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
Did I Just Enter a Legally Binding Contract By Texting an Emoji? According to a Saskatchewan Court, You Might Have The use of technology in the legal field is rapidly evolving. From the use of artificial intelligence tools like ChatGPT to the shift from in-person to virtual courtrooms, it is clear that the law needs to be adaptable and flexible in this new digital age. A recent shift in this direction came with the recent ruling of Justice T.J. Keene of the Court of the King’s Bench in Saskatchewan. This decision broadened the scope of what constitutes “acceptance” of a contract. The case arose within the context of a dispute over a grain company’s contract to buy flax from a farm.[1] In a sensational decision which attracted the interest of media outlets across Canada, the US, the UK, and even India, Justice Keene held that a “thumbs-up” emoji (“👍” ) constituted valid acceptance of a contract. Facts of the Case The plaintiff in this case was South West Terminal, a grain and crop inputs company. Kent Mickleborough worked as a Farming Representative for South West and acted as the primary grain buyer for the corporation. The defendant was Achter Land & Cattle, a farming operation owned and operated by Chris Achter. Since 2012, South West regularly purchased grain for their operations from Achter. The dispute resulted from an agreement formed on March 26, 2021, when Mr. Mickleborough texted Mr. Achter to obtain a new contract for flax. Following a phone call with Mr. Achter to finalize the amount of flax, the price, and the delivery date, Mr. Mickleborough drafted a contract with the terms discussed in the phone call. Under this agreement, Achter would sell 86 metric tonnes of flax at $17.00 per bushel, or $669.26 per tonne, to South West, with delivery scheduled for November. Mr. Mickleborough signed the contract, then texted a photo to Mr. Achter with the message “Please confirm flax contract.” Mr. Achter responded with a “thumbs-up” emoji.[2] When November came, Achter failed to deliver the flax to South West. By that time, the price of flax had skyrocketed to $41.00 per bushel or $1,614.09 per tonne.[3] In response, South West sued Achter for breach of contract and damages in the amount of $82,200.21.[4] The defendant took the position that he never entered into a contract and that the emoji represented his acknowledgement of the contract, not his acceptance. The Court had to consider the following question: was there a contract that Achter agreed to via an emoji? Was There a Meeting of the Minds? A contract is formed when there is an offer made by the offeror and an acceptance by the offeree, with the intention of creating a legal relationship supported by consideration.[5] Acceptance of the offer by the offeree must be communicated to the offeror so that there is consensus ad idem between the parties or a “meeting of the minds.”[6] However, as Achter argues, a mere acknowledgement of an offer is insufficient to constitute acceptance and make the offer binding on both parties.[7] Whether a contract exists is determined through the objective theory of contract formation, or how each party’s conduct appears to an objective and reasonable person in the other party’s position.[8] As such, acceptance does not need to be made in express terms, but can be implied through the parties’ conduct. For instance, courts have determined that by clicking the “I Agree” box to terms of service agreements online, you agree to be bound to a “click-wrap” agreement.[9] What the parties subjectively had in mind is irrelevant to the analysis, and courts can consider the surrounding circumstances of the agreement and the parties’ relationship in their analysis.[10] In this case, Mr. Achter had a long-standing business relationship with Mr. Mickleborough. Mr. Mickleborough would call Mr. Achter or speak with him in person and determine the essential terms of the contract in terms of quantity of grain, the price, and the time of delivery. After they had come to a consensus, Mr. Mickleborough would draft a contract based on their discussion and send it to Mr. Achter. Mr. Achter previously agreed to contracts sent over text by Mr. Mickleborough by responding, “Looks good,” “Ok,” and “Yup.”[11] Justice Keene found that: The parties clearly understood these curt words were meant to confirm the contract and were not a mere acknowledgement of the receipt of the contract by Chris [Mr. Achter]…Chris delivered the grain as contracted and got paid. There was no evidence he was merely confirming the receipt of a contract and was left just wondering about a contract.[12] Justice Keene then addressed Mr. Achter’s denial that the “thumbs-up” emoji can mean “I agree.” Justice Keene utilized the Dictionary.com definition of the “👍” emoji, which states that it “is used to express assent, approval, or encouragement in digital communications, especially in Western cultures.” As such, Justice Keene concluded that: …[W]hen considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item [sic] – a meeting of the minds – just like they had done on numerous other occasions.[13] Were the Terms too Uncertain? For a contract to be binding, there must be certainty concerning the material or essential terms of the contract, such as the quantity of goods, payment, and delivery.[14] Where parties fail to reach an agreement on essential terms or express themselves in a way that prevents the Court from interpreting their agreement, the agreement will be unenforceable due to lack of certainty of terms.