Friday 5 December 2014

New Condo Law Passes First Reading

Will the new Bill provide a solid foundation for condo owners' rights?

Condominium legislation was introduced in Alberta in the 1960's.  Although popular acceptance of this form of home ownership grew slowly, there are now more than 8,000 condominium corporations in the province, and condos make up 20% of homes sold in Alberta every year.  With rapid increases in population and rising real estate prices, the province faces a potential shortage in affordable homes, a problem that is particularly acute for the large numbers of young couples and families moving to Alberta for jobs.  Municipal governments in the larger cities are implementing policies that favour urban density in an effort to combat sprawl, and the construction of condominium buildings is consistent with that goal.

Need for Reform

Many new condominium buildings and condo conversions have appeared on the market in recent years, but condo owners, developers, realtors, and lawyers have suggested that the existing legal framework is out of date.  The Alberta Condominium Owners Association is concerned about the lack of professional standards and licensing for building managers.  Purchasers and their realtors complain that it is difficult to obtain documents on a property in a timely fashion from boards and building management.    Purchasers of new units don't always get all the information they would like to have, and existing owners can be hit with unexpected special levies for building repairs and other costs.  Condo owners and condo corporations have to resort to costly court proceedings to resolve disputes.

The Condominium Property Amendment Act

In May of this year, the government introduced a bill to improve the protections provided to condo owners under the Condominium Property Act.

According to Doug Griffiths, Minister for Service Alberta at the time, "Buying a condo is an affordable option for Albertans entering the housing market and is often their first real estate experience.  After careful review and discussion with stakeholders and Albertans, our government will update the Condominium Property Act to make it easier for owners and builders to understand their responsibilities on the sale of condos."

The original bill died on the order paper when incoming Premier Jim Prentice prorogued the Legislature in the fall, but the amendments were reintroduced as Bill 9, the Condominium Property Amendment Act, which passed first reading on December 1.  Stephen Khan, the new Minister responsible for the Bill, has expressed the hope that the Bill will pass in the current sitting.

New Disclosure Requirements

The amendments would improve disclosure requirements to include a final date by which the unit is to be ready for occupation and a proposed budget for the new condominium corporation.  The developer is also to provide a copy of the New Home Warranty where the corporation is to be covered by the warranty.

Where an existing building is being converted into condominiums, there is a concern that repairs that are needed due to the age of the building may not be apparent to buyers.  Under Bill 9, the developer has to obtain a Building Assessment Report and summarise the findings for unit purchasers.

Special Assessments and Caveats

Under the current law, condominium owners can be required to pay substantial assessments for building repairs, and there have been cases in which owners complain of a lack of notice regarding impending levies.  Various charges imposed by the board can be registered against an owner's title, even if the amounts are in dispute, and the registration of a caveat makes it difficult for the owner to sell or finance his unit.

These problems are addressed in Bill 9.  Existing owners will be protected by amendments that limit the situations in which the condo board can impose a special levy.  The board will be required to provide owners with information about a proposed levy in advance, and the board will have to hold a special general meeting if 15% of the owners ask for one.

In addition, the registration of a caveat for unpaid contributions will be restricted to those contributions that are permitted under the Act, and that have been found by a court to be valid.  The legal fees and other charges that can be included for the preparation, registration, and discharge of a caveat are capped by the amendments.

Condominium Management

Under Bill 9, the Real Estate Council of Alberta is appointed to regulate condominium managers.  It is intended that RECA will establish standards for education and training for property managers in this sector, and that building managers will have to be licensed.

The specific licensing requirements and professional standards for managers are not set out in the amendments, however.  These matters will be dealt with in regulations that are to be implemented after consultations among RECA and various stakeholders.

Dispute Resolution

The amendments would establish a new Tribunal to hear disputes between unit owners and condo corporations.  The Tribunal will start in a limited geographic area (probably Edmonton and Calgary), but could eventually be expanded to other parts of the province.

It is intended that disputes involving money issues such as common area charges, as well as parking, pets, noise, and other operational issues, will be dealt with by the Tribunal.  Disputes over title, such as foreclosure or changes to the condominium plan, will continue to be dealt with in court.

Important details regarding the jurisdiction of the Tribunal are left to the regulations, so it is unrealistic to expect that the Tribunal will be up and running as soon as the amendments are passed.

