By Julius Melnitzer | January 19, 2023
This is the second of our annual two-part series ranking the top 10 business law decisions of the just-ended year. The first part featured cases ranked 6-10, while this article highlights the top five cases in ascending order.
In this decision, a unanimous Supreme Court of Canada addressed the intersection of arbitration and insolvency law, ruling that an otherwise valid arbitration agreement may be “inoperative” in the context of a court-ordered receivership under the Bankruptcy and Insolvency Act.
“The case is significant for parties to commercial contracts as well as insolvency and arbitration practitioners,” said Barry Leon, an arbitrator and mediator at Toronto-based Arbitration Place, at 33 Bedford Place Chambers in London and at Caribbean Arbitrators in the British Virgin Islands. “Because of the considerable growth of arbitration and the complexity of business generally, this situation will arise more and more frequently as time goes by.”
The Supreme Court was of similar mind.
“It is not unusual now for a commercial party to find itself in a dispute governed by an arbitration agreement with an insolvent or bankrupt counterparty,” the court wrote.
As the court saw it, superior courts have the power to declare an arbitration “inoperative” if enforcing it would compromise the orderly and efficient resolution of insolvency proceedings. While the court enunciated a number of factors that were relevant in the determination, it concluded that the “single proceeding” model favours a centralized judicial process and promotes the clear “public interest in the expeditious, efficient and economical clean-up of the aftermath of a financial collapse.”
APPEARANCES: Burnet, Duckworth & Palmer, LLP; Bennett Jones LLP; Spiegel Sohmer Inc.; Lerners LLP; Baker & McKenzie LLP; Fasken Martineau Dumoulin LLP; Anthony Daimsis
In a decision that speaks loudly to the importance of certainty in business relations, the Ontario Court of Appeal has ruled that unforeseen events, like COVID-19, do not allow courts to use the relief from forfeiture provisions in the Commercial Tenancies Act to reduce the rent stipulated in a commercial lease.
“The decision sheds considerable light on how the courts will approach unforeseen circumstances, particularly macroeconomic events, and the boundaries of relief from forfeiture,” said Jeremy Opolsky, a partner and commercial litigator in Torys LLP’s Toronto office.
Judges cannot use relief from forfeiture, the court concluded, to rewrite commercial leases to accord with their view of what is “fair,” even in the face of extraordinary events. The upshot is that the remedy does not include rent abatement or reduction. It may include rent deferral, but only to the extent necessary to allow a tenant to comply with the lease.
“Hudson’s Bay reinforces the reluctance of courts to rewrite commercial leases, especially those between highly sophisticated parties,” Opolsky said.
APPEARANCES: Lax O’Sullivan Lisus Gottlieb LLP; Thornton Grout Finnigan LLP
Canada v. Collins creates a categorical rule that the equitable remedy of recission is not available to taxpayers who have misapprehended the tax consequences of their transactions.
“The importance and impact of this decision will only increase as the Income Tax Act becomes more and more complex because complexity is the primary source of planning or implementation errors,” said Michael Lubetsky, a partner and tax litigator in Davies Ward Phillips & Vineberg’s Toronto office.
Lubetsky is critical of the decision.
“It makes no sense that recission is available to avoid private debt but not to avoid tax liability, especially because tax consequences are ancillary to transactions governed by private law,” he said.
Collins also means that common law province taxpayers cannot access a remedy that is available to Quebec taxpayers. That province’s Civil Code allows courts to annul contracts based on “errors,” including a misunderstanding of tax consequences — a position endorsed by the Supreme Court a decade ago in Quebec (Agence du revenu) v. Services Environnementaux AES inc.
All of which makes the Supreme Court of Canada’s mindset in Collins all the more telling: “Equity has no place here,” the majority stated.