[15] However, where the parties intended a binding agreement, courts will attempt to fill gaps and find meaning in agreements.[16] Here, Mr. Achter relied on two main facts to support his contention that the contract should be declared void for uncertainty: (1) Mr. Mickleborough did not include a photograph of the “General Terms and Conditions” located on the back of the contract; and (2) The contract described the delivery period as “Nov,” which is too vague. Justice Keene rejected these arguments. The modern approach to interpreting contracts requires the courts to look at the “factual matrix” or the surrounding circumstances of the contract. This requires the Court to interpret contracts in light of what the parties intended and what they knew at the time of contract formation.[17] Here, the parties had a long-standing business relationship. Mr. Achter entered into many purchase contracts with South West in the past, and the terms and conditions were repeatedly set out in these contracts and had never changed. Justice Keene found that Mr. Achter would have already known the contract’s terms and conditions from the previous agreements’ terms and conditions. Moreover, Mr. Mickleborough provided the essential terms of the contract – namely, the parties, goods, and price – to Mr. Achter in the picture on the first page of the contract. Justice Keene also rejected Achter’s argument that there was any uncertainty surrounding the delivery date. Based on previous dealings and the context of discussions surrounding the contract, the only logical interpretation was that “Nov” referred to November 2021. Did the Contract Meet Statutory Requirements? Finally, Achter challenged the contract based on section 6 of the Saskatchewan Sale of Goods Act: 6(1) A contract for the sale of goods of the value of $50 or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold and actually receive the same or give something in earnest to bind the contract or in part payment or unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his agent in that behalf. (2) This section applies to every such contract notwithstanding that the goods may be intended to be delivered at some future time or may not at the time of the contract be actually made, procured or provided or fit or ready for delivery or that some act may be requisite for the making or completing thereof or rendering the same fit for delivery. (3) There is an acceptance of goods within the meaning of this section when the buyer does any act in relation to the goods which recognizes a pre-existing contract of sale whether there be an acceptance in performance of the contract or not.[18] A similar provision in the Ontario Consumer Protection Act, 2002 requires that all agreements for goods and services over $50 must be in writing.[19] The question here is whether the “in writing” and “signature” requirements are met in this case. Justice Keene determined that the requirements were met. The contract was in writing and signed by Mr. Mickleborough on behalf of South West. Moreover, the “thumbs-up” emoji sent by Mr. Achter from his unique cell phone number satisfied the signature requirement on his part. Although Justice Keene admitted that this was a non-traditional signature, the underlying purpose of s. 6 of the SGA is to prevent fraud. In this case, there was no question of the authenticity of the text message. As a result, Justice Keene found that Achter was liable to South West for $82,200.21 in damages, plus interest accumulated after November 30, 2021, and granted South West’s motion for summary judgment. Conclusions As seen in South West, a “thumbs-up” emoji can, in some circumstances, constitute a party’s acceptance of a contract. However, this finding is highly fact-specific and depends on the parties’ prior relationship and past conduct. Despite concerns about opening up the floodgates for the judicial interpretation of emojis, the courts cannot ignore this new development in Canadian contract law. Justice Keene concluded that: [T]his Court cannot (nor should it) attempt to stem the tide of technology and common usage – this appears to be the new reality in Canadian society, and courts will have to be prepared to meet the new challenges that may arise from the use of emojis and the like.[20] While it remains to be seen whether Ontario courts will follow this ruling, business owners and consumers should be aware of the potential legal implications of emojis in this new digital era. For more information regarding commercial litigation and contractual interpretation, please contact David Heppenstall at Devry Smith Frank LLP at (416) 446-5834 or david.heppenstall@devrylaw.ca. This blog was co-authored by Summer Law Student, Leslie Haddock and 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] South West Terminal Ltd v Achter Land, 2023 SKKB 116 [South West]. [2] Ibid at para 15. [3] Ibid. [4] Ibid at para 1. [5] Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v Aga, 2021 SCC 22 at para 35 [Aga]. [6] Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256. [7] McIsaac v Fraser Machine & Motor Co, 1910 CarswellNS 153. [8] Aga, supra note 5 at para 35. [9] See Rudder v Microsoft Corp, 1999 CanLII 14923 (ON SC). [10] Aga, supra note 5 at paras 37-38. [11] South West, supra note 1 at para 19. [12] Ibid at para 21. [13] Ibid at para 36. [14] May and Butcher Ltd v The King [1929] ADR L R 02/22. [15] South West, supra note 1 at para 43. [16] Ibid. [17] Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 at para 46. [18] RSA 2000, c S-2, ss 6(1)-(3) [SGA] [emphasis added]. [19] SO 2002, c 30, Sched A. [20] South West, supra note 1 at para 40. By AlyssaBlog, Commercial LitigationOctober 10, 2023October 4, 2023
