Archive for the ‘Litigation and ADR’ Category

Shafik Bhalloo
Thursday, October 8th, 2015    Posted by Shafik Bhalloo (posts) and Alisha Parmar (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

When an employee is wrongfully dismissed and the court determines that the employee is entitled to damages in lieu of reasonable notice, the employer will almost always argue that the employee was required to mitigate those damages and failed.  In essence, the employer will allege that the employee failed to take reasonable steps to obtain alternative employment, and that if the employee had taken those steps, then the damages suffered by the employee from wrongful dismissal would have been reduced.  If the court agrees that there was a failure to mitigate, then the employee may be barred from recovering a portion of the damages arising from wrongful dismissal on the basis that those damages could have been prevented by the employee.  Notably, mitigation does not require the employee to accept just any offer of employment in an effort to mitigate – as an example, the court will not find a failure to mitigate where a CEO declines to accept employment as a cashier at a fast-food restaurant, since those two positions are not at all comparable.

An interesting situation arises when the former employer offers the employee re-employment on the same terms.  The question then becomes whether a reasonable person in the employee’s position would have accepted the employer’s offer of re-employment.[1]  In Fredrickson v. Newtech Dental Laboratory Inc., 2015 BCCA 357 (“Fredrickson”), the British Columbia Court of Appeal recently considered that scenario and held the employee did not fail to mitigate by declining an offer of re-employment, where the offer did not fully compensate her for lost income, and where the trust relationship between the employee and employer had deteriorated because of the employer’s actions.

The Decision                                          

In Fredrickson, the plaintiff employee was employed as a dental technician assistant by the defendant company, for a period of eight and a half years.  The plaintiff had a good working relationship with the owner of the defendant company, her “boss”, and they worked closely together in a small office.

In 2011, the plaintiff came under stress resulting from her husband’s illness and her son being involved in an accident, both of which her boss was aware of.  On April 28, 2011, the plaintiff went on a medical leave of absence without informing the defendant that she was doing so.  While the plaintiff was on leave, the defendant disputed her entitlement to take leave and there was some contention that the defendant did not properly respond to the plaintiff’s request to complete Employment Insurance forms. During this time, the plaintiff’s boss surreptitiously recorded two conversations with the plaintiff, which were later used by the defendant at trial.

On July 20, 2011 the plaintiff returned to work after her doctor advised her that she was fit to do so.  On the same day, the defendant informed her that she was laid off because of insufficient work, and provided the plaintiff with a record of employment and a letter of reference.  The plaintiff, through counsel, sent a demand letter to the defendant on September 9, 2011.  In that letter, the plaintiff took the position that she had been wrongfully dismissed when she was laid off in July.

The defendant responded to that letter with an offer of re-employment, with re-employment commencing September 26, 2011, and stated that the plaintiff had an obligation to mitigate her damages by accepting re-employment.  Then, on October 19, 2011, shortly after the plaintiff had commenced her action against the defendant claiming wrongful dismissal, the defendant made a second offer to re-employ the plaintiff including an offer to pay her unpaid wages from July 20, 2011 until September 26, 2011.  Following this, on October 25, November 4, 2011, and April 19, 2012, the defendant made three further offers to re-employ the defendant, including payment of lost wages from July 20, 2011 to September 23, 2011 (the date the first re-employment offer was made), at the same position, with identical salary and benefits, as before.  The plaintiff declined all of these offers.

At trial, the plaintiff was successful at showing that she was wrongfully dismissed, and in fact, the defendant acknowledged that it had dismissed the plaintiff without cause and without reasonable notice in its closing submissions.  Thus, the only issue that remained was whether the plaintiff had failed to mitigate her damages.

The plaintiff tendered evidence that she had applied for nearly 100 jobs, and was not successful obtaining any of those positions, until she eventually secured a position as a bookkeeper in August 2012.  However, the trial judge concluded it would have been reasonable for the plaintiff to accept re-employment by the defendant and that by failing to do so she had failed to mitigate her losses.  As a result, the plaintiff was only awarded damages from the period between July 20, 2011 and September 23, 2011, the date the first offer was made.

