Legal Blog:

Directors’ Liability

2638023 Ontario Inc. v. 1701288 Ontario Inc. 2021 Ont SCJ

As part of closing, the vendor’s directors delivered a statutory declaration in their capacity as directors stating that the leases produced were valid, all obligations had been performed by the vendor, and no litigation was threatened by the tenants. Before closing, the purchaser discovered that the roof was leaking and negotiated a $100,000 abatement of the purchase price to reflect the roof’s poor condition. After closing, the purchaser alleged that the lease produced was not the actual lease and that the actual lease obligated the landlord to repair all areas of the roof. The purchaser sued not only the vendor, but also the vendor’s directors. The purchaser alleged fraudulent misrepresentation. Although the directors attempted to strike the claim against them, they were unsuccessful. Officers and directors are personally liable when their actions are themselves tortious or exhibit a separate identity of interest from that of the corporation.

Debt Survival of Bankruptcy

M.O.S. MortgageOne Solutions Ltd. v. Heidary 2021 Ont SCJ

Mortgagee sued not only for the debt owed; it also raised a claim of fraud and pleaded that any judgment should survive a future bankruptcy. The defendant served a notice of intent to defend but never defended the action. Ultimately, the parties entered into a consent judgment for a monetary payment, but made no reference to the allegations of fraud or bankruptcy. The defendant then went bankrupt. The issue was whether the debt survived bankruptcy pursuant to section 178(1)(d) of the Bankruptcy and Insolvency Act. The judge held that, although one could not raise issues that were not raised in the statement of claim, a consent judgment to an action based on fraud or fraudulent misrepresentation was sufficient to fall within the section. Accordingly, the debt survived the bankruptcy.

FCA & Limitations

We have previously written about fraudulent conveyance actions and how these actions have been affected by limitation statutes (see newsletters: February 2021, August 2018, October 2011, and February 2011). These issues are important to us because we often commence fraudulent conveyance actions on behalf of our creditor clients.

As a result of two recent Ontario cases and a relatively recent British Columbia case, we now have some definitive answers on a number of questions. We discussed the British Columbia case in our February 2021 newsletter. The Ontario cases are Anisman v. Drabinsky, a 2021 Ontario Court of Appeal decision and Midland Resources Holdings Ltd. v. Bokserman, a 2021 Ontario Superior Court of Justice decision.

Frustration (2)

The COVID pandemic has spawned a number of cases in which one of the parties to a contract claims that the contract has been frustrated so that the party is no longer bound by its contractual obligations. From what we have read, this argument has not had much success. One such case is FSC (Annex) LP v. Adi 64 Prince Arthur LP 2020 ONSC 5055.

Buy-Sell

A developer and a private equity investor firm entered into a joint venture to rezone and redevelop a Toronto property into condominiums. The developer had a 20% interest; the investor had an 80% interest. The deal was not unusual for the developer; it tended to take minority positions in projects in which it was also able to receive a management and development fee.