merged seniority list was not implemented. Air Ontario pilots launched a class proceeding against six sub-classes of Air Canada defendants alleging they had committed the tort of unlawful act conspiracy. The plaintiffs claimed damages for expenses incurred in creating the merged list and for the loss of chance to implement the list. The trial judge dismissed the plaintiffs' claims and the plaintiffs appealed.

Issues:

(1) Did the "right to dissent" permit the defendants in sub-class six to frustrate the implementation of the arbitration award?

(2) Did the trial judge err in finding that the members of sub-classes two and four committed no unlawful acts?

(3) Did the trial judge err in her causation analysis?

(4) Did the trial judge err by not awarding merger expense damages of $150,280?

Holding: Appeal dismissed. The plaintiffs will pay the defendants costs in the agreed upon amount of $175,000, inclusive of disbursements and HST.

Reasoning:

To establish unlawful act conspiracy, a plaintiff must demonstrate that the defendants acted in concert by agreement or with a common design; the defendants' conduct was unlawful; the defendants' conduct was directed towards the plaintiff; the defendants should have known that damage to the plaintiff was likely to result; and the defendants' conduct caused injury to the plaintiff. The second and last factors are contested here.

The Court of Appeal addressed the above issues as follows:

(1) The plaintiffs argued sub-group six breached the union contract by resisting implementation of the merged list and thereby acted unlawfully, which if found, would satisfy step two of the test for unlawful act conspiracy. However, sub-class six did not breach their contracts with CALPA by avoiding implementation of the arbitrator's list. CALPA's Constitution and Merger Policy did not expressly require their members to act to implement a merged seniority list, nor to refrain from impeding implementation of a list. Rather, as the trial judge found, CALPA and not the union members themselves had the primary responsibility for implementing the merger. Further, members of a union have the right to dissent against CALPA and union officials. Given the statutory right of union members to choose their union and the labour law principle affording them a right to dissent, this court will not read a term such as the one alleged by the plaintiffs into the union contract. However, note that sub-groups one through five did not have a right to dissent against the union because they were made up of union officers or members who worked on behalf of officers.

(2) The trial judge found that sub-groups two and four acted under the control and direction or others, and did not owe duties of loyalty to CALPA. She also said it was not clear that their conduct constituted a breach of contract. She ultimately found that they did not commit unlawful acts by breaching the union's Merger Policy. The plaintiffs' appeal argument did not address this key finding. The plaintiffs did not explain how the trial judge erred in her interpretation of the Merger Policy.

(3) The plaintiffs argued that the trial judge erred in concluding that, even without the defendants' unlawful acts, the chance of implementing the merged seniority lists was not more than de minimis. They argued the trial judge should have speculated about what would have happened if CALPA's single employer application had been successful; they believed that if the application had succeeded, the chance of implementing the list would have been real and significant. However, the defendants were not required to support a single employer application. The Merger Policy did not call for or require a Simple Employer application. The judge was only required to consider what would have happened but for the defendants' wrongful conduct. She was not required to speculate about what would have happened but for lawful conduct. Therefore, she was correct that it was not appropriate to speculate that the Board's decision may have been different in the single employer application if the Air Canada pilots had supported the application.

(4) The trial judge found that the defendants should have known that injury to the plaintiffs was likely to result from their unlawful conduct. She also found that the plaintiffs' merger expenses were $150,280. However, she concluded that regardless of their conduct, the merged seniority list would not have been implemented. The plaintiffs did not establish that the defendants' wrongful conduct caused the loss of the plaintiffs' merger-related expenses. Therefore, they were not entitled to the merger expenses.

Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465

[Hoy A.C.J.O., Cronk and Watt JJ.A.]

Counsel:

S.C. Hutchinson, M.R. Gourlay and S.M. Foda, for the appellant Korea Data Systems (USA), Inc.

J.T. Curry and C. Pauchulo, for the respondent Jay Tien Chiang

Francis and M.A. Freake, for Mendlowitz & Associates Inc., in its capacity as the Trustee of the Estate of Jay Tien Chiang, a Bankrupt

No one appearing for the respondent Christina Chiang

Keywords: Bankruptcy and Insolvency, Bankruptcy and Insolvency Act, RSC 1985 c. B-3, ss. 178(2), Debts discharged by Bankruptcy, Exceptions, Meaning of Fraud, Embezzlement, Misappropriation or Defalcation While Acting in a Fiduciary Capacity

Facts:

Korea Data Systems USA ("KDS USA") and Korea Data Systems Korea ("KDS Korea") sued ATC, Aamazing and the Chiang brothers in California, for breach of a settlement agreement and amounts owed on unpaid invoices. The Chiang brothers were held personally liable to KDS Korea for the outstanding amount owed under the settlement agreement. The California court did not find that either of the Chiang brothers owed a fiduciary duty to KDS Korea or KDS USA or that they had breached such a duty.

Jay Chiang filed for bankruptcy in Ontario, and declared the California judgment as a liability. KDS and KDS USA sought a declaration that Jay Chiang's debt under the California judgment would survive his discharge from bankruptcy under ss. 178(1)(d) of the Bankruptcy and Insolvency Act ("BIA"). The KDS companies obtained leave under the BIA to continue the Enforcement Action against Jay Chiang and to enforce any judgment obtained, on the basis that Jay Chiang's judgment debt to them was grounded in fraud.

Subsection 178(1)(d) of the BIA provides that an order of discharge does not release the bankrupt from "any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others."

The trial judge held that ss. 178(1)(d) applies only if the bankrupt owed a fiduciary duty to the creditor who seeks relief under ss. 178(1)(d). Since Jay Chiang owed no fiduciary duty to KDS USA, ss. 178(1)(d) was not available to that company to obtain a declaration that his debt to it under the California judgment would survive his discharge from bankruptcy.

Issues:

Whether the trial judge's construction of ss. 178(1)(d) of the BIA was correct.

Holding: Appeal dismissed. The trial judge's construction of s 178(1)(d) was correct.

Reasoning:

The trial judge's interpretation of ss. 178(1)(d) comports with the purposes of the BIA: the equitable distribution of a bankrupt's assets among creditors inter se and the financial rehabilitation of insolvent individuals.

The exceptions set out in ss. 178(1) are to be construed narrowly and applied only in clear cases. A creditor cannot bring its claim within the exception set out in ss. 178(1)(d) when that claim arose out of the bankrupt's breach of a fiduciary duty to a third party. To hold otherwise would expand the reach of ss. 178(1)(d) beyond what it exists to protect - the relationship between a vulnerable creditor and a fiduciary debtor.

The purpose of ss. 178(1)(d) is to prevent a bankrupt from avoiding debts and liabilities to a vulnerable creditor where the bankrupt was entrusted, in a fiduciary capacity, with money or property belonging to that creditor. The law imposes...