The plaintiff appealed, and the Court of Appeal overturned the trial judge’s finding on mitigation.  The Court of Appeal held that the trial judge erred by (1) “failing to accord significance to the incomplete nature of the offer” and by (2) “failing to reflect the intangible element of mutual trust, commensurate with the nature of employment, that flows like a current in the employment relationship”.[2]

On the first point, the Court of Appeal stated that none of the offers made by the defendant were “make whole” offers, in that the offers did not fully compensate the plaintiff for her lost income following July 20, 2011.  The first offer did not include an offer to compensate the plaintiff for the income she had lost between July 20 and September 26, 2011.  The second offer did not compensate the plaintiff for the lost income between September 26, 2011 to October 18, 2011, and each of the other offers left a similar gap in the compensation being offered to the plaintiff.   As such, the “offers coming from Newtech to Ms. Fredrickson never caught up to her loss of income situation”.[3]  The Court of Appeal held the trial judge did not give adequate consideration to the gap in income between the plaintiff’s claim for wrongful dismissal and the defendant’s offers of re-employment, since even the earliest offer for compensation resulted in the plaintiff losing 8% of her annual income.[4] Further, if the plaintiff accepted the offer of re-employment, she would have a very difficult time maintaining a claim for the lost income.[5]

Aside from this, the Court of Appeal found the trial judge erred by not considering the trust relationship between the plaintiff and defendant.  The Court stated that whether or not a reasonable person would accept an offer of re-employment includes an assessment of the obligations of good faith or fidelity on the part of the employer and employee, since mutual trust is an important aspect of the employment relationship.[6]   The Court held that the plaintiff’s trust in the defendant had been eroded by the defendant’s actions in at least two ways.  First, as stated previously, the plaintiff’s boss had secretly recorded conversations with her and then used those conversations at trial.  Second, her boss had engaged in conversation with another employee, in which he agreed that the plaintiff would be too embarrassed to return to work with the defendant.  Interestingly, the Court found that whether or not the plaintiff felt “embarrassed” was inconsequential, and what mattered was that her boss had breached the confidence of the plaintiff by having this conversation, particularly in the context of a small workplace.  The Court found that as a result of the defendant’s actions, “any chance of repairing the employment relationship was irretrievably lost”.  The Court of Appeal’s reasoning suggested that even if the offers had been “make whole” offers, the trial judge’s finding would still not have been upheld because the employee no longer trusted the employer. Thus, the decision illustrates in some situations, it will not matter that re-employment was offered, since the damage has already been done.

[1] Fredrickson at para. 29

[2] Fredrickson at para. 23

[3] Fredrickson at para. 24

[4] Fredrickson at para. 26

[5] Fredrickson at para. 27

[6] Fredrickson at para. 29

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Devin Lucas
Thursday, July 30th, 2015    Posted by Devin Lucas (posts) and Alisha Parmar (posts)
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

The Supreme Court of British Columbia recently clarified renewal rights in the context of a commercial lease in The Zone Bowling Centre (2002) Ltd. v. 14100 Entertainment Blvd. Investments Ltd., 2015 BCSC 524.

The decision stresses the importance of parties to a lease reading and understanding their rights and obligations in the context of a lease renewal clause.  If the lease requires it, it is prudent for the tenant to exercise the option to renew in time and in writing.  If the tenant fails to do as the lease requires and instead enters into lease renewal negotiations with the landlord, the tenant does so at his own peril and with no guarantee that the landlord will allow the tenant to remain at the leased premises.  As this case demonstrates, courts are loathe to interfere with contractual certainty as bargained between two commercial parties and subsequent negotiations may not be enough to revive the right of renewal if it is not validly exercised by the tenant.

