Legal Blog:

Fraudulent Conveyance, Preference

Bayerische Landesbank Girozentrale v. Sieber Estate (Trustee) 2015 Ont SCJ

The debtor engaged in extensive shenanigans and transfers. He claimed a trust in favour of a corporation when the corporation was not incorporated until many years after the date the trust allegedly arose. Shares were backdated. The trust agreement was backdated. The creditor obtained a section 38 BIA order. The court held that the trust was a sham. There was no documentation of the creation of the trust. The trust had no accounting records, financial statements, bank accounts, bank records, or tax returns. That in itself was sufficient to be fatal to the supposed existence of the trust. It was a non-operational phantom trust. Once one of the badges of fraud exists, a presumption of fraud takes hold and the defendants must provide some adequate explanation. Of review of cases on fraudulent conveyance and trusts, the judge set aside the fraudulent conveyance to vest the disputed property with the creditor by virtue of the section 38 order.

The creditor had served an offer to settle requiring the debtor to pay $310,000 or to transfer title to the property. Since the judge ultimately ordered the property transferred to the creditor, he held that the offer was as good as or better than his award. Accordingly he awarded partial indemnity cost to the date of the offer and substantial indemnity costs after it. He also noted that it was within the debtor’s contemplation that transferring his property in the manner in which he did would spawn some rather expensive litigation. The judge noted that the complexity of the issues may be taken into account. There was no mention of substantial indemnity costs as a result of the finding of fraud. This was unusual.

Rule 2.1.02 Dismissal – frivolous, vexatious, or abuse of process

Gao v. Ontario WSIB 2014 Ont SCJ

Rule 2.1.02 allows the court to dismiss an action on grounds that the action is frivolous, vexatious, or an abuse of process. A defendant will complain and a judge will review the statement of claim. The judge will either refuse to take the matter further or will call on the plaintiff to provide reasons why the action should not be dismissed outright. The complaining defendant need not appear, but if ultimately unsuccessful after the plaintiff’s submissions, may be liable for costs. A poorly drafted statement of claim which may well contain a legitimate cause of action and other Rules, by way of an ordinary motion, would be used for that. This Rule is used when the litigant seems to be a wacko (term of art) and the statement of claim is absurd.

Lexpert Article – Pricing Legal Services

Allison Speigel is featured in the Lexpert article, Pricing Legal Services: the alternative fee arrangement tipping point,  discussing alternative fee arrangements in law.

“The key to Speigel Nichols’ philosophy is merging the flat-fee approach with what the law firm likes to call customization. “Customizing is all about finding out what clients’ expectations are and meeting those expectations,” explains the firm’s Allison Speigel. ‘It ranges from how services are delivered, includes how often the client expects meetings to be updated and where they want meetings to occur. All these things affect pricing but as a rule nobody talks about it.'”

 

Click here for more.

Constructive Dismissal and the Reasonable Employee

Potter v. New Brunswick Legal Aid, 2015 SCC

Employer began negotiating a buyout of the employee’s contract. Before any deal was made, the employee went on sick leave. During the leave period, the employer suspended the employee with pay and delegated his powers to another employee.

At the same time, but unbeknownst to the employee, the employer prepared a letter of termination. When the employee received the notice of suspension, he requested reasons for it. After receiving none, he considered himself constructively dismissed and sued.

An employee must prove one of two branches to establish constructive dismissal:

(i) identify an express or implied contract term that has been breached and determine whether the breach is sufficiently serious to constitute constructive dismissal; or

(ii) determine whether, after reviewing the cumulative effect of past and present acts by the employer, the employer no longer intended to be bound by the employment contract.

For the determination of the first branch, the Court must ask whether, at the time the breach occurred, a reasonable person in the employee’s situation would have felt that the essential terms of the employment contract were being substantially changed. In making this determination, the court cannot consider evidence of information that was not known to the employee (such as the employer’s termination letter that had not been delivered).

After setting out the law referenced above, the Supreme Court of Canada (five person majority) considered that, in light of:

(i) the indefinite suspension; and

(ii) the fact that the suspension was not authorised by the employment contract and was a substantial change to it,

there was a constructive dismissal under the first branch of the test. The termination letter was not to be considered, but would have been the icing on the cake. The minority agreed with the result, but would also have considered the termination letter.

