Commercial Litigation

Understanding Commercial Litigation

What is Commercial Litigation?

Commercial litigation refers to the process of resolving disputes that arise in the course of business and corporate dealings. These disputes can range from contract breaches and shareholder disagreements to issues involving suppliers, customers, or regulatory bodies. While litigation may be necessary in certain cases, it is often complex, time-consuming, and costly. For this reason, businesses must approach litigation strategically, with an understanding of both the potential benefits and the risks involved.

The Role of Litigation in Business

It is almost inevitable that at some point in a corporation's life cycle, the involvement of legal counsel will be required to resolve disputes with third parties. Litigation may become necessary when negotiations fail, but in many instances, the mere prospect of litigation can encourage parties to reach a fair and equitable settlement. In fact, the vast majority of disputes never reach trial. Statistics in Ontario show that more than 95 percent of all cases settle before trial, underscoring the importance of negotiation and alternative dispute resolution as part of the litigation landscape.

Alternatives to Litigation

Because litigation can be both expensive and unpredictable, alternatives such as mediation or arbitration are frequently considered. Mediation involves the assistance of a neutral third party to help the disputing parties reach a mutually acceptable solution, while arbitration involves a binding decision made by an independent arbitrator. In many business contracts, these forms of dispute resolution may be mandated. Courts also increasingly require parties to attempt mediation before proceeding with litigation. These alternatives can save time, preserve business relationships, and reduce costs compared to a full trial.

Why Litigation Still Matters

Despite the availability of alternatives, some disputes cannot be resolved without resorting to the courts. Litigation, or even the threat of it, may be the only effective tool to compel a resolution when the opposing party refuses to engage in good faith. It provides a structured process where evidence is presented, legal rights are clarified, and enforceable remedies are granted. For some corporations, pursuing litigation is necessary not only to resolve a particular dispute but also to set an important precedent, protect business interests, or preserve the integrity of contractual obligations.

Types of Commercial Litigation

Commercial litigation encompasses a wide variety of disputes that arise in the business context. These matters often involve high financial stakes, regulatory issues, and complex contractual or corporate relationships. Some of the most common types of proceedings include:

• Contract Disputes – Claims arising from the breach, interpretation, or enforcement of business contracts.
• Securities Litigation – Disputes involving securities regulation, misrepresentation, shareholder rights, or compliance with market rules.
• Competition and Trade Practices – Claims involving unfair business practices, anti-competitive conduct, or misuse of market power.
• Technology and Digital Commerce Disputes – Conflicts related to online platforms, digital transactions, intellectual property, and emerging technologies.
• International Commercial Litigation – Cross-border disputes involving international contracts, trade, and jurisdictional issues.
• Director and Officer Liability – Claims against corporate directors and officers for alleged breaches of duty, negligence, or misuse of authority.
• Shareholder Disputes – Conflicts between shareholders and corporations, often involving oppression claims, derivative actions, or disputes over corporate governance.

Contract Disputes

Litigation stemming from contract disputes lies at the heart of commercial litigation. Virtually every business transaction is built on agreements, whether formal contracts or informal arrangements that create legally enforceable obligations. When one party fails to perform its obligations, the aggrieved party may pursue remedies through the courts. The central question in any contract case is: what is the appropriate remedy to place the innocent party in the position it would have been in had the contract been performed?

Remedies for Breach of Contract

The most common remedy for breach of contract is damages, which are intended to compensate the innocent party for losses caused by the breach. The law generally seeks to protect the "expectation interest," ensuring that the injured party receives the value of what was promised. In practice, damages may be calculated as the difference between the contract price and the market price of goods or services, as well as additional costs flowing directly from the breach.

In exceptional cases, courts may grant equitable remedies, such as specific performance or injunctions. These remedies compel the breaching party to perform the contract as agreed or to refrain from certain actions. While less common, equitable relief is particularly significant where monetary damages are inadequate, for example in contracts involving unique assets like land or intellectual property.

There are also instances where courts award nominal damages, recognizing the breach of contract even where no substantial loss has been proven. Conversely, recent developments have introduced the possibility of gains-based recovery, where damages are measured by the profit the breaching party wrongfully obtained.

