Legal Blog:

Strip Assets

In the ongoing cat and mouse game between creditors and debtors, debtors often attempt to move their assets beyond the reach of their creditors. Sometimes their attempts are relatively crude (e.g. a transfer of the matrimonial house from the debtor to the debtor’s spouse); sometimes, the attempts are relatively sophisticated. One example of sophistication is set out in 1007374 Alberta Ltd. v. Ruggieri, a 2015 Alberta Court of Appeal decision.

Proceedings

In 2011, after a 3-day trial, the creditor obtained judgment against A. Ruggieri Engineering Ltd. for $476,000. Unfortunately, the debtor did not just write a cheque to pay the judgment debt. It seems that:

• 3 days before trial, the debtor changed its name to a numbered Alberta corporation.
• Within a couple of weeks after trial, the owner of the debtor, Antonio Ruggieri, incorporated Alberta Engineering Ltd. (“Newco”) and, instead of carrying on business through the debtor, started to carry on business through Newco.
• The debtor granted a general security agreement of $500,000 in favour of the debtor’s owner and GMR Management Corporation. GMR owned the building and assets that the debtor, and then Newco, used to carry on business.
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Clarity

Prudent employers enter into written employment agreements with each of their employees. These agreements set out the terms of employment. They deal with ongoing employment matters, such as vacations and sick days, as well as with termination issues. Smart employers try to ensure that their agreements are somewhat reasonable. Overreaching employers enter into employment agreements, which are either so one-sided or nasty that the courts go out of their way to strike them down as unenforceable. The dichotomy between smart and overreaching was demonstrated in Howard v. Benson Group Inc. (2016), 129 O.R. (3rd) 677 (C.A.)

Essence

A five-year employment contract had a provision stating that the employer could terminate the employee’s employment by paying an amount set out under the Employment Standards Act (E.S.A.). The motions judge held (at 2015 O.J. 2029) that this provision was too vague to be enforceable and that the contract should therefore be interpreted as if it were a contract for reasonable notice subject to mitigation. The Court of Appeal held that the motions judge’s interpretation was an extricable question of law and that, as a question of law, once the termination provision was set aside, the contract remained a contract for a five-year fixed term. The employer therefore had to pay the employee to the end of the term without benefit of mitigation.

Contract Breach

Clark v. 189557 Ontario Inc. 2016 Ont SCJ

Settlement agreement on a wrongful dismissal case. Employer paid $18,000 of the $36,000 settlement in 6 installments, but was unable to pay the remaining $18,000. The employee sued for the full amount that he felt he could have claim for wrongful dismissal, $145,000. In the alternative, he claimed the remaining $18,000 due on the settlement agreement. The judge analysed the various contractual remedies. The judge held that:

a) There was no fundamental breach that would allow the employee the right to treat the settlement agreement at an end. The employer’s breach did not deprive the employee of substantially the whole benefit of the settlement agreement.

Arbitration

Koon v. Lawyers Professional Indemnity Co. 2016 Ont SCJ

A lawyer was sued for negligence. Its insurer, LawPro, attempted to have the lawyer consent to a settlement that LawPro decided would be fair the under the circumstances. The lawyer refused to do so and, in accordance with the errors and omissions policy, LawPro authorised the settlement regardless. As a result of the settlement, the lawyer was liable for a $5,000 deductible plus a surcharge of $2,500 per year for 5 years. Accordingly, the settlement cost the lawyer $17,500. The policy allowed the lawyer to submit her dispute with LawPro over the settlement, and whether it should have been made, to arbitration. After a number of adjournments brought on by the lawyer and the resignation of one arbitrator, the hearing was held, and the new arbitrator ruled against the lawyer. The lawyer appealed. The motions judge held that the arbitrator had properly exercised his discretion when considering whether to grant the lawyer yet another adjournment and he properly dealt with procedural issues in the arbitration hearing.