Are Pre-Contractual Negotiations Admissible in the Interpretation of Ambiguous Contracts? Ambiguity in contracts can arise for a variety of reasons, including but not limited to a lack of clarity due to poorly defined terms, multiple interpretations, vagueness, changes in circumstances, and language barriers. The courts have historically relied on the Parol Evidence Rule, a common law rule of evidence that restricts the admission of extrinsic evidence outside of the written contract. If the Courts are required to intervene to resolve the ambiguity, the rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. Furthermore, there is a longstanding, traditional rule that evidence of pre-contractual negotiations is inadmissible when interpreting a contract.[i] The Landmark Case of Sattva In the case of Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53 (“Sattva”), the Supreme Court of Canada clarified the principles of contract interpretation. The case arose from a dispute over the date to evaluate a share price in determining a finder’s fee to be paid by Creston Moly to Sattva Capital. The SCC ruled that the objective of contractual interpretation is to determine the meaning of the contract, not just individual words, or phrases in isolation. It also held that the surrounding circumstances, including the background knowledge of the parties, are important factors in determining the parties’ intentions. Specifically, the Court Stated: “The consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.”[ii] In addition, the Court found that consideration of the surrounding circumstances does not offend the Parol Evidence Rule: “The Parol Evidence Rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.”[iii] Corner Brook (City) v Bailey: Building Upon Sattva Fast-forward to 2021, the Supreme Court in Corner Brook (City) v Bailey, 2021 SCC 29 (“Corner Brook”), was charged with the interpretation of a release that was signed by an employee who had been injured on the job. The decision re-affirmed several principals that came about in Sattva: Surrounding circumstances are relevant in interpreting a contract; and The nature of the evidence that may be considered will vary from case to case; and The purpose of considering surrounding circumstances is to aid in the interpretation of the agreement – not to add to, contradict, dispute or overwhelm the words of the agreement. The Court also referenced Justices Côté and Brown’s dissent in the case of Resolute FP Canada Inc. v Ontario (Attorney General), where they deliberated over the traditional rule that evidence of negotiations is inadmissible with the approach from Sattva which directs courts to consider the surrounding circumstances in interpreting a contract, citing difficulty in drawing a principled distinction between the circumstances surrounding contract formation and negotiations. In regard to pre-contractual negotiations, Justice Rowe stated: “I leave for another day the question of whether, and if so, in what circumstances, negotiations will be admissible in interpreting a contract. That issue needs to await a case where it has been fully argued and is necessary in order to decide the appeal.”[iv] The Supreme Court “left the door open” as to the admissibility of pre-contractual negotiations in the interpretation of a contract. OFNLP: ONCA Considers Pre-Contractual Negotiations in Decision In Ontario First Nations (2008) Limited Partnership v Ontario Lottery and Gaming Corporation, 2021 ONCA 592 (“ONFLP”), the Court of Appeal reaffirmed the principals in Sattva and clarified Corner Brook. The Court of Appeal considered an arbitration panel’s use of evidence of pre-contractual negotiations as an aid to interpret the financing agreement pertaining to the operation of a casino. The Defendants, Ontario and OLG, asserted that the appeal judge and majority erred in law by admitting the pre-contractual negotiations into evidence. When determining whether the appeal judge had ignored the entire agreement clause and allowed the extrinsic evidence (including the pre-contractual negotiations) to overwhelm the words of the agreement in question, Justice Jamal stated: “I do not agree with this submission. An entire agreement clause alone does not prevent a court from considering admissible evidence of the surrounding circumstances at the time of contract formation. As already noted, the surrounding circumstances are relevant in interpreting a contract exactly because “words alone do not have an immutable or absolute meaning”: Sattva, at para. 47.”