RSS FeedThe Cozy Bank-Law Firm Relationship May Not Be So Cozy After All…These Days Anyway, Part I
First posted on Commercial Law International on Jun 5, 2009.
In Canada an Ontario Superior Court of Justice ruling (McKenna v. Gammon Gold Inc.) has the potential to go viral like the latest YouTube sensation and challenge what can only be called one of the most incestuous relationships in the commercial world.
What am I talking about?
Well I am referring to the relationship, the very close relationship, between banks and law firms.
Ever wonder why, if and when, a bank or other financial institution is being sued it is very rare to find a big name law firm representing the plaintiff but they are very much present to represent the defendant bank? This my friends is no coincidence, it is a deliberate strategy on the part of the banks and other financial institutions. They set out to exploit the conflict of interest rules that lawyers are bound by – a lawyer may not generally represent two clients on opposite sides on the same matter – and they do a very good job of it. This is evidenced by the fact that banks and other financial instructions will spread the legal work they have around to as many international, national, regional and local based (powerhouse) law firms as they can in any market they operate.
The strategy is simple but effective: tie up the biggest, the brightest, the best and if need be the most belligerent legal talent out there. The benefits of this strategy accrue to banks in two significant and interconnect ways. The first is that they have the best legal talent working for them on ordinary transactions while at the same time having them in reserve ready to be unleashed like a pack of attack dogs. The second, which flows from the first, is that having such well trained and impressive attack dogs – oh sorry, I mean lawyers – at the ready will and does inspire fear in not only prospective claimants but other lawyers as well (though most would not admit it).
The law firms are not entirely innocent here, in fact not at all. They are willing subjects or is that objects of the strategy to exploit the conflict of interest rules. They enter this relationship; in fact they actively seek to forge these links, with their eyes, arms and billable hour’s dockets´ all wide open. Law firms know that the work from the banks is not only constant but very lucrative as well, so they are more than happy to be attack dogs for hire.
However, we now live in different times, as this once cozy relationship is being undone or at least it has hit a rocky patch called the current global recession. Whoever first said: it´s all about the money was so right. It is indeed all about the money for both banks and law firms. The former having less work to spread around now is also lacking a commercial rational that would satisfy shareholder costs´ accountability of having such high paid attack dogs in reserve. Consequently, the banks are now looking to cut costs and have aggressively gone after external legal costs reducing the number of attack dogs – sorry, I mean lawyers – it holds in reserve and how much it pays them.
The law firms for their part, seeing the writing on the wall have, have begun to seek out other clients. In fact this has resulted in the once impossible, law firms, well at least in this case, have begun to represent claimants against the banks.
The conflict of interest rules once untested and applied broadly, I would say too broadly, to the bank-law firm relationship is now set for realignment. No longer will law firms simply refuse or not actively seek out work, simply because a suit might be brought against one of their clients. I know I am only an attack dog in training- pardon me, I should say student at law – but my reading of the conflicts section of the Ontario Rules of Professional Conduct does not support such a broad application. Provided the issues are not related, the clients’ information in possession of the lawyer bares no relevance to each other and the lawyers that handle each client´s matter are different, it is difficult to see where a conflict of interest would be created.
Thankfully I don’t have to stand alone in my opinion. I now have Justice Lax in McKenna v. Gammon Gold Inc. to back me up when she ruled that Siskinds should not be disqualified for a conflict of interest from prosecuting a class action against an underwriting subsidiary of a client bank that it acts for in separate matters.
And how so? Well you are just going to have to stay tuned for part two.
Privy Council In Bank Ruling Wraps Jamaican Judiciary On the Knuckles, Part III
First posted on Commercial Law International on May 19, 2009.
Injunction, injunction, what´s your function?
Sorry I just could not resist. Despite my lame attempts at a joke, it is a very valid question.
What is the function of an injunction?