Good Faith

2336574 Ontario Inc. v. 1559586 Ontario Inc. Ont SCJ

Parties entered into an agreement of purchase and sale for a commercial condominium. There was an interim closing. The builder vendor then set a closing date, as it was entitled to do. The purchaser requested an extension without giving reasons and the vendor refused the extension without giving reasons. The closing date came and, after a partial tender, the vendor’s lawyer claimed that the purchaser was in breach. The next business day, the purchaser’s lawyer notified the vendor’s lawyer that the purchaser would be in funds a day later and would complete the transaction. The vendor refused to close and claimed the $70,000 that the purchaser had previously paid. Each claimed that the other failed to act in good faith. The judge noted that good faith depended upon the relationship of the parties. If the parties had a long-term, ongoing relationship, a level of good faith might have been flexibility beyond the letter of the contract. However, commercially experienced buyers and sellers in a one-off transaction would not be expected to vary from the strict contractual terms. Accordingly, the judge held that the purchaser breached the agreement and that the vendor properly terminated it. The judge awarded the vendor the deposits of $40,000, but held that the $30,000 occupancy closing amount was not a deposit; rather, it was a payment towards the balance due on closing and had to be returned because there was no closing.

Estoppel & Laches

McMurtry v McMurtry 2016 Ont SCJ

Son commenced an action for a declaration that he was the owner of his deceased father’s shares in corporation. Mother claimed that shares passed to her as beneficiary of father’s estate. A declaration is a pronouncement of a legal relationship without an order of enforcement. The son’s request for a declaration was just that. There was no request for an order of enforcement. He did not need the court to order his mother to do anything; rather, the trustees of the estate would merely carry out their duties in the normal course. Accordingly, the Limitations Act did not apply. Mother had written a letter, on which the son relied, acknowledging that the son owned the shares. The court held that there was laches in mother’s claim because objectively she knew of all the facts that gave rise to the claim and still wrote the letter; she acquiesced to the son’s ownership. The judge also found that the son had been prejudiced by mother’s actions. Finally, the judge found mother was estopped by convention from claiming ownership in the shares; she was also estopped by her own representation that son owned the shares.

Trust Fund

Robert Nicholson Construction Co. v Edgecon Construction Inc. 2016 Ont Div Ct

The Divisional Court overturned the decision of the motions judge. The motions judge held that an owner was liable to a sub for a breach of trust because it paid the general’s associated corporation rather than the general itself. It seems that the motions judge made many errors:

a) He relied on section 7(1) of the Construction Lien Act to hold that the owner was a trustee in favour of a subcontractor. However, that section states only that an owner is a trustee in favour of a general. It is under section 8 that generals or subs are trustees for other subs.

Extras

Jessco Structural Ltd v. Gottardo Construction Ltd. 2016 Ont Div Ct

The Divisional Court, on a 2-1 split, upheld the motions judge who decided that oral instructions were not sufficient to comply with the contract and the general had not waived the contractual provisions. Therefore, regardless that the superintendent had signed the purchase order/timesheet and that the subcontractor had done the work, the general did not have to pay the subcontractor. There was a strong dissent holding that the general had waived the contractual provisions because it had issued prior change orders under similar circumstances.

Abandonment

6705058 Manitoba Ltd. v. Penguin Heating and Cooling Technologies Inc. 2016 Man QB

Under section 31 of the Construction Lien Act, a general’s lien period runs from the earlier of a number of dates. One of them is the date on which the contract is abandoned. Manitoba has the same concept for a subcontractor. The validity of the mechanical sub’s claim for lien depended upon the date that the sub was held to have abandoned the contract. The court summarised the abandonment principles as follows:

Dismissal, Order Breach

Garrett v. Oldfield, Greaves, D’Agostino 2016 Ont CA

Plaintiff brought a motion for summary judgment, lost, and was ordered to pay $10,400 in costs. The defendant brought a motion to dismiss the action because the plaintiff had not paid the costs ordered. Rule 57.03(2) allows the court the discretion to dismiss an action for failure to pay a costs order. In order to do so, a court must balance the competing interests of the parties and consider all relevant factors. The court does not wish to dismiss an otherwise meritorious action if the party owing the costs can demonstrate that the costs were not paid because that party was impecunious. Conversely, it is important for the administration of justice that a court order be followed. In this case, the plaintiff presented no evidence regarding the merits of her action or of any alleged impecuniosity. The motions judge weighed the competing interests and exercised his discretion to dismiss the action; the Court of Appeal dismissed the plaintiff’s appeal.