Summary of Facts

The Zone Bowling Centre (“the Zone”) operated a popular bowling alley and brew pub in the Riverport Sports & Entertainment Park in Richmond, British Columbia.  The Zone, as tenant, had entered into a lease with 14100 Entertainment Blvd. (the “Original Owner”), as landlord, for the premises (“Premises”).  The initial term of the lease was 10 years ending on April 30, 2014, with three lease renewal options, each for an additional five years.  Prior to expiry of the initial term, the Original Owner sold the Premises and assigned the lease to 0984972 BC Ltd. (the “New Owner”).

Under the lease, the landlord covenanted with the Zone to grant a renewal of the lease, if the Zone:

1)      gave notice to the landlord that the Zone “wishes to obtain a renewal of this Lease” not earlier than twelve months and not later than nine months before the expiry of the initial term;

2)      was not in breach of any covenant or condition of the lease at the time of the renewal notice to the landlord; and

3)      had duly and regularly observed and performed the covenants and conditions contained in the lease.

The lease further required that any notice provided under the lease be in writing.

As the initial term was to expire on April 30, 2014, the cut-off date for the Zone to exercise the first renewal option was July 31, 2013.  However, the Zone did not exercise its renewal option until August 2013 and even then, it failed to do so in writing.  Further, throughout the term of the lease, the Zone was late in paying rent and, in fact, rent was overdue on July 31, 2013.

Despite this, after missing the cut-off date, the Zone entered into lease renewal negotiations with the Original Owner and later, the New Owner, as landlord.  These discussions broke down in July, 2014.  At this time, the New Owner informed the Zone that it did not consider that the option to renew had been validly exercised and instead considered the Zone to be an overholding tenant on a month to month tenancy.

On October 27, 2014, the New Owner gave the Zone written notice terminating the lease effective November 30, 2014.  In spite of this, the Zone continued to occupy the Premises based on the its view that it had properly exercised the renewal option.  The Zone then brought a petition, seeking a declaration that it had properly exercised the option to renew.

The Decision

The issue before the Court was whether or not the Zone had exercised the first renewal option under the lease.  To determine whether the option had been validly exercised, the Court analyzed whether the three conditions precedent set out in the lease had been met by the Zone.

Based on the evidence before the Court, Mr. Justice Bowden found that the Zone had not exercised the renewal option by July 31, 2013.  Furthermore, Mr. Justice Bowden held that during the period from June 1, 2013 to September 25, 2013 the Zone was in arrears in paying rent and, therefore, was in breach of its duties under the lease during the time that the Zone had allegedly exercised its renewal option.  Finally, on account of the Zone being consistently in default of its obligation to pay rent, it could not be said that the Zone had “duly and regularly performed its obligations” throughout the 10 year term of the lease.

Even so, the Zone argued that the respondents had waived strict compliance with the lease and the conditions precedent to the exercise of the option by accepting rent when payments were overdue, and that the respondents were precluded from alleging a breach of the lease as a basis for denying the renewal, given the continuing lease renewal negotiations among the parties.

The Court found the respondents’ late acceptance of rent payments did not amount to a waiver of their right to require the Zone to strictly comply with the preconditions to exercise the option to renew – at most, it could amount to a waiver of the landlord’s  right to terminate the lease on the basis of the Zone’s breach of its obligation to pay rent.  Further, as the Court found that there was no evidence that the respondents had promised the Zone it could exercise the renewal option without providing notice in writing, nor by providing notice after the cut-off date specified in the lease, the landlord was not precluded from insisting on enforcing its strict legal rights in connection with the renewal option

Finally, although the Court noted the potentially significant adverse impact on the Zone’s business, the Court found that the alternative remedy of “relief from forfeiture” – which often allows tenants who have been in breach one opportunity to reinstate it – was not available to the Zone in this case. By failing to exercise the option properly the Zone had not forfeited an existing tenancy, but instead had simply lost the right of renewal, so relief from forfeiture could not apply.

Thus, despite its efforts, the Zone was not able to salvage its option to renew.  (It was later reported that the parties had reached an agreement after this decision was handed down and the Zone was able to continue operating at the Premises.  We do not know the terms of that agreement.)