It is a power whereby the court may order positive action be taken or an order to refrain from acts being currently done. It may be granted at the interlocutory (that is to say at any stage before the end of a trial) or it could form part of a judge´s final judgment. In either case it is a very powerful tool of the courts and one that is not exercised lightly. Special attention, however, should be paid to the interlocutory injunction as it is a pre-trial determination, it is also a subject on which the Privy Council had a few choice words for both the Jamaican judiciary and Jamaican Bar in National Commercial Bank Jamaica Limited vs. Olint Corporation Limited.
The interlocutory injunction is best thought of as a pause button. It is designed to freeze in place the item that is in dispute by ideally preserving the status quo. However, we do not live in a static world and there are going to be winners and there are going to be losers with such an order – you could go as far as saying such an order creates only losers and worse losers. This is why judges are or ought to be extremely cautious in the exercise of this discretion. It should not be that the making of such an order – one that is done without the full rigors of a trial – be determinative of the (main) issue or issues in dispute. This is why judges look to what is called balance of convenience (American Cyanamid Co v. Ethicon Ltd) or more accurately the balance of inconvenience. As Lord Hoffman explains in the NCB case, ¨the basic principle is that the court should take whichever course seems likely to cause the least prejudice to one party or the other.¨
Having decided that Mr. Justice Jones was correct in the first instance to dismiss the case, holding that there was no triable issue, their Lordships had no need to go any further. However (a favorite word of a lawyer), their Lordships went on to deliver a dicta that wrapped the knuckles of the Jamaican judiciary and Bar – as would a school master a disobedient pupil in days of old. As many a current and former law student come to learn, while the ratio of a case deals with the issues at hand, it is often the dicta though said by the way, that is the most significant aspect of a judgment. And this I believe is the case here.
Their Lordships wanted to point out, provide some guidance and in a display of judicial politics, gave the Jamaican legal establishment scolding – that was at times not so well veiled.
There were two features of this case that troubled the Privy Council. The first was that, ¨there appears to have been no reason why the application for an injunction should have been made ex parte, or at any rate, without some notice to the bank.¨ An injunction applied for and given without presence or notice to the other party ought to be a very rare thing, ¨although the matter is in the end one for the discretion of the judge, audi alterem partem is a salutary and important principle.¨ Audi alterem partem – sorry for the Latin but it had to be done - is a fundamental tenet and a cornerstone of justice and cannot be trotted on lightly. It is the right for the other side in a dispute to be heard – like I said a cornerstone of our justice system.
Given the facts of the case, especially the nature of what was in dispute, there should have been no reason why the application for the injunction should not have been inter partes but at a minimum with there should have been some notice to the bank. As their Lordships pointed out, ¨any notice is better than none.¨ The guidance provided to judges considering such applications was made by Lord Hoffmann in no uncertain terms. He lays down the law (literally), ¨that a judge should not entertain an application of which no notice has been given unless either giving notice would enable the defendant to take steps to defeat the purpose of the injunction…or there has been literally no time to give notice before the injunction is required to prevent the threatened wrongful act.¨ The italics are Lord Hoffmann´s. Lord Hoffmann further went on to point out these two conditions are enshrined in the Section 17.4 (4) of the Jamaican Civil Procedure Rules 2002.
What characterizes both these alternatives is a sense of urgency. Olint it would seem feared that the immediate closure of its accounts would prejudice it in its main action against the bank. However such fears are not substantiated by the facts of the case. Not only was Olint given ample notice, they were given an extension. Moreover, the closure of a bank account, with or without extensive notice, is not sufficient grounds on which to say that there was no time to give notice. Their Lordships wondered why, ¨no explanation has been given for why it was not possible for the bank to be given notice of the application.¨
However, it was later explained to their Lordships that such last minute ex parte applications had become common practice in Jamaica. The recent cases of World Wise Partners Ltd v RBTT (2008) and Smith v NCB (2008) were cited as examples.
The Privy Council, expectedly, took exception to such blatant disregard for the law and the Civil Procedure Rules by both the judiciary for granting such injunctions and the Bar for applying for them. They went on to say, ¨these cases appear to show a disregard of rule 17.4 (4) for which no justification is offered. If the rule is not generally enforced, plaintiffs will be encouraged to make a tactical use of the legal process which should not be allowed.¨
Like I said a wrap on the knuckles – actually in legal terms a wrap is highly understating things.