The Regulations

Minister Khan hopes that regulations will be put in place within a year of the passage of the Bill.  A consultation process has to take place first, however, so it is unclear when the reforms promised by the Government will be fully implemented.

Representatives of condominium owners have expressed concern that the amendments in their current form are incomplete, and that too much has been left up to the regulations.  The Alberta branch of the Canadian Home Builder's Association has given its blessing to the new Bill, however, and expressed a willingness to work with Minister Khan to develop a set of regulations that "meets the needs of homebuyers".

The Conservative government is in a position to move Bill 9 through the legislative process quickly, provided it makes this a priority, and the government's intentions should become clear over the next few months.

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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.

Wednesday 25 June 2014

Insurance Agents Can't Compete Against Former Brokerage

In Renfrew Insurance Ltd. v. Cortese, the Alberta Court of Appeal upheld an interlocutory injunction that prevented two insurance agents from soliciting customers and employees from their former employer.

Enforceability of Non-Competition Agreements

In cases in which an employer asks the court to stop a former employee from competing, the key issue is usually the legal validity of the non-compete clause in the employment contract.  Since a non-compete clause restrains trade and can prevent the former employee from earning a living, courts often declare them unenforceable on public policy grounds.

The law does recognize that there are circumstances, however, in which a non-competition agreement is needed to protect the employer's interests, such as when the employee has gained access to trade secrets and developed relationships with long-term customers in the course of employment.  Seeking to strike a balance between the interests of the employee and the employer, the courts scrutinize non-competition clauses carefully, upholding them only when they are reasonably necessary to protect the employer's legitimate business interests.

This analysis normally focusses on the geographic and temporal scope of the non-compete.  If the clause would prevent the employee from working in areas where he was not engaged by the employer, or seeks to keep the employee out of the market for a lengthy period of time, it can be struck down.

In the Renfrew Insurance case, insurance agents Cortese and Reed each signed a Unanimous Shareholder Agreement (the "USA") in order to become part owners in the broker, Renfrew.  The USA contained a restrictive covenant that prevented them from competing in the insurance business within 60 km of Renfrew's Calgary office for 6 months after the termination of employment.  The covenant also stated that they would not solicit any of Renfrew's customers or employees for 18 months.

In January of 2014, both agents took jobs with one of Renfrew's competitors, BFL Insurance Services ("BFL").  They immediately started to work out of BFL's Calgary office, claiming however that they were servicing customers in Edmonton, Canmore, and elsewhere in Alberta and not within the 60 km radius prohibited by the covenant.  Two Renfrew customer service representatives who had previously worked with Cortes and Reed joined BFL.  Furthermore, at least two former Renfrew clients switched to BFL, although these clients were being served by another BFL agent and not by Cortese or Reed.

Test for Injunctive Relief

In order to obtain a pre-trial injunction enforcing a non-compete clause, the employer has to pass a three part test:

1.     Is there a strong case that the clause is legally valid, and that the employee is in breach?

2.     Will the employer suffer "irreparable harm", meaning losses that can't be adequately compensated by an award of monetary damages, if the employee is allowed to compete until trial?

3.     Does the balance of convenience between the employee and the employer favour the injunction?

The judge who heard the original application concluded that the covenant against competition was reasonable in scope.  In reaching this conclusion, he took note of the fact that the clause appeared in a shareholders' agreement rather than in an employment contract, so the contract was more like a commercial transaction between partners in a business than a conventional employer-employee relationship.  He also concluded that the agents were not pressured to sign the USA, that signing was not a condition for their continued employment, and that they had independent legal advice.

The application judge held that the restriction on soliciting Renfrew customers was reasonable, having regard to the importance of the "book of business" in an insurance brokerage business.  It was also significant that the two agents had built their "niche" in the business with Renfrew's assistance.

Given that two other Renfrew employees had left to join BFL, and that two customers had switched brokers, the application judge was prepared to infer that the agents were in breach and that the threat to the Renfrew business was serious enough to constitute irreparable harm.

The restrictive covenants in this case specified that damages would not be an adequate remedy, and this was another factor that favoured the injunction.