[v] and “…I see no error in how the surrounding circumstances were considered. These circumstances helped to place the Agreement in its proper setting and understand the genesis of the transaction, the background, and the context. They included the parties’ history of litigation over revenue sharing; their shared objective of locking‑in three identified revenue streams to ensure stable, predictable, long-term funds for First Nations’ communities; and Ontario’s commitment not to convert revenues received to the final account of the Province into revenues that were not. Such evidence was admissible to show the parties’ objective mutual intention and the background facts leading to the Agreement. In my view, the surrounding circumstances were not used to overwhelm the words of the agreement or to deviate from the text to create a new agreement…”[vi] ONFLP confirms that pre-contractual negotiations can be an important factor in interpreting a contract, particularly where the contract is ambiguous or where there is uncertainty about the parties’ intentions. Conclusion The decisions of Corner Brook and OFNLP have built upon the principals established in Sattva and have opened the door to the use of pre-contractual negotiation as surrounding evidence to aid in the interpretation of ambiguous contracts. Regardless of the reason for ambiguity, it is important for parties to carefully review and clarify contract terms before entering into an agreement, to minimize the risk of future disputes or misunderstandings. For more information regarding commercial litigation, contract interpretation and corporate law, please contact Kelli Preston at Devry Smith Frank LLP at (416) 446-3344 or 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 Owais Hashmi* [i] Resolute FP Canada Inc. v Ontario (Attorney General), 2019 SCC 60 at para 100. [ii] Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53 at para 47. [iii] Ibid at para 60. [iv] Corner Brook (City) v Bailey, 2021 SCC 29 at para 57. [v] Ontario First Nations (2008) Limited Partnership v Ontario Lottery and Gaming Corporation, 2021 ONCA 592 at para 62. [vi] Ibid at para 64. By Fauzan SiddiquiBlog, Commercial LitigationMarch 6, 2023June 25, 2023
Fiduciary Fallout: Ontario Court Rules Debt Survives Bankruptcy Amid Trust Fund Misuse In the recent case of Convoy Supply Ltd. v. Elite Construction (Windsor) Corp., the Plaintiff, Convoy, brought a motion for a determination that the debt owing by the Defendants, Elite Construction, and Kostas Michos, the officer, director, guarantor, and directing mind of Elite Construction, survives Kostas’ bankruptcy pursuant to section 178(1)(d) (the “Section”) of Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, (the “BIA“). Section 178(1)(d) states: An order of discharge does not release the bankrupt from any debt or liability arising out of fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a Trustee or administrator of the property of others. Facts Convoy supplied construction materials to Elite Construction for which payment was not made. On July 28, 2020, Convoy filed a claim against Kostas’s company and Kostas himself, seeking payment of $92,412.15 in damages for breach of trust, among other things. The claim was made pursuant to the Construction Lien Act (“CLA”) and the Construction Act (“CA”). The claim alleged that Kostas and his company had failed to pay for the materials and had therefore been unjustly enriched. Kostas was also accused of diverting or converting the trust funds for their own use. On December 14, 2021, Kostas made an assignment into bankruptcy. He deposed that he chose to make an assignment into bankruptcy rather than bring a motion to set aside the judgment because he had no reason to believe the judgment would survive his bankruptcy. Kostas submitted that he is only deemed to admit a breach of trust, and a breach of trust is insufficient to trigger the Section. Kostas argued that Convoy must additionally show that the debt arose from some element of “moral turpitude or dishonesty.” The deemed admission that the trust funds were appropriated or converted contrary to trust obligations does not necessarily imply “misappropriation and defalcation” under the Section. Kostas further argued that in the absence of moral turpitude or dishonesty, the Court cannot vary the judgment to include a declaration under the Section. Analysis The Court ruled that Kostas was deemed to admit the Breach of Trust Facts, which included that he assented to and acquiesced in the diversion of trust funds established under the CA for purposes inconsistent with the trust. Similarly, directing trust funds for a purpose inconsistent with the trust is also sufficient to trigger the Section and such diversion is considered “dishonest”. The Court found that Kostas was acting in a fiduciary capacity. As sole officer and director of Elite Construction, Kostas failed to adequately discharge his onus as a Trustee to account for the relevant trust funds pursuant to the CA. Goodman J. determined that Kostas’ deemed admissions establish the type of “wrongdoing, improper conduct or improper accounting” contemplated by the Section. Held The Court granted the Plaintiff’s motion, stating that Kostas’s debt to Convoy still existed, and an order was made for Kostas to pay Convoy $92,412 for damages, $7,000 for punitive damages, and $4,790 for costs, and determined that prejudgment and post-judgement interest would survive the bankruptcy. The Order also stated that the judgment debt would not be discharged in the event of Kostas’s bankruptcy and that Kostas was found to have used trust funds in an inconsistent way and failed to account for them as a Trustee. For more information regarding Bankruptcy, Collections, Fraud, and/or Trusts related topics, please contact Kelli Preston at Devry Smith Frank LLP at (416) 446-3344 or 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 Owais Hashmi* Sources: Convoy Supply Ltd. v. Elite Construction (Windsor) Corp., [2022] O.J. No. 4186, 2022 ONSC 5353 By Fauzan SiddiquiBlog, Commercial Litigation, UncategorizedFebruary 21, 2023June 10, 2023
