Understanding Shareholders’ Agreements In this article, we delve into what a Shareholders’ Agreement is, its key components, and the risks it addresses. When two or more individuals go into business they often incorporate a corporation, elect directors, issue shares, and start operations without further thought to the rules that will govern their business. But what happens if someone wants to leave the business? Or if someone takes the corporation’s idea and starts their own business? It’s best to address these questions and mitigate such risks at the outset of the business and while parties are friendly. What Is a Shareholders’ Agreement? A Shareholders’ Agreement is a legally binding contract among the shareholders of a corporation. It serves as a roadmap for the management and operation of the company and outlines the rights, responsibilities, and obligations of the shareholders. While not a mandatory requirement under Ontario’s corporate law, having a Shareholders’ Agreement is highly recommended for any corporation with more than one shareholder. Do I Need a Shareholders’ Agreement? Some of the key risks addressed by a Shareholders’ Agreement include: Disputes Among Shareholders: By providing clear guidelines for resolving disputes, a Shareholders’ agreement helps prevent conflicts that could disrupt the business operations and damage shareholder relationships. Exit Strategy: In the event of a shareholder’s desire to exit the company or in case of unforeseen circumstances such as death or incapacity, a Shareholders’ Agreement promotes a smooth transition and protects the interests of the remaining shareholders. Protection of Minority Shareholders: Minority shareholders are particularly vulnerable to being marginalized in decision-making processes. A well-crafted Shareholders’ Agreement can include provisions to safeguard their rights and promote their fair treatment. Preservation of Confidential Information: Confidentiality clauses protect sensitive information from being disclosed to competitors or unauthorized parties, safeguarding the corporation’s property and competitive advantage. Contents of a Shareholders’ Agreement. The contents of a Shareholders’ Agreement vary depending on the specific needs and circumstances of the corporation and its shareholders. However, some common provisions typically found in a Shareholders’ Agreement include: Shareholder Rights and Obligations: This section outlines the rights and obligations of each shareholder, including voting rights, dividend entitlements, and obligations to contribute additional capital. Management and Decision-Making: The agreement specifies how the company will be managed and the important decision-making processes, such as the appointment of directors, approval of budgets, and major business transactions. Transfer of Shares: This section addresses the circumstances under which shareholders can transfer their shares, including any restrictions on transfers and rights of first refusal. It may also create circumstances where an individual must sell their shares, such as upon leaving the employ of the corporation, and the share value of such repurchases. Dispute Resolution: A crucial aspect of any Shareholders’ Agreement, this section outlines mechanisms for resolving disputes among shareholders, such as mediation or arbitration, or mandatory buy-sell provisions, to reduce the risk of litigation. Confidentiality and Non-Competition: This clause protects the corporation’s sensitive information and prevents shareholders from competing with the company during and after their tenure. A Shareholders’ Agreement is a vital legal document for corporations, providing clarity, structure, and protection for shareholders. Our corporate law team can help you draft or review a Shareholders’ Agreement so that it accurately reflects your intentions and protects you from risks. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” By AlyssaBlog, Corporate LawJune 24, 2024June 10, 2024
What is a Memorandum of Wishes? A memorandum or letter of wishes is a document containing an expression of wishes to your executors and beneficiaries with information on how you would like your estate to be administered. It is not a Will.1 There are two types of memorandums: The first is a precatory memorandum and is not legally binding. It is a mere expression of your wishes with respect to the distribution of certain items. The second type of memorandum is a legally binding memorandum and must be incorporated into your will by reference.2 When writing a memorandum of wishes, a few things must be considered to ensure your wishes are honoured. 1. This is not your Will. It is essential to clarify that this memorandum of wishes is not your Will and does not revoke any Wills. A memorandum of wishes should work alongside a Will and not contradict it. You should indicate that this memorandum reflects your wishes only. Consider including a statement clarifying that you have executed your last Will and Testament and that you acknowledge that your Will determines how your estate will be distributed after passing. It is important to include, in clear language, that this memorandum of wishes does not revoke any Wills or change any provision of your Will. A note in your handwriting and signed could be considered a holographic will and can actually have the unintended consequence of revoking your last will and testament. To be safe, consult your lawyer. 2. A precatory memorandum of wishes is not legally binding, so it does not have the same effect as a Will. A memorandum of wishes is not the same as a Will. A Will is a legal document that will devise, bequeath, or dispose of all property you have at the time of death.3 When you draft a Will, you assign an executor of your estate, who is responsible for carrying out the wishes laid out within your Will. This executor can also be responsible for carrying out your wishes in a memorandum of wishes; however, if you choose to draft a precatory memorandum of wishes, the executor is not legally required to follow it.4 The benefit of a precatory memorandum is that you can change it as many times as you’d like without changing your will. Generally, when choosing your executor, you should have faith that they will act in your best interest in following your Will while also maintaining the wishes laid out in this additional document. 3. To make a memorandum of wishes legally binding, you must incorporate it by reference into your will. If you would like to ensure that your memorandum of wishes is legally binding, you must incorporate it by reference into your will. To do this, you must create the memorandum of wishes before the will, it must be referred to specifically in the will, and the document must be sufficiently described so that it can be identified. 5 If you would like to make revisions to the memorandum of wishes, you will have to make repeated revisions to the will. If you are choosing to use a legally binding memorandum, it is important to date it so that there is no dispute that it was drafted prior to the will in the case that it is contested. 