Legal Blog:

Guarantee-Improvident Sale

Bank of Nova Scotia v. Scholaert 2017 Ont SCJ

Bank sued guarantor of the debtor. It had sold assets of the debtor, but ultimately realised nothing from that sale because CRA had a claim in priority. Guarantor claimed that the bank made in an improvident sale of the debtor’s assets. The judge noted that the bank sold the assets for more than the asset valuation of an independent appraiser and that the guarantee gave the bank wide latitude on the sale of assets and stipulated that the bank only needed to act reasonably. The judge granted judgment against the guarantor.

Garnishment

Virc v. Blair 2017 Ont CA

The Pension Benefits Act exempts receipt of benefits of a pension plan from garnishment. A pension plan is defined as one that is organised and administered to provide pensions for employees, but it specifically excludes other types of plans that are prescribed by the regulations. A retirement compensation arrangement is prescribed by the regulations and it is defined under the Income Tax Act. The husband owed money to his estranged wife and she garnished the benefits from his retirement compensation arrangement. The Court noted that these benefits were not protected and were fair game for garnishment, without the deduction that would have been applicable had the benefits been wages. Interestingly, this retirement compensation arrangement was set up between a trust company and the husband’s corporation; the husband was the only beneficiary under the arrangement.

Non-Party Costs

A corporate lien claimant registers a claim for lien, commences its action to perfect that lien, and then fights that action over the next three years. You post a lien bond to vacate the lien from title and defend the lien action, incurring significant legal costs in the course of the battle. Can you do anything to put yourself in a position to recover some of those costs – assuming that you are ultimately successful at trial?

The easy answer is to obtain security for costs. However, this is not so easily done. You have to prove that the lien claimant has insufficient assets in Ontario to pay a costs award. If your lien claimant is still carrying on business, with none of the indicia that the corporation is in financial trouble, you will have no evidence on which to base a motion for security for costs. Conversely, you may discover, just before trial, that the claimant has financial problems and, by that time, it is too late to bring the motion – which, to be successful, must be brought in a timely manner before significant costs are incurred.

You are successful at trial, but by this time you know or strongly suspect that your lien claimant has no assets to satisfy a costs award or has gone bankrupt. Do you have a remedy? Maybe. As always, it depends on the facts. These facts, with a twist, were on display in Deep Foundations Contractors Inc. v. B. Gottardo Construction Ltd., a 2016 decision of the Ontario Superior Court of Justice.

Settlement and Costs

MTCC 596 v. Best View Dining Ltd 2017 Ont SCJ

Condominium commenced an application to enforce the declaration and rules regarding noise that the restaurant tenant/owner in a commercial condominium complex was creating for the residential owners. The parties agreed on a consent order to deal with the means by which the noise could be reduced or eliminated, but could not agree on the costs to be paid to the condominium for the problems created and the legal fees incurred. Unlike in Muskala v. Sitarski 2017 Ont SCJ, the judge was quite willing to determine the costs award even after the parties had resolved all other aspects of the application. She held as follows: (1) the fact that the tenant/owner had dealt with the problems in good faith was irrelevant; (2) the condominium did not need to mediate the dispute because a tenant was involved; and (3) the condominium should be compensated for all of its costs, except those that were not reasonable.

Proprietary Estoppel

Cowper-Smith v. Morgan 2017 SCC

Family: mother, 2 brothers, and one sister. Mother’s main asset was the family house. The will that ultimately governed distributed all assets to the 3 children equally. Sister previously promised brother that she would sell her interest in the house to him at fair market value if he would return to Canada from England to look after their ailing mother. He did so, mother ultimately died, and sister reneged on her promise and proposed to sell the house even though brother was currently living in it. Proprietary estoppel prevents the inequity of a detriment that occurs when a claimant has reasonably relied on an expectation that the claimant will enjoy a right or benefit over property. The court extended the protection even when the party responsible for the expectation did not own the interest in the property at the time of the claimant’s reliance. The court left open the question whether proprietary estoppel could attach to an interest in property other than land. The court held that the brother’s reliance on the sister’s promise was reasonable under all the circumstances. There were 2 other questions: (1) Did the sister obtain an interest in the land? As executor, she wanted to sell the land and divide the proceeds. The court got around this by ordering an in specie distribution. (2) What was the date on which fair market value would be calculated? The court held that the FMV would be calculated as of the date that the claimant would reasonably have expected to be able to purchase the land (i.e. when the estate could have been wound up in the normal course were it not for the litigation). The court did not want to give brother a benefit on the money that he did not have to pay immediately and therefore ordered that he pay pre-judgment interest on that amount and any expenses that the estate incurred in maintaining the property from the FMV date.