“I can’t believe that any right thinking judge would find [or would not find] …”  I’m somewhat still surprised at the number of clients and even colleagues (usually pure corporate / commercial lawyers) who make statements like this.

There is a computer programming mantra which says “Garbage In / Garbage Out”.  In other words, if you write bad computer code (garbage in), you will not get the results you were looking for (garbage out).  While that can apply sometimes for the legal process, a variation is that what a non-litigation lawyer will sometimes see is “Incomplete In / Garbage Out”.  This is because of the rules of evidence for the legal process.  For example, if Daisy tells me that Gatsby went to Oxford, I naturally assume that Gatsby is an Oxford graduate.  Why?  Because (i) I have no reason to disbelieve Daisy; (ii) I have no reason to believe that Gatsby would lie to Daisy; and (iii) because, in the grand scheme of things, I probably don’t care too much about where Gatsby went to school.  Those factors being the case, I’m content to accept that Gatsby went to Oxford and eventually over time I will have accepted it so much that I will probably tell someone who asks me that Gatsby went to Oxford.  In a trial, however, the court will not accept this type of evidence.  Firstly, if evidence is being put before the Court, then it is assumed that everything has some importance.  Thus, where Gatsby went to school will mean something (either as a material fact or even as a factor in assessing Gatsby’s credibility as a witness).  Secondly, I cannot prove that Gatsby went to Oxford by having Daisy get in the witness box and say that Gatsby told her that he went to Oxford.  I will have to either put Gatsby in the box to give that evidence or else go through a reliable third party – such as someone from the Oxford registrar’s office who can confirm that Jay Gatsby was an Oxford student.

What does this mean for the litigant.  Well, first and foremost, it means that judges are coming to the lawsuit with a ”clean slate”.  Jay Gatsby is seen as a person of first impression.  The judge will not have gone to any of Gatsby’s parties and will (in most cases) not even have heard of Gatsby.  So all of the “background knowledge” that exists between the parties will not be known to the judge.  The only way that the judge learns these facts are if they are put into evidence before the judge.  If they are not put in front of a judge, either because they are not permitted (such as Daisy saying that Gatsby went to Oxford) or because a tactical decision was made to not introduce that evidence at trial, then the judge will not know that information.  That is where the disconnect often happens when someone says “I can’t understand how the judge could have come to this conclusion …”  The answer is often because everything that YOU know wasn’t made known to the judge for one reason or another.

If you want pure and total fairness, then you will have to appeal to God (or whichever higher being or authority you profess faith in) because God is all-knowing and only God can truly determine who is right and who is wrong.  Judges aren’t gods and they don’t profess to be.  They do the best they can with what is presented to them.  If Party A decides to not introduce facts X, Y and Z for some tactical reason, and if the judge decides against Party A – but might have found in Party A’s favour if the judge had known about any or all of X, Y or Z – then Party A cannot blame the judge.

Beyond the facts that are put to the judge, however, there is also the issue of how it is presented.  Judges are not robots with absolutely no biases.  Judges are human and they have biases – like everyone else.  If you have a car crash involving a sweet little old lady and a punk rock drummer who abuses cocaine, the chances are that if both of their stories are completely equal, the judge is more likely than not to accept the evidence of the little old lady.  Now, if you give the punk rock drummer a shave and a haircut, whiten his teeth, put him in a nice suit that covers up his tattoos, remove his piercings and keep out any evidence that relates to his cocaine abuse (which is quite possible if it is not relevant to the lawsuit), then the chances of the punk rock drummer winning the lawsuit go up substantially.  And if he wins, then the little old lady and her family will likely be the ones saying “I can’t understand how the judge could have come to that decision” – because they know what he looked like on the day of the accident and for one reason or another didn’t bring to the judge’s attention that the punk rock drummer wasn’t the “clean cut All-Canadian boy” that he appeared to be in court.

One of the keys to winning your lawsuit is to bear in mind that the judge’s thinking will be greatly influenced by both what is presented to the judge but also in some instances how it is presented.  If you are handling your own small claims court trial, don’t go in looking like the punk rock drummer in my example.  But however you go before the judge, make sure that the judge gets ALL of the facts necessary to find in your favour and don’t assume that the judge knows what you know.

Something to think about.

CALC

I was going to add another of my thoughts, but I’ll use this post to leave it to the judges themselves to give some of their own insight.

At this link, you will see an episode of Family Matters which is a show on CHCH in Hamilton.  As its name implies, it relates to family law cases.  However, this particular episode is a discussion with a retired judge who talks about some of the limitations of the court system.  Dealing with self-represented litigants; dealing with people who have the idea that the court should be like they see on The People’s Court or Judge Judy; dealing with the fact that judges are presented with only a portion of all of the facts; dealing with the all-or-nothing nature of the adversarial system; all of these issues apply to all types of litigation and are not exclusive to family law cases. 

