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Legal Blog: Commercial Matters

Jan
02
2020

Tender – Fair

LaPrairie Works Inc. v. Ledcor Alberta Limited 2019 Alberta QB

An unsuccessful bidder sued, not the owner, but the successful bidder of a project. The bad sport claimed that there was a contract among the bidders to treat each other fairly during the bid preparation and that the successful bidder breached that contract. The motions judge dismissed the action. All of the various indicia of an alleged contract were merely indicia that the bidders knew that there were rules to the bidding process with which they had to comply or would not be successful. There was never a contract between the bidders.

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Dec
10
2019

Punitive Damages & Fiduciary Duty

6071376 Canada Inc. v. 3966305 Canada Inc. 2019 Ont SCJ

The corporate defendant obtained a 40% investment from the plaintiffs for a down payment involved in the purchase of a commercial property. The corporate defendant was wholly owned by its principal. The defendants incorporated another corporation solely for the purpose of holding title to the property and 3 years later caused that corporation to sell the property for a profit. The corporate defendant used the sale proceeds to buy a 2nd property and ultimately sold that property for an even bigger profit. All the while, the principal was actively lying to the plaintiffs, who believed that the first property was still being held in trust for them. The judge held that the corporate defendant breached its fiduciary duty and that the principal was liable as the corporate defendant’s alter ego; the principal directed, and caused, the misappropriation of the trust funds for his own purpose. The judge calculated the damages to be (i) 40% of the profit on the sale of the first property (ii) 40% of the net income produced while owning the first property, and (iii) punitive damages of $200,000 resulting from the outrageous and reprehensible activities of the defendants. The judge did not award 40% of the profit on the sale of the 2nd property; rather, he merely awarded prejudgment interest on the damages relating to the first property. He did so because he found that the parties’ original agreement did not reach beyond the plaintiffs’ participation as a 40% owner in the first property.

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Aug
09
2019

Distress

Pita Royale Inc. v. Buckingham Properties Inc. 2019 Ont CA

A landlord cannot terminate a lease (by way of locking out a tenant or otherwise) and then distrain. The remedies are mutually exclusive. The landlord was liable for conversion of the tenant’s chattels and $10,000 in punitive damages.

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Aug
09
2019

Option to Renew or Extend Lease

McRae Cold Storage Inc. v. Nova Cold Logistics ULC 2019 Ont CA

A lease granted an option to renew (or extend) the term only if the tenant were not in default at the time of the exercise of the option. Landlord and tenant had an ongoing dispute (unrelated to the option) as to whether the lease called for increased payments of rent. When tenant did not pay the amount demanded, landlord advised tenant that non-payment would be considered a default under the lease and that, if it did not pay the rent requested, it would not be permitted to exercise its option to renew the lease. The application judge interpreted the contract to determine that the tenant ought to have paid the rent that landlord claimed and, accordingly, was in breach of the lease. The judge noted that the normal rules for relief from forfeiture did not apply when dealing with conditions set for an option to renew. In that case, the tenant had to show that it made diligent efforts to comply with the terms of the lease, “which are unavailing through no default of his or her own.” The judge held that tenant could easily have complied with the terms of the lease by paying the amount requested under protest and then seeking a resolution of the dispute. Tenant appealed, but only on the relief from forfeiture issue. The Court of Appeal dismissed the appeal, agreeing with the reasons of the application judge.

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Jul
11
2019

Assignment Versus Sublet

V Hazelton Limited v. Perfect Smile Dental Inc. 2019 Ont CA

Tenant sublet the entire premises, with the landlord’s consent, to a subtenant. Tenant had a right to renew under the lease. The sublease specifically acknowledged the tenant’s right, but stated that the subtenant did not have that right. The sublease sublet the entire remaining term, rather than the term less one day. When it came time to renew the lease, landlord took the position that, in failing to reserve a portion of the term, tenant assigned the lease and therefore had no standing to renew it. Under common law, landlord was correct; however, under section 3 of the Commercial Tenancies Act, which has been around in one form or another since 1895 and mostly ignored, the landlord-tenant relationship does not depend on tenure and a reversion is not necessary to create that relationship. However, as the Court of Appeal pointed out, the section does not say what is necessary to create the relationship. The court interpreted section 3 to mean that there may be a landlord-tenant relationship without reserving any of the term, but only if sufficient evidence demonstrated that, objectively, the tenant and subtenant did not intend to create an assignment. In this case, the specific reference to the subtenant’s inability to exercise the tenant’s right of renewal comprised sufficient evidence in favour of a sublease only and tenant was allowed to renew the lease.