Sticker Shock: Market Adjustment Fees in the Automobile Industry Automotive dealers have a supply and demand issue: they cannot secure enough supply to meet the customer demand. In the wake of supply chain issues, and in the face of these market realities, many dealerships resort to including “market adjustment fees” on top of the final bill charged to the end customer. This market adjustment fee could be added even after the parties have negotiated the price. This sticker shock to the consumer can cause surprise and dismay. Market adjustment fees may be hundreds or even thousands of dollars over the manufacturer’s suggested retail price. These fees are becoming more commonplace in the market of low inventory and inflated prices. However, many consumers wonder if dealerships can include market adjustment fees even after an agreement is reached between the customer and the dealership. The answer will likely depend on if the agreement is a binding contract. Binding Contract or Negotiated Price? A binding contract includes all the terms and conditions in which the dealer and the consumer agree to, including any additional fees. In order for a purchase agreement to be binding, each purchase agreement must contain the following statement next to the purchaser’s signature: Sales Final Please review the entire contract, including all attached statements, before signing. This contract is final and binding once you have signed it unless the motor vehicle dealer has failed to comply with certain legal obligations.[1] If an agreement reached between the dealership and the customer is not a binding contract, a dealership could add market adjustment fees in the final contract. Background: The Law and Ethics The legal framework is articulated by statute and regulations. The Ontario Motor Vehicle Industry Council (“OMVIC”) administers the Motor Vehicle Dealers Act, 2002, SO 2002, c 30, Sched B (the “Act”) which sets out the requirements that must be fulfilled by those engaging in the business of buying and selling vehicles. The OMVIC provides that under the Act, if a motor vehicle dealer advertises a price for a new or used vehicle, the price must include all fees and charges the dealer intends to collect with the exception of HST and licensing.[2] Examples of fees that must be included in an advertised price include government levies, pre-delivery inspection or expense fees, administration fees, and OMVIC fees.[3] However, adding additional fees to vehicles that catches a customer’s eye at a dealership is permitted — provided that the fees are clearly indicated in the contract. The legal framework is complemented by a code of ethics for the industry. The OMVIC may not have the authority to stop the practice of adding market adjustment fees, but they may have the prerogative to remind dealerships to abide by the Act’s code of ethics. Section six (6) of the Act enshrines a code of ethics which requires dealerships to act with integrity, respect, and honesty.[4] This is a requirement to maintain registration. OMVIC encourages their dealers and salespeople to meet the high standards enshrined in the legislation. However, none of the OMVIC bulletins issued since the pandemic specifically discourage dealerships from adding market adjustment fees or other unexpected charges in final contracts.[5] In particular, OMVIC did not provide any refutation that adding market adjustment fees are unethical, or that dealerships should not change interest rates or prices after prior negotiations. Little Recourse without a Binding Contract (For Now) Currently, consumers in Ontario have little recourse when a negotiated price is not a binding agreement. Consumers should ensure that all promises, terms, and conditions and a statement providing that the contract is final and binding once signed unless the dealer fails to comply with certain legal obligations are written on the contract. South of the border, the Federal Trade Commission in the United States is proposing new rules which aim to prohibit market adjustment fees and bait-and-switch advertising tactics in an effort to eliminate unwanted charges.[6] If similar rules were adopted in Ontario, it would help protect consumers by making the car-buying process more clear and competitive. It would further allow OMVIC to recover money when consumers are misled or charged without their consent. Until such rules are implemented, customers will need to take the extra step to ensure their price negotiations are binding. “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 student-at-law, Abby Leung [1] https://www.omvic.on.ca/portal/Consumers/ConsumerProtection/CancellinganAgreement.aspx [2] https://www.omvic.on.ca/portal/Consumers/ConsumerProtection/AllInPricing.aspx [3] Ibid. [4] SO 2002, c. 30 Sched B, s. 6. [5] https://www.cbc.ca/news/business/market-adjustment-fee-car-sales-1.6653676 [6] https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-proposes-rule-ban-junk-fees-bait-switch-tactics-plaguing-car-buyers By Fauzan SiddiquiBlog, Commercial LitigationDecember 16, 2022June 10, 2023