Standard of Review on Appeal

In granting or denying an interlocutory injunction, the application judge is exercising judicial discretion.  An appellate court will defer to the judge below unless he decided the case arbitrarily or applied wrong legal principles.  The interpretation of restrictive covenants is a question of law, reviewable on a standard of correctness, but where factual findings are needed in order to apply the clause, the findings of the judge should be upheld in the absence of palpable and overriding error.

In other words, in this kind of case, the Court of Appeal will uphold the decision of the application judge unless it is clearly wrong.  The Appellate Court felt that intervention was not justified, and dismissed the employees' appeal.

Renfrew Insurance Ltd. v. Cortese, 2014 ABCA 203

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Wednesday 22 January 2014

Condo Corp Ordered to Investigate Suspected Construction Deficiencies

The Condominium Corporation is responsible for the control and management of the common areas of the building, and has an obligation to keep the common property in a state of good repair: Condominium Property Act, s. 37.  In a recent case involving a condominium complex in St. Albert, a Master of the Alberta Court of Queen's Bench held that this duty includes an obligation to open up walls to look for suspected deficiencies in the original construction of the building.
The Applicants noticed cigarette smoke infiltrating their condominium unit from the unit below.  As one of the Applicants was allergic to cigarette smoke, they hired an engineering firm to investigate the problem.  When the engineers opened a bulkhead in the lower apartment they discovered that the fire separation between the two units had never been installed.  Proper fire separation was added in this area, which reduced but did not eliminate the smoke problem.  The engineering firm submitted a report indicating that the cause could be a lack of fire separation in a second bulkhead that had not been opened for inspection.
There were no "as-built" drawings for the complex, so the only way to determine whether or not the fire separation was in place was to open the second bulkhead for further inspection.  The Respondent Condominium Corporation refused to undertake the cost of this inspection on mere suspicion, citing a concern for the inconvenience the work would cause for the lower unit owner.
The Master concluded that the evidence did not prove, on a balance of probabilities, that there was inadequate fire separation in the second bulkhead, but it did raise a case for further investigation.
The legislation imposes a duty on the Corporation to "keep" the common property in good repair, and to "maintain" the property of the corporation.  Although on a literal interpretation this does not seem to extend to a duty to investigate for hidden defects, or to correct deficiencies in the original construction, it is well established that condominium statutes are remedial legislation that should receive a liberal interpretation.  The Master concluded that the corporation cannot just preserve the existing state of the building, or maintain the status quo, especially if this could endanger the safety of unit owners: "The statute and the by-laws impose not only a duty to maintain, but an obligation to correct deficiencies or, at the very least, to investigate and bring the conclusions to a meeting of the owners."
The Master issued a broad order requiring the Corporation to open and inspect the second bulkhead to confirm that there was adequate fire separation meeting all Building Code requirements.  In addition, if the fire separation proved to be lacking in this second area, the Corporation's Board was to consider whether additional investigations were required in other parts of the building.
Construction deficiencies in condominium buildings are unfortunately too common.  Defects may not be apparent at the time the condominium is registered and title to the common elements is transferred to the Corporation, however, as the building envelope and internal drywalling are normally complete by that time.
In a typical case a hidden defect affects multiple units, and the Board is prepared to undertake investigations to determine the nature and extent of the suspected problem.  Here, a problem that could be widespread in the building, with disastrous consequences in the event of a fire, was having an immediate impact on only one unit.  It will be interesting to see if this decision is applied in other cases, and if the principle established is extended from matters that could impact health and safety to cases in which a single owner is concerned about the comfort or the appearance of his unit.
Hnatiuk v. Condominium Corporation No. 032 2411, 2014 ABQB 22

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Friday 1 November 2013

Would You Insure This House?