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May
03
2019

Time of Essence

AgriMarine v. Akvatech 2018 Ont SCJ

A letter agreement, with time of the essence, required the purchaser to pay $2.5 million to the vendor for the designated purpose of retiring all of the vendor’s debt to a particular creditor. The transaction did not close on the targeted closing date because the amount being paid was $100,000 short of the amount necessary to retire the debt. On closing, neither party regarded the other as having breached the contract and there was no acceptance of any breach. One month later, the purchaser purported to unilaterally set a new closing date at 4 days’ hence. The judge noted that there was no breach at the targeted closing date and that, accordingly, the agreement was not terminated, but time was no longer of the essence. The judge held that, when the purchaser attempted to set a new closing date (according to King v. Urban Transport Ont CA), it could not do so because it was still not in a position to close the transaction and, regardless, a closing date 4 days’ hence was not reasonable.

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Apr
05
2019

Default & Distress

Varsity v. 1666862 Ontario Inc. 2019 Ont SCJ

Distress can only take place if the tenant is in default of the lease provisions (and in previous cases to which this case did not refer, only in default of actual payment of rent). The tenant decided to shut down its unprofitable restaurant business. The tenant removed the perishables and left all of the other chattels and fixtures. The landlord noticed that the restaurant was closed and spoke to the tenant. The tenant informed the landlord that he had closed the business and was looking to find a new tenant to take over the lease. Four days later, while the rent had been fully paid, the landlord engaged a bailiff to lock the tenant out of the premises, posting its usual non-conforming notice that the tenant could re-enter subject to the landlord’s right of distress. The tenant stopped payment on the next monthly payment of rent and the landlord re-leased the premises months later for a loss of $208,000. The landlord relied on the definition in the lease of an event of default, which included the premises being vacant or unoccupied for 5 consecutive days or the tenant abandoning the premises or disposing of property so that there was insufficient property on the premises to satisfy rent for the next 12 months. The landlord then argued that, with an event of default, there was 3 months accelerated rent for which the landlord could distrain. The judge interpreted this event of default definition to include only the abandonment of the premises or removal of property in circumstances of abandonment. It made no sense that the removal of property, no matter how small, when the property was not being abandoned should constitute an event of default. Since the distress was illegal, the landlord was liable for payment of the chattels it seized, pre-paid rent, and the tenant’s deposit for last month’s rent. The landlord received no damages.

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Oct
30
2018

Arbitration, Good Faith, & Limits of Damages

Alectra Utilities Corporation v. Solar Power Network Inc. 2018 Ont SCJ

Contract had wide arbitration clause. Contract allowed the financial party to issue a termination notice in its discretion. The arbitrator held that there was an implied term of the contract to exercise that right in good faith and that the financial party breached that implied term. The arbitrator then calculated the damages ignoring a stipulation in the contract that damages were not to include loss of profit. The court agreed with the arbitrator regarding the breach, but held that, based on a reasonable interpretation, the general clause allowing damages had to be informed by a specific clause disallowing loss of profit in any calculation of damages. The judge also noted that there was no free standing concept of good faith; it was an integral part of the contract and accordingly, a breach of that contract had to incorporate the contractual provisions setting out the excluded damages.

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Oct
05
2018

Deposit Forfeiture

Benedetto v. 2453912 Ontario Inc. 2018 Ont SCJ

A purchaser signed an agreement noting that he was signing in trust for a corporation to be incorporated and without any personal liability. The purchaser paid a $100,000 deposit. The purchaser then decided he did not wish to complete the transaction and requested the return of his deposit. The vendor declined. The purchaser sued and the court held for the vendor. Although the clause in the agreement and section 21(4) of the Business Corporations Act allow an individual to enter into a pre-incorporation contract without being personally liable, a deposit is not a pre-incorporation contract. It stands on its own as an ancient invention of the law designed to motivate contracting parties to carry through with their bargains, something that binds the contract and guarantees its performance. The purchaser would not have been liable for damages exceeding the deposit, but did lose the deposit.

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Oct
03
2018

Lost Profit & Overhead

DCM Erectors Inc. v. Guarantee Co. of North America 2018 Ont SCJ (MC)

Master was dealing with a refusals motion. The plaintiff was making a clam for lost profit and overhead and the defendant wanted production of documents and information as to how it calculated overhead and profit and the specifics that made up that calculation. The Master held that the plaintiff did not have to answer the questions because the contract on which the claim was made included an agreed percentage for overhead and the plaintiff was merely extending that amount over the additional weeks of the contract according to the formula set out in Ellis-Don Ltd. v. Toronto Parking Authority 1978 Ont HCJ. This decision has to be limited to its own very specific facts (i.e. an existing set percentage) and, even with them, taken with a large grain of salt.

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