An illegal Airbnb contract not enforceable in court, a class action for a data breach, and the BC legislature irrationally changes the pay of judges

 

This week on Legally Speaking with Michael Mulligan:

A claim for an alleged breach of contract to rent a property so as to permit it to be used as an Airbnb is denied on the basis that the short-term rentals are not lawfully permitted.

Contracts involving illegal activity are not enforceable in court. You can’t sue if someone breaches an agreement to pay for illegal drugs, for example.

This same issue can arise where there are contracts intended to evade taxation by paying cash.

Also discussed in the case is the concept of duress.

In order to constitute a defence to the enforceability of a contract, duress requires more than one party taking advantage of a superior bargaining position. For duress to be established there must be coercion of the will of the contracting party and the pressure must be exercised in an unfair, excessive or coercive manner.

Next on the show, a British Columbia Court of Appeal decision dealing with the certification of a class action against the Peoples Trust Company is discussed.

The class action arose as a result of the company maintaining an unencrypted copy of a database on its webserver. The database contained customer information including names, addresses, email addresses, telephone numbers, dates of birth, social insurance numbers, occupations, and more. Patches were not installed to update the software on the server, leaving it vulnerable to known exploits, which were taken advantage of in a cyber-attack that originated in the People’s Republic of China.

As with many class actions, defendants often spend a great deal of legal effort resisting the certification of a claim, during which a judge would determine is a case should proceed as a class action.

One of the helpful changes that have been made to the law concerning class actions that are commenced in British Columbia is that judges can now certify a class action on an “opt-out” basis for people who do not live in British Columbia. Prior to this change, people outside the province would need to actively “opt-in” if they wished to participate.

Finally, a case concerning pay for judges should be determined is discussed.

Because judges are often called upon resolve disputes that involve the government, it would not be appropriate to have judges negotiating with the government over their pay.

In order to avoid this, there is an independent commission that periodically recommends changes to judges’ salaries and working conditions.

Unfortunately, in British Columbia, there is a long history of the government overruling decisions of the independent commission. This has resulted in litigation before Supreme Court Judges who are not impacted by the decisions.

In order to reject a decision of the independent commission, there needs to be a rational reason for doing so. This was found to be lacking when the Legislative Assembly rejected the 2016 recommendations by the Judicial Compensation Commission.

Given this long and unsatisfactory way in which this issue has been dealt with, it would be better if the independent commission was free to set judge’s salaries without affording a mechanism for the government to interfere with the outcome of this process, short of amending the legislative scheme.

 

Legally Speaking with Michael Mulligan is live on CFAX 1070 every Thursday at 10:30 am.

 

An automated transcript of the show:

 

Legally Speaking September 3, 2020

Adam Stirling [00:00:00] Time for legally speaking here on CFAX 1070 Michael Mulligan Barrister and Solicitor with Mulligan Defence Lawyers are lawyers joining us as always. Hey, Michael, how are you doing?

Michael T. Mulligan [00:00:08] I’m doing great. Thanks very much for having me. So here the wheels, the wheels of justice just keep on turning, you know?

Adam Stirling [00:00:13] Indeed. And we need them to turn in a very efficient manner as much as possible these days. Let me tell you. Um speaking of the wheels of justice, while litigation may be a way to satisfactorily solve many problems, it does actually have its limits in terms of what sort of losses may be recovered, particularly losses arising from illegal activity. And that’s on the agenda this week.

Michael T. Mulligan [00:00:34] Yes, indeed. And I think it’s quite an interesting fact pattern in case it it deals with that issue. And some others, I think, are relevant to people’s day to day lives and dealings. So, a good one to talk about. This particular case is out of Burnaby and it involved a fellow, Mr. Sun, who entered into an agreement to lease. I think it was an apartment there and the lease was for an amount of thirty-six hundred dollars per month. So, he entered signed this agreement and things got interesting because the it was clear that Mr. Sun’s intention was to lease this property and then proceed to put it up on Air B and B and Expedia and various other sites as a short term rental. And in fact, that was specified in the agreement to rent this property. So that wasn’t a mystery to anyone. This fellow apparently had a good business going doing this. He had a number of properties he was doing that with. And the first interesting bit of information here is the amount of money that he been quickly generating from this property that he was paying. Thirty-six hundred dollars a month to rent from the owners. You know, he started doing that in January of 2019. And by April, from Air B and B alone, it looked like he received a little over ninety-three hundred dollars. He also had it listed on bookings, Dot com and Expedia and various other places. So, he was doing very well with this Air B and B business. Now the problem is that you’re not allowed to run an Air B and B business in that way, in Burnaby. So, it’s a similar circumstance. What we’ve got going on in Victoria, potentially. Right. And then what happened is, I guess the city there got wind of what was going on and sent a letter to the owners of the property saying, hey, you better stop running an Air B and B and be out of your property here or you’re going to be subject to fines. And so that caused the owner of the property to go to the fellow who had rented it and said, look, you’ve got to stop this, right?

