Guide to Doing Business in Canada: Dispute resolution & litigation

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20 October 2023

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Dispute resolution & litigation

While it is similar to the American regime, the Canadian approach to dispute resolution is informed by the unique nature of the Canadian court system and legislative landscape. Features such as the multi-level federal and provincial court system and the varying practices and procedures used in courts and tribunals will influence any strategy for dispute resolution in Canada.

Whether through litigation, mediation or arbitration, effectively resolving disputes in Canada requires experienced lawyers who are well-versed in local practice. Experience and skill in navigating the Canadian legal landscape is particularly important in multi-jurisdictional litigation, complex commercial litigation, class actions, employment claims, product liability claims and other like matters that arise in the course of transnational business.

This chapter is divided into four sections:

  1. The court system in Canada
  2. Civil litigation (including alternative dispute resolution)
  3. Class proceedings
  4. Product liability

1. The court system in Canada

The court system in Canada comprises a network of courts in each of the 10 provinces and three territories, as well as courts at the federal level. The provincial courts hear both civil and criminal matters, with trial courts and a court of appeal in each province. The provincial courts are "courts of inherent jurisdiction" and, as such, can award all legal and equitable remedies.

The Federal Court of Canada, by contrast, is a statutory court and can hear only such matters and award such remedies as are specified in its enabling statute, the Federal Courts Act. The Federal Court and the Federal Court of Appeal deal with claims involving specified matters under federal jurisdiction - such as admiralty, immigration and intellectual property - and claims against the federal government.

In addition to the courts, there are many specialized boards and tribunals at both the federal and provincial level that deal with specific subject matter and regulate specific industries. Examples of these boards and tribunals include:

  • The Canadian International Trade Tribunal (international trade)
  • The Canadian Radio-television and Telecommunications Commission (broadcasting)
  • Provincial municipal boards (land-use planning and expropriation)
  • Provincial securities commissions (capital markets)

Appeals from the decisions of boards and tribunals, as well as appeals of governmental or ministerial decisions, are heard by way of applications for judicial review to either the superior court in a province or the Federal Court of Canada, depending on the jurisdiction of the tribunal or government decision-maker at issue.

Appeals from the provincial courts of appeal and the Federal Court of Appeal are heard by the Supreme Court of Canada, with leave to appeal typically being required.

2. Civil litigation (including alternative dispute resolution)

  1. Court proceedings

Claims in the provincial courts are generally made by way of actions and applications (for civil and commercial disputes) or prosecutions (for criminal or quasi-criminal matters). Civil actions, unless settled, are normally determined by way of trial. A very high percentage of cases settle short of trial at mediation, judicial pre-trial conferences or by the parties or their counsel directly.

Except in cases involving personal injuries, jury trials are not a common feature in civil or commercial disputes in Canada and are even prohibited in certain types of matters, such as mortgage foreclosures and dissolutions of partnership, as well as cases where there is a claim for an injunction, or claims for partition or sale of real property. Applications for judicial review of the decisions of boards and tribunals are normally heard by one or three judges, depending on the decision at issue.

Proceedings in the provincial and federal courts are governed by rules of procedure, which are quite similar across the country and have many aspects in common with American procedure. There are significant differences between Canada and the United States, however, in the procedure for pre-trial discovery and awards of legal costs. Many of the superior courts in the provinces have different divisions for claims of different monetary values. For example, in Ontario there is a small claims court that hears civil actions where the amount claimed is $35,000 or less, exclusive of costs and interest. Ontario also has a Simplified Procedure for claims for money or property (real or personal) up to $200,000 in addition to the regular procedure for claims over $200,000.00.

  1. Discovery phase

Some provinces require parties to negotiate discovery plans, which set out agreed upon obligations and limits on the discovery process, along with timetables.

Documentary Discovery: The first phase of discovery is the exchange of documents. Parties engaged in civil litigation are generally required to produce to the opposite party all of their non-privileged relevant documents (such requirement does not exist in Quebec but specific documents may be requested) and testify under oath at a pre-trial examination for discovery.