That said, the discussion about mediation should be taken with a huge grain of salt since in a family law situation you have parents who are often trying to still raise their children and should therefore work together.   The example used is of mountain climbers who have to work together to get to the top.  In a dispute related to your business, sometimes that process will also apply – for example, if you have a dispute with one of your key suppliers and you both still have to get along.  But if you do not have an ongoing relationship with the other side, then, again, using the mountain climber example, neither you nor the other side will care if you cut the rope and let the other fall to his/her death.  So you have to be aware of these differences and realize that mediation may not work as well in non-family law cases.

If you have about 25 minutes, it’s a pretty good show to watch.  And if you have family law issues at home, you may want to check out some of the other episodes to see if any of them might be helpful for you.

Something to think about.

CALC

Perhaps because Passover is almost upon us, or perhaps because of being in court yesterday reminded me of it, I will start the series on judicial thinking with what I call the “Rule of Solomon”.

For those of you who might remember your Bible lessons on Sunday mornings, 1 Kings Chapter 3, Verses 16 to 28 tells the story of the two mothers who go before King Solomon.  Each mother claims that the child is hers and wants custody of the child.  Solomon says “OK, cut the baby in half and give each mother half and they’ll both be satisfied.”  One mother says “no, please don’t do that, give the baby to the other woman and let the child live.”  The other mother says “that’s fine, go ahead.”  Solomon gave the child to the first woman since she was clearly the mother and loved it.  This story lead to the (incredibly gruesome if you think about it) saying of “cutting the baby in two” to determine a dispute.   (Of course, all sorts of weird things happen to babies in sayings – they get thrown out with the bathwater, candy gets taken from them, etc.)

I was once told by a judge “I know I’ve made the right decision if both parties walk away and are both ticked off with my decision -but for different reasons.”  And that’s where the judicial thinking comes into play.  Everyone thinks of litigation as having one winner and one loser.  But is that really the case?  I would suggest that it isn’t the case.  It is very rare that there will be a 100% winner and a 100% loser.  A plaintiff, for example, will want 5 types of relief.  The judge may give him/her 2 or 3 types of relief.  Who is the “winner”?  The plaintiff who wins on 2 points or the defendant who wins on 3 points.  The plaintiff went from nothing to, say, $100,000 in damages.  The defendant went from facing a claim of $2,000,000 to only having to pay $100,000.

In many cases, the judge will “cut the lawsuit”.  Perhaps not in two, but into something less than the whole of what was sought.  The result is that if you are suing someone, you should be prepared from the absolute outset to realize that you are unlikely to get everything that you ask for in the lawsuit.  On the flip side, if you are defending you should be prepared from the outset that you are likely to face the plaintiff getting at least SOME relief and you should be prepared to have to pay something at the end of the day.  If you go into your lawsuit realizing that you are likely to win something and lose something, it will make you assess more quickly the strengths and weaknesses of your case and determine how far you want to fight the lawsuit and, in turn, how much money you want to spend for the fight.

Something to think about.

CALC

If you recall, one of the things I said at the beginning of this blog was that I was going to post when I found things that were worthy of writing about.  If I wanted to keep it current, I could write about the latest decision of the courts on what constitutes a valid contract, etc., etc.  But if this decision doesn’t add anything new to the law and just applies the same old rules and if it didn’t have anything special to small businesses, I wasn’t going to write about it just for the sake of saying something.  The problem with that approach, though, is that eventually one hits a bit of a “critical mass” and there isn’t a lot of new items to talk about.  So I have to wait until I can think of something interesting to write about.

Well, I’ve finally figured out a new series of things to write about and it is going to be a series from time to time about judicial thinking.  In other words, our system is based on laws but it is also based on principles of equity – that is, fairness.  This mixture means that there are definite rules, but also enough exceptions that the system remains “human”.  If it was simply making and applying rules without exceptions then we wouldn’t need judges, we could just hand disputes over to a computer and it would run some calculations on the variables and spit out the judgment.

Since we have a “human” system, I have come to learn a series of what one of my kids would call “cheat codes” that sometimes can help to understand the system or to appreciate what you might expect if you have to go through a lawsuit.  So, in this series, I will provide some of these examples of judicial thinking.

CALC

As business becomes more international, thoughts start to turn to arbitration to resolve dispute from that international trade.  This is neither surprising nor unreasonable.  However, the thought process usually only goes as far as deciding (a) whether disputes will be resolved by arbitration and (b) if so, whether it will be “institutional” arbitration (using an organization such as the International Chamber of Commerce or the American Arbitration Association) or a “non-institutional” arbitration (not using a particular organization but specifying what set of rules will be applied for any arbitration).  What is often not thought about, though, is how to enforce the arbitral “award” (that is, the decision of the arbitrator).