Adam Stirling [00:02:46] Mhm.

Michael T. Mulligan [00:02:46] It’s not does not permitted now.

Adam Stirling [00:02:48] Yeah.

Michael T. Mulligan [00:02:49] And eventually, the fellow who had rented it and was putting it up on Air B and B eventually relented and agreed to end the rental of it. But he then sued for what happened, claiming that, hey, they shouldn’t have ended this rental. Very lucrative. And so, he was trying to get compensation for what he would have made. Had he been allowed to keep renting it out on Air B and B.

Adam Stirling [00:03:10] Mhm.

Michael T. Mulligan [00:03:11] Now, here are some of the interesting problems that arose. The first one is this principle. You can’t go to court and sue to recover damages for any legal operation. For example, if you’re a drug dealer selling fentanyl to people that somebody doesn’t pay for the fentanyl, you duly delivered to them. You can’t go off to small claims court and say, well, I’d like to sue you for the, you know, 200 dollars you owe me for the fentanyl, your side of the business of enforcing illegal contract.

Adam Stirling [00:03:38] I was going to say because that would be enjoining someone to commit an offense by anyway. Yeah.

Michael T. Mulligan [00:03:43] Yeah, it would be pretty outrageous state of affairs if you had a court doing this kind of thing. So, courts are not required to enforce illegal contracts. And even where neither party is relying on that, the court is still entitled to say, sorry, I’m not enforcing your fentanyl sale agreement or indeed your illegal or Air B and B operation contract. Yes. And so, as a result of that, the contract was there was no successful claim by Mr. Sun for the money he lost, being unable to illegally rent out his property as an Air B and B. And so, that’s an important principle for people to be aware of because it can have a whole range of possible implications, including things like if somebody enters into a contract to pay cash for something to happen so as to avoid tax. For example, that would be an illegal contract. You may not be in a position to enforce that. So that’s something people should be keenly aware of if they’re entering into agreements that aren’t lawful. There is another concept dealt with in the case that I think is important to comment on, because I think there can be a broad misunderstanding about how this this idea works. And Mr. Sun, the fellow who had rented out this apartment, rented out this property to put up an Air B and B, he claimed that, look, when I signed off to end the rental, I did so under duress. So, he said that shouldn’t be recognized. You know, I felt like I had no choice but to agree to terminate this thing. You know, the owners wrote to him and said, look, the city is going to find us. You have to stop this. And eventually he agreed to stop the rental agreement. But then when he showed up in court, is that all that was made under duress. I shouldn’t be bound by that. The court took some time to clarify what duress means. And I think this is also important for people to know about.

Adam Stirling [00:05:40] Yes.

Michael T. Mulligan [00:05:41] Duress requires more than just a person feeling some compulsion to agree to something right or indeed even an inequality of bargaining power. Those things aren’t going to make out duress and get you out of what you’ve agreed to do in order to rise to the standard of duress which would get you out of having to comply with a contract. There needs to be, as I said, more than an inequality of bargaining power. There must be, this is the language coercion of the will of the contracting party, which would involve things like exercising this, using an unfair or differential bargaining position in a way that is unfair, excessive or coercive. And so, let’s imagine an obvious circumstance if somebody is, I don’t know, dying of thirst on a desert island. And you say to them, look, if you’ll agree to sign over your car to me, I’ll give you this bottle of water.

Adam Stirling [00:06:33] Mhm.

Michael T. Mulligan [00:06:34] Right. That’s likely to raise the issue of level of well, that was just under duress.

Adam Stirling [00:06:38] All right.