    Unfit for Human Occupation

Anyone who has applied for insurance on a house or commercial building knows that the insurance agent will want to complete a questionnaire disclosing detailed information about the condition of the building.  If the insured gives false information, the insurer can revoke coverage for misrepresentation.  A lot of people are probably unaware that they have an ongoing legal obligation to inform their insurance company of any significant change in the condition of the insured property, and that the insurer can deny a claim because of failure to report a "material change in the risk".
The source of this obligation is a statutory condition that is incorporated into most property insurance policies in Canada: "The insured must promptly give notice in writing to the insurer or its agent of a change that is material to the risk and within the control and knowledge of the insured."  Matters that might be considered material include changes in use or occupation, major renovations, or alterations to electrical, heating, alarms, or other important building systems.
Insurance underwriters often dispatch an inspector to look at the home or building before issuing the policy.  The inspector may or may not have any particular qualifications in engineering or construction.  The fee paid for the inspection is small, and the inspections are often cursory.  With home insurance policies, the inspector generally does not enter the house, and the review carried out is often referred to as a "drive-by" inspection as the inspector does little more than visit the location to confirm that there is a building with no obvious pre-existing damage.
What happens if the inspector is in a position to note a condition about the building that is material to the risk, but that the insured has not disclosed to the insurance company? The insured could argue that the insurance company had knowledge of the state of the building, so the statutory condition doesn't apply.  The same argument might be raised in the face of a misrepresentation defence.

From the insurance company point of view, the inspection is for a very limited purpose and is not intended to confirm every detail in the insurance application.  Carrying out a thorough inspection would increase underwriting costs, which would have to be passed on to the insured through higher premiums.  The insured is in the best position to provide information about the property, and insurers should be able to rely on information in the insurance application without further inquiry.
In Mah v. Wawanesa Mutual Insurance Company, however, a majority of the Alberta Court of Appeal was prepared to impute the knowledge of the inspector to the insurance company.
The insured bought a run-down house from his brother.  The house had been insured by Wawanesa, and the brokerage representing Wawanesa took an application from the new owner and agreed to bind coverage pending acceptance of the application by the insurer.
The insurance company knew that the building was unoccupied.  Between the date of the new owner's application and the date the policy was issued, however, an official with the regional health authority attended at the property and posted a notice on the rear door stating that the house was unfit for human occupation.  The notice was on bright orange paper, and the trial judge concluded that the owner must have seen it when he came by the house to cut the grass and take away the trash.  The owner did not report the health department's order to the insurer.
The insurer asked the broker to check on the type of heating system and age of the house, and to provide a photo "to confirm the dwelling's continued existence".  The broker sent a retired surveyor to conduct an inspection.  For $100, the surveyor attended at the property, carried out a "walk-around inspection", and took several pictures.  He did not enter the building.  He submitted his photos to the broker, along with a one-page handwritten report describing what he had seen.  The broker passed this note and the photos on to  Wawanesa's underwriting department.  One of the photos showed the back door; the orange notice was visible, but the print was not readable.
Wawanesa issued the policy, but denied coverage when the property was damaged by fire, citing the failure of the insured to report the health authority's order declaring the house unfit.  The surveyor was not called to testify at trial, so it is not known whether he actually read the health department notice or not.  The trial judge dismissed the action, and the insured appealed.

The fact that the insurance company did not have actual knowledge of the health department order was not in dispute.  The case turned on what the surveyor knew, and whether or not that knowledge could be attributed to the insurer.

The reasons of the trial judge were a little vague regarding the state of mind of the surveyor.  The judge said that "one could assume" that the surveyor saw the health department notice, then took note of the fact that he did not testify.  This suggests that the judge drew an adverse inference from Wawanesa's failure to call the surveyor.  The judge had concluded that the owner must have seen the notice on one of his visits to the property.  The majority in the Court of Appeal said that on the same basis, the judge's assumption about the surveyor's knowledge amounted to a fact finding that the surveyor saw the notice too.

According to the majority, the surveyor was an agent of the broker, and since the broker was an agent of the insurer, the surveyor was "the insurer's agent's agent".  In law, the surveyor's knowledge was the broker's knowledge, and the knowledge of the broker must be imputed to its principal Wawanesa.

In addition, the statutory condition requires notice to the insurer "or its agent".  In the view of the majority, the notice need not come from the insured, and the health authority was actually a better source of information about the fitness of the building.  Since the surveyor/agent had notice, the condition was satisfied and the insurer could not avoid coverage.

Justice O'Ferrall, in his dissent, did not take issue with the idea that the surveyor's knowledge could be imputed to the insurer, or that notice to the surveyor would satisfy the statutory condition.  He did not accept that the trial judge had drawn a factual inference regarding the surveyor's knowledge, and felt that the evidence did not support the conclusion that the surveyor must have seen the health department order.