The second feature that troubled the Privy Council was the way in which both Smith J and the Court of Appeal applied the balance of convenience test in the refusal, in the case of the former, and the granting, in the case of the latter of the interlocutory injunction. The basic principle that both had to be mindful of, ¨is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.¨ Moreover, ¨what is required in each case is to examine what on the particular facts of the case the consequences of granting or withholding of the injunction is likely to be¨
It appears that what the Jamaican courts did was first to characterize the injunction as either mandatory (requiring positive action) or prohibitory while applying the balance of convenience test. Each requires different factors to be taken into account. A mandatory interlocutory injunction would require a ¨high degree of assurance¨ that the applicant would be prejudiced by its refusal, while a prohibitory interlocutory injunction required a ¨serious issue to be tried.¨ At first instance Mr. Justice Jones characterized it has mandatory and refused to grant it while the Court of Appeal characterized it as prohibitory and granted it.
As it turns out the judge at fist instance was correct in result but not in his reasoning. Because what matters is what the practical consequences of the injunction are, ¨arguments over whether the injunction should be classified as prohibitive or mandatory are barren (Films Rover International Ltd v Cannon Films Sales Ltd). Their Lordships made it clear that they ¨consider that this type of box-ticking approach does not do justice to the complexity of a decision as to whether or not to grant an interlocutory injunction.¨
Yet another wrap on the knuckles….Ouch.
It will be very interesting to see what that reaction of the judiciary and Bar will be in Jamaica. This may be a bitter pill to swallow; however, to my mind their Lordships are wholly correct in fact and in law.
Privy Council In Bank Ruling Wraps Jamaican Judiciary On the Knuckles, Part II
By: Ainsley Brown
The claims advanced by Olint, though ultimately would proven to be groundless is very important because it, gave us a brief glimpse into the subtleties of judicial politics. Before I go any further some context by way of an example I believe would be useful. The words with all due respect, seem quite mundane or you could even say respectful, however, not so in a court room – it is quite disrespectful. The respect for a judge and his or her court room flow naturally from their position and there is no need to remind the judge that you are being respectful. This is something that lawyers and judges know alike, so whenever such words are uttered it is code for hey, judge I am right and you are just full of it – like I said disrespectful.
Though totally unrelated to the case, this example illustrate the point nicely, that words matter and that in the politics of the courtroom they often have much greater meaning than they seem at first glance. Now back to the case.
Olint´s first argument would provide the ground for strongest rebuke by their Lordships of the Jamaican Court of Appeal. Lord Hoffmann even went as far as calling out the reasoning or better yet lack thereof of one of the judges of the Court of Appeal – a one Morrison JA. In the Court of Appeal Morrison JA criticized Mr. Justice Jones, at first instance for disposing of the matter by way of mini-rail, holding that the matter gave rise to a serious issue and ought to be tried. However, Lord Hoffmann goes on to point out, saying of Morrison JA that ¨ he did not explain what the issue would be and their Lordships consider that one has only to read section 4(3) (c) to see that it is irrelevant to any issue in this case.¨
This is Lord Hoffmann´s way of saying: your work is sloppy and you don’t know what you are talking about. Like I said a strong rebuke.
The claim, by the way, was that s. 4(3)(c) of the Banking Act had modified the bank´s contractual right to terminate the banking relationship by giving reasonable notice. Unfortunate for Olint s. 4(3)(c) of the Banking Act is part of the general fit and proper licensing provisions of s.4, under which the Bank of Jamaica grants licenses. It therefore does not take a legally trained mind to see that Olint is simply fishing and that there is not only no serious issue here but no issue at all – no wonder the strong rebuke.
The second argument advanced by Olint was that NCB by closing its accounts was abusing its market position. As I like to call it, and to put it in the Jamaican vernacular: dem a fight gainst man (translated: they are opposed to us) argument. This argument while it has great cultural resonance, and it could be argued reflects a commercial reality; it however has no basis in law.