Michael T. Mulligan [00:06:39] Person sort of agreed to the car for the bottle of water. It was unfair in excess, of course, of this sort of arrangement. But that’s not going to get you out of agreements where you sort of felt some pressure to do something right, as indeed the person here felt some pressure when it was pointed out to him, fines might arise, this might be illegal. Right? You have to stop doing this. Yes, indeed. The person may have felt some pressure, but that doesn’t get you to the level of duress where you can get out of performing what you’ve contractually agreed to. So, the important principles here for people are you’re going to be stuck with what you agree to, even if you felt some pressure to do it. And furthermore, if what you’re doing is just fundamentally unlawful, don’t show up in court hoping that a judge is going to enforce your contract for drug sales or tax avoidance renovations or indeed a business like this that isn’t lawful. And so, people should be aware of that and conduct themselves accordingly. Once you’re in the world of drug dealing or illegal conduct, you’re going to be pretty well on your own. If the person you’ve entered into an agreement with decides not to pay and were to pay you for your drugs or your property being used in some lawful fashion.

Adam Stirling [00:07:56] Which is unfortunately why we see so much violence arise as people seek to have other methods to induce persons to abide by agreements, etc.

Michael T. Mulligan [00:08:05] Yeah, I think that’s true. You know, it’ll be the the bold politician that suggests we ought to reduce gun violence by permitting drug deals and prostitution agreements to be enforced in court. But, you know, maybe there’s some practical reason.

Adam Stirling [00:08:19] I was just going to say I want to say that’ll never happen. But I’ve learned not to say that.

Michael T. Mulligan [00:08:23] Yeah, never say never. Right. Just don’t wait for the specific performance on the prostitution contract.

Adam Stirling [00:08:29] All right. Let’s see. Let’s take a quick break here, Michael Mulligan, as he continues offering us the benefit of his analysis and insight. Legally speaking, on CFAX 1070 right after this.

Adam Stirling [00:08:38] All right. Back on the air here at CFAX 1070, we continue with a legally speaking. We will after the break. He’s speaking with Dr. Gillian Hurst at Duke University. But a new study on Covid-19 and what it does in terms of spreading with young children, i.e., school age children. That’s coming up after the break. But first, I want to dive back into the conversation here with Michael Mulligan, the court of Appeal extending a class action against something called People’s Trust Company, Michael.

Michael T. Mulligan [00:09:04] Yes, indeed. So, this is a class action which started a few years ago as a result of a what I think is common ground was a breach of privacy is sort of the basics of it. And what happened is that this company had a web site that contained data, including social insurance numbers, credit card applications, dates of birth, email addresses and so forth, which they stored in an unencrypted fashion on a server and then failed to install various updates and patches that led to a cyber-attack. And all of this personal information being taken from a cyber-attack originating in the People’s Republic of China.

Adam Stirling [00:09:46] Oh, wow.

Michael T. Mulligan [00:09:46] So a bad state of affairs for the people that applied for credit cards through people’s trust. And so, a class action arose from that. And class actions these days, what the pattern essentially is that. The first step of a class action is to get the thing certified, which is to say persuading a judge that it’s an appropriate case for there to be a class action.

Adam Stirling [00:10:08] Yes.

Michael T. Mulligan [00:10:08] And finding out who would be in the class and what kind of issues would be common issues for all the people in the class in this kind of thing. And a great deal of the legal fighting arises with respect to that decision about whether to certify a class action or not. Because, if you’re the people’s trust company or some other large business who’s being sued, if you can somehow prevent the class action from getting certified and put people in a position where the only way they could get some compensation would be to individually sue you in provincial court, small claims court or something, basically one a great deal of effort is put into that. And so, you see many of these cases winding up in the Court of Appeal if companies fight tooth and nail to prevent the class actions from being certified. And that’s what occurred in this particular case. And there were a couple of issues which I think people would find of interest in terms of how the Court of Appeal dealt with this. One of the issues surrounds the concept of a claim for a breach of privacy. And in British Columbia, we do have an act called the Privacy Act, which permits, they claim, to be brought if somebody willfully and without claim of right violates the privacy of somebody else. Right. If somebody does that and there are various exceptions to it, including things like commenting on matters of public interest or fair comment on matters of public interest or consent, their rights of elements there to it. But that doesn’t neatly apply to the kind of circumstance that’s alleged in this People’s Trust Company case, because nobody thinks that People’s Trust Company wanted the Chinese hackers to get access to their unencrypted database on their own updated server. That just happened. Right.

Adam Stirling [00:11:53] Yeah.

Michael T. Mulligan [00:11:53] Amusingly, now, the People’s Trust Company, if you go to their Web site, has a right on the homepage. They’ve got a link now to called Cool Moves to protect yourself from fraud. They might have benefited from a few years ago.

Adam Stirling [00:12:08] That’s an understatement.

Michael T. Mulligan [00:12:09] Yeah. So, nobody suggests they were willfully, intentionally doing it. It’s just alleged they were careless about it.