Failure to preserve and produce relevant documents can result in an adverse inference being drawn as to what the missing documents might have proven, an award of damages or costs, or even the striking of the party's pleading. As a result, it is a common practice in Canadian commercial litigation to send litigation hold letters to opponents and/or opposing counsel asking that they preserve all documents relevant to existing or anticipated litigation.

The obligation to disclose all relevant documents in a party's possession can be quite burdensome, particularly with the proliferation of electronic documents. In response, Canadian courts have begun to recognize the principle of proportionality. The rules of procedure, and particularly the rules governing documentary production and examinations for discovery, must be interpreted so that the time and expense devoted to the proceeding is proportionate to the issues and the amount at stake in the action. Proportionality is not a shield that can be used to hide harmful or damaging documents. However, if the cost or degree of effort required to produce all potentially relevant documents is disproportionate to the value of the claim, the principle of proportionality can be invoked in an effort to avoid having to search for all potentially relevant documents.

Examinations: At examination for discovery, as a general rule, each individual named in the proceedings and a single representative from each corporate party is subject to a pre-trial examination under oath. In general, non-party witnesses are not subject to pre-trial examination or deposition. The representative of a corporate party is required to inform himself or herself of the relevant facts and can be questioned on both his or her own personal knowledge of the matters in issue, as well as the knowledge, information and beliefs of others within the organization. If the witness does not know the answer to a question asked on discovery, the witness may be required to make inquiries of others or to review his or her records to determine the answer to the question.

Undertakings and Refusals: A party can give an undertaking to answer a question that they are not in a position to answer at the examination. An undertaking gives rise to an enforceable obligation to answer the question. Any questions that a party refuses to answer can become the subject of a refusals motion, where the party denied an answer seeks the court's assistance in compelling the party to answer those questions. Generally, the discovery phase of litigation ends when the parties have completed examinations for discovery, answered all undertakings and completed refusals motions.

In some provinces, there are limits on the duration of the examination for discovery. In those provinces, a party wishing for more time, or the right to examine a non-party, may seek leave to do so from the court. Oral examinations may also be prohibited if the amount at stake is below a certain threshold.

  1. Interim relief

There are various interim orders that Canadian courts can grant to preserve the rights of the parties pending trial, including:

  • Interlocutory injunction to prevent a defendant from engaging in specified conduct for a set period of time, where the moving party is able to demonstrate that such conduct would cause injury to it and that such injury could not be adequately compensated by damages or could not be cured (because the moving party is unable to collect damages) if the matter were to be resolved in the moving party's favor at trial.
  • Mareva injunction to seize and secure the defendant's assets to ensure that such assets remain available to satisfy any judgment that the plaintiff may ultimately obtain.
  • Anton Piller order, which allows the plaintiff access to the defendant's premises to inspect and remove items over which the plaintiff asserts a proprietary claim, or to secure and preserve evidence needed for trial.
  • Order for interim preservation of property in the possession of a third party.
  • Norwich Pharmacal order, which can be used to compel the production of documents in the possession of a third party in order to find and preserve assets, identify potential defendants and confirm whether a cause of action exists.

Summary judgment motions have also become a more popular option for litigants since a landmark Supreme Court of Canada decision in 2014, which encouraged courts to consider with more scrutiny whether the expense of a full trial is necessary. In many commercial cases, a dispute can be fairly adjudicated on a motion for summary judgment instead to either resolve a claim in its entirety or narrow the issues in cases before trial.

  1. Costs

In many provinces, the losing party in a civil proceeding is ordered to indemnify the winning party for some or all of the winning party's legal costs (lawyers' fees and disbursements). There are different scales of costs that can be awarded - partial indemnity, substantial indemnity, full indemnity or tariff costs - with the norm being partial indemnity. The award of costs is always at the discretion of the judge(s) hearing the matter, and the obligation to pay costs and the quantum of costs awarded may be influenced by degree of success, the conduct of the parties, offers to settle that may have been exchanged and fairness.