This case is a reminder to all contracting parties that if they intend to engage in negotiations during the currency of a contract, they should never do so without securing a legally enforceable agreement by the other side that it will not require strict compliance with the contract terms while the negotiations are underway.


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Posted by Devin Lucas (posts) and Alisha Parmar (posts) | Filed under Litigation and ADR, Real Estate Law | ....
Lana Li
Thursday, May 21st, 2015    Posted by Lana Li (posts)

Under the Family Law Act, S.B.C. 2011, c. 25 (the “FLA”) unless property is “excluded property”, property owned by at least one spouse upon separation is family property and presumptively to be equally divided.  “Excluded property” includes property which is owned by one of the spouses before the relationship began, inheritances to a spouse and gifts to a spouse from a third party (s. 85(1) of the FLA).

In VJR v SKW, 2015 BCSC 593, a husband successfully argued that a $2 million payment to him was a gift, by way of inheritance, from his former employer, with whom he had developed a father-son relationship.  However, upon receiving the $2 million payment, the husband then used the funds to purchase property registered in his wife’s name only and to pay off family debts.  The husband argued that he had just placed the property in the wife’s name to protect him and his family from his creditors and that the wife held the entire property in trust for him.  The wife argued that the husband had gifted the money to her based upon how the property was registered and his use of the money to pay family debt.  The Court held that the husband could not argue that the registration of the property to the wife was to shield him from his creditors and then argue the property was held in trust for him.  The Court would not assist a sham arrangement and help the husband to establish a trust arrangement for his benefit.  It determined that the husband had gifted the property to the wife, such that it was found to be family property, and the net sale proceeds were divided equally between them.  Even if the $2 million payment was “excluded property”, it was significantly unfair not to divide it with the wife as she had contributed to the property, the household, and she had supported the husband for over 10 years, which helped him to develop his relationship with his former employer.

Therefore, if property is “excluded property”, it is best to keep it separate, such as putting the money in a separate bank account, and not use it to purchase family property or pay down family debt.

Herb Silber, Q.C.
Wednesday, March 25th, 2015    Posted by Herb Silber, Q.C. (posts)
Herb Silber, Q.C.
Herb Silber, QC brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

This topic can be divided into two parts – research of the facts and research of the law. This comment will focus on whether an Arbitrator can conduct independent research of the facts outside of the evidence presented at the Arbitration.

The British Columbia Court of Appeal has recently addressed this issue in a criminal case, R. v. Bornyk 2015 BCCA 28. I believe the Court’s findings are instructive for arbitration as well. In this case, the trial judge did his own reading of expert articles on the reliability of finger print evidence, which was key to the finding of guilt or innocence and concluded that the expert evidence presented by the prosecution was not reliable. The Appeal Court admonished the trial judge for doing so and overturned the not guilty verdict. The Court noted that ‘ It is basic to trial work that a judge may only rely upon the evidence presented at trial, except where judicial notice may be taken…” (which can only arise in exceptional circumstances where there is indisputable accuracy of the assertion, such as January 1, 2015 fell on a Thursday). The Court went on to state:

“[11] By his actions, the judge stepped beyond his proper neutral role and into the fray. In doing so, he compromised the appearance of judicial independence essential to a fair trial. While he sought submissions on the material he had located, by the very act of his self-directed research, in the words of Justice Doherty in R. v. Hamilton (2004), 189 O.A.C. 90, 241 D.L.R. (4th) 490 at para. 71, he assumed the multi-faceted role of ‘advocate, witness and judge’.”

As noted in the passage above, even where the trier of fact gives the parties an opportunity to make submissions on the factual findings made by relying on extrinsic evidence that is not sufficient as it ultimately for the trier of fact to ensure a fair trial, in this case not introducing evidence on his own initiative.