The Doctrine of Knowing Receipt: How a Third Party can be Liable for Receiving Proceeds of Fraud Picture this: you are a victim of fraud. Understandably, you want to find out who ultimately received the money, and get it back from them! You trace the funds to their ultimate recipients, who claim they’re innocent. They say they did not know that the funds were misappropriated as a result of a breach of trust; and they say they were a stranger to the fiduciary relationship that resulted in the breach. Now what? When a third party receives proceeds of fraud or trust property for their own benefit, and are enriched at the expense of a beneficiary, victims can sue to recover the property in the possession of the third party under the law of “knowing receipt”. Under the doctrine of knowing receipt, a recipient of defrauded funds may be liable to return them where he or she receives the funds for their own benefit, and has actual or constructive knowledge of facts which would put a reasonable person on inquiry, but fails to inquire into the possible source of the funds.[1] Liability for knowing receipt of defrauded funds and property is “restitution-based,” which is concerned with correcting the unjust enrichment of one party to the detriment of another.[2] In order to establish liability under the doctrine of knowing receipt, the victim must satisfy the court of two things: a receipt requirement and a knowledge requirement. Receipt Requirement To satisfy the receipt requirement, the third party must have received and become charged with some portion of the trust property. In other words, they must have received the property in his or her own right, and must have received the property beneficially, thus becoming enriched at the plaintiff’s expense.[3] As such, merely receiving or possessing the funds or trust property without enjoying its benefits is not sufficient to satisfy the receipt requirement. Similarly, a third party holding misappropriated funds for another party as an agent does not provide for a cause of action in knowing receipt.[4] Knowledge Requirement In addition to the receipt requirement, one must prove that the third party had a certain degree of knowledge about the breach of trust to justify liability.[5] Historically, the jurisprudence has been inconsistent on whether a third party needs to have actual or constructive knowledge about the possible breach of trust. Case law such as Gold v. Rosenberg, [1997] 3 S.C.R. 767 have indicated that requiring constructive knowledge is best suited for the restitutionary basis of a claim in knowing receipt.[6] Constructive knowledge is understood to mean “knowledge of facts sufficient to put a reasonable person on notice or inquiry,”[7] and liability arises “where the recipient fails to make proper inquiry in circumstances where an honest and reasonable person would realize that the funds transferred were from a suspicious or improper source.”[8] Constructive knowledge is a lower threshold, and is easier to prove from an evidentiary perspective.[9] Some courts have ruled that even if the property was received innocently and without knowledge, the recipient must return any property that they still hold after they learn of the fraud.[10] Other cases have suggested that an innocent party who subsequently learns of a fraud will be required to return its proceeds only where no juristic reason exists for them to retain the funds.[11] Taken together, where no juristic reason exists for an innocent party to retain proceeds of fraud, that party will be required to return the funds regardless of the timing of their knowledge of the fraud. However, where there is a juristic reason for enrichment (e.g. the return of investment or repayment of a loan), an innocent party may not be required to return the funds to a defrauded party notwithstanding the existence of a fraud, unless they had a duty to inquire about the bona fides of the payment. Conclusion The doctrine of knowing receipt can be a powerful tool in the context of complex fraud and offers a way to hold third parties liable for receiving funds following a breach of trust. If you have any questions about knowing receipt or commercial litigation in general, please contact Graeme Oddy 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 situations and needs.” This blog was co-authored by student-at-law, Abby Leung [1] Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 SCR 805 at para 23. [2] Ibid at para 49. [3] Gold v. Rosenberg, [1997] 3 S.C.R. 767 at para 40. [4] Air Canada v. M&L Travel Ltd., [1993] 3 S.C.R. 787 [Air Canada]. [5] Gold, supra note 3 at para 42. [6] Ibid, at para 45. [7] Citadel, supra note 1 at paras 48-49. [8] Holmes v. Amlez International Inc., 2009 CarswellOnt 6595 at para 7 [Holmes]. [9] Ibid. [10] Ibid at para 12. [11] Sarhan v. Chojnacki, 2012 ONSC 747 at para 28. By Fauzan SiddiquiBlog, Commercial LitigationNovember 30, 2022June 10, 2023
Health and Medical Practitioners Not Liable for Failing to Disclose Unusual Risks to Medical Treatments if a Properly Informed Person Would Have Consented Anyway Warlow v Sadeghi[1] In 2010, Elaine Warlow began experiencing a painful toothache. It was a gum infection—probably due to some impacted food. Dr. Ali Sadeghi, an oral surgeon, recommended the removal of an impacted wisdom tooth where the infection was concentrated. Ms. Warlow consented. During the surgery, Dr. Sadeghi struck a nerve. As a direct consequence, Ms. Warlow was injured and left with chronic pain. Ms. Warlow’s life was devastated. Prior to the surgery, she was in good health, athletic, maintained an active social life and was about to begin a promising new career. Following her injury, her new career was finished before it could start, her earning ability decreased, she stopped exercising, and she became socially isolated. Ms. Warlow brought an action for damages against Dr. Sadeghi. At the