6 3. Ensure your executor knows the memorandum of wishes exists. Ensure that the executor of your estate knows of the existence of your memorandum of wishes and its location so that your wishes are properly represented when administering your estate. 4. What can you include? It is important to include items that you wish for your decision to be binding within your Will. Requests that you can include in a memorandum of wishes include7: Specific descriptions of personal belongings that you do not believe to be disputed and are not listed within your will and the names of beneficiaries; Social media accounts; Organ donations; and, Decisions regarding burial vs. cremation This list is not exhaustive but provides an idea of the items typically dealt with in a memorandum of wishes if you choose not to include them in a Will. Be sure to consider contingencies in a memorandum of wishes just as you would in a Will in case of the event that a beneficiary predeceases you. 5. What should you not include? Items that you are already addressing in a Will; Items that you are adamant about giving to a particular person – this should be included in a will to prevent issues; Items that you believe could give rise to issues between beneficiaries; Items of a significant monetary value; Items of a significant sentimental value; and, Gifts to charity. This list is not exhaustive but conveys the difference between the items that can be included in the memorandum of wishes versus the items that should be addressed within a Will. For more information regarding wills and estates-related topics, please contact Esther Abecassis at Devry Smith Frank LLP at (416) 446-3310 or esther.abecassis@devrylaw.ca. This blog was co-authored by Articling Student, Toni Pascale. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” [1] James Cooper Morton & Risa M. Stone, Essential Estate Administration in Ontario (Toronto: CCH Canadian Limited, 2002) at 16. [2] Mary-Alice Thompson & Robyn Solnik, Drafting Wills in Ontario: A Lawyer’s Practical Guide (Toronto: CCH Canadian Limited, 2003) at 77. [3] Succession Law Reform Act, RSO 1990 c. S.26, s.2. [4] Supra note 1. [5] Susannah Roth & Mary-Alice Thompson, “The Annotated Will, 2017” (January 2017), online: LSO Store <https://store.lsuc.on.ca/Content/pdf/2017/CLE17-00104/0%20COMBINED%20MATERIALS%20as%20of%20Jan%205.pdf>. [6] Ibid. [7] Supra note 5. By AlyssaBlog, Wills and EstatesJune 17, 2024June 18, 2024
The Long-Awaited Implications of Fraudulently Obtained COVID-19 Business Loans Throughout the COVID-19 pandemic, many businesses were struggling. The federal government implemented various programs to assist and support Canadian businesses that were suffering from economic loss as a result of the pandemic. To name a couple, the Highly Affected Sectors Credit Availability Program (HASCAP) and the Canada Emergency Business Account (CEBA) were implemented. The lending banks were responsible for authorizing and administering the loans. The loans were backstopped by the Business Development Bank of Canada. A recent decision, 7572042 Canada Inc. v. The Bank of Nova Scotia, 2023 ONSC 3405, touches on the consequences of doing so. Facts The plaintiffs in this case are without counsel and Mr. Barake was granted leave to represent the corporate plaintiffs. From March 2021 to November 2022, Mr. Barake applied for HASCAP loans from Scotiabank (the “Bank”) on behalf of the corporate plaintiffs in the amount of $3,861,000.00. The bank advanced additional loans to the plaintiffs under the CEBA program for $720,000.00. Both of these loans were based on the strength of the plaintiff’s representations to meet the qualifications, which included various financial statements from 2018-2020, portraying the plaintiffs (business) as operating with significant assets, revenues and expenses. The 2020 financial statement for the plaintiffs showed, in aggregate, assets over $11 million and sales revenue of over $14 million. The plaintiffs borrowed about $4.581 million from the Bank and represented the single largest group of loans made by the Bank under these programs. The Bank therefore conducted a review of the plaintiffs and their loans, which raised serious concerns about the intentions of Mr. Barake and the other Borrowers. The Bank froze the plaintiffs’ bank accounts and the Bank’s investment arm, Scotia Capital, also froze certain investment accounts where Mr. Barake had transferred most of the funds borrowed from the Bank using the HASCAP and CEBA programs. This claim was initiated by the plaintiffs against the Bank for unlawfully freezing their account and claiming damages of $80 million. The Bank moves for summary judgment dismissing the plaintiffs’ action and granting their counterclaim denying the plaintiffs’ allegation and suing for the amounts owed under its loans with interest and costs. The Bank also sought a Mareva injunction against the plaintiffs, which was granted. The plaintiffs therefore could not move around any assets in their control. Issues The court had various issues to consider in this case. Two of the main issues at bar were the following: Whether summary judgment should be granted allowing the Bank’s counterclaim; Whether summary judgment should be granted dismissing the plaintiffs’ action against the Bank. Analysis: The Counterclaim To consider whether summary judgment should be granted, the court considers whether or not there is a genuine issue requiring trial under Rule 20.04 of the Rules of Civil Procedure. With respect to the Bank’s counterclaim, it was therefore considered whether the loans advanced to the plaintiffs were obtained by means of fraudulent misrepresentation. A claim for fraudulent misrepresentation requires there to be proof of four elements: A false representation made by the defendant; Knowledge of the falsehood of the representation (whether knowledge or recklessness); The false representation caused the plaintiff to act; and The plaintiff’s actions resulted in a loss Mr. Barake on behalf of the Borrowers represented and warranted to the Bank that the borrowers met the requirements to quality for both a HASCAP loan and a CEBA loan. The four elements above were considered and the evidence was found to prove each of these four elements on a balance of probabilities. The business accounts opened at the time of the loans reveal no income, revenue or business expenses and the domain names for the Borrowers were all created immediately prior to the loan applications being made yet the plaintiffs had no business premises. As well, the Bank advanced funds in the amount of $4.581 million and the funds were misused even with the Bank’s efforts to prevent the loss. The funds were obtained based on fraudulent misrepresentations by Mr. Barake on behalf of the corporate plaintiffs. The Plaintiff’s Claim The court also considered whether there was a genuine issue requiring trial with respect to Mr. Barake’s Plaintiff’s Claim. Mr. Barake brought his initial claim alleging that the Bank unlawfully froze the plaintiffs’ accounts and that as a result, the plaintiffs suffered losses. The plaintiffs did not produce any evidence in support of their claims and the Borrowers had acknowledged in the banking agreements for the loans that the Bank may freeze any funds in any account at any time without notice in the event of: default, any representation being untrue, and in circumstances where the Bank has reason to suspect that the Borrowers have engaged in any improper or unlawful activity. The Bank had conducted an investigation that raised issues about the validity of the loans and the transfer of their loans to Mr. Barake’s self directed investment accounts and therefore it was not unlawful for the Bank to freeze the plaintiffs’ bank and investment accounts, nor did the plaintiffs offer any evidence in support of their claims. Conclusion Judgment was granted for the two main issues as the court was satisfied that there was no genuine issue requiring a trial. The plaintiffs’ claim was dismissed and are ordered to pay back their loans obtained under false pretences, including interest and costs to the Bank. This blog was co-authored by articling student Samantha Lawr. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” By AlyssaBlog, Corporate LawJune 10, 2024June 3, 2024