Adam Stirling [00:12:15] OK.

Michael T. Mulligan [00:12:15] And so, one of the things which the Court of Appeal comments on is that in B.C., we don’t have a common law tort of breach of privacy. And they’re saying, well, it’s too bad that that wasn’t argued again in the court of appeals, suggesting that might be revisited down the road. So that was an interesting commentary. The other thing, which I think is important to know in the case is that we’ve had a change in British Columbia in terms of how class actions are to be dealt with for people who don’t live in British Columbia. Right. So, for example, you might have a company in B.C. case brought here, but some of the people affected might live in somewhere else in Canada.

Adam Stirling [00:12:58] Yeah.

Michael T. Mulligan [00:12:58] And until a couple of years ago, the way that worked is that if you’ve got a case certified, so a judge that, yes, there should be a class action. Those people outside of British Columbia would have to affirmatively take a step to join the class action. So, you’d put an ad in the newspaper or online and, you know, people who might have had their credit card data stolen, you could choose to join it. But that’s going to be only modestly effective, of course. And we’ve had a change in British Columbia, which I think is a positive one, that now permits to opt out certification for people who don’t live in British Columbia. And so, the other thing the Court of Appeal did here was say, look, this case can go back to the Supreme Court. It should be certified and there can be an application made to change that opt out certification, to or sorry, to opt in certification to an opt out certification, which means that once the court certifies something is a class action and defines who would be in the class, like, you know, anyone who had their credit card data stolen from the unencrypted Web page server, that kind of thing.

Adam Stirling [00:14:08] Yes.

Michael T. Mulligan [00:14:08] Would be in unless they chose to affirmatively opt out and say, no, no, I prefer to bring my own claim and small claims court or something, which would be virtually no one. And so that’s the other. I think important takeaway here is that we’ve had this change had happened in 2018 that allows cases to be certified in British Columbia and to include people that don’t live in British Columbia on an opt out basis so that they would be more likely to be captured and potentially get some compensation if the case proceeds. The other thing, which is a by way of how these things, in fact, play out, is that once their companies have exhausted their efforts to try to avoid a case being certified, there’s been a much higher probability that the case will settle once it’s clear that, yeah, the thing will be allowed to go ahead. Much of the fighting seems to legal fighting seems to occur in an effort to stop things from being certified to begin with. So, the People’s Trust Company. You know, good to know that they’ve learned their lesson about updating their server and perhaps they’re reading their own helpful information on their Web page about how not to be a victim of fraud.

Adam Stirling [00:15:18] Absolutely. You and I, Michael, in the past have discussed a number of times the matter of how it is fairly decided, what members of the judiciary should be paid in exchange for their services presiding over British Columbia’s courts. We believe very strongly in the separation of the judiciary and the legislative branch. However, at the end of the day, someone has to make an approval somewhere as to how much judges are paid. What is the status of that issue?

Michael T. Mulligan [00:15:43] Never ending would be the status of the issue.

Adam Stirling [00:15:45] All right.

Michael T. Mulligan [00:15:46] And an extremely disappointing I must say as somebody sort of watching it. We have. And you’re you’re exactly right. And we’ve talked about this. The judges need to be independent from the other branches of government. They’re often called upon to make decisions involving the other branches of government. And you do not want to be somebody who’s, you know, suing the government, for example, in court or being prosecuted by the government and have the judge who’s deciding your case engaged at a salary negotiation with the other party that you’re having a dispute with.

Adam Stirling [00:16:15] Precisely.

Michael T. Mulligan [00:16:16] It’s not acceptable.

Adam Stirling [00:16:17] Precisely. Yes.

Michael T. Mulligan [00:16:18] And you would think that would be just so obvious to everyone involved. But, well, we have a process in place that’s supposed to set the salaries and terms of employment of judges, which is a an independent commission which was created by legislation. And it would look at a variety of things like what are judges paid to other provinces? You know, what would senior lawyers be paid? You know what’s happening with other members of the government? This kind of thing. And then come up with a suggested compensation for judges every few years. And the way that works is that the report of that independent commission is supposed to be tabled in the legislature because ultimately the legislature is responsible for spending public money. Right.

Adam Stirling [00:17:05] Yes.