Supreme Court of British Columbia, the core issue was whether Dr. Sadeghi properly informed Ms. Warlow about the risks of the procedure to remove the wisdom tooth. Although Dr. Sadeghi warned of the risk that she may experience “pins and needles” or “numbness,” there was no mention of the potential for permanent nerve damage. By this omission, Ms. Warlow’s consent was not informed. However, the trial judge concluded that a reasonable person in Ms. Warlow’s shoes with full knowledge of that risk would have proceeded with the surgery. Consequentially, the action against Dr. Sadeghi was dismissed. The Court of Appeal for British Columbia upheld that dismissal. The importance of health and medical practitioners providing sufficient information for patients to make informed choices about their care is paramount. But, if they fail to do so, they may not face legal liability if a properly informed person would have consented anyway. Background The fundamental first step of any medical treatment is to ensure that the patient consents.[2] Under the Ontario Health Care Consent Act, 1996, unless it is an emergency, no treatment may be performed unless consent is given by a patient who has the capacity to consent.[3] Where the patient lacks capacity, their substitute decision-maker must give the consent. Consent must be voluntary, without misrepresentation, and it must relate to the nature of the proposed treatment.[4] Consent may be either express or implied, and it may be withdrawn at any time.[5] Consent must also be informed. For a patient to be properly informed, they must be advised of the nature and expected benefits of the treatment, but also the material risks and side effects.[6] The properly informed patient would also be advised of alternative courses of action and the possible consequences of not undergoing the treatment. Lastly, the patient must have the opportunity to ask questions, and their questions must be answered. In sum, the patient must be given all of the information “that a reasonable person in the same circumstances would require in order to make a decision.”[7] Practitioners could be liable if they fail to provide this informed consent—even if they were otherwise performing within the appropriate standard of care.[8] Failing to provide the proper information is a distinct cause of action from an action in negligence. The Case of Warlow v Sadeghi In the case against Dr. Sadeghi, the trial judge found that he failed to properly inform Ms. Warlow of the risk that temporary or permanent nerve pain could result from the procedure to extract her wisdom tooth.[9] Dr. Sadeghi testified that he did indeed describe to Ms. Warlow the alternatives, the risks of the treatment, and the risks of not undergoing the treatment—all in a conversation which lasted only a few minutes.[10] In particular, Dr. Sadeghi informed Ms. Warlow that doing nothing could lead to hospitalization or death due if infection were to recur. Dr. Sadeghi conceded that he did not specifically articulate the risk of “permanent nerve pain” or “permanent neuropathic pain.”[11] Although he did state that there was a ~2% chance of injuring a nerve, he described the possible outcome as limited to “pins and needles” or “tingling.”[12] The trial judge described this somewhat benign characterization as quite different from the risk of permanent pain.[13] Dr. Sadeghi made the conscious choice not to inform Ms. Warlow of the risk of permanent pain because he felt that it was very remote. He had never seen any study or encountered a single case of permanent pain from this type of nerve injury.[14] In this respect, the risk was “unusual.” Nonetheless, the court held that Dr. Sadeghi should have disclosed the risk of permanent pain. As he did not, Ms. Warlow’s consent to the treatment was not properly informed. Lacking informed consent, the question then shifted to what would have been decided if Dr. Sadeghi did properly inform his patient. Establishing Liability Under the Modified Objective Test To establish liability for the health or medical practitioner where consent is not informed, the Supreme Court articulated the “modified objective test,” as stated in Reibl v Hughes and affirmed in Arndt v Smith.[15] After the plaintiff proves that a “material, special, or unusual” risk was not disclosed which ought to have been, the plaintiff must prove that a reasonable person in that position would not have agreed to the treatment even if adequately advised of the risks.[16] This next issue is a question asked in two stages, as per the Ontario Court of Appeal decision of Bollman v Soenen.[17] At the first stage, the question is: what would the patient themselves have done? At the second stage, the question is: what would a reasonable person in the shoes of the patient have done? At both stages, the answer must be that informed consent would not have been given in light of the new information. In Ms. Warlow’s case, the trial judge could make no determination as to what she would have done if she was properly informed. Ms. Warlow had the burden to testify as to what she would have done, but she did not.[18] Although she stated that she would not have given consent if she knew that she would “end up like this,” this was not helpful.