Terminated Employees with Incapacitations may Nonetheless Fulfill their Mitigation Obligations Employees who are terminated without cause are entitled to either reasonable notice or payment in lieu of reasonable notice. This is the “Notice Period” an amount of time, or a level of compensation, to assist a dismissed employee find comparable work. At common law, the Notice Period is “reasonable notice,” which varies with the circumstances of any particular case. (For a history of the development of the common law, see Machtinger v HOJ Industries Ltd).[1] The Notice Period is also a statutory entitlement pursuant to the Employment Standards Act, 2000.[2] This Notice Period entitlement is the “damages” experienced by the employee as a result of the wrongful termination. “Mitigation” is a limiting principle in damages, imported into the employment context from contract law.[3] In other words, when an employee has been terminated without cause, they have a legal duty and obligation to act reasonably by taking steps to replace their income. Read more: Employers Must Discharge Their Onus to Prove Failure to Mitigate When it comes to fulfilling mitigation obligations, terminated employees with incapacitations or other limitations face unique challenges. For some terminated employees with physical or mental health issues, it may seem daunting or even impossible to fulfill this duty. As a recent decision of the Ontario Court of Appeal illustrates, terminated employees with incapacitations may nonetheless fulfill their mitigation obligations — even with negligible attempts to find alternate employment. Krmpotic v Thunder Bay Electronics Limited, 2024 ONCA 332[4] In 1974, Drago Krmpotic commenced his employment with Thunder Bay Electronics Limited and Hill Street Financial Services. Mr. Krmpotic was a loyal employee who performed a broad range of physically demanding skilled tasks. After nearly thirty (30) years of devoted service, Mr. Krmpotic was terminated without cause. Immediately prior to his termination, Mr. Krmpotic had been on medical leave to recover from back surgery, a procedure which was necessitated as a direct result of four different back injuries he sustained at work. Nonetheless, Mr. Krmpotic was terminated by his employers only hours after he returned to work following his surgery. At the time, he was sixty-nine (69) years old. The manner of dismissal rose above the normal distress and hurt feelings caused by a dismissal. Consequentially, Mr. Krmpotic experienced anxiety, depression, fear, poor sleep, frustration, and feelings of helplessness and defeat. He also continued to suffer such physical ailments such as back pain and knee pain as a direct result of his workplace injuries. At trial, it was determined that Mr. Krmpotic was entitled to a notice period of twenty-four (24) months, together with aggravated damages owing to the manner of dismissal. See related reading: Notice Periods for Employees Terminated Without Cause May Exceed Twenty Four Months if the Circumstances are ‘Exceptional’ During the notice period, Mr. Krmpotic did not mitigate his damages — he was simply unable as a result of his incapacity. Mr. Krmpotic’s employers argued that this notice period should be reduced based on his failure to mitigate his damages. Indeed, the trial judge noted that his efforts to replace his income were “scant at best.” However, this fact was considered in context together with his age, the fact that he was recovering from back surgery related to his work, and that he was “significantly limited in his ability to perform the physical labour which his occupation demands on a daily basis.” Notably, the latter finding that Mr. Krmpotic was substantially physically hindered was not established through any expert medical evidence, but through the evidence of Mr. Krmpotic and his immediate family members. Specifically, the trial judge accepted the evidence of Mr. Krmpotic’s wife and son that he was unable to work during the applicable notice period. Crucially, the Court explicitly rejected the notion that physical incapacity can only be established by expert medical evidence. In fact, the Court found that the trial judge properly considered a medical report which described that while Mr. Krmpotic had some physical capacity, it was silent regarding his ability to carry on highly demanding physical labour. On appeal, the Court did not disturb the trial judge’s finding that Mr. Krmpotic was physically incapable of performing physically demanding work during the applicable notice period. Thus Mr. Krmpotic fulfilled (or obviated) his duty to mitigate his damages due to his incapacitation. The Court also did not disturb the award of aggravated damages, despite also being in the absence of expert medical evidence.[5] Conclusion This case sheds light on the unique challenges faced by terminated employees with incapacitations. Despite the daunting task of seeking alternate employment, particularly for those grappling with physical or mental health issues, the Ontario Court of Appeal’s decision in Krmpotic underscores that such employees may still meet their mitigation duties. Takeaways for employers: When dealing with employees, be candid, reasonable, honest and forthright, and refrain from engaging in conduct that is unfair or in bad faith by being untruthful, misleading or unduly insensitive. Acknowledge and accommodate the unique challenges faced by terminated employees, particularly those with incapacitations or other health issues. Understand that employees with limitations may face difficulties fulfilling mitigation duties and that these factors should be considered when assessing termination outcomes. Takeaways for employees: Understand your entitlements regarding reasonable notice or payment in lieu of notice in case of termination without cause. Keep records of medical reports, communications with your employer, and any evidence supporting your physical or mental limitations or incapacitations. Communicate openly with your employer about any limitations or health issues which may affect your ability to seek alternate employment. As employment law continues to evolve, cases such as this serve as important reminders of the importance of fairness, empathy, and equitable treatment in the workplace, especially during challenging transitions like terminations. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” [1] Machtinger v HOJ Industries Ltd, 1992 CanLII 102 (SCC). [2] Employment Standards Act, 2000, SO 2000, c 41. [3] Evans v Teamsters Local Union No 31, 2008 SCC 20 (CanLII) at para 97 [Evans], citing S M Waddams, The Law of Damages, loose‑leaf ed (Toronto: Canada Law Book, updated October 2004, release 13) at 15.70; see also: Darbishire v Warran, [1963] 1 WLR 1067 at para 1075, cited by Evans at para 97: “…it is important to appreciate the true nature of the so-called ‘duty to mitigate the loss’ or ‘duty to minimise the damage.’ The plaintiff is not under any actual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method, he is at liberty to do so and by doing so he commits no wrong against the defendant or anyone else. The true meaning is that the plaintiff is not entitled to charge the defendant by way of damages with any greater sum than that which he reasonably needs to expend for the purpose of making good the loss.” [4] Krmpotic v Thunder Bay Electronics Limited, 2024 ONCA 332 (CanLII). [5] Specifically, the Court noted at para 34: “Mental distress is a broad concept. It includes a diagnosable psychological condition arising from the manner of dismissal but is not limited to that. There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal. At one end is the person who suffers the normal distress and hurt feelings resulting from dismissal, which are not compensable in damages. At the other end of the spectrum is the person who suffers from a diagnosable psychological condition as a result of the manner of dismissal. In between those two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.” By AlyssaBlog, Employment LawJune 3, 2024May 22, 2024
A PSA on PSSAs: Ramifications of a Pierringer Agreement in the Face of a Crossclaim for Contribution and Indemnity What is a Pierringer Agreement? A Pierringer agreement, named after Pierringer v. Hoger et al., 124 N.W. (2d) 106 (Wis. S.C. 1963), the Wisconsin case in which this type of agreement was first considered. Such agreements permit some parties to withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actually caused, with no joint liability. As the non-settling defendants are responsible only for their proportionate share of the loss, a Pierringer agreement can properly be characterized as a “proportionate share settlement agreement” (PSSAs). Pierringer Agreements in Canada, in contrast to the United States, included additional protections for non-settling defendant(s), such as requiring that non-settling defendant(s) be given access to the settling defendant’s evidence. Characteristics of a Proportionate Share Settlement Agreement (PSSAs) To the extent that a PSSA completely removes the settling defendant(s) from the legal action, it operates similarly to a conventional settlement agreement that resolves all outstanding issues between the parties involved. PSSAs typically consist of the following elements: The plaintiff receives a payment from the settling defendant(s) in full satisfaction of the plaintiff’s claim against them. In return, the settling defendant(s) receive from the plaintiff a promise to discontinue proceedings, effectively removing them from the suit. Subsequent amendments to the pleadings formally remove the settling defendant(s) from the suit. The plaintiff then continues its suit against the non-settling defendants. Potential Complications with PSSAs There is, however, an added complication that a PSSA must address. As a result of third-party proceedings, settling defendant(s) are almost always subject to claims for contribution and indemnity from non-settling defendant(s) for the amount of the plaintiff’s loss alleged to be attributable to the fault of the settling defendant(s). Before the settling defendant(s) can be released from the suit, some provision must be made to satisfy these claims. What is “Contribution”? When one defendant settles with the plaintiff through a Pierringer agreement, the non-settling defendant(s) may still seek contribution from the settling defendant for any amounts they are required to pay to the plaintiff. Contribution allows defendant(s) who have paid more than their fair share of damages to recover a proportionate amount from other defendant(s) who are also liable. Therefore, even though the settling defendant(s) has resolved their liability with the plaintiff, they may still be responsible for contributing to the payment of damages if the other defendant(s) are found liable. What is “Indemnity”? Similarly, a non-settling defendant(s) may also seek indemnity from the settling defendant(s). Indemnity is a legal obligation to compensate for any losses or damages incurred. In this context, if the non-settling defendant(s) is required to pay damages to the plaintiff, they may seek full indemnification from the settling defendant(s) if there was an agreement or legal basis for such indemnification. This obstacle is overcome by including an indemnity clause in which the plaintiff covenants to indemnify the settling defendant(s) for any portion of the damages that a court may determine to be attributable to their fault and for which the non-settling defendant(s) would otherwise be liable due to the principle of joint and several liability. Alternatively, the plaintiff may covenant not to pursue the non-settling defendant(s) for that portion of the liability that a court may determine to be attributable to the fault of the settling defendant(s). As for any concern that the non-settling defendant(s) will be required to pay more than their share of damages, it is inherent in Pierringer agreements that non-settling defendant(s) can only be held liable for their share of the damages and are severally, and not jointly, liable with the settling defendant(s). Crossclaims That Go “Beyond Contribution And Indemnity” In instances where a defendant’s crossclaim expands beyond merely seeking contribution and indemnity for the plaintiff’s allegations of negligence, particularly when grounded in contractual agreements between defendants, the plaintiff’s restriction of its claim to the defendant’s individual liability does not invalidate the crossclaim. This means that even if the plaintiff narrows its focus to the defendant’s individual responsibility, the crossclaim remains relevant and must be addressed with the participation of all relevant parties during trial. Consequently, Courts have consistently opted not to dismiss crossclaims that exceed the scope of negligence-based contribution and indemnity, as outlined in Pierringer agreements, recognizing the necessity of comprehensive participation in resolving such complex legal matters.