Michael T. Mulligan [00:17:05] The way we’ve created this is that we haven’t delegated to the commission the authority to just set the terms of employment that might be preferable. And I must say going forward. But we instead we have this report tabled in the legislature and then a decision made about whether to do what’s been recommended or to tinker with it. And very, unfortunately, in British Columbia and indeed in some other provinces, the government of the day just can’t resist tinkering with what is been proposed. And it’s been going on for years. And the most recent decision just came out on August 27. And it is a it was a one of these recommendations made by the independent commission in 2016 suggesting various changes be made to the terms of employment for provincial court judges. And as the we now have this terribly unfortunate history in British Columbia, the attorney general of the days, the previous government didn’t just say, yes, find these as an independent, independent commission. I recommend you do this. They just couldn’t resist. And so, they decided to recommend to the legislature that there be a change to the compensation provided to judges. Different from what the independent commission had recommended.

Adam Stirling [00:18:26] Yeah.

Michael T. Mulligan [00:18:27] And the justification for that at the time was to the effect that the commission didn’t adequately take into consideration what was happening for compensation for other members of the public service. It was sort of a general critique of that. Well, that happened. And what resulted then is what’s happened repeatedly and very unfortunately, there is an application for a review of that legislative decision and where there’s an application for a review. It goes to the B.C. Supreme Court. So, judges that are not affected by the decision. Right. They’re not deciding their own salary, like, frankly, would occur in other levels of government. Right. Politicians are generally setting their own salary. But judges aren’t doing that. And there can be a review of those legislative decisions about whether to follow the follow the recommendation of the independent commission.

Adam Stirling [00:19:22] Yes.

Michael T. Mulligan [00:19:23] And where there is a review. One of the things that the judge doing a review has to look at is whether there was a reasonable factual foundation for the decision to depart from that independent recommendation. It’s sort of is it reasonable test?

Adam Stirling [00:19:39] OK.

Michael T. Mulligan [00:19:40] And so we have this decision that just came out. It’s a decision of the Chief Justice Hinkson that found that the decision to tinker with the recommended compensation meet by the legislature, British Columbia had no reasonable factual foundation. And I should say it’s a pretty disconcerting day when you look at these things, both from the perspective of the importance of judicial independence.

Adam Stirling [00:20:06] Yes.

Michael T. Mulligan [00:20:07] And also when you read this reasoned decision that comes to the ultimately comes to the conclusion that what the legislature did wasn’t reasonable and rational. Right.

Adam Stirling [00:20:18] And and, as an ordinary person, if I were to be asked, on balance, are the courts more reasonable than the politicians in the legislature? You know, I’ve watched the legislature all the time, and it is not overly known for being reasonable. I’m just going to say that.

Michael T. Mulligan [00:20:31] No, and I’m going to say here’s one of the things which we should take pride in in terms of our judicial system. One of the things what you will get from a judicial decision are rational, reasoned decisions which have to be explained. And so, for example, when you look at this thing, the decision goes on. Chief Justice thinks it goes on for 36 pages properly explaining the evidence and the background of the decision and why this isn’t reasonable and how there wasn’t an evidentiary foundation.

Adam Stirling [00:20:56] Yes.

Michael T. Mulligan [00:20:57] And in contrast to that, what he was analyzing was a speech by the then attorney general in the legislature and then a voice vote, everyone saying I and the thing be implemented. And so.

Adam Stirling [00:21:12] I shouldn’t laugh, I’m sorry.

Michael T. Mulligan [00:21:13] It’s so very disappointing that you wouldn’t have anyone in the legislature at that time, anyone saying, look, hold on a minute, what are we doing here? Right. You know, this is an important principle. We shouldn’t be, you know, dismissing a recommendation of one of these independent commissions unless there’s a very good, rational reason for doing so. And, you know, they’re just bigger issues at play here, but just didn’t seem to engage anyone there, which is awfully disappointing in terms of both the principle. And on any day you have a conclusion from the Chief Justice that the legislature unanimously failed to act in a reasonable, rational way. Surely that should be a bare minimum expectation when we are with decisions of this importance are being made.

Adam Stirling [00:22:02] We can certainly hope.

Michael T. Mulligan [00:22:04] We certainly hope anyway. Hopefully in the future they’ll just stop tinkering and do what the and allow the what’s supposed to be an independent process, do what it’s supposed to do and just get their fingers out of it. So, we’ll wait and see.

Adam Stirling [00:22:15] Michael Mulligan, a pleasure as always. Thank you for your time.

Michael T. Mulligan [00:22:18] Thank you so much. Have a great day.

Adam Stirling [00:22:19] You too. Michael Mulligan every week during the second half of our second hour, Legally Speaking, on CFAX 1070.

Automatically Transcribed on September 3, 2020 – MULLIGAN DEFENCE LAWYERS