178(1)(d) of BIA and Breach of Trust

Abraham v. McBean 2015 SCJ

Paralegal held liable because she allowed a mortgage transaction to be completed after the proposed mortgagor had sold the property to a numbered company. The trial judge determined that, after advancing funds in her trust account without notifying the mortgagee of the change in the ownership of the property, the paralegal breached her trust obligations and disregarded the interests of the party she was retained to protect.

On application to release the bankrupt paralegal from her subsequent bankruptcy, the bankruptcy judge held that section 178 (1) (d) of the Bankruptcy and Insolvency Act did not apply. It did not apply to every breach of trust, but only a breach akin to misappropriation or defalcation. Since there was no finding by the trial judge of bad faith or dishonesty against the bankrupt paralegal, the section did not apply.

Limitations Periods and Invoices

Licata Disability Management Paralegal v. Triluc Enterprises 2014 SCJ

Paralegal’s invoice stated that payment was to be remitted 30 days from the date of the invoice. Limitation period therefore ran from the 31^st day and the claim was issued too late. This was not a situation in which the invoice had no specified time for payment; in that situation, previous cases held that the limitation period ran from a reasonable time by which payment was to have been made and, on the facts, decided 30 days was reasonable.

The paralegal had also sued for $17,000 when her invoice had been issued for $8,000. Had the action not been time-limited, the judge would have

• limited the paralegal to $8,000; and
• held the personal defendant liable because she used a name and style in the contract that she never registered to a corporation and there was no indication of a corporation on the contract document.

Pierringer v. Mary Carter Agreements

Stamatopoulos v. Harris 2015 Ont Div Ct

The difference between a Pierringer Agreement and a Mary Carter Agreement is that, in the former, the parties contemplate that the settling defendant will no longer be involved in the action and, in the latter, the settling defendant will be. In this case, the parties entered into a Mary Carter Agreement. As was required of it, the plaintiff notified the other parties of the agreement. However, the plaintiff refused to disclose the terms of the agreement. The court held that the plaintiff had to disclose those of the terms that changed the litigation landscape (e.g. how it was that the settling defendant, who took one position in the pleadings, now took a different position at trial). The facts of this case differed from the Supreme Court of Canada decision in Sable Offshore Energy v. Ameron International. That case dealt with a Pierringer Agreement and the plaintiff voluntarily disclosed all of the terms of the agreement, but the price, and was allowed to withhold that information.

Fraudulent Conveyance, Void as Against Creditors

Jonas v. McConnell 2014 Ont SCJ
Sole director allowed redemption of his preference shares in closely-held private corporation at nominal amount and then became bankrupt. He was held to have engaged in a fraudulent conveyance since consideration was deemed to be grossly inadequate. Redemption was declared void as against creditors.

Personal Liability and Construction Ladder

Consider two scenarios. First, a general commences an action against a corporate sub for breach of contract, obtains a judgment, and then realises that the sub has no money and no assets and that the judgment is no more than a worthless piece of paper. Second, an owner retains a corporate contractor to build a home, pays the contractor money in advance, ultimately fires the contractor because the contractor is incompetent, obtains judgment against the contractor, and, again, realises that the judgment is not collectable. In each of these scenarios, the wronged party needed to obtain a judgment against the individuals behind the corporations. Sometimes, this can be done – and there are numerous ways to do it; sometimes, this cannot be done.

In Haebler Construction (2003) Inc. v. Condura Forming, a 2014 British Columbia Supreme Court decision, the general attempted to obtain a judgment against the principal of the sub by claiming reliance on a false statutory declaration. In Bridgmohan v. 2218667 Ontario Ltd., a 2014 Ontario Superior Court of Justice decision, a homeowner attempted to obtain a breach of trust declaration against his contractor.

Construction Priorities

Rosedale Kitchens Inc v. 21144281 Ontario Inc 2014 Ont Div Ct
For purposes of priority, a mortgagee advances to an owner when the cheque is given, not when owner certifies cheque.