I often say to my clients that a judgment from a court is a lovely and fancy piece of paper but if the other side does not have the money to pay the judgment or the ability to comply with the judgment, then the judgment is not much more than a lovely and fancy (and expensive!) piece of paper.  With arbitral awards, the matter takes an extra step.  For a judgment, the only issue is whether it can be collected upon, so to speak.  For arbitral awards, the first step after the award is made is to have the award recognized by the local courts so that the award can be enforced with the power of the court backing up the enforcement.  Once that support is obtained, then you get to the next, and regular, step of trying to get the other side to actually pay or comply with the award.

It is in this context that I read an interesting article in Canadian Lawyer magazine’s latest issue on difficulties in enforcing arbitral awards in China.  I have not yet had the pleasure of dealing with a commercial arbitration involving a party from China.  However, after reading this article, it makes me question whether I want my clients agreeing to arbitration in China if there are significant difficulties in enforcing the arbitral award there.  Given the increase in business with China, it may be wiser for businesses to ensure that they are in situations where they do not have to go to China to enforce their rights – either through arbitration or litigation.  For example, let the Chinese be the supplier so that if problems arise you can look at the option of withholding payment.  Or if you are supplying goods or services to the Chinese firm, always ensure that you have sufficient deposits against goods or services so that you will not be caught short if they terminate the agreement or refuse to pay anything more.  (I know, easier said than done sometimes.)

But if you are conducting business with the Chinese, the article is a very interesting read and something you will want to consider before your next contract so that you can decide how much risk you have for the transaction. 

Something to think about.

CALC

While this post has nothing to do with small business law per se, I thought that I would put up this post because, to be honest, I had a real bugger of a time trying to find any information out regarding hearings before the Trade-Mark Opposition Board and there wasn’t a lot of procedural information out there.  I was surprised that there wasn’t much in either Odutola on Canadian Trade-Mark Practice or Hughes on Trade-Marks in this regard.  I made inquiries of numerous colleagues for whom they all had had the same experience as myself – they have done trade-mark oppositions but the determination was always on the basis of written arguments and nobody had attended an oral hearing.  Then I spoke with my good friend Aaron Schwartz who had done them in the past and his advice to me was “they’re just like arguing an appeal, don’t worry you’ll be fine.”  That made me feel better in the sense that at least I was sure that I wouldn’t be involved in something completely foreign to my sense of understanding.  And so yesterday I caught a plane and attended my first oral hearing on a trade-mark opposition.

I did manage to find one continuing legal education program in which oral hearings were quickly mentioned.  Unfortunately, I only copied the two pages that covered the section – if anyone ever happens upon this program again and wants to let me know who said these passages I’ll happily give credit to the author where it is due.  It was written:

Hearings are held in Hull, Quebec before a one-person board.  Note also that is is possible to participate in hearings by way of telephone conference call. … French language hearings along with simultaneous language translation facilties are available.  …  There is currently a backlog of approximately 190 cass for which hearings have been requested and are scheduled or await scheduling, or for which decisions are pending.  The actual hearing date that is granted is typically anywhere from nine months to one year from teh date the request is made.  Decisions typically issue within one month of a hearing.

…

One can expect a high level of adjudication in oppositions, indeed often better than other venues.  … With this in mind, it is advisable not to waste the Board’s time by restating the obvious, belabouring issues of law which have long been decided, or droning on about basic points which are raised in every hearing in which an Officer participates.  The experienced practitioner quickly and succinctly canvasses issues such as the onus on the parties, and the material dates for considering the various grounds of opposition.  Keep in mind that each Hearing Officer has the pleasure of listening to a trade-mark agent or lawyer remind him or her on an almost weekly basis that the onus on the parties has not changed since the week before.

Nor does it advance a party’s case to reread its written argument.  The better approach is to simply inquire of the Board whether they have had an opportunity to read the party’s written argument and might have any qustions regarding same.  The one should go on to either add points not included in one’s own written argument or to add commentary on the other side’s case.  Do not be afraid to try out new points of law, even if prior Opposition Board decisions are against you.  The Board will at least consider and rule on them in writing, which may provide an opportunity to pursue the argument on appeal, if the case goes that far.

