Legal Blog:

Court of Appeal Examines Whether a Debtor’s Pension Benefits Can Be Garnished

Can a creditor garnish a debtor’s pension benefits? As in many instances in law, it all depends. In particular, it depends on the type of the pension plan. The arcane workings of pension plans were the subject of Virc v. Blair, a 2017 decision of the Ontario Court of Appeal.

The Claim

The debtor’s pension was known as a retirement compensation arrangement (“RCA“). It was contractually negotiated between Royal Trust Corporation of Canada, as trustee, and the debtor’s former employer, which just happened to be a corporation that he owned and controlled. The debtor argued that the benefits from the RCA were pension benefits and could not be garnished.

Improvident Sale

Debtors give security over assets to creditors, who would never lend money without that security. Of course, a debtor never expects to default on its obligations and it certainly never expects a creditor to exercise its powers over the security, sell it, and apply the net sale proceeds to the amount due for the debt. However, it happens – more often in a recession. Debtors do not have an extensive array of remedies to oppose creditors’ actions.

One available remedy is an action for, or a defence based on, improvident sale. The debtor will allege that the creditor sold the secured asset for a song and therefore the creditor either should not be able to claim for a shortfall or actually has to pay damages to the debtor if the sale proceeds fully repaid the debt. Regardless of the action or defence, the asset is still gone.

We have previously discussed the necessity of dealing prudently with secured assets (see December 2006 newsletter), but thought that, to keep our collective memories fresh, we would trot out another relevant case, Bank of Nova Scotia v. Scholaert, a 2017 Ontario Superior Court of Justice decision dealing with allegations of improvident sale.

Court Orders Capacity Assessment of Self-Represented Litigant

Chung v. Dale 2018 Ont SCJ

The plaintiff in a personal injury matter was attempting to act for himself at trial. The pre-trial judge was concerned that the plaintiff was a person under disability, because injuries suffered as a result of the accident. The judge ordered an assessment of capacity and set out the criteria for it.

“Exceptional Circumstances”: Court Examines the Issue of Costs Awards in the Context of Settlement

Kearney v. Hill 2017 Ont SCJ

Two daughters were battling over a POA and ultimately the estate of their mother. They settled all of their substantive differences at a mediation, but left the issue of costs to be argued by way of motion. The judge noted that, as a general rule, a court prefers not to award costs against one of the parties after a settlement because there could be many motivating factors to enter into a settlement and the reasonableness or unreasonableness of a party’s position may depend on a myriad of factors. In essence, it is difficult to determine who won. The judge referenced the position of Myers J. in which he noted that costs were an incident of the determination of the rights of parties and not intended, of themselves, to be the subject of a dispute. However, the judge held that, in this case, there were exceptional facts. He also noted, quite correctly, that if costs could not be resolved after a dispute was resolved, the parties might not resolve the dispute at all. One daughter and her counsel took unreasonable positions and were the primary drivers of the length, acrimony, and excessive cost of the litigation. The judge awarded $75,000 against that daughter.

Notice and Waiver of Claim: Court Grants Partial Summary Judgment Motion

Urban Mechanical v. University of Western Ontario 2018 Ont SCJ

The sub commenced an action for $2.9 million of which $1.7 million related to a claim to a specific alleged extra. The general brought a motion for partial summary judgment relating to the $1.7 million claim. The judge reviewed the contract and the specifications to conclude that the work for which the sub claimed was not an extra. He had no problem in granting a partial summary judgment because he held that the claim was a discrete claim. There was no risk of an inconsistent or duplicative finding when the rest of the action was to heard. The specifications that were important for that issue would not arise again. The dismissal of that claim ensured that there was no necessity at trial to quantify the claim and this resulted in significant savings in time and expense. Therefore summary disposition was proportional, expeditious, economical, and fair. Finally, the judge held that the sub’s failure to give appropriate notice in accordance with the terms of the contract resulted in the sub losing its right to make the claim. The contract was a CCA contract that incorporated the usual dispute resolution provisions in the CCDC contracts. Section 8.1.1 gave the general at first instance the power to decide questions arising out of the subcontract and interpret its requirements. Section 8.2.1 noted that, if the sub did not send a notice of dispute within 7 working days of that decision, the sub was deemed to accept the decision.

Fixed Term Employment Contracts: Court of Appeal Decision Addresses the Interpretation of Termination Clauses, Acting in Good Faith, and the Measure of Damages

Mohamed v. Information Systems Architects Inc. 2017 Ont SCJ

Newsletter Feb 2018 “Bad Drafting”

Dependent/independent contractor (whom we will refer to as an employee) fired when employer’s client, as was its right, requested that employee not work at its project for security reasons. Before employer had retained employee, employee had informed employer that he had been convicted of assault with a weapon 17 years ago when in high school. Employer relied on the termination clause in the employment agreement. Judge held that the termination provisions were vague or uncertain and struck the provisions. They were vague because one part of termination provisions allowed the employer to terminate for breach of the agreement and another part allowed the employer to terminate if it were in the employer’s best interests. The employer wanted that clause to be interpreted as if employer had ultimate discretion to do anything it wanted. The judge noted that, if this were the case, there would be no need for the clause allowing termination upon breach of the agreement. In essence, the judge held that the clause was vague and inconsistent because the termination clause was “illogical and inconsistent.” The judge also held that there was no need to mitigate because the employer had terminated a fixed term contract. The judge held that there was no difference between an employment contract and independent contractor contract with regard to mitigation.

Mohamed v. Information Systems Architects Inc. 2018 Ont CA

The Court of Appeal agreed with the employer that, once the motions judge determined that the clause on which the employer relied was clear on its face, he could not then say that, because of other contractual provisions and the contra proferentum rule, that the clause was vague or uncertain. However, the Court read the judge’s decision as one that relied solely on the organising principle of good faith in the performance of contracts applied to an already existing principle (i.e. there had to be an element of good faith or trust in the exercise of discretion). The Court agreed that the employer breached its obligation to perform in good faith by terminating the employment contract without trying to secure the client’s agreement to allow the employee to continue on the project and by not offering him any other consulting project. The Court held that mitigation was not necessary after the breach of a fixed term employment contract and that, in this case, it did not matter whether the employee was a true employee or a dependent or independent contractor. He had given up his permanent full-time job to accept the fixed term contract and it was therefore reasonable to infer that the parties intended that, if the employer did not terminate that contract in good faith, then damages would be based on the wages for the remaining term.