Archive for the ‘litigation’ Category

Not an April Fool’s Joke: Bogus Court Order Enforcing Arbitrator’s Mareva Injunction Overturned

April 1, 2011

The Ontario court decision in Farah v. Sauvageau Holdings Inc., 2011 ONSC 1819 (CanLII) per Perell, J. has the makings of a great April Fool’s Day joke. The lesson is don’t believe everything you read,  including what appears to be a court order.

The motion involved an application to set aside a Mareva injunction granted by an arbitrator in arbitral proceedings. The respondents brought a motion to recuse the arbitrator and to set aside a Mareva injunction granted purportedly pursuant to the Arbitration Act, 1991, S.O. 1991, c. A.17.

The problem? Arbitrators do not have the power to grant injunctive relief against non-signatories to the arbitration agreement. As Perell, J. observes

[63]   In my opinion, there is nothing in the Arbitration Act, 1991 that empowers arbitrators to grant Mareva injunctions or for that matter to appoint receivers, grant Anton Pillar orders, or grant Norwich orders. Granting an interlocutory injunction that requires financial institutions to prevent the removal of monies and assets and to disclose and deliver up records and report to a litigant, is not an order in which the arbitrator is ruling on the scope of the arbitration agreement or on the scope of his or her jurisdiction; it is an order in which the arbitrator purports to enjoin or direct the conduct of strangers to the agreement to arbitrate who are not bound by the jurisdiction of the arbitral tribunal.

[73]   None of Sauvageau Holdings’ arguments are adequate to prove that arbitrators have the same jurisdiction as judges of the Superior Court. I conclude that while Mr. Montgomery had the jurisdiction to make an injunctive order or arbitral award against Mr. Farah and Ms. Mosharbash as parties to the agreement to arbitrate, he did not have the jurisdiction to grant a Mareva injunction effecting persons who did not sign the agreement to arbitrate.

Apparently, Sauvageau Holdings filed the interim Mareva injunction in the Superior Court in Newmarket without notice to either Farah and third party affected by the arbitrator’s order and had the court staff issue and enter the order. Justice Perell held that this was “improper” and noted that to enforce an arbitral award (including an interim order), a party must make an application under s. 50 of the Arbitrations Act, 1991 on notice to all affected parties.

On December 5, 2010, Sauvageau Holdings served new statements of claim (alleging fraudulent conspiracy and fraudulent conveyances between Farah and Mosharabash) and a copy of the arbitral-Mareva injunction order.

On December 15, 2010, Farah and Mosharbash brought a motion to have the arbitrator, The Honorable Mr. Montgomery recuse himself and for an order setting aside the Mareva injunction. At the hearing on December 15, 2010, they presented very little evidence to rebut the material filed by Sauvageau Holdings and rather relied on a short affidavit from a law clerk employed by their lawyer. The arbitrator dismissed the motion and continued the Mareva injunction. Sauvageau Holdings then sent copies of what Justice Perell describes as a “bogus Order of the Superior Court” to major banks, other financial institutions, Farah’s employer and his real estate agent, and Mosharbash’s father, further noting:

[43]  For present purposes, I need not go into the details, but the recipients responded to the bogus Mareva injunction order as if the order was a lawful order of the Superior Court. Mr. Farah and Ms. Mosharbash have been unable to deposit cheques, including Mr. Farah’s paycheck and the family’s child tax benefit cheques. Mr. Farah was temporarily dismissed from his employment as a restaurant cook because his employer was disturbed by having to deal with the bogus order.

In the end, the court dismissed the motion to disqualify the arbitrator without costs and the applicant’s motion to enforce the Mareva injunction pursuant to s. 50 of the Arbitrations Act, 1991 without costs. Perell, J. did grant judgment to Sauvageau Holdings in the fraudulent conveyance action without costs and granted a Mareva injunction against Farah without costs, but dismissed the motion for a Mareva injunction Mosharbash with the matter of costs to be determined.