[1] This was the case in Laidler v. The Office of the Public Guardian and Trustee, 2015 ONSC 943, where a legal action was initiated to seek damages related to the purchase of land allegedly contaminated. The lawsuit targeted the property vendors, the involved real estate agents, and their respective brokerages. Subsequently, the real estate agents and their brokerages entered a Pierringer agreement with the plaintiffs. However, one of the non-settling defendants chose to uphold their crossclaim against a settling defendant (the vendor’s former agent and listing broker), alleging negligence and breach of contract. Although the Court acknowledged that the vendors could not sustain crossclaims against the settling defendants solely based on contributory negligence, it determined that it remained within the trial judge’s purview to decide whether the vendors were eligible for indemnification for all or part of the damages they might be required to pay to the plaintiffs. Consequently, the Court opted not to dismiss the crossclaim. Conclusion Pierringer or proportionate share agreements remain widely recognized by the courts as valuable tools for fostering settlement in multi-party litigation. While these agreements afford a means for a settling defendant to withdraw from the litigation, non-settling defendants may still retain the right to pursue avenues for recovery, such as contribution or indemnification. However, the viability of such claims depends on various factors, including the specific circumstances of the case and any existing contractual arrangements. In essence, while Pierringer agreements streamline dispute resolution, they do not offer blanket immunity against further legal action. For more information, assistance, or any other questions regarding Pierringer agreements and proportionate share settlement agreements, please contact Kelli Preston at Devry Smith Frank LLP at (416) 446-3344 or at kelli.preston@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Owais Hashmi. [1] 1511233 Ontario Inc v. Spallino, 2024 ONSC 2045 (CanLII), at para 17. By AlyssaBlog, LitigationMay 27, 2024May 22, 2024
Employment Contracts Could be Frustrated by a Third-Party’s Mandatory COVID-19 Vaccination Policy The COVID-19 pandemic severely impacted workplaces across Canada. Employers in Ontario have continued to grapple with the ongoing challenge of safeguarding their employees’ health while maintaining continuity of operations. Many employers imposed mandatory vaccination policies as a means of mitigating the spread of the virus within their organizations. Background: Caselaw Update: Reasonableness and Enforceability of Mandatory COVID-19 Vaccination Policies in the Workplace Further Background: Employees Must Disclose Vaccination Status where an Enforceable Vaccination Mandate Exists, but Employers are Cautioned to Protect Employee Privacy An employment contract may be frustrated by the mandatory vaccination policy of a third-party as a recent decision of the Ontario Court of Appeal illustrates. Frustration arises where unforeseen circumstances emerge which were not contemplated by the employment contract, causing the performance of the contract to become significantly different from what was originally agreed upon.[1] As a result, it has become impossible to perform the original contract.[2] In such a case, the employment contract is terminated on a “no fault” basis; releasing both the employer and the employee from any further obligation to perform.[3] Croke v VuPoint System Ltd, 2024 ONCA 354[4] VuPoint System Ltd. provides installation services for residential consumer television and internet services — almost entirely for Bell Canada. In fact, at the material time, VuPoint’s contracts with Bell Canada accounted for more than 99% of its business. Alan Croke was employed as a technician for VuPoint. In 2021, Bell implemented a mandatory vaccination policy requiring of VuPoint that all of its technicians working on Bell projects must be vaccinated against COVID-19. Thus, VuPoint instituted its own mandatory vaccination policy for its employees, including Mr. Croke. Mr. Croke refused to disclose his vaccination status to VuPoint. Consequentially, he was terminated by way of frustration of contract. Mr. Croke brought an action for wrongful dismissal against VuPoint, but the action was dismissed on summary judgment. On appeal, the Court upheld the motion judge’s finding that the contract was frustrated. The introduction by Bell of a mandatory vaccination policy amounted to the introduction of a new external requirement upon Mr. Croke which he did not satisfy; i.e., the new policy was the “supervening event.” As a result of the supervening event, performance of the employment contract became something radically different than what the parties had contracted for — given that Mr. Croke was no longer qualified to undertake the work for which he was hired. That change was not foreseeable when the contract was formed between Mr. Croke and VuPoint. The supervening event was something for which VuPoint had neither control nor advance warning. Although Mr. Croke argued that he was actually terminated for the cause of refusing to comply with the new requirement, the Court held that frustration did not turn on voluntariness. The Court specifically addressed and dismissed the notion that “a contract is not frustrated if the supervening event results from a voluntary act of one of the parties.”[5] While it is true that Mr. Croke voluntarily chose not to adhere to the mandatory vaccination policy, his decision did not constitute the supervening event itself. Instead, it was the implementation of the policy that served as the supervening event. Consequently, the contract was frustrated regardless of Mr. Croke’s subsequent actions in response to the policy. The termination by way of frustration was valid based on the unforeseeable radical alteration of the contract, and despite being well aware of the policy, Mr. Croke failed to disclose his vaccination status to VuPoint. Conclusion Croke v VuPoint System Ltd demonstrates that the unexpected imposition of a third party’s mandatory vaccination policy can significantly change the contractual obligations of the parties involved, justifying an employer’s termination of the employment contract due to frustration. Although in this case, it was VuPoint’s own mandatory vaccination policy that affected Mr. Croke, this requirement was implemented in response to a direct mandate from the client, which constituted the vast majority of its business. It remains to be seen how courts will decide cases where the employer itself has full control over the vaccination policies they introduce by their own sole intention and not as a result of some outside force. The legal landscape regarding mandatory COVID-19 vaccination policies in the workplace continues to evolve. Employers face the challenge of balancing employee health and safety with operational needs, often resorting to mandatory vaccination policies to mitigate the spread of the virus. Further takeaways: Employers and employees should understand the distinction between frustration of contract and termination with or without cause. Employers must ensure that mandatory vaccination policies comply with relevant laws, regulations, and contractual obligations, while respecting employees’ rights. Employers should communicate vaccination policies transparently, including the rationale behind them, consequences for non-compliance, and available avenues for seeking accommodations or alternatives. Employees should actively seek clarification on vaccination policies, understand their rights and options, and consider compliance with policy requirements to mitigate potential repercussions. By proactively addressing legal and ethical considerations, employers can foster a safe and inclusive work environment, while employees can make informed decisions to safeguard their well-being and rights in the workplace. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” [1] Naylor Group Inc v Ellis-Don Construction Ltd, 2001 SCC 58 (CanLII) at para 53, citing Peter Kiewit Sons’ Co v Eakins Construction Ltd., 1960 CanLII 37 (SCC) at 368, citing Davis Contractors Ltd v Fareham Urban District Council, [1956] AC 696 (HL), at 729. [2] GHL Fridman, The Law of Contract in Canada, 4th ed (Scarborough: Carswell, 1999) at 677. [3] John D McCamus, The Law of Contracts, 3rd ed (Toronto: Irwin Books, 2020) at 656. [4] Croke v VuPoint System Ltd, 2024 ONCA 354 (CanLII). [5] Fram Elgin Mills 90 Inc v Romandale Farms Limited, 2021 ONCA 201 (CanLII) at para 230. By AlyssaBlog, COVID-19, Employment LawMay 21, 2024June 24, 2024
ONSC Enforces Oral Agreement for Purchase and Sale of Real Estate Property, Grants Specific Performance Remedy to Purchaser Overview In 2730453 Ont Inc. v 2380673 Ont Inc., 2022 ONSC 6660, the plaintiff, 2730453 Ontario Inc. (the “Purchaser”), sought specific performance to enforce an oral agreement for the purchase of land. The defendant, 2380673 Ont. Inc. (the “Vendor”), was the seller and owner of the property in question, who had initially agreed to the terms but later attempted to back out of the deal. Facts The Purchaser was represented by a project-specific company established specifically to acquire the disputed land. The Vendor was a corporation led by a sole individual. Over several months, negotiations were conducted through intermediaries for the sale and purchase of the Vendor’s 32-acre property, which directly adjoined land already owned by the Purchaser. The Purchaser’s objective was to consolidate land for future industrial development. These negotiations eventually led to the Purchaser making an offer, which the Vendor seemingly accepted and provided some necessary documentation for the closing process. Notably, the Vendor had a unique preference, which the Purchaser accommodated, regarding the postponement of formalizing the deal in writing until just prior to the closing date. Consequently, beyond initial drafts and exchanged documents, there existed no finalized, signed agreement encapsulating all agreed-upon terms. Despite this absence of a formalized contract, the Purchaser continued preparations for the transaction, affirming their readiness to proceed with funding and tendering. However, the Vendor raised unforeseen objections at the brink of the scheduled closing, conveyed via a 4 a.m. email to their agent. The email stated: “There will be no closing.” The Vendor refused to move forward with the transaction, relying upon section 4 of the Statute of Frauds, RSO 1990, c S.19, which states that a contract for the sale of land must be in writing. The Purchaser subsequently brought an action against the Vendor for beaching the agreement and sought specific performance for the property. Specific performance is a declaration by the court compelling a party to perform its contractual obligations. In the context of real estate, specific performance is typically granted when the prevailing party proves the property’s uniqueness, indicating that a substitute is not readily available and that monetary damages would be insufficient to remedy the harm suffered by the innocent party. Analysis Nature of the Property The Purchaser relied upon an expert report from a land use planner, which concluded that the disputed land was unique due to a number of features, such as: it is situated within Protected Future Employment Land; it has extensive visibility and exposure from Highway 407; it is in very close proximity to the future 407 Transitway; it has proximity to access to ON-403 and ON-407 Expressways Via Trafalgar Rd Interchange; it has contiguity to the adjacent westerly property owned by 2730453 Ontario Inc.; and it facilitates improved opportunity to master plan an employment/business Park. In this instance, the court concluded that the contested property possessed uniqueness due to its immediate adjacency to the Purchaser’s property, with the Purchaser intending to develop both lots as part of a unified development. Given that other adjacent properties were not available for sale at the time, the contested property was deemed ‘unique’ as there was no suitable substitute available. Part Performance Despite the absence of a written contract, the court found that the following acts constituted part performance of the oral agreement by the Purchaser: obtaining an environmental assessment of the property; obtaining survey and title searches on the property; conducting other due diligence related to the property; negotiating and preparing the commission agreement among the purchaser and the brokers; retaining legal counsel to close the agreement; drafting, revising, and negotiating the written agreement of purchase and sale for the property; delivering the documents required on closing; and obtaining, delivering and tendering the certified cheque for the full amount of the purchase price. Furthermore, the court determined that the Vendor’s following actions related to the sale of the disputed property and constituted part performance of the oral contract: retaining legal counsel to close the agreement for the purchase and sale of the property; negotiating over the status of the easement on the property; reviewing and revising the draft agreement of purchase and sale, including providing a revised version of Schedule A to that agreement to the purchaser and obtaining the consent of the purchaser to the revisions; providing draft copies of the vendor’s closing certificate and statutory declaration and the owner executing those documents; and negotiating the method by which the purchaser would deliver the agreed-upon purchase price on closing. Conclusion The court ultimately found that there was sufficient written evidence to prove the existence of an oral agreement, supported by numerous acts of part performance. Through correspondence, all the essential terms of the deal were agreed to, which included: the identity of the parties; the description of the property; and the purchase price. Having concluded that there was a valid oral agreement breached by the Vendor without justification, the court then turned its attention to the appropriate remedy. Given the inadequacy of damages, particularly in light of the Purchaser’s future development goals which would be challenging to quantify, the court deemed specific performance to be the more suitable recourse. For more information, assistance, or any other questions regarding real estate litigation, or real estate transactions, please contact Kelli Preston at Devry Smith Frank LLP at (416) 446-3344 or at kelli.preston@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Owais Hashmi. By AlyssaBlog, Real EstateApril 8, 2024March 26, 2024