Firstly, no evidence was furnished that NCB did indeed have a dominant position in the commercial banking sector in Jamaica. However, their Lordships did take judicial notice that NCB was ¨the second largest in Jamaica, with 34-37% of total loans and 30-35% of total deposits, but the Bank of Nova Scotia is larger and there are four other commercial banks in Jamaica, to say nothing of the foreign banks. They are all in competition with each other. It is not easy to acquire dominant position in the banking market.¨ Secondly, even if NCB had a dominant market position the refusal to continue be Olint´s banker does not procure for NCB some market advantage. If anything it does quite the opposite by enabling ¨competitors to pick up another customer if they felt inclined to do so.¨
The third claim by Olint, was that NCB was attempting to induce breaches of contract between itself and its club members. Inducement of breaches of contract is a tort (a civil wrong) that would require not only that NCB knew that it would cause the breach of contract but that it intended to so ( OBG Ltd v Allan 2008). This by far was Olint´s strongest argument I think. However, their Lordships described it as a ¨hopeless proposition.¨ It will be remember from Part I that it was the refusal of Olint to furnish its audited books that kicked off this sequence of events. NCB could not without proper knowledge of the relationship of Olint and its members know or set out to cause breaches of contracts. What Olint was in fact saying was that NCB knew its actions would cause the breach and with this certain knowledge set out to cause the said breach of contractual arrangements. But how can you set out to cause or much less know that a breach would be caused in a contract that you haven’t even seen?
Stay tuned for Part III as it will deal with the injunction issue.
Privy Council In Bank Ruling Wraps Jamaican Judiciary On the Knuckles, Part I
First posted on Commercial Law International on May 12, 2009.
The House of Lords, with its Judicial Committee of the Privy Council hat on, as Jamaica’s court of final appeal, handed down a judgment that is set to have repercussions well beyond the interests of the parties involved. In fact the consequences of this judgment go beyond just banking or investing but engages commercial dispute resolution, specifically commercial litigation.
The injunction is a very important – that should read indispensable – tool in the commercial lawyer’s arsenal. It is a power that is highly discretionary and exercised with sensitivity to the peculiarities of the case which by the way includes the idiosyncrasies judge. It is a power jealously guarded by the judiciary and as a matter of judicial comity and judicial politics the power to exercise this discretion is largely left unquestioned, with limited exception, to a judge at first instance. Therefore, whenever a court, much less the highest one in the land, is critical of the way in which this discretion is or has been exercised by other courts all involved in the legal process have right to take pause.
However before I get into what I believe to be the more important aspect of the ruling I should deal with the ratio of the case – for the non lawyers/ non Latin speakers the ratio or ratio decidendi are the reasons or rational for a decision. It will provide not only context for the more important dissuasion on injunctions but will also bring to the fore the importance of this ruling to the banking sector n Jamaica.
National Commercial Bank Jamaica Limited vs. Olint Corporation Limited, is a case that exemplifies why commercial awareness is global.
The question that their Lordships had to focus their minds on was whether a bank, by giving reasonable notice, could lawfully close an account that was not n debit, where there was no evidence of the account being used for unlawful purposes? In the judgment delivered by Lord Hoffmann, ¨their Lordships have no doubt that in the absence of express contrary agreement or statutory impediment, a contract by a bank to provide banking services to a customer is terminable upon reasonable notice.¨
The facts of the case, in brief are: Olint provided administrative and other services to an investment club. The club allegedly derived its profits from foreign exchange trading which was proffered as an explanation for its high rate of returns to its member. It opened two accounts with National Commercial Bank (NCB) in 2005 and a third in 2007. Near the end of 2006 Olint, along with other investment clubs, began to attract very unfavorable coverage in the press . They faced allegations that they were operating a Ponzi scheme where returns to older investors were being paid out of money from newer investors.
It is interesting to note that Olint and other investment clubs sprouted up as a specific market response to the lack of investment alternatives, especially for the lower and middle strata of Jamaican society. In this respect they were in direct competition with the financial establishment - the commercial banks and other financial institutions.