Does any one else think that an arbitrator exceeding his or her jurisdiction should have been argued as an alternative ground for recusal? (h/t Igor Ellyn, Q.C. via Twitter: @EllenLawLLP )

Erik S. Knutsen on "The Cost of Costs: The Unfortunate Deterrence of Everyday Civil Litigation"

August 31, 2010
Erik S. Knutsen (Queen’s University Faculty of Law) doesn’t like costs. Specifically, he doesn’t much care for Canada’s “loser pays” costs regime in civil litigation. In his article, “The Cost of Costs: The Unfortunate Deterrence of Everyday Civil Litigation in CanadaQueen’s Law Journal, forthcoming (available on SSRN) Professor Knutsen proposes a “two-track” costs regime to address perceived unpredictability and unfairness in fee-shifting impacting both plaintiffs and defendants. It is a lengthy article but well worth reading. Here is the abstract:
Costs today play a disproportionate role in many civil litigation decisions in Canada because of the inherent unpredictability built into the current overly complex costs system. Canada’s civil litigation system utilizes a fee shifting regime whereby an unsuccessful litigant must pay a proportion of the successful litigant’s legal fees. This costs system is designed to regulate litigation behaviour by deterring unmeritorious cases, by indemnifying successful litigants, by fostering efficient lawyer behaviour, by promoting settlement of disputes, and by ensuring access to the civil litigation system so that the cost of litigating is not out of reach for litigants. In today’s economy, however, the system is trying to do too much, and with too much at stake. The original system was put in place at a time when litigation costs were very often in reasonable proportion to the amount in dispute. Presently, the cost to litigate can quickly eclipse the value of what is at stake in the dispute. A summary judgment motion, for example, may cost upwards of the cost of a family vehicle for the average Canadian. In the minds of litigants and lawyers, unpredictable issues of legal costs often replace issues of substance at the heart of a litigated dispute. While the cost of civil litigation to an individual litigant has certainly increased over time, the increase is not due solely to the cost a litigant pays his or her own lawyer. An increase in the overall cost of litigation thus means an additional increase in costs the loser in a case must pay to the successful litigant, as well as to the loser’s own lawyer. If the loser is an average, middle-income earning Canadian litigating a standard contract or injury dispute, such a loss can be economically impossible to bear. Litigation costs through fee shifting have thus become a fundamental driving force in the Canadian civil litigation.

Courts in Canada exercise wide discretion in assessing costs through fee shifting and costs awards have become unpredictable as a result. This has led to an inability of litigants to ex ante predict their exposure to adverse cost awards. Risk averse litigants, especially those middle income Canadians with some financial exposure such as a house to lose, tend to shy away from the civil litigation system. This is how concern for costs can often eclipse the substantive rights being asserted in a particular case. Everyday litigants who are non-corporate individuals whose litigation costs are not covered by insurance cannot easily defray the financial burden of an adverse cost award. They are most likely to have cost concerns weigh heavily in the decision to advance a claim at all. However, should costs be driving litigation results? Should costs be driving access to the civil litigation system, particularly for the everyday litigants in Canada who have a house or modest savings to potentially lose?

Part I of this Article details how Canada’s fee shifting costs regime operates in a fashion to create a complex and unpredictable litigation dynamic. The Article explains the myriad of variables informing how legal costs are calculated in Canada and how lawyers, clients, and courts have difficulty in estimating financial exposure to such costs. In addition to the fee shifting system, the amount a litigant must pay her own lawyer plus Canada’s pre-trial settlement cost incentives also play large roles in how costs affect litigation decision-making in Canada. Part II of the Article attempts to define the everyday Canadian litigant who is most negatively affected by the current costs system because of an inability to internalize a negative costs award. The everyday litigant is in the most precarious position of potential litigants because costs drive a myriad of access to justice concerns for that group. Part III critically evaluates the costs landscape in Canada and concludes that costs, not the substantive legal claims of the litigants, are disproportionately driving the civil litigation system in Canada for everyday Canadian litigants. In short, costs have subsumed the substance of much Canadian litigation. This leads to not only over-deterrence of litigation in the name of settlement but to concerns about the ability of average Canadians to access the civil justice system for. Part IV evaluates possible fee regime models with an eye to informing modifications to Canada’s fee system. It recommends that Canada’s fee regime be reformed to allow for a hybrid, two-track approach. As a default, courts should adopt a one-sided pro-plaintiff fee shifting system as long as the defendant in litigation is able to somehow defray adverse cost awards through assets or insurance. If both plaintiff and defendant are litigants who cannot reasonably defray the cost of costs, a more American-style costs system of no fee shifting should govern. Settlement incentives should not be based on actual costs to litigate but instead should be a 10% uplift on final damages awarded at trial or settled. Part V concludes.

