The decision of the Ontario Court of Appeal in GasTOPS Ltd. v. Forsyth, et al., released on March 1, 2012, is a useful reminder of the extent to which the court will express serious disapproval of breaches of fiduciary duty by departing employees.

This particular case involves facts which appear to reflect unusually egregious conduct. 

GasTOPS Ltd. was in the business of developing computer software products that assessed machinery conditions for maintenance purposes for operators of gas turbine engines.  It was an industry leader in the area.  Its primary market was that of military aviation, particularly for the Canadian Armed Forces, but its business grew to include the commercial industrial market as well.  Its industry was a highly specialized niche one with a small number of customers each generating substantial revenues.  At the time of the events in question, it was pursuing an important opportunity with the US Navy.

If a former employer can demonstrate that it took a substantial period of time for it to get back on its feet, departing fiduciaries may well be held to account for their former employer’s lost profits for that entire period of time.

The four individual Defendants had been employees of GasTOPS for periods ranging from three to nine years as of October, 1996.  They were effectively the designers of the core programs within the family of GasTOPS’ products.  They knew of GasTOPS’ business opportunities, and they were completely familiar with its products.  They were aware of GasTOPS’ strategic plan to acquire the US Navy as a customer as well as GasTOPS’ business plan generally.  The trial judge found that they were privy to GasTOPS’ customers’ and potential customers’ requirements and had thorough knowledge of its sensitive technological information. 

The trial judge found that about five months before resigning from GasTOPS, two of them had attended a seminar on starting a software company.  In October, 1996, they gave two weeks’ notice of their resignation.  The other two resigned three days later with the same length of notice.  Within hours, they were meeting with GasTOPS’ employees and describing their plans to set up their own business focused on aviation maintenance software.  Shortly afterwards, a number of other GasTOPS employees left to join them in their new company. 

They set up a new company, MxI Technologies Ltd., and immediately pursued every existing and potential GasTOPS’ customer including the Canadian Armed Forces and the US Navy.  Using the confidential business information obtained while at GasTOPS to develop their marketing strategy and their technology, they offered GasTOPS’ customers a virtually seamless transition to MxI and its products.  They actually portrayed themselves as a “spin off” of GasTOPS and indicated that their product was the next iteration of the product that they had developed at GasTOPS.  Continue reading →

Judges have difficult jobs and criminal judges, dealing with issues of personal liberty, may have even more pressure on them than others.

When I was in law school, we were taught that the purpose behind incarcerating wrongdoers had to do with rehabilitation and not revenge.  For at least that reason, in our society, decisions as to sentences are made by an impartial judge without formal input from the victim or the victim’s family.  This basic principle, with which many people seem rather unfamiliar, gives rise to outrage when sentences are passed that appear shocking. 

Still, there is a limit to everything.  The recent sentencing of Graham James, convicted pedophile, to incarceration for two years (with parole possible within a matter of months) is truly difficult to understand.

As anyone following this story will know, James sexually assaulted teenage hockey players including several who subsequently overcame the trauma to the extent that they became NHL players.

Notwithstanding the fact that he was a repeat offender, on March 20^th, he was sentenced to two years in prison after having pleaded guilty to two such assaults.  The Crown had asked for a sentence of six years, and the Defence had asked for a conditional discharge.

Unfortunately, a brief review of other rather high profile cases of this nature indicates that a sentence in the vicinity of two years is not terribly unusual.  A number of years ago, when a former Maple Leaf Gardens employee was convicted of the same events, he received a sentence of almost 2 years, which the Court of Appeal subsequently increased to 5 years. 

The fact of the matter is that as a general rule, convictions for the sexual abuse of minors lead to sentences which most people of conscience would regard as entirely inadequate. 

Granted, in cases that inspire emotional outrage, it is hard to separate the public’s desire for revenge from the general principle of rehabilitation as the motive for incarceration but surely the lifelong debilitating impact of such horrendous conduct on victims and their families should be taken into account in a more serious manner – as well as the need to keep such offenders away from the rest of society for as long as reasonably possible. 

On a different point, the Court of Appeal issued a decision on March 13^th in a case called R. v. Siciliano, rectifying another criminal judge’s decision which is difficult to understand. 

In that case, the accused plead guilty to charges that included possession of stolen property and uttering a threat. 

The trial judge adjourned sentencing to another day.

In the morning of that day, the judge took a 20-minute morning break, before hearing the matter.  When the judge returned, the Crown Prosecutor was not present.  The judge advised the clerk to notify the Prosecutor that if he did not appear in court within one minute, all remaining provincial criminal matters on the list for that day would be dismissed for want of prosecution.