From my experience yesterday, I can add the following updates or my comments.  Firstly, Hull, Quebec is now known as Gatineau, Quebec (which threw me off a little and shows my age I suppose).  Second, as it now stands, the Board is finishing off its new swanky hearing room (we used it but it’s not done) and in a few months it will be ready for use with video conferencing which will be better than hearings by way of conference call.  Third, yes, English-French translation service is available, but one has to be somewhat wary of it.  The translators that they had for my hearing were good but they were not legally trained.  To give an example, the moving party or the applicant in a legal proceeding is a “Requerant”  The literal, non-legal translation would be “the requirer” or “the requiring party”.  In this case, however, the translator should have said “the applicant” but I was given the translation of “the requirer” and it took me a few seconds to figure out that it should have been the applicant – which meant that I lost a few seconds worth of translation.  After about the half-way point, I started to wear my headphones half on my ear and was listening more to the French than to the translation (I really should have more faith in my French abilities).

I’m not sure how many cases are backlogged now, but I can say that between the time the other side requested the oral hearing and yesterday was slightly more than one year.  In this instance, I cannot stress enough how important it was that I had the research updated between the time of the written arguments and yesterday’s hearing.  Why?  Because as it turned out the Supreme Court of Canada had released its decision in Masterpiece Inc. about five months after our written arguments had been submitted and that case changed the way one approaches trade-mark oppositions now.  As the Board member put it yesterday, she viewed Masterpiece Inc. as “Trade-Mark Oppositions 101″ – so that should be your starting point for the next few years at least – and I would have been very sorry if the research wasn’t updated and that case wasn’t found and addressed.

In addition, the Board member indicated that the Board’s internal guideline now is to get decisions released within four months – and that’s just the guideline so it could conceivably be a little longer.

I’m personally not a fan of assuming that the Board has read all of my arguments and I’m not a proponent of the “just ask them if there are any questions” approach.  I decided to hit the highlights at least of each of my arguments and still make the additional points or comments on the other side’s written argument.

In terms of logistics, the Oppositions Board hearing room has now moved to Room C232 of Phase II of Place du Portage.  Place du Portage runs from rue Victoria on one side to rue de l’Hôtel de Ville on the other side.  Phase II is on the Hôtel de Ville side – so if you have lots of materials to haul with you, have the taxi go to the Hotel de Ville side rather than the rue Victoria side.  Once you get into Phase II at the Hôtel de Ville side, go up the escalator and you will see Room C232 at the top of the escalator – so you don’t have to go through the security checkpoint.

I should also mention that it was stated by the Board Member that the Board does also hold hearings in Montreal – but only where both the applicant and the opponent are represented by lawyers or trade-mark agents based in Montreal.

There is a Practice Notice that is in effect for trade-mark opposition proceedings.  Suprisingly, it also says little about the actual procedure at the oral hearing.  The only portion that deals with the requirements for the hearing itself is found at Section X.8 and that simply says that parties are required to send to each other and to the Board at least five working days before the hearing a list of the case law and copies of any unreported decisions that they intend to rely upon at the hearing.  In this instance, I focused on the wording “to be relied upon at the hearing”.  I had cited about 20 cases, but I only planned to address about 6 of them in my oral arguments – the other 14 or so were either additional examples of my main case citations or else they dealt with items like on whom a certain onus rested.  So, I put in my 6 cases on the list and left it at that.  The other side, however, had cited over 30 cases and their lawyer sent in a list that had all of their cases listed.  The Board member said absolutely nothing about this – even though only a handful of cases were cited by the other lawyer.  I’m not complaining about this and it really didn’t matter in the end.  Next time, though, I will simply send in a list of all of my cases cited in the written arguments and any new cases that came up in between the written arguments and the hearing and then I can refer to whatever ones I want.

What was not clear was who speaks and when.  The onus is on the applicant to satisfy the Board that there is no likelihood of confusion.  As such, I presumed that I would go first, then the other lawyer and I would get a chance of reply.  As it turned out, the order of speaking was the Opponent’s lawyer first, then myself for the applicant, and then the Opponent got a chance of reply.  I was fine with either order, but at least now I know who speaks when.

When I was first married I had problems dealing with how to address my mother-in-law.  I was brought up not to call my elders by their first name.  I wasn’t going to call her “Mom” because she isn’t my mother.  I wasn’t going to call her “mother-in-law” because that sounded too formal and inappropriate.  I honestly had no idea what to call her so for over a year I simply spoke with her directly and never called her anything.  The “difficulty” (to the extent that there was one) was alleviated after a year with the birth of our first child and my ability to now call her “Grandma”.  Fortunately, though, that year gave me practice for speaking with the Board Member.  I couldn’t call her Your Honour, because she isn’t a judge.  I just couldn’t bring myself to referring to a woman (or a man for that matter) as a “member” – for reasons which should be obvious.  I did not feel comfortable referring to her by her personal name since I had never met her before and it seemed awfully familiar (although, in fairness, it wasn’t a stuffy or overly formalistic hearing).  So, I just spoke directly with the Board Member and didn’t address her directly but I did make mention from time to time along the lines of “if the Board should find …”  I had asked the registrar before the hearing how to address the Board Member and he had no idea.  I guess you’ll have to figure out what works for you and you are comfortable with.  I would still be calling judges “Mi’Lord” and “Mi’Lady” if we weren’t required to call them “Your Honour” nowadays – I like the old formalities.

