Legal Blog:

Deposit

Redstone Enterprises Ltd. v. Simple Technology Inc. 2017 Ont CA

Deposit for purchase of a warehouse was $750,000 on a $10,225,000 purchase price. The purchaser failed to close and the vendor, without demonstrating any damages, elected to take the deposit. Purchaser relied on section 98 of the Courts of Justice Act that would allow a court to grant relief against penalties and forfeitures on such terms as are just. The court had to first determine whether the forfeited deposit was out of all proportion to the damages and whether it would be unconscionable for the seller to retain the deposit. In this case, the first test was satisfied; there were no damages. Since there was no gross disproportionality in the size of the deposit, the court had to consider other factors for unconscionability. Factors include: inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the existence of bona fide negotiations, the nature of the relationship between the parties, the gravity of the breach, and the conduct of the parties. In this case there was no unconscionability; it was a straightforward real estate transaction with no inequality of bargaining power, no fiduciary relationship, and to sophisticated parties. Deposits between 7% and 20% had been held appropriate; in this case the deposit was only 7%. The deposit was forfeited in full.

Discovery

Lazar v. TD General Insurance Co. 2017 Ont Div Ct

Question was whether the 2 plaintiffs should be excluded from being present at each other’s examination for discovery. The party seeking the exclusion must demonstrate that exclusion is necessary to meet the ends of justice. Factors include: whether the co-parties have common interests; whether the co-parties are represented by the same lawyer; whether it appears that the examinations for discovery of co-parties will cover the same grounds; whether credibility will be a factor or an issue in the case; whether there is a risk that evidence is likely to be tailored or parroted; whether a party is likely to be intimidated; whether the proceedings are likely to be disturbed or disrupted; whether there would be prejudice to the excluded party; and, generally, whether the ends of justice require the exclusion. The court noted that: where credibility of co-parties with the same interest will be the central issue at the trial, an exclusion order will attenuate the risk of a co-party unconsciously tailoring his or her evidence in a desire to achieve consistency. It will also allow the party seeking exclusion to test the reliability and credibility of the evidence of each of the co-parties and, in particular, test their independent recollection of the facts in issue, untainted by the prior knowledge of the questions they will likely be asked and the answers given by their co-party. Unless the plaintiffs are able to set out specific aspects of prejudice, then general aspects of possible prejudice, such as right to be present to gauge the effectiveness of counsel, instruct counsel, and evaluate reliability and credibility of each other, are not sufficient. In this case, all of the factors militating against each plaintiff attending the other’s discovery were present and the normal right to attend had to yield to the right of the defendant to use its discovery to the fullest potential and obtain the evidence of the plaintiffs without any possible collusion.

Liens, Excessive

Petrelli Construction & Renovation Inc. v. Phillips 2016 Ont SCJ

Corporate lien claimant abandoned action. Judge awarded costs against corporation and against the corporation’s sole shareholder and director under section 86 of the Construction Lien Act. The director was held liable for an exaggerated or excessive lien because, even if he originally thought there were grounds for the validity of the lien, he should have realised that he lacked the capacity to prove it or bring the matter to trial. The lawyer for the lien claimant was held not to be liable for costs because the evidence did not indicate that he ought to have known that the lien was without foundation and, in any case, there was no evidence that he acted in bad faith, maliciously, or negligently. Nothing was ordered under section 35 because the owners did not provide evidence of damages.

Power of Attorney

Armitage v. Salvation Army 2016 Ont CA

An attorney under a power of attorney for property has a right to compensation for the work the attorney has done. The Substitute Decisions Act allows the attorney to take annual compensation. However, the attorney can wait, even after the death of the person giving the power, before the attorney passes the accounts. A passing of accounts is not a “claim” pursuant to the Limitations Act and there is no limitation on the right of an attorney to request compensation and pass the accounts, subject to a defence that the attorney has waited too long in general (i.e. laches) or acquiesced to the status quo of payment.

Renewal

Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub) 2016 Ont CA

Renewal clause provided for a right of renewal on the same terms as in the lease “save as to the rental rate which shall be the then current rate.” Right of renewal was conditional on the tenant having paid the rent and all other sums payable when due. The court held that the renewal clause was not so uncertain as to be unenforceable; the parties would either resolve the issue as to the current rent or have the dispute resolved by arbitration or in court. Had the clause said that the rate was to be subject to mutual agreement, it would have been void for uncertainty. In this case, the tenant was in arrears of rent for a trivial amount and had been refusing to pay an increase in additional rent because of a dispute; that was enough to disentitle the tenant from engaging the right of renewal.