Direct and Consequential Losses

In contract litigation, a key distinction is made between direct damages and consequential damages. Direct damages refer to the immediate financial loss caused by the breach, such as the cost of replacing undelivered goods. Consequential damages capture broader losses that arise as a result of the breach, such as lost profits from delayed production or disruption of business operations.

Courts apply the principle of remoteness of damages to limit recovery. Only losses that were reasonably foreseeable at the time the contract was made are recoverable. This ensures fairness and predictability in business dealings while preventing limitless liability.

Burden of Proof

The plaintiff in a contract dispute must prove the existence of a valid contract, the breach, and the damages suffered. The defendant may attempt to reduce liability by showing that the plaintiff failed to mitigate its losses or that certain damages fall outside the scope of what was foreseeable. This allocation of proof underscores the importance of clear contractual drafting and diligent recordkeeping in commercial relationships.

Broader Commercial Implications

Contract litigation extends beyond compensation. It enforces the principle that promises made in the marketplace carry legal weight and must be honoured. In doing so, it provides certainty and predictability for businesses that rely on contractual arrangements to allocate risks and responsibilities. For some litigants, pursuing contract claims is about more than recovering money; it is about upholding trust in commercial relationships and ensuring accountability.

Fiduciary Duties & Governance

Directors and officers occupy positions of trust and responsibility within corporations, subject to statutory duties and common law fiduciary obligations. Fiduciary duties require directors to act honestly, in good faith, and in the best interests of the corporation. These duties are central to corporate governance and form the foundation for accountability in business relationships.

Duty of Care

The duty of care requires directors and officers to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This does not mean directors must be perfect or always make the correct decision. Rather, they must inform themselves adequately before making decisions, seek expert advice where appropriate, and act on a reasonably informed basis.

Courts apply the business judgment rule, which provides that directors will not be held liable for decisions made in good faith, on an informed basis, and with a rational belief that the decision serves the corporation's best interests. This deference recognizes that business involves risk and that directors should not face personal liability for every unfavourable outcome. However, the business judgment rule does not protect grossly negligent conduct or decisions made without proper consideration of the facts.

Duty of Loyalty

The duty of loyalty requires directors to act in the corporation's interests rather than their own personal interests. This duty prohibits self-dealing, conflicts of interest, and the misappropriation of corporate opportunities. Directors must disclose any material interest in transactions with the corporation and, in many cases, abstain from voting on matters where they have a conflict.

Where a director diverts a corporate opportunity for personal gain, or enters into transactions that benefit themselves at the corporation's expense, they may be required to account for profits, compensate the corporation for losses, or face removal from their position. Courts scrutinize transactions between directors and their corporations to ensure fairness and full disclosure.

Corporate Governance Disputes

Governance disputes often arise in closely held corporations where management and ownership overlap. Disagreements over strategic direction, dividend policies, executive compensation, or succession planning can escalate into litigation when directors or shareholders believe their interests are being unfairly disregarded.

In publicly traded companies, governance disputes may involve shareholder activism, proxy contests, or challenges to board decisions regarding mergers, acquisitions, or defensive tactics against hostile takeovers. Courts balance the authority of directors to manage the corporation with the legitimate expectations and rights of shareholders.

Remedies for Breach of Fiduciary Duty

When directors breach their fiduciary duties, remedies may include damages, disgorgement of profits, removal from office, or injunctive relief to prevent further breaches. In some cases, directors may also face personal liability for authorizing unlawful distributions or failing to prevent corporate wrongdoing. The goal of these remedies is to restore the corporation and its stakeholders to the position they would have occupied had the breach not occurred.

Injunctions & Urgent Relief

In commercial litigation, time is often critical. Injunctions and other forms of urgent relief allow parties to preserve their rights, prevent irreparable harm, and maintain the status quo while disputes proceed through the courts. These remedies are essential tools in cases where monetary damages would be insufficient or inadequate to address the harm caused by a party's conduct.

Interlocutory Injunctions

An interlocutory injunction is a temporary court order granted before trial to prevent a party from taking certain actions or to compel specific conduct. To obtain an interlocutory injunction, the applicant must demonstrate that there is a serious question to be tried, that they will suffer irreparable harm if the injunction is not granted, and that the balance of convenience favours granting the relief.