In some provinces, like Ontario, the rules create incentives for parties to settle early by creating cost consequences to parties who reject a settlement offer and then get a result at trial that is worse than what was offered to them. In the case of a defendant who rejected an offer, and then is ordered to pay more than the offer to settle, they will pay substantial indemnity costs (rather than partial indemnity) for any costs incurred after the date of the offer. In the case of a plaintiff, they may succeed in the claim but if they are awarded less than what they were offered in a settlement proposal, they would have to pay partial indemnity costs to the defendant for costs incurred after the date of the offer to settle.

  1. Alternative dispute resolution

(i) Mediation

Mediation is a popular option for litigants, primarily because the early resolution of disputes minimizes the cost of litigation. A number of jurisdictions in Canada require the parties to engage in some form of mandatory mediation as part of the court process and, if a commercial contract has a mandatory mediation clause, it will likely be enforced before the parties can proceed with litigation.

At the conclusion of a successful mediation, the parties will normally memorialize the terms of the settlement in a written settlement agreement that is signed by the parties or their lawyers. A settlement agreement can be enforced through court proceedings. An oral settlement agreement is also enforceable if there is sufficient evidence to prove its existence and terms.

(ii) Arbitration

Businesses in Canada are increasingly choosing to resolve their contractual disputes by arbitration rather than through the traditional court process. While arbitration is not necessarily less costly, it can allow for greater control over procedure, more confidentiality than a public court process and the ability to select decision-makers with expertise in the subject matter of the dispute.

All of the provinces and territories in Canada have legislation governing both international commercial arbitration and domestic arbitration. Every province has enacted an International Commercial Arbitration Act, which adopts the United Nations Commission on International Trade Law's (UNCITRAL) Model Law on International Commercial Arbitration(1985), with amendments as adopted in 2006,as the law applicable to arbitrations that are commercial in nature and international in scope.

While there are differences between statutes governing domestic arbitration in each province, they have some common provisions. In general, these statutes oust the courts' jurisdiction over disputes that the parties have agreed to submit to arbitration. They also require a stay of related court actions and allow the court to intervene in arbitration only in limited circumstances. The general domestic arbitration acts do not govern certain types of arbitrations - most notably arbitrations in the labour field, which are governed by separate, more specific statutes.

The arbitration statutes in many of the provinces and territories in Canada provide that the provincial law with respect to limitation periods applies to arbitration as though the arbitration proceedings were an action before the province's courts, and must be commenced within the requisite time period. Similarly, there is a limitation period - generally two years from the date of the award - to commence an application to enforce an arbitral award through a court process. The federal Commercial Arbitration Act (CAA) governs commercial arbitrations involving claims where at least one of the parties to the arbitration is the federal government of Canada, a departmental corporation or a Crown corporation wholly owned by the federal government. The CAA applies to arbitration agreements whether made before or after the CAA came into force in 1985. The CAA adopts, with limited modification, the UNCITRAL Model Law for all commercial disputes, whether domestic or international, which fall under federal jurisdiction.

Domestic arbitral awards may be enforced through an application for recognition and enforcement in a province's superior court. Enforcement of arbitral awards made outside of Canada is enabled by federal and provincial legislation on the subject. Canada is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitration Awards, also know as the New York Convention, and any awards subject to the convention are recognized as binding between the parties. With the court's approval, these awards can be enforced in Canada in the same manner as a local judgment or court order.

Generally speaking, a court may decline to recognize or enforce an arbitration award only on limited "public policy" grounds that are set out in the UNCITRAL Model Law, as reflected in CAA and provincial arbitration legislation such as:

  • The incapacity of a party
  • Decisions on matters that are beyond the agreed scope of the arbitration
  • Serious procedural irregularities, e.g. where a party has been deprived of an element of fundamental justice
  • The subject matter of the dispute is incapable of adjudication by arbitration under Canadian law

3. Class proceedings

In Canada, most provinces and the Federal Court have adopted legislation allowing class proceedings. However, by virtue of a 2001 ruling by the Supreme Court of Canada, class actions may be permissible throughout the country even in the absence of express legislation.