Sham Tenancy

A mortgagee wants to take possession of mortgaged residential premises because the mortgagor is in arrears of the payments due under a mortgage. Normally, there would be no real problem. However, if the mortgagor has leased the premises, then problems arise and the mortgagee has some additional hurdles to overcome. Toronto-Dominion Bank v. Hosein, a 2016 decision of the Ontario Court of Appeal, discusses those problems and eliminates one of them.

Legislation

In the good old days, a mortgagee had priority over a subsequent tenant and, when a mortgagee had the ability to take possession of the premises from the mortgagor, ultimately the tenant had to leave. In order to rectify that imbalance of power for residential premises, the Ontario legislature amended the Mortgages Act (“MA”) in 1991 to provide security of possession to a mortgagor’s subsequent tenants. At the same time, the legislature, realising that a financially strapped mortgagor might not necessarily be honourable, allowed a mortgagee to apply to vary or set aside a tenancy agreement if it (a) had been entered into to discourage the mortgagee from taking possession of the premises or (b) adversely affected the value of the mortgagee’s interest in the premises. In other words, sham tenants are not protected.

Creditor Proof

The techniques in which debtors attempt to hide their assets or ensure that their creditors cannot seize them are varied and plentiful. The job of creditors’ counsel or the creditors themselves is to investigate, determine what happened to the assets, and act to recover them. In Bearsfield Developments Inc. v. McNabb, a 2016 decision of the Ontario Superior Court of Justice, the debtor had a really good plan. Just before her employer discovering her embezzlement, she transferred $206,000 into a creditor proof segregated mutual fund (which we assume had an insurance component). She was therefore able to tell her defrauded employer, who ultimately obtained a judgment against her for almost $1 million, that she was very sorry, but she had no assets to repay the employer the money she stole from it. Was she able to get away with this?

Fraudulent Conveyance

The Fraudulent Conveyances Act applies to every conveyance of real property or personal property made with the intent to defeat creditors of their lawful debts. It allows a creditor to set aside the conveyance. The employer brought an action to do just that, arguing that a transfer of seizable assets into a form of property that could not be seized was, in itself, a fraudulent conveyance.

Charge It

A law firm, acting for a plaintiff, performs the bulk of the work on a file. After a dispute with the client arises, or perhaps before, the law firm finds that it is fired and that another law firm has taken over the file. The law firm has grave doubts whether the client will voluntarily pay the firm for the work it did, regardless of whether the retainer was on contingency or hourly basis. What does the law firm do? Get a charging order. We discuss two cases in which a law firm did exactly that: Dalcor Inc. v. Unimac 2017 ONSC 945 (SCJ) and Fancy Barristers, PC v. Morse Shannon, LLP 2017 ONCA 82.

What is it?

As stated by Justice Perell in another case, “a charging order is a statutorily-based proprietary right of a lawyer to claim property owned by a client or former client when the lawyer’s acts were instrumental in recovering the property. The charging order or charging lien is for the lawyer’s fees, costs and disbursements in the proceeding.”

Action to Collect Lawyer’s Fees

Gilbert’s LLP v. David Dixon Inc. 2017 Ont Div Ct

Law firm sued in Superior Court to collect account. Application judge dismissed the application holding that a lawyer had no right to commence an action under section 23 of the Solicitors Act unless there was a bona fide dispute as to the terms or effect of the written retainer agreement. The Divisional Court noted that the Solicitors Act was outdated and convoluted and that the Ministry of the Attorney General had under resourced the assessment process. The Divisional Court held that the law firm was entitled to commence an action to enforce a simple or usual written fee agreement, particularly one in which there is no dispute as to the terms of the retainer agreement or the outstanding account. The Court noted that this right was always subject to the client’s right to apply for an assessment of the account under section 3 of the Act.

Oppression

Films S.A. v. Cinemavault Releasing International Inc. 2016 Ont Div Ct

Corporate group reorganised. The reorganisation resulted in corporation #1 having no assets. The plaintiffs, who were creditors of corporation #1, commenced an action that, among other things, alleged oppression on behalf of the other corporations and the guiding individuals. The trial judge found that the assets were transferred for no consideration and that there was no bona fide business purpose for the restructuring. The application judge held all of the defendants liable for the creditor’s debt. The Divisional Court agreed, noting that the direct personal benefit that the controlling shareholder received also constituted oppressive activity on his behalf that attracted personal liability.