Insuring Your Condo: Exploring Insurance and Subrogation in Condominium Ownership Insurance policies protect our various interests such as our homes, vehicles, and personal property where there is potential damage, loss, and/or liability. Insurance policies vary and are available to purchase at different prices and different levels of coverage. Insurance is often a necessary condition for acquiring a variety of things, such as owning a vehicle or obtaining a mortgage. In the context of a condominium and pursuant to Ontario’s Condominium Act, individual unit owners are subject to the rules of their condominium’s declaration and bylaws, which together make up the governing documents.[1] How are condominiums operated and organized? Essentially, all condominiums have a corporation number which creates the condominium corporation. The condominium corporation is a legal entity. A condominium corporation will designate a Board of Directors to make major decisions, such as what renovations should be made to common elements and managing the flow of money in and out of the condominium’s reserve fund. A condominium corporation is created by filing, among other things, a declaration to the Land Registry Office. A unit owner must abide by the declaration, which will set out a list of rules, including rules for insurance. Ontario’s Condominium Act requires that a condominium corporation obtain insurance on its own behalf and on behalf of the owners for damage to the units and common elements that is caused by major perils or the other perils that the declaration or the by-laws specify.[2] Major perils covered by a condominium corporation’s insurance include fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts.[3] Oftentimes, condominium corporations will get “all risk” insurance policies that are usually more comprehensive and suitable for the purposes of the Condominium Act. Although the province of Ontario does not require individual unit owners to purchase an insurance policy, unit owners may nevertheless be required to do so pursuant to the condominium’s governing documents to cover for things such as improvements to their units or personal property. What is subrogation? Subrogation is a legal concept that allows one party, typically an insurance company, to step into the shoes of another party and seek reimbursement or recovery for a loss or damages they have already paid. It commonly occurs when an insurer compensates its policyholder for a covered loss and then seeks to recover the amount paid from a third party who may be responsible for causing the loss. By exercising the right of subrogation, the insurance company essentially assumes the legal rights of its policyholder to pursue a claim against the responsible party, aiming to recoup the expenses it has incurred. This principle helps prevent the policyholder from benefiting twice for the same loss and promotes fairness and cost-sharing among parties involved in an incident or accident. It is important to note that the insurer cannot subrogate against its own insured. How do subrogated claims apply to condominiums? A condominium corporation would likely contain a provision in their governing documents which imposes an obligation on all unit owners to purchase their own insurance policies for their units that would exist separately from the condominium corporation’s all-risk insurance policy. This provision would contain a mandatory condition barring any claim of subrogation between its corporation, employees, agents, unit owners, and other stakeholders. This is called a waiver of subrogation. This means that in the event a unit owner suffers from damages to its property from a source beyond itself but within the same building, and after receiving coverage for the damages, that unit owner’s own insurance company cannot make a claim of subrogation against the insured’s neighbours or the condominium corporation if there is a waiver of subrogation requirement in the condominium’s governing documents, subject to exceptions provided for in the documents. Another way of understanding the waiver of subrogation rights is to consider it an “allocation of risk between the condominium corporation (which assumes responsibilities for insuring the building), and the owner of the unit (which is responsible for insuring the contents/equipment of the unit). The intention in allocating those risks is that there will not be subrogation between the two parties for a loss to the other’s property even if caused by the negligence of the other party.”[4] Conclusion In conclusion, insurance plays a crucial role in safeguarding our interests, whether it’s our homes, vehicles, or personal property, from potential risks and liabilities. In the realm of condominium living, understanding the organization and operation of condominium corporations is paramount. In essence, the purpose of insurance and subrogation mechanisms are to mitigate risks and promote financial security in condominium living. By adhering to these principles, both condominium corporations and unit owners can navigate potential challenges with confidence. If you have questions about property-related litigation or title insurance, please contact Graeme R. Oddy, lawyer at Devry Smith Frank LLP at 416-446-5810 or Graeme.oddy@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Articling Student, Toni Pascale, and Summer Law Student, Sanaz Sakhapour. [1] Condominium Act, 1998, S.O. 1998, c. 19 [2] Ibid at s. 99. [3] Ibid at s. 99(2). [4] Elite Vertical Blinds, Mfg. Co. v. YRCC No. 696, 2018 ONSC 1000 (CanLII) at para 25. By AlyssaBlog, Condo LawApril 1, 2024March 26, 2024
Minority Shareholder Rights Conflicts: Insights from Wilfred v. Dare The rights of minority shareholders are frequently in conflict with those of majority shareholders and directors. One case that delves into this closely is Wilfred v Dare, 2018 which examines the concept of reasonable expectation of liquidity and its intersection with the law of oppression and corporations. The case revolves around Carolyn Dare, a minority shareholder in Serad Holdings Limited, a family-owned business. Carolyn argued that her inability to sell her shares due to the lack of a third-party market amounted to oppression, which raised questions about the fair treatment of minority shareholders and the responsibilities of those in control of the corporation. The court’s analysis in Wilfred v Dare provides important insights into the concept of reasonable expectation of liquidity. It considered various factors, including the capital needs of the family business and the lack of a third-party market for the shares, Carolyn’s financial difficulties – which were not caused by her brothers – and the fact that she had received her interest in Serad Holdings Limited as a gift as part of an estate freeze. This demonstrates that the law of oppression requires courts to balance the interests of minority shareholders with the legitimate business interests of the corporation. While minority shareholders are entitled to fair treatment and protection from oppressive conduct, they must also consider the broader context of the corporation’s operations and the impact of