In August of 2007 NCB as per its anti-money laundering and terrorist financing legal obligations – but no doubt also motivated by its concerns over the fraud allegations – asked to see the audited accounts of Olint. None was forthcoming. NCB being apprehensive that the allegations could turn out to be true, opening it up for reputational damage and or claims for negligent or dishonest assistance, decided to end is relationship with Olint. It wrote to Olint in November informing them of the decision to close their accounts on December 17 – a notice period of 32 days.
This action by NCB only added to the atmosphere at the time that NCB and the financial establishment were using at best the strictures of the law or at worst under handed tactics in order to remove the competition that Olint and the other investment clubs offered. To put it in the Jamaican vernacular: dem a fight gainst man (translated: they are opposed to us) . Unfortunately, even if this is a commercial reality and I offer no opinion pro or con, it finds no basis in law.
In response on November 21st Olint asked NCB for an extension to March 14 2008, NCB believing that this period was too long agreed to extend until January 14 2008. On January 1, days before the extension period was going to expire Olint without any notice successfully applied ex parte (from (by or for) one party) injunction preventing NCB from closing its accounts until January 15th. An application inter parties (between the parties) came before Mr. Justice Jones on the 17th and 18th of March. He dismissed the application because he did not find that it gave rise to a serious issue. Olint appealed and on July 18th 2008 the Court of Appeal grated the injunction until trail.
Based on the allegations in the particulars of claim served by Olint, it did not claim that the extended period was too short, ¨instead , it is alleged that the bank was acting maliciously, contrary to its statutory obligations under the banking Act and Fair Competition Act and with the intent of inducing breaches of contract between the company and members of the investment club.¨ their Lordship review each of these agreements and had no problem dismissed each in turn as being baseless.
Stay tuned for Part II.
German Multinational Loses Teapot Battle
Have a cuppa.
First posted on Commercial Law International on April 3, 2009.
It is an understatement to say that the English take their tea very seriously. And it is little wonder why a small teashop in Surrey, England, even when faced with potential financial ruin, would not back down from a much larger German multinational. This is a tale about tea better yet teapots; a David and a Goliath; and lest I forget the rights to uses a logo.
Not long after the Tea Box opened, providing an up-market alternative to the run of the mill ‘main street’ coffee shop, it was faced with a legal challenge from a Duesseldorf based company. It would seem Teekanne, which happens to mean teapot in German, took exception to the hand painted teapot logo that Tea Box was using. Teekanne claimed that it was too similar to its own logo and could cause customer confusion.
What Teekanne wasn’t counting on – I guess they expected such a small time operation to be impressed by its sized and resources and cave in but this is the UK and we are talking a bout tea but I digress. What they were not counting on was that one of the UK’s leading intellectual property firms coming to the rescue of Tea Box. Withers & Rogers LLP took on the case pro bono- for my none legal people out there this means free. This is good to see, as a profession we need more of this. The words pro bono for lawyers as become all too often associated with criminal, civil rights, family or judicial review matters, please don’t read this as a dig at the lawyer who perform such work, they are doing a great community service, however, the community can also be served when commercial law firms take on such cases.
And now back to the story.
After receiving early indications from the UK Intellectual Property Office that it would likely rule in favour of Tea Box, Teekanne promptly withdrew, great for Tea Box but not so great for Teekanne. Not did it lose money from mounting this legal challenge but it also had the effect of improving the market awareness of the Tea Box brand. You could even say that for Tea Box Commercial Awareness Is Global – hahahhahah, sorry about the cheesy plug for the site but hey I am a future lawyer trying to carve out a niche for my self.
Battle Over A Bottle, Beer: A Serious Thing In Canada…Eh
First posted on Commercial Law International on Feb 18, 2009.
If you didn’t know already Canadians take their beer very seriously. And I don’t just mean on the consumption side.
Brewing in Canada is a very serious business indeed.
This is where the story of Dead Frog Brewery and Sleeman Breweries Ltd. comes in. It is a litigation story of David vs. Goliath, where David might just lose this time – it is a litigation story after all. It is a suit centered on the intellectual property.
