Legal Blog: Commercial Matters

Oppression

Pereira v. TYLT Technologies Inc. 2023 Ont CA

The corporation’s founder and officer, director, and shareholder was fired by his co-founder and an outside director and removed as a director. His unvested shares were to be purchased pursuant to a shareholders’ agreement at a nominal value. Regardless of the shareholders’ agreement and that an employment agreement allowed the termination, the Court of Appeal noted that the oppression remedy, which was equitable, requires not just a legalistic analysis, but a determination of whether the actions of the majority were “fair.” The court found that the founder could reasonably expect that he would continue in his role with the corporations at least until his shares were fully vested. The court remitted the matter to be heard by way of a trial to determine whether the majority acted properly so that it was in the best interests of the corporation to divest the founder of a further role in the corporation and the unvested shares.

Entire Agreement Clause

10443204 Canada Inc. v. 2701835 Ontario Inc. 2022 Ont CA

Vendor of a coin laundry sued the purchaser for payment of a purchase money loan. The purchaser defended, alleging that the vendor made negligent and fraudulent misrepresentations as to the revenue of the business. The agreement had an entire agreement clause disavowing all representations. It also gave the purchaser the right to review all accounts and attend at the premises for due diligence. The motion judge granted judgment on a summary judgment motion, holding that the entire agreement clause, coupled with the purchaser’s right for and lack of due diligence disentitled the purchaser to claim negligent or fraudulent misrepresentation. The Court of Appeal overturned regarding the fraudulent misrepresentation defence. An entire agreement clause insulates the vendor from the noise of the negotiations, but does not do so for fraudulent misrepresentations – regardless of lost opportunities for due diligence.

Changed Substratum

Celestini v. Shoplogix Inc. 2023 Ont CA

An employment agreement may properly set out the notice to be given to a terminated employee. However, if, during the period between the date of the agreement and termination, the employment duties changed so significantly that it can be said that the parties could not have intended the employment agreement to apply to the new circumstances, then the employment agreement no longer binds and common law notice governs. This is known as the changed substratum doctrine. In this case, the court held that the employment duties changed so significantly that the 12-month notice period in the agreement could not stand and that 18 months was more appropriate.

Personal Liability

Li v. Zhu 2023 Ont SCJ (AJ)

Associate judge decided that he had jurisdiction to grant default judgment on a reference. He held that the individual was liable for the corporation’s defaults because it was a one-person, single-purpose, shell corporation and the individual had falsely represented that he and the corporation could complete the renovation work properly. The individual was held liable both in misrepresentation and by piercing the corporate veil.

Oppression

FNF Enterprises Inc. v. Wag and Train Inc. 2023 Ont CA

Landlord pleaded that the sole officer, director, and shareholder should be liable for rent when the corporate tenant left premises early. The statement of claim alleged that the director had stripped value from the corporation by setting up shop elsewhere. Landlord claimed inducing breach of contract, piercing the corporate veil, and oppression. The motion judge struck the claim under Rule 21.01(1)(b) as showing no reasonable cause of action. The Court of Appeal reversed as to the oppression remedy. An officer or director is not liable for inducing breach of contract of his or her corporation. There was no piercing of corporate veil because this needs fraudulent or improper conduct and the mere fact that a director or officer decides a corporation should breach its contract is not sufficient. The court held that a creditor is protected by the oppression provisions; there was nothing the landlord could have done to protect itself from the director’s alleged actions.

Audited Statements

Lagana v. 2324965 Ontario Inc. 2022 Ont SCJ

A non-director shareholder requested the court to order that the other shareholder, who was the only director, deliver up audited financial statements from 2013. The judge agreed. The Business Corporations Act (s. 149-154) mandates that a corporation engage an auditor and deliver up audited statements unless the shareholders consent otherwise in writing. A judge has no discretion but to grant the order. The Limitations Act does not apply because the shareholder made no claim; he just wanted the enforcement of his statutory entitlement under the BCA.

Reliance Damages on Lease

2505243 Ontario Limited v. Princes Gates Hotel LP 2022 Ont C.A.

Landlord was not happy with tenant and looking elsewhere. Pandemic hit and landlord shut down its hotel and tenant’s restaurants. Landlord refused to use CECRA to assist tenant in paying rent. Landlord made a deal with new tenant and then terminated the lease for non-payment of rent. Court agreed with trial judge that landlord caused the tenant’s financial difficulty and could not rely on non-payment of rent and that landlord had acted in bad faith, pretending that the lease was continuing and, at the same time, knowing it was negotiating elsewhere and would terminate the lease as soon as it had an alternative tenant. Because, had the lease remained extant, it was unlikely that the tenant would ever have made a profit, the court allowed reliance damages (i.e. wasted expenditures) rather than expectation damages.

Option to Renew

Matiu Dentistry v. Canadiana Towers 2022 Ont SCJ

Tenant attempted to renew the term of the lease in accordance with its terms. Landlord argued that the option existed only if tenant were not in arrears of rent and, because tenant had not paid the amount landlord had claimed for arrears of realty taxes, he was in arrears. The judge held that landlord had not supplied information as required in the lease regarding the taxes and that, therefore, the payment was not in arrears.

Termination Provision in Employment Agreement

Rahman v. Cannon Design Architecture Inc. 2022 Ont CA

An employment agreement provided that the employer could terminate the employee’s employment without notice or payment if the employee engaged “in conduct that constitutes a just cause for summary dismissal.” That provision was contrary to the Employment Standards Act which excepts termination payment provisions under the Act only if the employee is guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned.” In accordance with previous jurisprudence, once one of the termination provisions is held to be invalid, all of the termination provisions are invalid. Accordingly, the four weeks contractual notice provision did not apply and common-law notice was imposed.

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Oppression Damages

Tahmasebi v. Hosseini 2022 Ont SCJ (Div Ct)

When a corporation is being wound up as a remedy for oppression and nothing is being paid towards shareholders’ loans or other money shown on the records as due to shareholders, damages do not include what the corporation would have been worth had the amounts due to the shareholders been recorded accurately.

We reported on the Superior Court decision in 2021.