their actions on the business as a whole. Key Regulations In this case, the court decided that simply not being able to sell shares wasn’t enough to be considered oppression. To understand why, it’s important to look at the basic principles and how they apply in situations like this: Reasonable Expectation of Liquidity: The court evaluated whether Carolyn could reasonably expect to sell her shares. This assessment considered factors like the company’s financial needs, her understanding at the time she acquired the shares, whether there were other ways for her to get value from her shares, and how she got her shares in the first place. Oppression and Fair Treatment: The law of oppression aims to protect minority shareholders from unfair treatment by the majority. The court must balance the rights of minority shareholders with the company’s legitimate interests. In the Wilfred case, the court emphasized that the oppression remedy doesn’t entitle a shareholder to avoid restrictions on the liquidity of their shares unless there is clear evidence of unfair or oppressive behaviour. Establishing Oppression: To prove oppression, a shareholder must show that they have been treated unfairly or ignored. This requires presenting evidence of a consistent pattern of behaviour or actions that unfairly disadvantage the minority shareholder. These principles highlight the complexity of oppression claims and the need for a thorough understanding of the facts and circumstances of each case. They also emphasize the importance of balancing the rights of minority shareholders with the legitimate business interests of the corporation in applying the law of oppression. Successor cases, such as Noble v. North Halton Golf, 2018 and Corber v. Henry, 2023 reaffirmed the findings in Wilfred v Dare. They emphasized that the oppression remedy is not designed to relieve a minority shareholder from the limited liquidity attached to their shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct. Individuals in a similar situation should be aware of these principles. Understanding the aspects of liquidity expectations, oppression, and fair treatment is crucial for protecting minority shareholder rights and ensuring fair corporate governance practices. When faced with issues related to reasonable expectations of liquidity, seeking legal advice and understanding one’s rights as a shareholder are essential steps in navigating these complex legal matters. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By AlyssaBlog, Commercial LitigationMarch 22, 2024March 26, 2024
Dispute Over Real Estate Transaction Deadline: Ontario Court of Appeal Affirms Vendor’s Termination of Contract In a recent appeal before the Ontario Court of Appeal, the Court showcased once again the significance of the “time is of the essence” clause. In, 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6, the parties entered into an Agreement of Purchase and Sale (APS) with 3:00 pm being the closing time specified on the completion date. The purchasing party missed the closing time by a mere 35 minutes and despite having delivered the purchase price, the Vendor terminated the contract. The appellant, 3 Gill Homes Inc., contested the application judge’s ruling in favour of the respondent vendor, 5009796 Ontario Inc., trading as Kassar Homes (“Kassar Homes”). In rendering its decision the Ontario Court of Appeal had to balance well-established rules of contractual interpretation and strict reading of the contract negotiated and entered into by the parties. Key Issues Did the application judge err in finding that: the payment closing time was 3:00 pm; time was of the essence in relation to the payment closing time; the 3:00 pm closing time was not unconscionable; damages could not be fairly determined on a written record; and Are the application judge’s reasons sufficient for appellate review? Court’s Decision The Court of Appeal dismissed the appeal, upholding the application judge’s ruling. Here’s the breakdown of the court’s reasoning: Payment Deadline: The court affirmed the application judge’s determination that the payment deadline of 3:00 p.m. was clearly stipulated in the APS. This timeframe was essential, and failure to adhere to it justified the vendor’s termination of the contract. “Time is of the Essence” Clause: The court agreed with the application judge’s interpretation of the “time is of the essence” clause. This clause made it clear that adhering to the closing date and time was crucial, empowering the innocent party to terminate the contract upon breach. Unconscionability: The court found no basis to interfere with the application judge’s conclusion regarding the absence of unconscionability. The parties’ familiarity with real estate transactions and the terms of the APS weighed against the appellant’s claim of unfairness. Sufficiency of Reasons: The court determined that the application judge’s reasons were adequate for appellate review. The judge’s analysis of relevant case law, the APS terms, and factual circumstances provided a clear rationale for the decision. Damages Determination: Since the court upheld the application judge’s ruling on the merits, it deemed the issue of damages determination unnecessary for consideration. Opinion Many commentators would describe the Ontario Court of Appeal’s decision as harsh, given the fact that the Purchaser missed the closing payment deadline by a mere 35 minutes. This case underscores the significance of honouring contractual agreements in real estate transactions. The court’s decision not to interfere with the contractual deadline reflects a commitment to upholding the parties’ bargained-for terms. In essence, if parties agree that funds must be provided by a specific time, irrespective of other deadlines, the court will honour that agreement. In this instance, the vendor was within their rights to terminate the contract when the funds were not deposited into their lawyer’s trust account by 3:00 p.m., as specified in the APS. It is a common practice for such clauses to be included in pre-construction agreements. Upon entering into an APS, purchasers would do well to insert a solicitor review condition to ensure they are advised of all contractual timelines. While the transfer deed, the document in which ownership is transferred from vendor to purchaser, can occur on or prior to 5:00 pm, the parties could insert additional timelines for certain deliveries in the APS. Conclusion The Ontario Court of Appeal’s decision in 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6 reaffirms the importance of respecting contractual obligations in real estate transactions. By upholding the parties’ bargained-for terms, the court ensures clarity and fairness in contractual dealings. This case serves as a reminder for parties to carefully review and negotiate their agreements to avoid disputes over contractual deadlines in the future. If you have questions about real estate transactions, please contact Louis Gasbarre, lawyer at Devry Smith Frank LLP at 416-446-5853 or louis.gasbarre@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Mohadeseh Bakhtiari. By AlyssaBlog, Real EstateMarch 11, 2024March 11, 2024