Commercial disputes in Toronto.

By the time most commercial disputes reach a lawyer, several things have already happened that will shape the litigation. Someone has sent an email explaining their side of it at length. Someone else has deleted a thread, usually for ordinary housekeeping reasons rather than sinister ones. A backup has cycled. A departing employee's laptop has been wiped and reissued. None of that is recoverable later, and all of it gets asked about.

The single most valuable step a business can take when a dispute becomes foreseeable is to stop the routine destruction of records. That means suspending automatic deletion policies for the relevant accounts and systems, telling the people involved in writing to preserve what they have, and taking an image of any device that is about to be wiped or reassigned. Ontario has no formal pre-action protocol requiring this, but the obligation to produce relevant documents arrives with the litigation, and an explanation for why the relevant ones no longer exist is a poor substitute for the documents.

The second step is to be careful about what gets created in the meantime. Internal emails assessing the company's own conduct are producible unless they were made for the dominant purpose of obtaining legal advice or preparing for litigation, and copying a lawyer on a message does not by itself make it privileged. Where a business wants a candid internal assessment of its position, the way to get one that stays confidential is to ask counsel for it rather than to circulate it among managers.

The third is to treat settlement communications with some care. Correspondence genuinely aimed at resolving a dispute is generally protected from being put before the court, but the protection depends on the substance of the communication rather than on the words written at the top of it. Marking a letter without prejudice does not protect a threat, and forgetting to mark a genuine settlement discussion does not necessarily forfeit the protection.

A commercial agreement often decides where the dispute will be resolved, and the clause that does it tends to be near the back, next to governing law and notices. Where the contract contains an arbitration agreement, the dispute is very likely going to arbitration whether or not either party now wants it there.

Section 7(1) of the Arbitration Act, 1991 requires the court to stay a proceeding brought in respect of a matter that the parties agreed to submit to arbitration. Arbitration Act, 1991, s. 7 The Supreme Court set out the analysis in Peace River Hydro Partners v. Petrowest Corp., which separates the technical prerequisites for a stay from the statutory exceptions to it. A party seeking the stay has to make out an arguable case on the prerequisites; the party resisting must then bring itself within an exception, such as an agreement that is void, inoperative or incapable of being performed.

Two consequences of that framework matter commercially. The first is that arbitrators are entitled to rule on their own jurisdiction, so a challenge to the existence or validity of the arbitration agreement will often be sent to the arbitrator rather than decided by a judge, unless it raises a pure question of law or one that can be resolved on a superficial review of the record. Arbitration Act, 1991, s. 17(1)

The second is that the right to a stay can be lost by conduct. One of the prerequisites is that the party seeking the stay has not taken a step in the court proceeding, and the Ontario Court of Appeal has treated steps such as bringing a motion to strike as sufficient to give up the right. A defendant served with a claim that should have gone to arbitration therefore has to decide quickly, because responding on the merits first and raising the clause afterwards can forfeit the very forum the contract provided for.

An order made under section 7 is not appealable, which raises the stakes on getting the position right at first instance. Arbitration Act, 1991, s. 7(6) Whether arbitration is desirable in a given case is a separate question from whether it is required. It is usually more private and often faster, the tribunal can be chosen for its familiarity with the subject matter, and awards are enforceable across borders under the New York Convention. Against that, rights of appeal from an award are narrow, the parties pay for the tribunal and the venue, and the procedural tools available in court for compelling disclosure from strangers to the contract are largely unavailable.

Assuming the dispute belongs in court, the Toronto Superior Court hears it, and the question is which of its streams applies. Claims of $200,000 or less run under the Simplified Procedure in Rule 76, which compresses the process and limits what can be done at trial, while larger claims run under the ordinary procedure.