For homeowner's policies, the costs involved in carrying out a detailed inspection cannot be justified as a routine part of the underwriting process.  Nevertheless, it appears that anything visible from outside the home will be considered within the knowledge of an insurer who orders a "drive-by" inspection prior to issuing a policy.  Certainly, any plaintiff's lawyer faced with a misrepresentation or non-disclosure defence will want to obtain production of the insurer's inspection report.

Mah v. Wawanesa Mutual Insurance Company, 2013 ABCA 363

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Tuesday 29 October 2013

Alberta Court Upholds Land Titles System

    Homestead Record, Alberta Archives

In Alberta, all interests in land are recorded in a Torrens registration system, often referred to as a "Land Titles" system.  A title search produces a certificate listing all registered interests in the parcel of land searched.  Anyone interested in acquiring the land can rely on the certificate as a complete list showing who owns the property and any mortgages, liens, or other interests effecting title.  Unregistered interests are not protected.  The only exception is in cases of fraud.
This system can sometimes lead to harsh results, as is illustrated in a recent case in the Albert Court of Queen's Bench.  A builder constructed a "show home" on a lot in a development, relying on a contract that said the developer had to transfer title in the lot to the builder once construction of the show home began.  All of the lots in the development were subject to a mortgage in favour of the Bank of Montreal.  The developer went into receivership without transferring title to the builder, although the builder had nearly completed the home.  The receiver sold the property, and it was agreed that the value of the home (as opposed to the lot itself) was in excess of $140,000.  This amount was placed in a trust account until entitlement to the proceeds could be determined in court.
The court concluded that the Bank's registered mortgage had priority over the unregistered equitable interest claimed by the builder based on unjust enrichment: Bank of Montreal v. 1323606 Alberta Ltd., 2013 ABQB 596.
The builder, Coco Homes Ltd., claimed an equitable interest in the proceeds, arguing that if the money went to the Bank it would be acquiring the benefit of the construction work without paying anything for it; essentially, an unjust enrichment argument.  Coco also relied on s. 69 of the Law of Property Act, RSA 2000, c. L-7, which creates a statutory lien in favour of someone who has made a lasting improvement to land in the belief that he owned it.
The Bank's case was based on s. 203(2)(a) of the Land Titles Act, RSA 2000, c. L-4.  Section 203 states that anyone dealing with a transfer, mortgage, or other interest in land is not bound by a trust or other interest in the land unless it is registered in the Land Titles system.  In addition, section 203(2)(b) provides that a party dealing with the land is unaffected by any notice of a trust or other unregistered interest in the land or by any rule of law or equity that might create an interest in the land.
Madam Justice Topolniski considered the public policy basis for the Torrens system, stating that the certificate of title " designed to meet a simple policy goal - to provide a clear, definitive mechanism to evaluate the status of land".  The objective of the system is to save purchasers and mortgagees the trouble and expense involved in going behind the register in order to investigate the validity of the owner's title.
The judge acknowledged that a Torrens system can impose hardships, noting that the legislation provides for compensation for those who suffer a loss out of an assurance fund.

Relying on decisions of the Supreme Court of Canada and the Ontario Superior Court, Justice Topolniski concluded that the legislation was a complete bar to the homebuilder's claim.  Under a Land Titles system, an unregistered interest has no effect on the registered title of a purchaser for value: United Trust Co. v. Dominion Stores Ltd., [1977] 2 S.C.R. 915.  Section 203 of the Act "represents an unequivocal abrogation of the doctrine of actual notice in Alberta such that, absent fraud, an unregistered interest cannot under any circumstances trump a registered interest.": Romspen Investment Corp. v. Edgeworth Properties, 2012 ONSC 4693.  The effect of s. 203 of the Land Titles Act is to extinguish Coco's claim, whether it arises out of common law, equity, or statute.

With respect to the argument under s. 69 of the Law of Property Act, the judge concluded that granting priority to an unregistered interest would defeat the intent of the legislature in adopting the Torrens system.  Section 69 applies where a person improves someone else's land "under the belief that the land was the person's own".  Although Coco had a contractual right to a transfer of title, it could not have held an honest belief that it owned the land at the time the developer went into receivership, so the claim under s. 69 failed.