  1. Certification process

A court must certify a putative class action before it will be allowed to proceed as a class action. For this reason, the first step in a putative class proceeding is usually a motion for certification. While the test for certification varies between jurisdictions, variations on the same five factors are considered in most jurisdictions:

  • The pleadings must disclose a cause of action.
  • There must be an identifiable class.
  • The claims or defences must raise some common issues.
  • The class proceeding must be the preferable procedure for the resolution of common issues.
  • There is a representative plaintiff or defendant who would represent the class interests fairly and adequately in accordance with a litigation plan.

Historically, it has been easier for plaintiffs to certify a class action in Canada than in the U.S. Multi-jurisdictional class actions - that is, a single class action that purports to represent plaintiffs in multiple provinces - are often permitted. However, recent amendments to different provincial statutes are likely to make it difficult to obtain certification.

In Ontario, for example, the test for certification is more onerous for plaintiffs than it used to be. The "preferable procedure" test now requires the plaintiff to establish that a class action is a superior procedure to alternatives like quasi-judicial and administrative proceedings, among other alternatives. The "common issues" test now requires that the common issues predominate over the individual issues of class members, aligning it closer to the approach in the US.

The new amendments also require the court to consider whether there are class actions in other provinces that cover the same subject matter and then decide whether the Ontario action ought to be stayed, bringing Ontario in line with British Columbia, Alberta and Saskatchewan.

  1. Discovery process if class is certified

Only the representative plaintiff(s) and the named defendants are subject to examination for discovery. In Quebec, class members can also be examined with the court's permission. Those parties are also required to produce all of their non-privileged relevant documents subject to the principle of proportionality, which is typically not as important a factor in class proceedings given the magnitude of the claims. Such requirement does not exist in Quebec.

  1. Interim relief

As set out in section 2c above, litigants have a number of options to seek interim relief in the course of litigation. These are utilized less frequently in class proceedings, but they remain available. For example, in a rare application of a Mareva Injunction in a class proceeding, the Ontario courts froze the defendants' crypto assets relating to funds raised in support of the truck convoy protesting COVID-19 restrictions in Ottawa.

  1. Trial and appeals

In most provinces, one judge will case manage each class action. The case management judge typically will not be the trial judge, except in Québec. However, the majority of class proceedings are disposed of through preliminary motions or settlements. Very few class actions have proceeded through a common issues trial, although trials are becoming more common.

  1. Costs

In all provinces, courts may permit plaintiffs' counsel to enter into a contingency fee arrangement with the plaintiff class. Rules for payment of costs in class actions differ from those in individual actions. In most jurisdictions the losing party will not be responsible for paying the opposing side's costs on the certification motion. However, in Ontario, the rule of "loser pays" still applies.

  1. Funding

Ontario has established a fund to assist plaintiffs in pre-approved cases to meet their cost obligations in the event they are not successful in the litigation. Public funding is also available for class actions in some other provincial jurisdictions. Where the plaintiff is successful and has obtained approval for funding from a provincial fund, they are generally required to pay a percentage of the recovery to the fund. Third party funding is also available for plaintiffs with approval by the court.

  1. Industry-specific class actions

There is no restriction on the type of claim that can be advanced as a class proceeding. However, class actions are most common in the following areas of law:

  • Securities: Security holders frequently commence class proceeding against issuers and their directors and officers seeking damages resulting from the drop in the price of their securities attributable to misrepresentations made in the issuer's public disclosure. Where the security holder purchased his or her securities on the secondary market (e.g., a stock exchange), a statutory claim is available that features deemed reliance and damage limits, but the plaintiff must obtain leave of the court to pursue the claim, which will only be granted if the court is satisfied that the action was brought in good faith and that there is a reasonable possibility that the plaintiff will be successful at trial.
  • Product liability: Canadian courts have certified product liability class actions, such as claims for property and personal injury damages, medical monitoring costs, refunds and disgorgement of revenues from product sales. However, courts are increasingly scrutinizing plaintiffs' evidence for some basis in fact to establish injury and proximate causation as common issues. Moreover, courts are less likely to certify if the harm pleaded seems trivial or non-existent.
  • Indigenous law: There have been a growing number of class proceedings involving Indigenous communities and the Crown, particularly relating to the residential school system and, most recently, the millennial scoop of Indigenous children. Respecting the preferable procedure prong of the certification analysis, the Federal Court certified the class proceeding and held that multiple litigation involving issues related to Indigenous children and youth make the cases "political footballs" between Canada and the provinces/territories, offending Jordan's Principle.
  • Competition law: In Canada, direct and indirect purchasers alleging a breach of the Competition Act have the ability to participate in class actions, which are often preceded by investigations by the federal regulator, the Competition Bureau. A statutory remedy is available under the Act. Courts have been inconsistent in certifying parallel class action claims in tort and in restitution.
  • Privacy: Canadian courts have certified privacy class actions based on breach of contract and tort, and, in some provinces, statutory causes of action. Recent legislative changes have increased reporting requirements on the private sector, and it is possible that the number of such claims will increase in the future. The risk of privacy claims is also increasing due to recent appellate court decisions recognizing a new privacy tort. However, the courts have recently narrowed the application of the tort of intrusion upon seclusion. In particular, the tort does not extend liability to a person that does not "intrude", but who fails to prevent the intrusion of another. In other words, data custodians who fail to protect personal information do not commit intrusion upon seclusion. Furthermore, "minimal and fleeting" intrusions into private information, including personal health information, will not meet the test.

4. Product liability

  1. Causes of Action

Liability for the manufacture or distribution of defective products that cause damage to persons or property may be found in either tort contract.

The manufacturer's basic obligation is to manufacture products with reasonable care and to make them reasonably safe and fit for their intended purpose. Product liability claims focus on three phases of production and sale: a duty to exercise reasonable care in product design, a duty to ensure that there are no manufacturing defects, and, a duty to warn consumers of dangers.

In tort, plaintiffs will have to establish that the product was manufactured or designed in a negligent fashion. In the case of a manufacturing defect, plaintiff will have to prove the defect arose as a result of the manufacturer failing to exercise reasonable care in manufacturing the product pursuant to its specification. In the case of negligent design, the plaintiff must prove that there was a reasonable alternative to the defective design, accounting for a weighing of risk vs utility.

In contract cases, the plaintiff will try to establish that a condition or warranty in a contract of sale was breached. In common law provinces, "sale of goods" statutes imply certain conditions into sale contracts, including "fitness of use" and "merchantable quality" provisions.

Redress for losses, whether by tort or contract, may be sought through formal court proceedings, private arbitration, mediation, or another form of alternative dispute resolution depending on the facts of the case and any agreement between the parties. There is no principle of strict liability at common law, although this is not the case in Québec.

  1. Who bears responsibility for a fault or defect?

Except in Quebec, the plaintiff bears the burden of providing the constituent elements of the case on the balance of probability. The constituent elements are: i) duty of care; ii) breach of duty of care; iii) damages; iv) damages were caused by the breach of the duty of care.

The designer, manufacturer, importer, distributor or retail supplier of a defective product can be liable for damages arising from the use of that product. As a general rule, it is the designer who bears the ultimate responsibility for a defective product if harm derives from a design flaw, and the manufacturer who bears responsibility for a manufacturing defect.

A plaintiff can bring proceedings against anyone and everyone along the supply chain. Unrelated parties may, in turn, sue one another for contribution or indemnity for any liability that they may have to the plaintiff.