Toronto also has the Commercial List, which sits nowhere else in the province and takes a defined class of work: corporate and shareholder disputes, insolvency and receivership proceedings, arrangements, and commercial matters that require judicial attention more quickly than the ordinary list can offer. Getting a matter onto the List means arguing a shareholders' agreement or a receivership in front of judges who deal with them regularly, and it carries the incidental advantage that Commercial List actions are exempt from mandatory mediation under Rule 24.1. The Toronto civil litigation page sets out how Rule 24.1 works in practice

Whether a dispute qualifies turns on its subject matter rather than on the amount claimed, and the question is worth raising early. A commercial case that could have been placed on the List and was not tends to move at the pace of the ordinary list for the rest of its life.

Some commercial disputes cannot wait for the ordinary timetable, and the court has tools for those, all of them discretionary and all of them demanding.

Where there is a real risk that a defendant will dissipate assets before judgment, a freezing order restrains dealing with them, sometimes worldwide and sometimes granted without notice to the other side. The applicant has to show a strong case, real risk of dissipation rather than mere suspicion, and full and frank disclosure of everything material, including what cuts against the application. Orders of that kind are set aside for non-disclosure with some regularity, and the costs consequences of that outcome are unpleasant.

Where money has gone somewhere and the company does not know where, a disclosure order against an innocent third party such as a bank can produce the account records needed to trace it. Where evidence is likely to be destroyed, a search order permits its preservation. Where a contract is being breached in a way that damages cannot fix, an interlocutory injunction restrains the conduct until trial, on the familiar test of a serious issue, irreparable harm and the balance of convenience. And where the dispute concerns land, a certificate of pending litigation registers the claim against title.

All of these depend on evidence assembled quickly and presented completely, which returns the point to the first chapter. A business that preserved its records and can produce a clear chronology within a few days is in a position to seek urgent relief. A business that cannot usually watches the moment pass.

Clients tend to price litigation as legal fees. The fees are usually the smaller part of what it costs a business.

Documentary discovery reaches every document in a party's possession, control or power that is relevant to any matter in issue, which in a commercial case means internal email, financial records, board and management materials, and messages on personal devices used for work. Relevance is set by the pleadings, so how a claim or defence is drafted has a direct effect on how far into the company's records the other side can reach. Information obtained on discovery is subject to the deemed undertaking rule, which restricts its use to the proceeding in which it was obtained, though the protection has limits and a party worried about genuinely sensitive material should raise confidentiality measures rather than rely on the rule alone.

Then there is management time. Preparing for discovery, locating documents, briefing counsel and attending examinations occupies the people who understand the business, which is the same group the business needs for everything else. On a mid-sized commercial file that cost is real and it is rarely in anyone's budget.

Costs run in both directions. A successful party ordinarily recovers a portion of its legal costs from the unsuccessful one, on a scale that recovers well short of what was actually spent, and an unsuccessful party pays that amount on top of its own. Where a plaintiff is a corporation without assets in Ontario, or resides outside the province, a defendant can move for security for costs, which requires money to be paid into court before the claim goes further and which occasionally ends a claim on its own.

The great majority of commercial claims settle, and the Rules are built on that assumption. Rule 49 lets a party serve a formal offer to settle, and the consequences attach to the outcome at trial rather than to the negotiation. A plaintiff who obtains a judgment as favourable as, or more favourable than, its own offer is ordinarily entitled to elevated costs from the date the offer was served, and a defendant whose offer is beaten by the judgment gets a comparable benefit.

The timing of the offer therefore matters as much as its amount, because the costs consequences only run from the date it was served. An offer made early in a proceeding, when it can still save both sides the cost of discovery, does more work than the same number offered on the courthouse steps. Making a reasonable offer early is one of the few steps in commercial litigation that improves a party's position whether it is accepted or refused.

Any of this may be worth a conversation before positions harden. Send us the contract, a short chronology, and whatever correspondence exists, and we will give you a view on where the dispute belongs, what it is likely to cost to run, and whether there is a commercial resolution worth pursuing first. An intake form is the sensible way to begin.