Professor Knutsen certainly identifies a number of systemic problems within the current costs regimes in various Canadian provincial jurisdictions. I am not thoroughly persuaded, however, that the “loser pays” costs regime is all to blame. Cost indemnification remains an important component to access to justice. (or justice of access). Both plaintiffs with meritorious claims and defendants facing unmeritorious claims have a prima facie entitlement to recovering the costs of legal representation. This offers a financial incentive to settling claims due to the potential adverse cost consequences built into offers to settle (e.g. Rule 49 of the Ontario Rules of Civil Procedure).  There is a reason, after all, why most civil cases settle (some studies suggest up to 95%). Risk aversion is endemic to human behaviour. Similarly, defendants who are forced to defend a claim have other means at their disposal: summary judgment. The recent amendments to the Ontario Rules of Civil Procedure under Rule 21 now empower motion judges to weigh evidence, assess credibility and order summary trials to narrow the issues, where necessary. One factor that the article does not address is that corporate litigants are able to claim legal expenses for tax purposes. Perhaps individual litigants should have the same privilege.
Is creating a two-tiered costs regime the correct legislative response to the disturbing increase in self-represented (pro se) litigants  and reduced access to justice?  Will following the American no  fee-shifting approach mean we are throwing the baby out with the bath water? 

Clean Hands and Dirty Names: Injunctions in Defamation Actions (Pichler v. Meadows)

May 10, 2010

The recent Ontario decision in Pichler v. Meadows 2010 ONSC 1863 (CanLII), ["Pichler"] provides guidance on the test for prohibitive injunctions in defamation actions. It also offers an important reminder that an undertaking as to damages is mandatory and “clean hands” are not just about personal hygiene.

