Top 10 business decisions of 2020 part two: From termination and tax to good-faith contracts

Picture of top 10 trophy

By Julius Melnitzer | March 12, 2020

This is the second of a two-part series listing the Top 10 Business Decisions in Canada for 2020. The first part dealt with cases ranked 6-10. This article ranks the top five in ascending order.

5. Waksdale v. Swegon North America Inc. 2020 ONCA 391

Ultimately, Waksdale stands for the proposition that severability is dead when it comes to employment contracts’ non-compliance with Ontario’s Employment Standards Act. In June 2020, the Ontario Court of Appeal ruled that the existence of an invalid “termination with cause” provision disentitled employers from relying on a “termination without cause” provision that complied with the ESA, even where the employer was not relying on the invalid provision.

In January, the Supreme Court of Canada dismissed the employer’s application for leave to appeal.

Why does that matter?

“Most contracts in Ontario have language that is similar to that found in Waksdale, so the decision’s practical effect is that most of those contracts are now void,” said Landon Young, managing partner at Stringer LLP in Toronto, who represented the employer. “That will have a huge financial impact on a lot of employers who thought they had contracts they could count on.”

The Court of Appeal concluded that enforceability of the termination provision was to be determined when the agreement was made, because an employer might benefit from the illegal provision even without relying on it on termination.

“The court adopted the proposition that if the potential for a future breach exists, the provision is void and can’t be severed,” said Philip White of PRW Law Professional Corp. in Toronto, lead counsel for Benjamin Waksdale.

4. Nevsun Resources Ltd. v. Araya 2020 SCC 5

Nevsun determined that customary international law — a fairly undefined and shifting body of law that has to date only been applied to sovereign states — will now apply to Canadian companies.

The Supreme Court of Canada’s decision means that Canadian courts can now deal with violations of international law that occur abroad, something our courts have been loath to do. It’s an unappealing outcome for Canadian multinationals, especially resource extraction companies who must often enter into arrangements with foreign governments regarding their exploration and development initiatives.

“This is a landmark case that establishes for the first time in the Commonwealth that companies can be held liable on the basis of customary international law,” said Joe Fiorante of Camp Fiorante Matthews Mogerman LLP in Vancouver, lead counsel for the Eritrean refugees who allege that they endured inhuman treatment at the hands of the Eritrean military after being forced to work at Nevsun’s mine under Eritrea’s National Service Program. “It’s a game-changer in terms of corporate accountability for overseas human rights abuses.”

3. Canada v. Cameco Corp. 2020 FCA 112

In June 2020, the Federal Court of Appeal snafued the Canada Revenue Agency’s attempt to upend transfer pricing arrangements between Cameco Corporation and its Swiss subsidiary — in what amounted to a no-holds barred attack on the commercial realities facing multinational companies.

“The whole issue of transfer pricing and profit shifting — how do you allocate profit for multinational corporations — is the single most important issue in modern tax law everywhere,” said Al Meghji in Osler Hoskin & Harcourt LLP’s Toronto office, lead counsel for Cameco. “The decision makes it crystal clear that Parliament decides how profits are to be allocated, and that it’s not up to courts to gerrymander the process based on a vague notion of what the right result should be.”

The Federal Court of Appeal’s unanimous judgment decisively rejected the expansive interpretation of the recharacterization rule on which CRA based its appeal. The court concluded that the rule applied only where the transfer pricing arrangements were so commercially irrational that no arm’s length parties would have entertained them. The mere fact that the arrangements were different than what might have transpired in an arm’s length transaction did not, as CRA submitted, invite recharacterization.

In February, the Supreme Court of Canada dismissed the CRA’s application for leave to appeal.

2. Uber Technologies Inc. v. Heller 2020 SCC 16

In the process of invalidating the unilaterally drafted, mandatory arbitration clause in the standard form agreement between Uber and its drivers, the Supreme Court of Canada expanded the doctrine of unconscionability by concluding that arbitration is not a meaningful remedy when it is not realistically accessible.

As well, the court specified that none of the factors held essential to establishing unconscionability in earlier jurisprudence were essential to the analysis. These factors included whether the transaction was grossly unfair; whether the gap in bargaining power was overwhelming; and whether there was an intention to take advantage of the weaker party.

It’s not good news for business.

“The decision has the potential to significantly upset the certainty we’ve always expected of Canadian contract law,” said Robert Deane in Borden Ladner Gervais LLP’s Vancouver office, lead counsel for Toronto’s Arbitration Place, which intervened in the case. “It will lead to a lot of litigation, because while it’s nice to state the test for unconscionability in theory, it’s much more difficult to give meaningful, actionable advice about its application to real clients.”

To make things even more uncertain, Uber cuts a wide swath.

“On the issue of unconscionability, the decision could impact class actions, employment law, arbitration jurisprudence, and contract law,” Deane said.

1. C.M. Callow Inc. v. Zollinger 2020 SCC 45

Callow is the case in which the Supreme Court gave teeth to its previously expounded, but decidedly vague pronouncement that parties to contracts must conduct themselves in good faith.

It did so by clarifying that the duty of honest contractual performance means that parties “must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.” This goes beyond overt lies to “half-truths, omission, and even silence, depending on the circumstances.”

“The court recognized that dishonesty can be nuanced in the real world, and enunciated principles that will capture that reality,” said Brandon Kain of Toronto, who led the McCarthy Tétrault LLP team that represented C.M. Callow Inc.

The court also proclaimed that parties may not contract out of this obligation, and that aggrieved parties may claim “expectation damages” that would put them in the same position had there been compliance with the duty of honest performance.

“The court’s approach is one of incredible breadth,” Kain said. “It forces parties to expand their analysis beyond issues relating to potential breaches and makes them take a second look at their own behaviour.”

This is the second of a two-part series. Read the first article: Top 10 business decisions of 2020 part one: From pipelines to anti-SLAPP.

Julius Melnitzer is a Toronto-based freelance legal affairs journalist and communications and media consultant to the legal profession. He can be reached by e-mail directly at julius@legalwriter.net or at his website, www.legalwriter.net.

Photo credit / vladru ISTOCKPHOTO.COM

RELATED STORIES:

Top 10 business decisions of 2020, part one: from pipelines to anti-SLAPP

Commercial reality alive and well in transfer pricing world

Supreme Court set to hear Nevsun Resources case on Eritrea human rights abuses

Bare Bones Briefs: Al Jazeera SLAPPs Rebel News; Uber drivers are employees; Duncan Card’s new book; Music for recruiting lawyers

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Social Media Auto Publish Powered By : XYZScripts.com