The Prosecutor could not be found and true to his word, the judge dismissed all of the matters on the list including that of Mr. Siciliano – even though he had already pleaded guilty and was merely there to be sentenced.

The Crown returned to the courtroom eight minutes later, apologized and indicated that he had been in his office reading a pre-sentence report that he had only just received.  The judge was not inclined to accept the apology or do anything about it.

The Crown was forced to appeal to the Court of Appeal.  The Court of Appeal found that the trial judge did not have the power to make the Order that he did and called it “illegal and an abuse of judicial authority”.  The appeal court judges characterized the judge’s actions as “high handed and … a real disservice to the proper administration of justice”.  The Order was quashed in each case and convictions were substituted based on the guilty pleas and findings of guilt.  The case of Mr. Siciliano was scheduled for sentencing once again.

The good news is that trial judges who make glaring errors in criminal matters can, from time to time, have their wrists slapped.  The bad news is that this is unlikely to happen in the case of convicted pedophile Graham James.

On February 28, 2012, the Supreme Court of Canada rendered its decision on an appeal from the Court of Appeal of Quebec in the case of Richard v. Time Inc. 

In this case, Jean-Marc Richard sued Time Inc. and Time Consumer Marketing Inc. over their failure to provide him with a large cash prize which he believed that he had won. 

More significant is the fact that Time was held liable even though no false statement was actually made in the letter. The Court focused on the general impression created by the way the messages were conveyed, through the use of bold type and capital letters.

Richard had received a letter in the mail entitled “Official Sweepstakes Notification”.  The letter included boxes referring to Time Magazine and suggested that he had won a cash prize of US $833,337.  Some of the type in the letter contained exclamatory sentences in bold capital letters.  Other sentenced appeared in smaller print and contained the words “if you have and return the Grand Prize winning entry in time”.  The letter also suggested that there was a $100,000 bonus for which he would qualify if he returned his entry within five days.  The letter included a reply coupon and a return envelope.  The coupon contained an offer to subscribe to Time magazine.  The coupon set out the rules of the sweepstakes which indicated that a winning number had already been selected by computer and that the holder of that number would receive the prize only if the coupon was returned by a deadline date. 

Richard was convinced that he would receive the prize merely by immediately returning the reply coupon in the envelope.  He did so immediately (and also subscribed to Time magazine).  According to the Court, he began regularly receiving issues of the magazine a short time later “but the cheque he was expecting was a long time coming”.  In fact, and not surprisingly, it never arrived at all. 

He contacted Time and was told that he would not be receiving a cheque because his number was not the winning entry and the letter had merely constituted an invitation to participate in the contest.  Continue reading →

On February 22, 2012, the Superior Court of Justice issued a decision in a matrimonial case called Decraemer v. Decraemer.  The case involved a settlement agreement between separating spouses in which a critical term was missed by both sides. 

During the course of their marriage, the parties both owned shares in a construction company.  The wife alleged that the shares resulted from her husband’s employment by the company and that some of the shares had been put into her name for tax reasons.  During the marriage, any taxes relating to the shares were paid by the husband. 

After they separated, the shares in her name were converted into an income fund.  This triggered a tax liability of about $485,000. 

Canada Revenue Agency came after the wife for payment.  She took the position that the tax liability was really that of her former husband. 

The parties agreed to arbitrate the financial issues arising upon their separation.  Ultimately, they settled the dispute.  Their agreement called for the husband to pay the wife over $1.6 million including a payment of almost $1 million for child support.  By the time that they entered into their settlement agreement, the husband was well aware that the wife expected him to take responsibility for the tax debt.

Incredibly, and even though both parties were represented by counsel, neither of them turned their minds to the tax issue when negotiating their settlement agreement.  The wife never addressed it even though she had been the one to put forward the argument with CRA that her husband ought to take responsibility for it.  The husband never addressed it in the settlement negotiations even though he knew that this was his wife’s position with CRA.  The agreement clearly specified that it was intended to settle all disputes between them.

After the settlement agreement was made, and the husband was alerted by the Department of Justice to the fact that he might be brought into the tax proceedings against the wife as a potentially liable party, he refused to complete the settlement unless the wife agreed to indemnify him with respect to the tax debt. 

Not surprisingly, the wife refused to provide any indemnity.

The husband then brought a motion asking the court to enforce the award with an Order finding that it was an implied term of the settlement that the wife indemnify him for any tax arrears that might be attributed to him by the Canada Revenue Agency.  The wife responded by asking the court to enforce the settlement agreement “as is” and without any indemnity clause.  In summary, both wanted to enforce the settlement but neither agreed to be responsible for the tax debt.  Both parties maintained that had they known at the time of the settlement that they would be responsible for the tax debt, neither would have agreed to the settlement.  Both claimed that if either one had to pay almost $500,000 in taxes, it would significantly change the compensation package to which they had agreed.