Irreparable harm refers to injury that cannot be adequately compensated by damages, such as the loss of a unique business opportunity, damage to reputation, or disclosure of confidential information. The balance of convenience test requires the court to weigh the harm the applicant would suffer if the injunction is denied against the harm the respondent would suffer if it is granted.

Interlocutory injunctions are commonly sought in disputes involving breaches of non-compete agreements, misuse of trade secrets, intellectual property infringement, and wrongful interference with contractual relationships. Because these orders are made before a full trial, courts exercise caution and require the applicant to provide an undertaking to compensate the respondent for damages if it is later determined that the injunction should not have been granted.

Mareva Orders

A Mareva order (also known as a freezing order) restrains a party from dissipating or removing assets from the jurisdiction pending the outcome of litigation. These orders are typically sought where there is a risk that a defendant will move assets beyond the reach of the court, making it impossible for the plaintiff to enforce any judgment obtained.

To obtain a Mareva order, the applicant must demonstrate a strong prima facie case, a real risk of dissipation, and that the applicant has assets within the jurisdiction or that the defendant's conduct justifies extraterritorial reach. Mareva orders are powerful remedies and are granted only where there is clear evidence of wrongdoing or a credible threat to the enforcement of the plaintiff's claim.

Anton Piller Orders

An Anton Piller order allows a plaintiff to enter the defendant's premises without prior notice to search for and seize evidence that might otherwise be destroyed or concealed. These orders are extraordinary remedies reserved for cases involving serious misconduct, such as intellectual property theft, fraud, or breaches involving highly sensitive information.

Courts impose strict requirements before granting Anton Piller orders, including proof of a strong case, evidence that the defendant possesses crucial materials, and a real possibility that evidence will be destroyed. The order must be executed in a manner that minimizes intrusion and respects the defendant's rights. Legal supervision is typically required, and the defendant has the right to apply to set aside or vary the order after it is executed.

Norwich Orders

A Norwich order compels a third party to disclose information or documents that will help identify or locate a wrongdoer. These orders are frequently used in cases involving anonymous defendants, such as individuals operating under pseudonyms online or entities hiding behind corporate structures.

To obtain a Norwich order, the applicant must show that a wrong has been committed, that the third party likely has relevant information, that the third party is the only practical source of that information, and that it is just and convenient to make the order. Norwich orders are subject to privacy and confidentiality considerations, and courts balance the need for disclosure against the rights of both the third party and the alleged wrongdoer.

Preservation Orders

Preservation orders require parties to maintain documents, electronic records, or physical evidence that may be relevant to litigation. These orders prevent spoliation (destruction or alteration of evidence) and ensure that critical information remains available for discovery and trial. Preservation orders are particularly important in cases involving electronic data, where information can be easily deleted or overwritten.

Arbitration & Alternative Dispute Resolution

Arbitration and alternative dispute resolution (ADR) offer parties a means of resolving commercial disputes outside the traditional court system. These processes are often faster, more flexible, and more cost-effective than litigation, while still providing binding and enforceable outcomes. In many commercial contracts, arbitration clauses require parties to submit disputes to arbitration rather than pursuing litigation.

Commercial Arbitration

Commercial arbitration is a private dispute resolution process in which parties agree to submit their dispute to one or more arbitrators who render a binding decision. Unlike court proceedings, arbitration is confidential, and parties have significant control over the process, including the selection of arbitrators, the procedural rules, and the location of the hearing.

Arbitration is particularly well-suited to complex commercial disputes involving technical issues, international parties, or industry-specific matters where specialized expertise is valuable. Arbitrators are often chosen for their knowledge of the subject matter, which can lead to more informed decisions than might be achieved in general civil courts.

In Canada, arbitration is governed by provincial arbitration statutes, such as Ontario's Arbitration Act, 1991. These statutes provide a framework for the conduct of arbitrations, the enforcement of arbitration agreements, and the limited grounds on which arbitral awards can be challenged in court. Generally, arbitral awards are final and binding, with very narrow grounds for appeal or judicial review.