In terms of the hearing itself, the Board Member basically said at the outset that she had a few questions she wanted to ask of each side and that some other questions might arise as we made our arguments, but that she was basically willing to let us make our arguments with little interference from her.  The hearing did proceed in that manner.  Compared to other hearings I’ve been in, it was quite painless.

The final issue to mention is that there are no costs provisions under the Trade-Mark Act or the regulations or the practice notice for opposition board hearings.  So, my last minute panic (that I always get before a hearing, motion, etc.) that I have forgotten to prepare a bill of costs or costs outline was quickly relieved when I ran into the office late the night before and saw in Hughes on Trade-Marks that there are no costs provisions so I didn’t have to prepare anything related to costs.  At least one less thing to worry about from a practice standpoint (although if my client wins the hearing I’m sure it would like its costs – but the same could be said for the other side if it wins).

Hopefully some of the above information might be useful to someone else facing their first opposition board hearing and looking for some practical tips on how it works.  Best of luck in your hearing!

CALC

The Court of Appeal released a decision yesterday that really doesn’t advance the law related to assignments so much as it serves to reinforce the the prior law is still valid and will be upheld.  Put simply, A and B were friends and work colleagues.  They did work with C.  Subsequently, B left the workplace and started up his own business and tried to do business with C.  A was able to get an injunction to stop B and C doing business for a short period of time – 3 months.  For whatever the stoppage for three months was worth, it clearly displeased B.  Later on, A wanted to buy property and C agreed to loan A over $100,000.  A subsequently defaulted and C agreed to assign the loan debt to B – with the result that B was now in the shoes of the lender and A owed the money to B.  B and C agreed that if A paid the money to B that B and C would then later decide how to split the monies that were recovered.

A complained that the arrangement between B and C was champertous and therefore should not be an enforceable assignment – that is, that A should still have to deal with C, not with B.  Why?  In part, I’m sure, because of the bad blood between A and B.  In part, I would expect, in that A would be concerned that his competitor, B, would now be in a position to potentially run him out of business, etc.

Madam Justice Feldman rejected the argument that this was a champertous situation.  She quoted from a prior decision of the Court of Appeal that nicely summarizes the law of champerty and maintenance:

Although the type of conduct that might constitute champerty and maintenance has evolved over time, the essential thrust of the two concepts has remained the same for at least two centuries. Maintenance is directed against those who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputed (litigation) of others in which the maintainer has no interest whatsoever and where the assistance he or she renders to one or the other parties is without justification or excuse.  Champerty is an egregious form of maintenance in which there is the added element that the maintainer shares in the profits of the litigation.

The law had long held, however, that the mere assignment of a debt (even if it is does for an improper motive) is not, in and of itself, champertous.  In upholding this law, the assignment from C to B was not champertous and therefore was valid.

Similarly, the assignment was valid because there had been compliance with Section 53 of the Conveyancing and Law of Property Act.  That section reads as follows:

53.  (1) Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has  been given to the debtor, trustee or other person from whom the assignor would  have been entitled to receive or claim such debt or chose in action is effectual  in law, subject to all equities that would have been entitled to priority over  the right of the assignee if this section had not been enacted, to pass and  transfer the legal right to such debt or chose in action from the date of such  notice, and all legal and other remedies for the same, and the power to give a  good discharge for the same without the concurrence of the assignor.

Is there anything earth-shattering in this case.  Not really.  However, it does give me a good excuse to set out for you the law of champerty and to advise of Section 53 of the Conveyancing and Law of Property Act.

Let’s talk quickly about champerty and maintenance.  Litigation is not for the faint of heart – or of wallet.  What often happens is that people start the lawsuit expecting it to cost $X and soon realize that it is going to cost more than $X.  So, they start borrowing money from friends, relatives, etc. to help pay for their legal fees.  This is borderline maintenance but usually will not be overly problematic.  What is far more problematic is when Person X says to Person Y – go ahead and sue Person Z and I’ll cover your costs.  If that happens, then Persons X and Y are going to be in trouble.  So, you should watch out when you are asked to give guarantees or agree to cover legal fees for any business associates.

