Legal Blog

Costs-Disbursements

Charlesfort Developments Limited v. Ottawa 2021 Ont CA

Successful appellant claimed $292,000 for trial costs on a partial indemnity basis plus $566,000 for disbursements, of which $479,000 were for expert fees in delivering a report. The respondents agreed with the fees claimed, but took issue with the disbursements. The court noted that fees of experts are subject to a reasonability test, but are not subject to a further reduction based on the distinction between substantial indemnity costs and partial indemnity costs. The court confirmed that a disbursement for an expert report is reimbursable, regardless whether the expert is called to give evidence, because an expert report may help resolve the issues. In this case, the court held that the fees were not fully reasonable – noting that the respondent’s expert fees were ½ of the appellant’s expert fees and also contrasting the expert fees in comparison to the legal fees. Instead of the claimed amount for fees and disbursements of $771,000, the court awarded $700,000. In effect, the expert fees were reduced from $479,000 to $408,000.

Release Interpretation

Corner Brook (City) v. Bailey 2021 SCC

Releases are to be interpreted in the same manner as any other contract. The 1870 principle stating that releases are to be limited to occurrences in the contemplation of the parties at the time of the release is no longer good law. Accordingly, a release can cover an unknown claim with sufficient language and does not need to particularize with precision the exact claims that fall within its scope.

Security for Costs on Appeal

Thrive Capital Management Ltd. v. Noble 1324 Queen Inc. 2021 Ont CA

Plaintiff sued for fraud and breach of fiduciary duty. It obtained a Mareva injunction. The defendant breached the injunction and dealt with its assets. The defendants acknowledged its contempt and, on the sentencing hearing, the motion judge held, as a sanction, that the defendants were to pay the $8.7 million claimed amount to the plaintiff and directed the defendants to attend a judgment debtor exam, even if the defendants appealed the sentencing decision. The defendants appealed and the plaintiff moved for security for costs, both for the appeal and the motion itself. The Court held that, under Rule 61.06(1), there was “good reason” to order the costs. The Court also noted that, normally, after an appeal no JD exam may be conducted. However, in this case the examination being sought was not to support a monetary judgment being appealed, but rather under the terms of the motion judge’s order. This is not akin to an appellant being forced to drop its financial skirts when it may be ultimately exonerated on appeal; it is an examination that the defendants had to undergo because of the Mareva injunction issued against it.

Pure Economic Loss

Ottawa Carleton Standard Corporation No. 838 v. Redevelopment Group 2019 Ont SCJ (Div Ct)

Condo brought an action against the developer for construction deficiencies and negligent repair of them, including allegations of damages to the exterior of the building from water infiltration and corrosion. The developer commenced a third party action against the condo’s management corporation, alleging that the management corp was charged with keeping the building in a proper state of repair and negligently failed to follow proper maintenance procedures that would have prevented the damages from occurring or would have minimised that damage. The developer did not claim that it had an independent cause of action against the management corp; rather, it claimed that the management corp had a duty of care to the condo such that the condo could have joined the management corp in its action. The management corp moved to strike the third party action against it. The court rejected its arguments. The court held that the damages that the management corp may have caused would not have allowed the developer to claim contributory negligence against the condo; no one pleaded that the management corp was the condo’s agent and, even if it were, the management corp never advised the condo of the water problems.

Limitation Period and Knowledge

Grant Thornton LLP v. New Brunswick 2021 SCC

Province sued accounting firm for negligence resulting in losses to the Province because of an inadequate audit on which the Province relied. The Province knew about the problems with the audit on Feb 4, 2011 when it received an opinion from another auditor. The Province did not commence its action until Jun 23, 2014. Since, seemingly, the two-year limitation period may have expired, the accounting firm brought a motion to dismiss the action. The NB Court of Appeal held that the Province had to have knowledge of each of the constituent elements of the cause of action and dismissed the motion. The Supreme Court reversed; it held that the appropriate test was whether the Province had enough knowledge, actual or constructive, of the material facts to draw a plausible inference of liability. In this case, it did.

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.

Common Employer Liability

O’Reilly v. ClearMRI Solutions Ltd. 2021 Ont CA

One corporation in a group of related corporations can be held liable to a claim from an employee nominally employed by another of those corporations. This is the common employer theory. However, a simple interrelationship is not enough; the employee must show that the target corporation also had an employer-employee relationship with the employee. A written agreement will be relevant, but the real question is where effective control over the employee resided. In this case, the employee adduced no evidence of a relationship between him and the parent corporation and was unsuccessful.