 The plaintiff, Pichler, is the president of an Ontario internet media consulting firm and owner of a transexuality website. Pichler sought an interim and interlocutory injunction restraining the defendant, Meadows, an owner and operator of an escort service and sexual and gender counselling websites—from publishing or republishing five articles published on her websites.  Pichler alleged that the articles were defamatory, causing harm to his business income which harm would continue if no injunction were granted.
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In 2005, Meadows and four others [the "Beidas Plaintiffs"] sued Pichler for damages for defamation and moved for injunctive relief in respect of Pichler’s publication of certain articles on his website. On August 22, 2006, Himel J. ordered  that Pichler was prohibited from publishing any materials which might tend to identify the Beidas Plaintiffs. By judgment dated May 29, 2008, the Divisional court set aside Himel J.’s order: Beidas v. Pichler 2008 CanLII 26255 (ON S.C.D.C.), (2008), 2008 Carswell Ont. 3183, 294 D.L.R. (4th) 310, and 238 O.A.C. 103. The Beidas action was dismissed for delay a year later.
Subsequently, Pichler learned that Meadows was publishing articles describing him as:
“[13] ..a ‘mentally ill transvestite man who attacks transsexual women, here in Toronto’ and presents statements about psychiatric reports said to have been given about Pichler, including details about criminal charges that have been laid against him in the past.  The publications state that the court system has failed to stop him from causing harm and, in consequence, Meadows is taking action (presumably by way of these publications) to expose him.”
Justice Spence was inclined to agree with Pichler that the foregoing statements were defamatory; including the statement that he had a criminal record which Pichler asserted was “false because all of the criminal charges that have been laid against him have been disposed of without any conviction against him.” (at para. 14)
Spence, J. cited with approval the reasons of Murray, J. in the Beidas decision setting out the applicable law for an application for an interlocutory injunction in a defamation claim as follows:
“The Stringent Rule for Interlocutory Relief in a Defamation Case
[16]      Murray J. said as follows at paragraphs 14 to 16 of Beidas:
[14]  First, it is appropriate to consider the general principles applicable in a case such as the one before this Court. In Rapp et al. v. McClelland & Stewart Ltd. et al. (1982), 34 O.R. (2d) 452, Griffiths J. described generally the requirements for an injunction in a case of defamation at p. 455:
In this jurisdiction, unless both parties are prepared to waive the requirement, a libel action must be tried by a jury and while the presiding trial judge has the duty to determine whether in law the words complained of are capable of being defamatory of the plaintiff it is the exclusive function of the jury to determine whether they are, under all the circumstances, in fact defamatory. The words to be defamatory must be false and the jury must be satisfied that the words in their natural or innuendo meaning tend to lower the plaintiff in the estimate of right-thinking members of society generally or cause her to be shunned or avoided or exposed to hatred, contempt or ridicule.
As the learned author Gatley on Libel and Slander, 7th ed. (1974), observes at pp. 23-24:
It will be seen that it is not possible to say that any particular imputation is defamatory, regardless of the circumstances of its publication. Whether or not it is so will vary with time, place and the state of public opinion. In any case, whether or not any imputation is defamatory is not a matter of law, but a matter of fact for the jury, and no other jury will be bound to reach the same decision. It is similarly a matter of fact whether any words convey the defamatory imputation alleged, and this may depend to a great extent on the circumstances and context of a particular publication.
In the light of this sovereign jurisdiction of the jury to determine the issue of defamation a fairly stringent rule was developed early in the history of the law concerning the granting of interim injunctions restraining the publication of alleged defamatory material until the trial of the action. In the decision of Canada Metal Co. Ltd., v. Canadian Broadcasting Corp., (1975), 7 O.R. (2d) 261, 55 D.L.R. (3d) 42, Stark J., delivering the reasons of the Divisional Court said at pp. 261-62:
The granting of injunctions to restrain publication of alleged libels is an exceptional remedy granted only in the rarest and clearest of cases. That reluctance to restrict in advance publication of words spoken or written is founded, of course, on the necessity under our democratic system to protect free speech and unimpeded expression of opinion. The exceptions to this rule are extremely rare.
For at least one hundred years and certainly since the leading cases of William Coulson & Sons v. James Coulson & Co. (1887), 3 T.L.R. 846, and Collard v. Marshall, [1892] 1 Ch. 571, and perhaps above all, in the leading case of Bonnard v. Perryman, [1891] 2 Ch. 269, it has been universally and consistently held by British and Canadian Courts that such an interim injunction will never be granted where the defendant expresses his intention to justify unless the words in question are so clearly defamatory and so obviously impossible to justify that the verdict of a jury accepting a plea of justification as a defence would of necessity have to be set aside as a perverse finding on appeal.
The guiding principle then is, that the injunction should only issue where the words complained of are so manifestly defamatory that any jury verdict to the contrary would be considered perverse by the Court of Appeal. To put it another way where it is impossible to say that a reasonable jury must inevitably find the words defamatory the injunction should not issue.
In this case, I am not prepared to predict at this stage that a jury will, inevitably, find the words here complained of defamatory of the plaintiff. The English Court of Appeal has recently held in Herbage v. Times Newspapers, May 1981 (not yet reported) that the decision of the House of Lords in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396, has not affected the well established principle in cases of libel that an interim injunction should not be granted unless the jury would inevitably come to the conclusion that the words were defamatory.
In my view as well the principle should be preserved in libel cases that except in a case of manifest libel the interim injunction should not issue where the wrong suffered by the plaintiff may be adequately compensated for in damages. There is early authority for this in the decision of Monson v. Tussauds Ltd., [1894] 1 Q.B. 671.