Section 53 of the Act, is also important for you to know about.  Why?  Because it has two aspects.  The first is that any assignment is not effective as against a debtor unless and until notice of the assignment is given.  So, suppose that one of your customers cannot pay you, but he says that he is owed a lot of money by one of his customers and he agrees to assign over to you the accounts receivable so that when that customer pays, the money goes to you.  That could be a very good setup and ensure that you get paid.  However, unless and until the customer is given written notice of this assignment, he has the right to continue to pay your customer directly, instead of paying to you, and you will have no right to complain (especially when, as usually happens, your customer then proceeds to blow the money instead of forwarding it to you).

The other aspect to bear in mind is the fact that Section 53 of the Act preserves the concept that a person takes an assignment “subject to the equities”.  So, in my example immediately above, suppose that the assignment occurs and then you go to your customer’s customer and say “you owe my customer $100,000 and you are now to pay me.”  The customer’s customer has the right (assuming it is a valid claim) to say something like “I admit that I would owe $100,000, except for the fact that the product / services / whatever provided by your customer to us was deficient / non-existent / whatever and so we do not have to pay $100,000 but only $X (being some amount less than $100,00) because of the problems caused by your customer.”  If it is a valid claim, then you will be stuck with this reduction and will not be able to say “that’s between you and our customer, pay us the $100,000 and then any rebate or reduction you will have to take up with our customer.”

So, if you are either giving or taking an assignment of a debt, always bear in mind that you will want to ensure that it is not seen as being a form of maintenance or champerty that will invalidate the assignment and also keep in mind the requirements of Section 53 of the Conveyancing and Law of Property Act to ensure that you can enforce the assignment and also to ensure that either there are no set-offs or reductions that can be applied or that a sufficient discount is given on the price paid for the assignment to take such potential set-offs or reductions into account.

Something to think about.

CALC

Ontario’s franchise legislation is known as the Arthur Wishart Act, 2000.  Among its various provisions is the requirement that franchisees are entitled to get disclosure of certain items such as financial statements or projections, copies of franchise documentation, etc.  This permits franchisees to get an idea of what they are truly getting into.  Or, alternatively, it gives them enough that they can take all of this documentation to their lawyer and their accountant who can then lead them through the mass of paper and explain it all to them.

But when are you entitled to get this disclosure?  The Act has a loophole and it has now become, I would argue, a rather large loophole thanks to a decision today by the Ontario Court of Appeal.  The loophole is found in subsection 5(7).  The requirement for disclosure does not apply if (a) the term of the franchise agreement is for one year or less AND (b) no franchise fee is charged.

In TA & K Enterprises, the plaintiff became a franchisee of Suncor Energy.  It signed a franchise agreement that was for only one year and did not have any franchise fee but, rather, required only payments of royalties.  The franchise agreement expired at the end of the one year and at the end of the year then Suncor would normally negotiate a new franchise agreement or, as happened in this case, Suncor wrote to the franchisee and said that the parties would continue their arrangement through a series of extensions of the franchise agreement on a “month to month” basis.  Thus, if they kept their relationship going for 100 years, it would technically be a one year agreement combined with 99 years worth of monthly extensions.

In the case, the franchisee had the franchise for one year and the agreement expired in accordance with its terms.  It was then extended on the same terms and conditions on a month to month basis for another 9 months.  Meanwhile, two months after the franchise agreement expired, Suncor wrote to the franchisee and gave notice that the monthly extensions would only continue for another 7 months and then the franchise arrangement would be terminated.  Prior to this, however, the franchisee sued and sought class action status on the basis that the agreement should be rescinded because there was no franchise disclosure given.  (Why would they do this?  Ultimately it would still terminate the relationship but then the franchisee would be able to get its franchise royalty payments back and well as other costs.  From the franchisee’s perspective, it would be “I worked hard and paid money to you in terms of royalties to build up your brand and you’ve now pulled the rug out from under me.  That’s fine, but it will now cost you in that you have to reimburse me for what I did for you.”)

Suncor brought a motion for summary judgment on the basis that the term was only for one year and that there were no franchise fees – only royalties.  Suncor won at the Superior Court and the franchisee appealed.  Mr. Justice Goudge in today’s decision on behalf of the Court of Appeal also agreed with Suncor’s position holding that the fact that the franchise agreement was subsequently extended did not mean that this was not a one year agreement and also that royalties are not franchise fees.

Is the decision wrongly decided?  Not at all.  Based on the facts of this case, if I had been the judge I would have come to the same conclusion.  But what it does, though, is recognize a flaw in the legislation, I would suggest.  As Justice Goudge recognized, a primary concern of the exception was that if someone set up a Pizza Pizza franchise booth at The Ex for a few weeks each Summer, it wouldn’t be fair to require Pizza Pizza to prepare a ton of disclosure documents for a relatively short franchise arrangement.  Similarly, it is a little difficult for the franchisee in this case to complain that it did not get the disclosure since it continued on as a franchisee for more than one year and it appears that the main purpose for complaint was the fact that Suncor decided to terminate the arrangement (in other words, it was trying to use the Act to help it get out of what turned out to be a bad deal it had made).