Mediation

Mediation is a voluntary, non-binding process in which a neutral third party (the mediator) facilitates negotiations between disputing parties to help them reach a mutually acceptable settlement. Unlike arbitration or litigation, mediation does not result in a binding decision imposed by a third party. Instead, the parties retain control over the outcome and can walk away if they are unable to reach an agreement.

Mediation is often used in conjunction with litigation or arbitration. Courts in Ontario frequently require parties to attend mediation before proceeding to trial, recognizing that many disputes can be resolved through facilitated negotiation. Successful mediation can save parties significant time and expense, preserve business relationships, and allow for creative solutions that courts might not be able to order.

The mediator's role is to assist the parties in identifying issues, exploring interests, and evaluating options. Mediators do not impose decisions or provide legal advice, but they may offer reality checks, facilitate communication, and help parties overcome impasses. Anything said in mediation is typically confidential and cannot be used in subsequent litigation or arbitration.

Drafting Dispute Resolution Clauses

Well-drafted dispute resolution clauses are essential to ensuring that arbitration and ADR mechanisms function as intended. These clauses should clearly specify whether disputes will be resolved through arbitration, mediation, or litigation, and should address key issues such as the selection of arbitrators, the governing rules (such as the rules of the ADR Institute of Canada or the International Chamber of Commerce), the seat of arbitration, and the applicable law.

Ambiguities or gaps in dispute resolution clauses can lead to preliminary disputes over jurisdiction, the enforceability of the clause, or the proper procedure to follow. Courts interpret these clauses in accordance with the parties' intentions, but clear drafting avoids unnecessary litigation and ensures that the chosen dispute resolution mechanism operates efficiently.

Enforcement of Arbitral Awards

One of the key advantages of arbitration is the enforceability of arbitral awards. In Canada, arbitral awards are enforceable in the same manner as court judgments, provided they meet the requirements set out in the applicable arbitration statute. International arbitral awards are enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), to which Canada is a signatory.

Challenges to arbitral awards are limited to narrow grounds, such as lack of jurisdiction, breach of natural justice, or awards that are contrary to public policy. This limited scope of review ensures finality and predictability, which are critical to the effectiveness of arbitration as a dispute resolution mechanism.

For parties seeking to enforce an arbitral award, the process involves applying to the court for recognition and enforcement. Once recognized, the award can be executed like any other court judgment, including through seizure of assets, garnishment of accounts, or other enforcement remedies available under the law.

Competition and Trade Practices

Competition and trade practices litigation involves disputes arising from laws that govern the interactions between businesses in the marketplace. At its core, competition law aims to maintain fairness, preserve consumer choice, and prevent practices that distort or undermine a level playing field.

Businesses operate in an environment where aggressive strategies are often encouraged, but there is a line between robust competition and unlawful conduct. Allegations of anti-competitive behaviour can take many forms. These include price-fixing and collusion between competitors, abuse of dominant market position, and agreements that substantially lessen or prevent competition. Litigation may also arise where misleading advertising, deceptive marketing practices, or restrictive trade practices affect consumers or other businesses.

The complexity of competition litigation is heightened by its overlap with regulatory enforcement. In Canada, the Competition Bureau investigates and prosecutes violations of the Competition Act, but private parties may also seek civil remedies for losses suffered as a result of anti-competitive conduct. This dual system means that businesses may face not only government investigations but also parallel civil proceedings, each with significant reputational and financial consequences.

Litigation in this area often requires economic analysis, expert testimony, and the interpretation of complex statutes and regulatory frameworks. The outcome of a case may determine whether a business practice is lawful, whether damages must be paid to affected competitors or consumers, and whether structural remedies such as divestiture or behavioural restrictions will be imposed.

For businesses, competition litigation is more than a legal risk; it is a reputational one. Findings of unlawful conduct can lead to substantial financial penalties, loss of market credibility, and long-term damage to relationships with consumers, investors, and regulators. For plaintiffs, competition claims can be a powerful tool to seek redress for harm suffered in markets that have been unfairly manipulated.

Ultimately, competition and trade practices litigation reinforces the principle that success in the marketplace must be achieved through innovation, efficiency, and consumer choice, not through conduct that restricts or distorts competition.