Coco argued that the Bank could not take title to the improvements under the Nemo Dat rule (nemo dat quod non habet, or "no-one gives what he doesn't have").  Since the developer had not paid for the improvements, it didn't own them and couldn't mortgage them to the Bank.  The judge rejected this argument because fixtures permanently attached to the land become part of the land.

Finally, the court rejected the constructive trust argument, citing Supreme Court authority stating that a constructive trust cannot apply to the prejudice of a third party: Soulos v. Korkontzilas, [1997] 2 S.C.R. 217.

Although the outcome may seem like a windfall for the Bank, which did not finance the construction of the model home, on reflection it is fair.  The homebuilder was free to search title prior to starting work, and would have been aware that the lot was subject to a mortgage in favour of the Bank.  Coco could have insisted that the developer make arrangements to have the mortgage discharged before it built the home, and could have stopped work as soon as it became clear that the developer was not going to transfer title.

It is in the public interest that there should be a searchable registry available that provides an interested party with a complete picture of the state of title, so that people who buy, sell, and mortgage property know where they stand when they enter into a transaction.  As the judge determined, the legislature intended to provide such a registry when it created the Land Titles system, and giving registered interests priority over unregistered claims based on trust or statute is a necessary consequence.

Bank of Montreal v. 1323606 Alberta Ltd., 2013 ABQB 596

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Tuesday 1 October 2013

When Is a Settlement Not a Settlement?

     The Alberta Court of Appeal

Settlement agreements often contemplate formal documentation that is to be prepared and executed later, most commonly a release "in a form satisfactory to counsel".  What happens if the form of the release proposed by one party's lawyer is not acceptable to counsel for the opposing party? That was the issue in Tessier v. City of Edmonton, a recent decision of the Alberta Court of Appeal.
The Settlement Discussions
This was an expropriation case.  During a break in the hearing before the Alberta Land Compensation Board, counsel for the property owners telephoned the lawyer for the City and offered to settle for $650,000, plus an additional amount of money that had been agreed previously.  Legal and expert fees were to be subject to a later negotiation.  Counsel for the City called back a few minutes later and, upon receiving confirmation that the owners would sign a release, accepted this proposal.
These terms, including the provision for a release, were confirmed later that day in an email from the City's lawyer to counsel for the owners.  On resumption of the hearing the following day, the lawyer for the owners advised the Board that the dispute had been settled, and asked that the case be adjourned subject to the execution of final documents and the payment of funds.  Two days later, however, the owners' lawyer told the solicitor for the City that his clients did not want to proceed with the settlement.  Counsel for the City took the position that a settlement had been concluded and sent opposing counsel a draft release.  In a letter the following day, the City's lawyer enclosed cheques for the settlement funds, to be held in trust pending execution and return of the release and the filing of a discontinuance with the Board.
Decision of the Board
The City applied to the Board for a determination as to whether or not there was a settlement.  When the lawyer for the owners was called as a witness, he testified that there was a settlement that had to be "papered".  The release he received from opposing counsel was typical of those he had previously negotiated with the City, except it had no confidentiality provision.  The Board ruled that there was a binding settlement, and the owners appealed to the Court of Appeal.
Decision on Appeal
The Court stated that the issue on appeal involved questions of contract law outside the Board's specialized expertise, so the standard of review was correctness.
The owners argued that the City's acceptance of the $650,000 offer was conditional because it contained additional terms that were set out in the release and the letter imposing trust conditions.  This was a counteroffer, and there was no deal as the counteroffer was never accepted.
The Court of Appeal rejected these arguments.  A settlement is a contract, and the contract is formed when the parties agree on the essential terms.  Once there is an agreement on essential terms, one party can tender a release on trust or escrow conditions without rescinding the agreement.  Although in some cases there will be a dispute over the terms of the release or the escrow conditions, that didn't happen in this case as the owners disavowed the settlement before the draft release was delivered.  In this situation, proffering a release or imposing trust conditions could not amount to a counteroffer.
In this case, it seems that the Board and the Court of Appeal were both influenced by the fact that the owners tried to back out of the agreement before the draft release was tendered, and that the objections to the release appeared to be an attempt to justify this after the fact.
Settled Law on Settlements
What if there is a genuine dispute over the terms of the release? These documents can be lengthy and complex, and are often the subject of much back-and-forth negotiation between counsel for the parties.  If counsel cannot reach an agreement about the terms of the release, is the settlement dead? Or can the court approve a release that the parties will be required to sign?
This issue has been the subject of previous litigation.  In Tessier v. Edmonton, the Court of Appeal referred to Fieguth v. Acklands Ltd., a 1989 decision of the British Columbia Court of Appeal.  The principles are well-established in the case law:
(1)     The question of whether or not a case has been settled is to be resolved by the application of the rules of contract formation;
(2)     Once there is an agreement on essential terms, the settlement is a binding contract;
(3)     A settlement implies an obligation to furnish a release, and if an action is outstanding, a consent dismissal as well;
(4)     A proposal to discontinue an action, with nothing more, does not amount to an offer to settle the underlying claim, so a release is not implied and need not be provided;
(5)     Settlement includes an implied right to a simple release of the claim that is the subject of the litigation, but unusual or additional terms, such as indemnity provisions, are not implied and have to be specifically agreed;
(6)     Once the parties agree on terms of settlement a contract has been formed, and this stage must be distinguished from later actions directed towards the execution or implementation of the settlement contract, such as the payment of funds or the proffering of a release;
(7)     Once the essential terms are agreed, subsequent conduct relating to the payment of funds, imposition of escrow terms, or the exchange of concluding documents in draft form will not vitiate the settlement unless one party goes so far as to repudiate the settlement agreement by refusing to carry out its terms;
(8)     In order to amount to repudiation, the conduct must constitute an unequivocal refusal to perform the contract, the equivalent of frustration or rescission of the contract;
(9)     If counsel cannot agree on a release, either party can apply to the Court for an order enforcing the settlement, which would include an order approving the release;
(10)    If there is an actual repudiation, the opposing party has the option of accepting the repudiation, which voids the settlement.  The litigation would then proceed as if there never was a settlement agreement.
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Tuesday 10 September 2013