The problem, though, is the recognition that many businesses fail within their first year.  Suppose that I wanted to set up a submarine sandwich franchise through Mr. Wraps Sub Shops.  I enter into the arrangements but I don’t get full or proper disclosure.  I carry on for, say, 9 months and then come to the realization that I have lost a ton of money.  I then find out after my business has failed that, in fact, the franchise never had a hope of succeeding and that I was basically suckered out of my money by the franchisor.  Am I protected by the Act?  Nope.  Not if it was only a one year term on the franchise agreement.  And what franchisor in the future is going to want to put franchise agreements for more than one year?  Probably not many now.  To this, however, we add the fact that the key money maker for franchisors has been the collection of franchise fees.  How do they now get around that?  They just up the amount of the royalties payable or front-end load a higher royalty that is subsequently reduced over time.

Many small business opportunities come through franchising arrangements.  What today’s decision means for you is that you are going to have to either seek a franchise arrangement that exceeds one year or else you are going to have to insist on obtaining full and complete disclosure of the type required under the Act.  Otherwise, the protections afforded under the Act are likely to not be available to you.  Does that mean that you are s.o.l.?  Not necessarily, but without the helpful provisions under the Act, it makes your situation a little harder to handle and makes any litigation a little tougher (but not impossibly so) to win.

Something to think about.

CALC

One of the ways that I can tell how good or bad the economy is going is based on the frequency that I get inquiries from clients about collection agencies – either because they want to use a collection agency or because they are getting called by collection agencies.  Not too surprisingly, I am seeing more matters lately between my clients and collection agencies. 

Now, I have to say up front that I have mixed feelings about collection agencies – just like I have mixed feelings about many other trades: lawyers, dentists, doctors, police officers, real estate agents, etc.  Many are very good and professional in their dealings but there are more than a few “bad apples”.  I average about two or three instances per year where I am required to send a letter to a collection agency to have them tone down or reel in one of their agents.  And I also appreciate that sometimes you have to break a few eggs to make an omelette, but when I have to send the letters that is because things have gone too far and the collection agent has become too aggressive.

In Ontario there is a Collection Agencies Act and, more importantly, there is a regulation under that Act which sets out what collection agents can and cannot do.  That regulation can be found here and, most importantly, you want to look at Sections 20 to 25 which set out the rules more fully.  By summary, though, here are some of the key rules that collection agents should be following (and that if you are the one hiring the agency, you will want them to follow and, if you are getting the calls from the agent, you will want them to follow as well):

1. The collection agency cannot simply call the debtor out of the blue.  A written notice must be sent first and then the collection agency has to wait six days before they can start calling.  That said, if you are the debtor, check your mail because if the letter comes and you decide not to open it, that’s not going to be sufficient – all they have to do is send the notice.

2. If you are the debtor and you dispute that you owe the money AND you suggest that the matter be dealt with in the Courts AND IF you send a letter to this effect by registered mail THEN the collection agency should stop trying to contact you.  Of course, though, this will then mean that the lawsuit is on and you will have to deal with the issue in the Court.  That said, if a collection agency is involved, then chances are likely that you are dealing with a matter under $25,000 so the claim will go to Small Claims Court and you do not have to have a lawyer representing you.

3. With various exceptions, the collection agency should not be speaking with your relatives or employer about your debt and trying to get them to assist in the payment of the debt in some way (either through payments on your behalf or simply to have you contact them - ie. applying pressure on you through your relations and boss).

4. There are certain times when the collection agency is not allowed to call (for example, after 9:00 p.m.) as well as certain days (such as holidays) and any communications should not be threatening or have improper (ie. profane) language used.  In this regard, I’ll take a moment to mention my favourite story regarding an abusive collection agent.  This guy was really bad and I had to send his bosses a very strongly worded cease and desist letter.  The response I got from him was a voice-mail telling me to “F” myself this way and that way but that he wouldn’t be calling my client anymore.  However, after threatening to report me to the Law Society (a threat that either he never fulfilled or, if he did, the Law Society just ignored it and never bothered telling me it was ever made because it would have been a b.s. complaint), he said that he would also be calling “Mr. Gowling” to report about my behaviour.  At the time, I was working at Gowling Lafleur Henderson.  Not only was I not worried about any such complaint to Mr. Gowling because I knew that I had done absolutely nothing wrong, but more importantly, I had to laugh because Gordon Gowling had died many years before that time.  I figured that if the abusive collection agent was truly able to speak with Mr. Gowling about my conduct, I would have bigger problems to deal with than the collection agent and would have to call Ghostbusters!