The judge hearing the motion recognized that he had the authority to enforce the agreement as it was written.  However, the judge also noted that he had the right to vary or set aside the agreement on the grounds of mistake or, in the particular case of an agreement made under Ontario’s Family Law Rules, to change the agreement to deal with the matter that had not been determined. 

After review, the judge concluded that what he had before him was a matter of mutual mistake.  He felt that the potential tax liability was so large that one would think it should have been specifically addressed.  Accordingly, he set aside the settlement agreement and left the parties to continue their lawsuit.  According to the judge, “given the facts of the case, that is the only equitable thing to do”.

He also concluded that even if the mistake was only that of the husband, who apparently did not contemplate that he would be at risk for the tax debt and never intended to bear that risk, that was sufficient to justify the settlement agreement being set aside entirely. 

It should be borne in mind that had he chosen to do so, the judge could have amended the settlement to include a provision for indemnification.  Obviously, he declined to do so because there was no evidence that the wife would have ever agreed to this settlement on that basis had it been raised in a timely way.

It is difficult to understand how the parties could have settled a matrimonial dispute involving a significant amount of money without addressing a live issue of such magnitude.  In this particular case, the husband was exceedingly fortunate because courts are very reluctant to set aside settlement agreements except in rare and unusual cases.  This was such a case.  However, the case is a good reminder of the importance, when settling cases, to make sure to cover all of the issues in dispute.

The National Automobile Dealer Arbitration Program, or NADAP, was instituted in late 2006 providing a process for dispute resolution as between manufacturers and dealers.  It specifically does not apply to disputes between one dealer and another or between one manufacturer and another.  As between a manufacturer and a dealer, however, it is mandatory that any disagreement arising out of a dealer agreement or its interpretation or application, including the question as to whether or not the dispute itself does arise under the terms of the dealer agreement, must be mediated and then arbitrated under the NADAP rules.

For the most part, dealers are fortunate to have the NADAP process available to them.

If a manufacturer or a dealer initiates a lawsuit in connection with such a disagreement, the party being sued can bring a motion to the court to have the lawsuit stopped so that the initiating party is forced to proceed under the NADAP rules.

While it is impossible to articulate every single type of dispute that might arise under the dealer agreement and thereby be subject to the NADAP rules of mediation and arbitration, the rules do list a number of examples of such disputes.  The examples suggest that to a significant extent, the rules exist to protect dealers by permitted dealers to challenge what may be arbitrary or unreasonable decisions on the part of manufacturers.  Some of these would include: Continue reading →

The Ontairo Court of Appeal recently released its decision in Combined Air Mechanical Services Inc. v. Flesch, in which it clarified the current law on summary judgments.  Its implications are significant and, no doubt, will impact on a number of smaller and simpler cases but will it have any effect on complex litigation?

The motion court judge has to fully appreciate the evidence and issues in a way that permits a fair adjudication of the dispute.

In a decision released on January 19, 2012 called Honest Art Inc. v. Decode Entertainment Inc., Mr. Justice Belobaba heard a motion for summary judgment in which the parties filed 16 volumes of material.  The material was filled with conflicting evidence across a range of interconnected and complex issues.  The key issue in the case related to discoverability.  The Plaintiff commenced its action soon after receiving an auditor’s report detailing the nonpayment of monies allegedly owned by the Defendant.  The Defendant argued that the cause of action had materialized many years before, when the Plaintiff had received one of the Defendant’s accounting reports in which it should have noticed allegedly improper deductions which would have been “obvious” to any reader.  As the Plaintiff waited for a number of years before suing, the Defendant argued that the claim was now statute barred.  Continue reading →

The Superior Court of Ontario recently dealt with a case in which a former mayoralty candidate brought a motion to force the operators of a web blog to identify people who had made anonymous postings, in order to sue them for defamation.

It might be assumed at first blush that anyone authoring a post on an anonymous basis can consider himself or herself to be free of any possible liability of defamation. That assumption would be incorrect.

The Plaintiff, Phylis Morris, had been the mayor of the Town of Aurora until 2010.  She ran for re-election at the end of that year and lost. 

The dispute revolved around a website called auroracitizen.ca which the Court described as a forum for political speech by way of web postings.  People choosing to post on that site were free to determine their level of privacy by identifying themselves, signing under a pseudonym, or remaining anonymous. 

Ms. Morris evidently felt that certain posts, placed on the website anonymously during the campaign, were defamatory.  Since she had no way of identifying the authors of those posts, she brought a motion against several individuals said to be in control of the website for an Order that they identify those authors.  Continue reading →