APPEARANCES: Justice Canada; Dentons Canada LLP
In a split decision of particular importance to property developers, the top court revisited the test for constructive taking, or de facto expropriation. No longer must property owners show that government obtained a formal proprietary interest in property; rather, an owner must show only that the government obtained an “advantage” from the property and that its regulatory actions excluded any reasonable or economic uses.
The majority made it clear that the “advantage” flowing from the property to the state did not have to be an actual acquisition; rather, courts were to look at substance over form and assess, among other things, the land’s nature, the government’s actions, notice to the owner when acquiring the property and whether the restrictions were consistent with the owner’s expectations.
“The decision puts a collar on government’s ability to expropriate land through the back door,” said Daniel Waldman, a commercial litigator who is of counsel in Dickinson Wright’s Toronto office.
The case arose in respect of Annapolis’ ownership of 965 acres of land in Halifax which it intended to develop. The municipality had contemplated development on the land since 2006, but not until it adopted an authorizing resolution and amended the existing land use bylaw. Ten years passed without the necessary regulatory action, and when Halifax denied the necessary authorization in 2016, Annapolis sued for constructive taking.
Halifax moved for summary dismissal, eventually succeeding in the Nova Scotia Court of Appeal on the basis that Annapolis had no reasonable chance of success. But the Supreme Court ordered the matter to proceed to trial to determine whether Halifax was promoting the land as a public park, and by doing so, eliminating all reasonable uses of the land.
APPEARANCES: Lenczner Slaght LLP; McInnes Cooper; Justice Canada; Attorney General of Ontario; Attorney General of Nova Scotia; Attorney General of British Columbia; McCarthy Tétrault LLP; Rayman Harris LLP; Ecojustice Canada
There’s an argument that the Alberta Court of Appeal’s 4-1 ruling that the federal Impact Assessment Act (IAA) was unconstitutional as a “profound invasion into provincial legislative jurisdiction and provincial proprietary rights” and if upheld, would result in the “centralization of the governance of Canada to the point this country would no longer be recognized as a real federation” was a major catalyst to the provincial government’s enactment of the controversial Alberta Sovereignty within a United Canada Act, intended to shield the province from federal incursions into provincial jurisdiction.
“The IAA decision is a significant development in the Canadian constitutional story that’s been playing out in the past few years, starting with the carbon pricing reference,” (References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11) said Matti Lemmens, a commercial litigation partner in Borden Ladner Gervais LLP’s Calgary office, whose colleague, Brett Carlson, was counsel to the Canadian Energy Pipeline Association in Reference re Impact Assessment Act. “It’s clear that Alberta has run with the position that the Court of Appeal took, which has led to the Sovereignty Act’s receiving royal assent after legislative debate of only three weeks.”
The IAA, which stipulates when and how a resource project or activity is subject to a federal environmental impact assessment, replaced the Canadian Environmental Assessment Act 2012. As the majority in the Court of Appeal saw it, however, the legislation did not sufficiently tether the federal government’s powers to matters within federal jurisdiction.
The Supreme Court will have the final say on the matter. Although the high court sided with the feds on the carbon pricing reference, its decision there focused on the environmental effects of emitting projects.
“It remains unclear how the SCC will address the IAA, which the Alberta Court of Appeal said went beyond emitting projects,” Lemmens said. “But meanwhile, no one knows what’s going on and there’s a great deal of uncertainty for investors and producers.”
APPEARANCES: Attorney General of Alberta; Attorney General of Canada; Attorney General of Ontario; Attorney General of Saskatchewan; Canadian Environmental Law Association; West Coast Environmental Law; Alberta Counsel; Burnet, Duckworth & Palmer, LLP; Borden Ladner Gervais LLP; Rae and Company; JFK Law Corporation; Ecojustice Canada Society; Crease Harman LLP; Gall Legge Grant Zwack LLP; Woodward & Company LLP
Julius Melnitzer is a Toronto-based freelance legal affairs journalist and communications and media consultant to the legal profession. He can be reached by email directly at [email protected] or at his website, www.legalwriter.net.
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