5. Collection agencies are not allowed to threaten that if the debtor does not pay then there will be a lawsuit unless there will actually be such a lawsuit – in other words, no veiled threats.

6. The collection agency isn’t allowed to mislead the debtor in order to get the debtor to pay.  So, for example, there is a two year limitation period for most lawsuits in Ontario.  It is not uncommon for creditors to wait for most of the two years and then turn the matter over to collections just before it’s too late.  Suppose this happens and the collection agency says that if the debtor doesn’t pay that he/she/it will be sued.  And suppose further that the limitation period has now expired.  And, to round things out, suppose that the collection agent does actually know that the lawsuit would be brought (even though it would die due to the limitation period having expired).  In that instance, the collection agent has mislead the debtor because the lawsuit could not be brought and be valid.

Those are the main points to consider if you are dealing with a collection agent.  For a more fulsome list of the rules, go to the regulation and see for yourself.  And hopefully you will never have to make reference to these rules but if you have to do so, at least you now know that they are there.

Something to think about.

CALC

I was reading a write-up in the latest issue of Law Times that reported a decision of Madam Justice Pepall of the Ontario Superior Court back on August 9. It’s an interesting decision for a couple of reasons – but with a common thread. The gist of the case is that someone decided to write blog posts about a lawyer who didn’t like what was being said about him (exactly what was said isn’t set out in the decision) and he turned around and sued. This decision related to a motion to: (i) approve of service by e-mail; (ii) to grant an injunction to restrain the publication of the blog; and (iii) to force the blogger and others to reveal their identities.

Justice Pepall’s decision can be found here.

Her Honour granted the relief sought and ordered both the injunction and the requirement for the blogger to reveal his/her identity. Central to this latter part of the Order was the fact the Court held that anyone who was publishing defamatory statements on the Internet, with a possible exception for those commenting on political matters, had no reasonable expectation of privacy and thus could be compelled to reveal his/her identity. This also serves as a reminder to everyone to really think about what is being said before it is put into writing – whether in a blog, an e-mail or even just plain old pen and paper. Yesterday’s “flame war” on a forum can be tomorrow’s defamation lawsuit.

The final issue was that of service by e-mail. At the outset I should mention that with a few limited exceptions, the Rules of Civil Procedure haven’t quite made it to the 21st Century yet. Generally speaking, service via e-mail is one of the areas where the Rules haven’t caught up yet – although such service is permitted in some instances when the e-mails are between lawyers. In this case, the blogger had given a Gmail account and the plaintiff had sent the motion materials for the injunction to the blogger via e-mail. The blogger responded by saying that he/she had received the e-mail but didn’t receive the attachments. It was clear, though, that the blogger was trying to be cute. Justice Pepall didn’t buy it and found that the blogger had received sufficient notice of the motion that he/she could have tried to get the attachments if he/she wanted and that therefore the service via e-mail, even though it didn’t meet the full requirements of the Rules, was sufficient to be validated.

The common feature among the decision – sometimes it pays to shut up. If the blogger had kept his/her mouth (keyboard?) shut and not made the defamatory comments, then he/she wouldn’t be stuck in this lawsuit in the first place. Meanwhile, if he/she hadn’t responded to the e-mail serving the motion record then Madam Justice Pepall would have had more concern about granting the Order since she would have been worried that the blogger had no idea that the motion was being heard.

Beyond this, though, one should also give thought to the concept that it pays sometimes to shut up in a slightly different light. In the example of this case it is what the blogger said about the lawyer (that is, another person) that gave rise to legal problems for the blogger. However, in another case one’s own comments could come back to haunt you. As an example, a relative of mine was mentioning to me yesterday the situation of a person who posted to a forum that my relative frequents. This person gave numerous types of personal details about the person’s approach to parenting. One of the forum participants thought that these comments were examples of improper parenting. The person had given sufficient personal information over a series of posts such that the other participant was able to determine who the person was and then make a complaint to the local children’s aid society about the person. The children’s aid society investigated and found nothing improper. However, the reality with children’s aid societies is that if a second complaint is ever made against this person then the automatic presumption is that “where there’s smoke, there’s fire”. (How do I know? I had a similar case where a complaint was made against one of my clients to a children’s aid society that was ultimately dismissed by the CAS but because it had been a second complaint – the first one being an unsupported “anonymous” complaint that had been quickly investigated and determined to be unmeritorious – it was much harder to satisfy the CAS that there wasn’t a problem.) In this case, it was the person’s own posts to the forum that resulted in the person having to deal with the CAS – in other words, this person’s own words came back to haunt him/her.

Something to think about – and seriously consider whether sometimes it just might be better to shut up than to say anything.

CALC