The David in this story, Dead Frog, is a micro-brewery – oh sorry, craft brewery to use industry speak – from Aldergroove, British Columbia (B.C.). This pint sized – pun well intended – member of the industry is showing no signs of capitulating, if anything Dead Frog is showing signs that it is sporting for a fight.
The Goliath in this story, Sleeman, is an industry giant – though admittedly not the largest – from Guelph, Ontario. The keg sized – here again, well intended – is the one that initiated the suit and seems dead set on defending what it sees as its rights. And what is it all about?
It is a battle over a bottle.
The thing is both Dead Frog and Sleeman use clear glass bottles for their beers. However, Sleeman, the more established brewery, is well known for its clear glass bottles. Sleeman initiated suit last June in B.C. alleging that Dead Frog is illegally using its clear glass bottle design.
Dead Frog for its part has responded with a statement of defence and counterclaim and as far as it is concerned Sleeman does not have a monopoly on clear glass bottles. Moreover, the beer loving public is highly unlikely to get the two designs confused as the logos embossed on the bottles are very different – a dead frog vs. a beaver – also given the prominence of the Dead Frog name and slogan on its bottles there should be no confusion.
Now I wasn’t going to comment on the merits of the case but given the above differences and the images I saw at Great Canadian Pubs and Beer of the two bottles side by side, I think I need to. What is Sleeman doing? The embossed dead frog is in no way close to their beaver design.
Even if Sleeman had a strong case – which I don’t see how it does – litigation could be a poor business decision. As this case progress’s it will no doubt pick up more press and Sleemans could, even if it is in the right legally, be seen as a bully. Although beer drinkers are well known for their brand loyalty, they are also well know for their sense of beer justice and they could sentence Sleemans to a period of isolation. Why, oh why, in these tough economic times would any one want, or even provoke the potential, for such a thing?
I must admit that I have never tied Dead Frog, in fact I had never even heard of it until this suit but I am sure it is a fine brew. However, how else do you explain a 300% growth rate while only in its second year of operation. It must be a fine brew indeed – at least some beer drinkers think so. Sleeman on the other had I am fully acquainted and fully enjoy – honey brown.
This suit is a lose, lose, lose situation. Even if Sleeman wins on the legal merits it will lose by being labeled a bully. Even if Dead Frog wins on the legal merits it will lose – the price of defending the case will come at the expense of continuing its fantastic growth rates. And no matter whom the winner is the beer drinker will be the ultimate loser.
Allergic Reaction Could Cost Starbucks More Than Just Victim Compensation
First posted on Commercial Law International onFeb 26, 2009.
On May 19, 2008 a British Colombian woman had a near fatal allergic reaction after she ate a Starbucks Peach Parfait.
Knowing of her nut allergy she carefully read the listed ingredients checking for nuts – no nuts were listed. Not satisfied with that she then asked a Starbucks employee and was reassured that the item was nut free. It clearly was not.
The lady, a Ms. Kristin Gradiner, is now seeking to be compensated for her lost earnings for the two months she had to take off to recovery and for the cost of special glasses she is now forced to wear as a result of eye damage suffered because of the incident. This is all the compensation she is seeking for now, according to the CBC - she might just be entitled to claim much more. It is currently unclear whether Ms. Gardine has retained legal counsel.
The compensation that she is actually seeking is much better than what was offered by Starbucks – a coffee card. Yes, a coffee card.
A Starbucks coffee card and oh yeah a ‘sorry for the inconvenience’ was what Ms. Gardiner was offered when she called the Seattle headquarters of the coffee chain.
As our tag line reads, Commercial Awareness Is Global, this situation is a classic case of lack of awareness, to say nothing of sympathy or empathy, at a critical juncture of a major company’s stricture. – Customer Service.
Customer service, from the baristas that serve the coffee to the help/ complaints telephone lines, is the major point of contact which the majority of customers will encounter. When it fails the company fails.
Such failure should not be tolerated by any company, especially Starbucks. Its industry and business model is so customer satisfaction driven; its reputation as a warm and friendly place to come and enjoy a cup of coffee has been called into question; and given the tough economic time we are currently in, it can little afford to damage its reputation through poor customer relations.