[15]  In Rosemond Estates Inc. et al. v. Levy et al.65 O.R. (3d) 79, [2003] O.J. No. 1748, Spence J. stated: “that the court should be particularly cautious about granting an injunction where the issue concerns defamation is clear from the decision in Rapp v. McClelland & Stewart Ltd. reflex, (1981), 34 O.R. (2d) 452, 128 D.L.R. (3d) 650 (S.C.) per Griffiths J. at p. 455 O.R.
[16]  In his treatise Injunctions and Specific Performance (2nd ed. 1992 (loose-leaf)), Robert Sharpe says the following, at paras. 5.40-5.70 (pp. 5.2-5.4):
There is a significant public interest in the free and uncensored circulation of information and the important principle of freedom of the press to be safeguarded.
The well-established rule is that an interlocutory injunction will not be granted where the defendant indicates an intention to justify [i.e. prove the truth of] the statements complained of, unless the plaintiff is able to satisfy the court at the interlocutory stage that the words are both clearly defamatory and impossible to justify.
… it seems clear that the rule is unaffected by the American Cyanamid case and that the balance of convenience is not a factor.”
Adopting the Divisional Court’s reasoning in the Beidas decision, Spence, J. applied the second branch of the three-part test for interlocutory relief established in American Cyanamid and approved by the Supreme Court of Canada in RJR-Macdonald Inc .v Canada (Attorney-General), 1994 CanLII 117 (S.C.C.), [1994] 1 S.C.R. 311; namely:  irreparable harm.  Based upon the foregoing, the first branch (serious issue to be tried) appears to have been a fait accompli, while the third branch (balance of convenience) was inapplicable. Additionally, Rule 40.03 of the Rules of Civil Procedure requires the plaintiff to give an undertaking as to damages. Finally, in respect of defamation actions, the equitable “clean hands” doctrine also factors into the analysis: citing  Murray, J. in Beidas who cites Perell, J. in Sherwood Dash Inc. v. Woodview Products Inc. [2005] O.J. No. 5298 (Ont. S.C..J.).

In Spence, J.’s view, “it would not be proper for the Court on this motion to make findings that certain of these factual assertions are false and defamatory.” (at para. 31). Nevertheless,the learned justice held that:
“[32]      [w]ith respect to the statements that are entirely or principally comments rather than factual assertions, whether any of such comments constitutes defamation would depend in part on whether the comments are made with malice.  The plaintiff submits that they are malicious and gives his reasons for that position.  It appears from the defendant’s submissions that she has published these articles because the plaintiff will not agree not to continue to publish personal information about her and other individual transsexuals.
[33]      There are at least two important issues here:  (1) whether that apparent motive of the defendant is her real and her only motive or not; and (2) whether her motive is malicious. 
[34]      These issues involve matters that should be determined by the trier of fact rather than on this motion.