No Juries For Insurance Misrepresentation Cases

     Does trial by jury lead to chaos in the courtroom?

In a decision released Friday, the Alberta Court of Appeal denied the plaintiff's application for a jury trial in a life insurance claim: Coulter v. Co-operators Life Insurance Company.  The two Justices in the majority agreed that the insurer's misrepresentation defence was a claim for equitable relief which cannot be tried by a jury.  The dissenting Justice, who characterized the misrepresentation defence as statutory rather than equitable, would have permitted a jury trial.

The Misrepresentation Defence
The life insured was a long-time policyholder with Co-operators who applied for additional coverage less than two years before his death.  After investigating the claim, Co-operators paid the benefit on the original policy, but denied the additional benefit, taking the position that it was entitled to void this coverage as the life insured had misrepresented important facts on the recent application.  Co-operators relied on ss. 652 and 653 of the Alberta Insurance Act, R.S.A. 2000, c. I-3, which state that misrepresentation of a material fact in the life insurance application renders the coverage voidable by the insurer within the first two years after coverage takes effect.
The Alberta statutory provisions are derived from uniform life insurance legislation, and similar provisions are in effect in all the common law provinces and territories of Canada.
When the beneficiary sued, Co-operators raised the misrepresentation issue in its statement of defence, citing the Insurance Act provisions.  The defendant was content to defend on this issue, and did not counterclaim for rescission of the insurance contract.  The beneficiary applied for a jury trial, but this application was denied by the Chambers Judge, who directed that the trial should proceed by judge alone.

