Editor’s Note: This post was written as a preview of an upcoming Supreme Court of Canada decision for the Fantasy Courts website and newsletter.

This Week at the SCC

The Supreme Court of Canada is releasing two decisions this week. The SCC will rule on R. v. Canada North Group on Wednesday, July 28, 2021 and Grant Thornton LLP, et al. v. New Brunswick on Thursday, July 29, 2021.

At issue in the Canada North Group bankruptcy and insolvency appeal is whether the Companies’ Creditors Arrangement Act gives the court the ability to rank court-ordered priority charges ahead of the Crown’s interest in deemed trusts created by the Income Tax Act. The chambers judge found that the court had such an ability and the Court of Appeal dismissed the Crown’s appeal. At the SCC, the Crown argued that Parliament intended through legislative amendments to provide the Crown with a powerful tool to ensure that employee source deductions are collected in the form of a deemed trust. To force the Crown to contribute property to the restructuring process under the CCAA is not compatible with fundamental principles underlying Canadian insolvency legislation. The Respondents, Ernst & Young and Business Development Bank of Canada, argued that in order to facilitate a successful reorganization, courts need to be afforded broad discretion and that includes discretion to grant court-ordered charges in priority to deemed trust claims. Permitting financially distressed companies the opportunity to restructure rather than ceasing operations and liquidating is beneficial not only to those companies and their creditors, but also to their employees, communities and the Crown.

At issue in the Grant Thornton v. New Brunswick appeal is the level of knowledge required to discover a claim under a limitation act. New Brunswick commenced an action in negligence against Grant Thornton for an allegedly sub-standard audit of Atcon. In June 2009, New Brunswick relied on Grant Thornton’s unqualified auditor’s report in agreeing to execute loan guarantees. Nine months later, Atcon was placed into receivership and New Brunswick had to pay $50 million to the bank as a result of the guarantees. New Brunswick waited until June 2014 to file a statement of claim against Grant Thornton. It argued that it was not time-barred because it had yet to receive Grant Thornton’s audit file and working papers and therefore could not have discovered the claim.

Grant Thornton sought summary judgment on the basis that New Brunswick’s claim was time-barred. The motions judge allowed Grant Thornton’s motion, finding New Brunswick discovered its claim more than two years before commencing the proceedings. The Court of Appeal of New Brunswick allowed New Brunswick’s appeal, holding that the applicable test was more exacting than the one applied by the motions judge, so that the two-year limitation period did not begin to run until a claimant discovered they have a claim, rather than discovering they have a potential claim. At the SCC, New Brunswick argued that knowledge of a potential claim is not sufficient to trigger the limitation period. Grant Thornton argued that knowledge of a potential claim is sufficient and requiring a higher degree of knowledge is incompatible with jurisprudence. It would be absurd to have sufficient knowledge to be able to file a detailed and lengthy statement of claim while at the same time saying the claim was not yet discovered for the purpose of a limitation act.

I’m strongly leaning towards appeal allowed in the Grant Thornton appeal and it will be unanimous. For the Canada North Group appeal, I’m less certain, but I’m leaning towards appeal dismissed with the Court agreeing that it’s a matter of discretion left to the judge handling the CCAA proceedings.

Last SCC Decision

  • On July 23, 2021, the Supreme Court of Canada released its decision in Corner Brook (City) v. Bailey, 2021 SCC 29. The SCC unanimously allowed the appeal and reinstated the order of the application judge.
  • The respondent Bailey had struck a City employee performing road work with her husband’s car. The respondent sued the City for property damage to the car and physical injury. They settled with the City and released the City from liability. Years later, during the action brought by the City employee against her, the respondent brought a third-party claim against the City for contribution or indemnity. The application judge concluded that the release barred the respondent’s third-party claim against the City and stayed the claim.
  • The SCC confirmed that a release is a contract and should be interpreted according to general principles of contract law as set out in the Court’s previous decision of Sattva. These principles require courts to give “the words used [in a contract] their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”. The surrounding circumstances consist only of objective evidence of the facts at that time. It does not include the subjective intentions of the parties.
  • The release in this case clearly stated that the respondent was giving up her rights against the City in “all actions, suits, causes of action… foreseen or unforeseen… and claims of any kind or nature whatsoever arising out of or relating to the accident”. The respondent’s third-party claim against the City came within the plain meaning of those words. The surrounding circumstances of the case also confirmed that the parties, when signing the release, had objective knowledge of the third-party claim.

Season Update

With only one appeal judgment left to be rendered from appeals that were heard in 2020 (6362222 Canada Inc. v. Prelco Inc.), we’re coming to the end of the season. Assuming Prelco will be released shortly, we’ll close off season 6 once that’s out and hopefully be able to start fresh in September.

-Tom Slade