[40]      It is well-settled law that for harm to be “irreparable” for the purpose of the interlocutory injunction test, it must be harm of a type that is not readily determinable and compensable in monetary terms.  It appears that the plaintiff is still carrying on business and that to the extent that the business is vulnerable it may well be partly (which could therefore be substantially) for unrelated reasons.
[41]      For these reasons, the plaintiff has not established that, without the injunction, his business will likely suffer irreparable harm.”
Pilcher also omitted providing his undertaking as to damages as required by Rule 40.03. 
Finally,  Justice Spence concluded that the plaintiff’s hands required some scrubbing:
“[45]      The defendant’s affidavit includes materials reflecting a few instances of conduct, including but not limited to the publication of the names and other personal information of individual transsexuals, which raise a question as to what the motive for these actions could be.  These instances are apparent on a review of the affidavit.  That this question is raised does not by itself allow a conclusion that the plaintiff is here without clean hands.  However, one instance in particular stands out as both raising questions and prompting a view, and it requires comment.
[46]      The plaintiff published on his website in late 2001 an article entitled “Usama bin Laden Seen in Toronto, Ontario with Local Escort” with the legend “(this article is for entertainment purposes only)”.  Below, there appear two photographs, one of bin Laden and one of the defendant.  The text below the photographs begins with the following two paragraphs:
Toronto, Ontario, Canada ‑ In a bizaare [sic] turn of events, Usama [sic] bin Laden, the world’s most wanted man, was seen in Toronto, Ontario, Canada’s largest city, as recently as last Saturday, December 15.  A spokesperson from the pentagon said that the news out of Toronto confirms reports from the Christian Monitor that Usama [sic] bin Laden had indeed slipped into Pakistan more than ten days ago.
Credible sources claim that Usama [sic] was in fact in the company of Mysti Rae Meadows, a local transsexual escort, at the Reverb club on Queen Street East.  The Reverb club is a popular haunt for fetishists.
[47]      It is hard to see how this article, as incredible as it obviously is, could be intended to be other than a public derogatory comment about the defendant.
[48]      The plaintiff said of the article only that it was published ten years ago and is not relevant.  The plaintiff offers no reason as to why he published the article.
[49]      The reasonable inference must be that the publication of the article as gratuitous and malicious, which is the same complaint that the plaintiff now makes about the defendant’s publications.  It cannot be said that the plaintiff comes to this Court on this motion with clean hands.
 The moral of the story: if you want an injunction, you must demonstrate irreparable harm not compensable in damages and also provide an undertaking as to damages. Oh, and don’t forget, anything you say on the internet can be used against you in a court of law.

Menkel-Meadow and Garth on "Process, People, Power and Policy: Empirical Studies of Civil Procedure and Courts"

January 21, 2010
Carrie Menkel-Meadow   (Georgetown University Law Center; University of California, Irvine Law School) and Bryant Garth (Dean, Southwestern Law School; American Bar Foundation)  have published Process, People, Power and Policy: Empirical Studies of Civil Procedure and Courts , in the Oxford Handbook of Empirical Legal Studies, P.Cane, H. Kritzer, eds.. Here is the abstract:

This review essay, by Professor Carrie Menkel-Meadow and Dean Bryant Garth, reports on the history and deployment of empirical studies of civil procedure rules, court policies, and legal developments for reforms of court procedures and practices in both the United States and England and Wales. It traces the influence of particular individuals (e.g., Charles Clark in the United States, and Harry Woolf in England) in the use of empirical studies of litigation patterns and court rules to effectuate legal reforms. The essay reviews some particularly contentious issues over time, such as whether there is/was too much or too little litigation, access to courts, discovery practices, evaluations of the effects of particular rules, such as Rule 11 verification requirements, class actions, and practices such as court use of ADR, case management, and pre-trial conferences. The authors argue that empirical research on procedures and policies in courts have mostly been conducted in service of particular reform agendas, with a few exceptions of more “pure academic” study. The essay concludes with some suggestions for research questions that explore questions of who does the research for what purposes. Do researchers use research to develop their own “human capital” or legal reform influence? How do we know what optimal rates of court usage are? Can empirical studies shed light on more normative questions about what are optimal levels of process, access to courts, and when justice is delivered in formal court institutions?

My New SSRN paper: "Litigation or Arbitration? Forum Selection and Arbitration Clauses and the Prospects for Adjudicating International Human Rights Claims in Canada"

November 30, 2009
I have a new Working paper posted on SSRN entitled:  Litigation or Arbitration? Forum Selection and Arbitration Clauses and the Prospects for Adjudicating International Human Rights Claims in Canada.

Here’s the abstract:
Forum selection and arbitration clauses are a mainstay of international commercial agreements. Contracting parties often negotiate and insert a clause specifying either the chosen forum for adjudicating any disputes arising from the contractual relationship, or agreeing to arbitrate the dispute.

This paper will briefly explore the implications of promoting a social contract model for advancing and adjudicating international human rights claims in Canada from the perspective of the differing judicial approaches to the enforceability of forum selection and arbitration clauses.


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