The Majority Decision
In the majority opinion, Mr. Justice Cote referred to the historical distinction between the common law courts and courts of equity.  In civil cases, the common law courts could award damages for breach of contract and other legal wrongs.  A broader range of remedies was available in the equity courts, including specific performance and declaratory relief.  Jury trials were available in the common law courts, but not in the courts of equity, where cases were decided only by judges.
Although the two courts are now joined into one, the distinction between common law and equity remains, and juries are not permitted in cases in which equitable relief is claimed.
There was no dispute that the plaintiff was claiming damages for breach of the insurance contract, and that this was a common law claim.  According to Mr. Justice Cote, however, the defence raised by Co-operators was essentially a claim for rescission of contract.  This was an equitable remedy, and since common law courts are restricted to damages, a jury could not decide the misrepresentation question.  The Chambers Judge was therefore correct in denying the application for a jury trial.
Justice Cote was careful to point out that although the reasons for denying the plaintiff a jury trial may seem to be based on a technical historical distinction, there are sound policy reasons for restricting equitable relief to judges.  Equitable remedies are discretionary.  In exercising their discretion judges are guided by previous cases, and by principles established in maxims such as "Delay defeats equities", and "He who seeks equity must do equity".  In the view of Mr. Justice Cote, the distinction between the principled exercise of a discretion and "mere sympathy or fairness" would be "almost impossible" to explain to a jury.  These cases are therefore unsuited to trial by jury.
In a claim for breach of contract or tort, on the other hand, the judge instructs the jurors that they must award damages if they conclude that the evidence supports certain findings of fact; there is no discretion involved.

The Dissent
In his dissenting judgment, Mr. Justice O'Ferrall seemed to accept that equitable claims involving the exercise of discretion are unsuited to trial by jury; in his view, however, the insurance company was not claiming equitable relief at all.
"Rescission" was not specifically pleaded.  In its statement of defence, Co-operators said that it was entitled to "void the policy" by virtue of the Insurance Act provisions.  This was a statutory defence rather than an equitable claim, and "What the jury would be asked to do in this case is determine whether or not the insured ... made a misrepresentation with respect to a fact or facts material to the insurance."  In his opinion, this was the kind of factual question that juries are especially well qualified to decide.  There is a presumption in favour of the right to trial by jury, which should be respected.
For the majority, however, Mr. Justice Cote pointed out that the Insurance Act provisions did not purport to displace the role of equity or replace the equitable remedy of rescission of contract.  The statute did not provide a comprehensive code for misrepresentation cases, such that it could be concluded that the legislature intended to occupy "the whole field" and do away with the role formerly carried out by courts of equity.

A View From the Bleachers
Justice Cote is right to prefer a principled or policy-based approach over reliance on the historical accident of the division between equitable and common law courts.  Where legal issues are more important to the case than factual issues, judges have an extensive knowledge of the law that jurors lack.  Jurors, on the other hand, are just as qualified as judges to decide whether or not a witness is lying, or to assess evidence and make findings of fact.

The jury is an important institution in our society.  Justice is delivered by members of the community who can bring a diversity of background and experience to the courtroom, rather than by a judicial "expert" with extensive, but perhaps narrow, training in one area (the law).  The jury introduces a populist, democratic element into our system of justice.  Trial by jury is a long-standing right that should only be taken away for cogent reasons.

It is conventional wisdom that an insurance company never wants to face a jury.  The man in the street will always be blinded by sympathy and emotion, it is thought, and will side with the individual plaintiff over the big, impersonal corporation every time.

This is not necessarily the case.  Several years ago, defence-side insurance lawyers in Ontario began to serve jury notices routinely in personal injury cases, believing that their clients would be better served by the practical, common-sense approach of jurors.  Whether to seek a jury trial is a question that both plaintiff and defence counsel should ask themselves in every case; it is a strategic decision that depends on more than just the sympathy factor.  A precedent that denies the life insurance beneficiary her claim to a jury trial cuts both ways, as insurers will not be able to put their defences to juries in future cases.

What about the Coulter case? Although it is easy to see how the discretionary aspects of certain equitable remedies, such as injunctions and specific performance, might be difficult for jurors without any legal training, it is unclear how equitable principles or maxims could come up in a misrepresentation case.  The issue is whether or not the insured misrepresented important facts on the application.  This is something a jury can decide.  Since the conduct of the insurance company is not in issue, maxims like "He who seeks equity must do equity" or "He who comes to equity must come with clean hands" don't have any bearing.  Delay is not a factor, as the insurer can only raise non-fraudulent misrepresentation within the two year incontestability period established by the insurance legislation.
The availability of jury trials in misrepresentation cases should be based on a pragmatic assessment of the real issues in the case, and not on the somewhat arbitrary fact that "rescission" of contract is historically a remedy granted by courts of equity.
Coulter v. Co-operators Life Insurance Company, 2013 ABCA 295
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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.