Redress for losses, whether by tort or contract, may be sought through formal court proceedings, private arbitration, mediation, or another form of alternative dispute resolution depending on the facts of the case and the agreement, if any, between the parties. A manufacturer or seller may attempt to contractually limit its liability but not all limitation of liability clauses are enforceable. There is no principle of strict liability at common law, although this is not the case in Quebec where legal presumptions strongly assist plaintiffs in product liability matters.

  1. In what circumstances is there an obligation to recall products?

At common law and civil law, every participant in the product supply chain has a duty to prevent harm arising from use of its product. This duty may include notification of risk and product recall in certain circumstances, not as a standalone duty, but as part of the "duty to warn."

In addition to the commonlaw and civil law obligation, the CCPSA (described in detail below) gives the power to the federal minister of health to order a consumer product recall where the minister believes that a recall is warranted. Recall of food and agricultural products may also be required under the Food and Drugs Act.

  1. What test is applied for proof of causation?

The test for causation is the so-called "but for" test, under which the requirement for causation is met where it is proven that the harm would not have occurred "but for" the actions of a defendant. Generally speaking, it is not enough for a plaintiff to demonstrate an increased risk of a type of injury claimed as a result of the use of a product without demonstrating actual causation of harm.

  1. Is there a duty to warn of known risks?

A manufacturer owes a duty to warn of all material risks of which it was aware - or it ought to have been aware - resulting from the ordinary use of its product. The materiality of a risk depends on:

  • Reasonable foreseeability (the likelihood of the risk materializing)
  • The degree of harm should the risk materialize (ranging from inconsequential product malfunction to severe health consequences)
  • The obviousness of the risk (for example, a manufacturer would not ordinarily be required to warn of the danger of cutting oneself with a knife)
  • The audience to whom the warning would be given (for example, sophisticated professionals as opposed to children, etc.)

The duty to warn is a continuous one. The content of the warning must be adequate, understandable and clearly communicated. The scope of the warning must be commensurate with the degree of risk or gravity of the hazard presented.

  1. Is it a defence for the manufacturer to show that he complied with regulatory and/or statutory requirements?

Evidence that a manufacturer complied with all relevant regulatory and/or statutory requirements is not a full defence to a product liability claim. On the other hand, breach of such requirements does not establish liability. Rather, evidence with respect to regulatory or statutory requirements is relevant to, but not dispositive of, the question of whether a manufacturer ought to be found liable in civil proceedings for damages arising out of the use of its product.

  1. What remedies are available?

The statutory, common law, civil law and equitable remedies that may be available in product liability actions include:

  • Monetary damages
  • Disgorgement of revenue or profit (for unjust enrichment or waiver of tort)
  • Rescission of the contract of purchase and sale
  • Monetary fines
  • Injunctions
  • Criminal sentencing
  • Punitive damages
  • Interest and costs of the proceeding
  1. Statutory Protections for Consumers

In 2011, the federal government enacted the Canada Consumer Product Safety Act (CCPSA), which is broad legislation that affects all manufacturers, distributors, retailers and importers of consumer products in Canada. The CCPSA regulates all products - including components, parts or accessories, and even packaging - that may reasonably be expected to be obtained by an individual for non-commercial use, such as for domestic, recreational and sports purposes. The CCPSA imposes obligations and liabilities upon each member of the product supply chain. The CCPSA further provides for:

  • A blanket prohibition on the marketing of unsafe products
  • Support by a supplier of the safety of their product
  • An obligation on a supplier to report adverse events
  • Broad governmental investigatory and enforcement powers, including ordering product recalls
  • Penalties in the form of fines of up to $5,000,000 and prison terms of up to two years for breaches of the CCPSA

In addition to the CCPSA, every province has legislation that provides remedies to consumers for defective products, including providing for individual causes of action for breach of deemed warranties, in addition to possible government action. Remedies available include rescission of the contract of purchase and sale, and injunctive relief. Foods and drugs are similarly regulated under the federal Food and Drugs Act.

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[1] The Model Law is designed to assist states in reforming and modernizing their laws on arbitral procedure, so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process - from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal, and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice, having been accepted by states of all regions and the different legal or economic systems of the world.

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