The Arbitrator must also conduct a ‘fair hearing.” One distinction between an arbitrator and a trial judge is that Arbitrators are often chosen because of their particular knowledge or expertise in an area and it may be reasonably expected by the parties that the Arbitrator will not ignore this expertise. However, general knowledge of the industry is not a substitute for the requirement that evidence on a specific matter ought to be expected to be presented by one or other of the parties so the other party has an opportunity to test the proposition on cross examination or respond with their own evidence. Given the requirement to conduct a fair hearing and to avoid being the “advocate, witness and judge”, it is best practice, in my view, for the Arbitrator to tread carefully on assumptions he or she makes based on their “general knowledge” of an industry and when in doubt, offer the parties the opportunity to address the issue if they choose to do so by the parties presenting evidence.

One area that an arbitrator can initiate a process is to order a view or inspection of property (see Section 29 (1) (d) of the BCICAC Rules). Thus if the Arbitrator concludes, as an example, where value is in issue, that he or she wishes to view a real property after hearing evidence in connection with the same, the appropriate practice, in my view, is for the Arbitrator to give notice to the parties of his or her desire to view or inspect the property. At that point an Order should be made to that effect, notice of the date and time of attendance given to the parties so that the parties and their representatives may be present, and given an opportunity to provide comments when the view or inspection takes place.

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Posted by Herb Silber, Q.C. (posts) | Filed under Litigation and ADR | ....
Herb Silber, Q.C.
Monday, January 26th, 2015    Posted by Herb Silber, Q.C. (posts)
Herb Silber, Q.C.
Herb Silber, QC brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

In my last Case Comment, I examined some of the elements of the recent watershed Supreme Court of Canada decision, Sattva Capital Corp v. Creston Moly Corp, which provides a complete compendium on the application of the principles that are engaged where leave to appeal an arbitration award to the British Columbia Supreme Court is sought.

One of the elements I did not address in that Case Comment was the residual discretion of the Supreme Court to deny leave even where the substantive requirements of a Leave Application are met. Some of those factors were alluded to in the Sattva decision and include the conduct of the parties and the urgent need for a final answer.

An application of those principles can be found in a recent B.C. Supreme Court decision representing one of the first post Sattva cases, Owners, Strata Plan BCS 3165 (“Owners”) v. KBK No. 11 Ventures Ltd. (“KBK”), which was successfully argued by Shane Coblin of our firm. In that case, while the Court decided largely that the issues sought to be appealed were matters of fact or mixed fact and law and therefore did not satisfy the requirement that leave to appeal an arbitration award can only be founded on a question of law, nevertheless, the Judge did address the question of whether he should exercise his discretion to refuse the granting of leave to appeal, and in doing examined the two grounds referenced above.

On the matter of the conduct of the parties the Court considered the behaviour of the Owners in their attempt to delay the hearing of the arbitration, including commencing a futile Supreme Court of BC Action four days before the arbitration was scheduled to start and spending four days on a failed application to stay the Arbitration Hearing, as well as the Owners’ failure to acknowledge and pay any of their financial obligations to KBK, even the ones for which no appeal was sought.

The Owners’ failure to pay even those obligations they were not contesting gave support to KBK’s claim to the urgency of obtaining a final answer so it would not be unduly burdened financially. As a result the Court exercised its discretion, in particular, on the basis of the urgent need for a final outcome, to deny the Leave Application even if the Owners had met the other burdens for a successful Leave Application.

As mentioned previously, given the other findings of the Court, the Judge’s refusal to exercise his discretion in favour of granting leave to appeal was not critical in this case. However, it does stand as a cautionary tale that the objectives that are set out in Rule 19 of the British Columbia International Arbitration Centre Rules, that I have noted in a prior Case Comment, i.e. that the process should “strive to achieve a just, speedy and economical determination on its merits” are to be ignored at one’s peril.

On a personal note, since my last Case Comment, I was honoured to have been appointed a Queen’s Counsel (QC) by the Government of British Columbia. I want to thank all of you who conveyed your support and good wishes.

Posted by Herb Silber, Q.C. (posts) | Filed under Litigation and ADR | ....