[19] No one would consent to treatment if they knew they would be worse off. The issue was: if she was aware of the risk, would she have consented? Ultimately, the first stage could not be answered; Ms. Warlow’s informed choice could not be inferred. At the second stage, the trial judge reviewed the relevant circumstances to determine what an adequately informed reasonable person would have done in Ms. Warlow’s position. To answer this question, the trial judge considered how Dr. Sadeghi outlined that extraction of the wisdom tooth was the best option under the circumstances and that it was a common procedure.[20] The trial judge ultimately concluded that a reasonable person in Ms. Warlow’s position would have consented to the treatment even where properly informed of the consequences of nerve injury and the risk of permanent pain.[21] Given the fact that Ms. Warlow’s informed choice could not be inferred and that an adequately informed reasonable person would have consented to the treatment, Dr. Sadeghi was found not liable for any damages to Ms. Warlow. On appeal, the Court of Appeal for British Columbia upheld the lower court’s decision.[22] Conclusion The notion of informed consent is enshrined as critically significant by the legislature and by the judiciary. Absent circumstances of emergency, health and medical practitioners must provide their patients with all of the requisite information necessary for them to make informed choices about medical treatments. This information includes the benefits, risks, side effects, alternatives, and possible consequences of not undergoing the treatment. Where a health or medical practitioner fails to provide information about a risk to their patient which ought to have been disclosed—even if that risk is “unusual”—they may face liability for the damages which may result. However, even if informed consent is not given, practitioners will not face any liability if the properly informed patient and a properly informed reasonable person would have consented to the treatment nonetheless. If you have any questions related to medical malpractice, please contact David Derfel to discuss any questions and your options at 416 446-5096 or david.schell@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.” Sources [1] Warlow v. Sadeghi, 2021 BCCA 46 (CanLII) [Warlow]. [2] Male v Hopmans et al, 1967 CanLII 146 (ON CA). [3] SO 1996, c 2, Sched A, ss 10, 18(4), 25(1). British Columbia has a similar statutory regime for medical consent; see: Health Care (Consent) And Care Facility (Admission) Act, RSBC 1996, c 181, s 5. [4] Ibid, s 11(1). [5] Ibid, ss 11(4), 14. [6] Ibid, ss 11(2)-(3). [7] Ibid. [8] Watson v Dr Shawn Soon, 2018 ONSC 3809 (CanLII) at paras 81-82. [9] Warlow, supra note 1 at para 3. [10] Ibid at paras 21-22. [11] Ibid at para 23. [12] Ibid at para 20. [13] Ibid at para 25. [14] Ibid at para 23. [15] Reibl v Hughes, 1980 CanLII 23 (SCC) cited by Arndt v Smith, 1997 CanLII 360 (SCC) cited by ibid at para 18. [16] Warlow, supra note 1 at para 33. [17] Bollman v Soenen, 2014 ONCA 36 (CanLII) at para 21. [18] Warlow, supra note 1 at para 39. [19] Ibid at para 38. [20] Ibid at para 41. [21] Ibid at para 27. [22] Ibid at para 42. By Fauzan SiddiquiBlog, Commercial Litigation, Personal InjuryAugust 4, 2022June 10, 2023
A Guide for Couples Looking for Help after COVID-19 Cancelled their Wedding (Part 1) The pandemic has derailed couples’ wedding plans for the past two years and hundreds of Canadians are now struggling to negotiate with vendors who refuse to refund or pay back deposits, citing their own dire finances resulting from COVID-19. These foiled plans and negotiation talks raise an interesting legal issue: how will the pandemic affect the interpretation of wedding vendor contracts? This is new territory for the courts, and since re-opening a few months ago, the Ontario Small Claims Court has yet to address the issue. This two-part series hopes to provide some guidance for couples who are in this precarious circumstance, and are looking for answers after a “pandemic cancellation.” The main question is whether a “non-refundable” clause or contract can be overturned. The short answer is yes! If a “non-refundable” clause exists, it is still possible for the courts to overrule this clause by relying on the common law doctrine of frustration of contracts or when there is a material adverse change. Frustration of Contracts A party may consider relying on the common law doctrine of Frustration, or otherwise known as “material adverse change”. Pursuant to this doctrine, and as statutorily prescribed by the Frustration of Contracts Act, a court may fully excuse both parties from their obligations where the performance of a contract becomes legally or physically impossible, or the contract is “frustrated” without fault of either party.[1] This can relieve parties from obligations and, in almost all cases, return any monies paid for in advance, such as deposits unearned without services. Based on the concept of “unjust enrichment” and quantum meruit a Latin term meaning “for what it is worth”), where a wedding vendor may have incurred expenses or provided benefits before a frustration of the contract occurs, then the supplier is entitled to keep a portion of the deposit for their services. Unjust enrichment is a legal concept based on the general equitable principle that no person should be allowed to profit at another’s expense without a legal reason for doing so.[2] Exception to Frustration of Contracts – Force Majeure In spite of a frustration of contract, there may be a force majeure clause, which makes a frustration of contract inapplicable. Couples may want to check their contract to ensure that there is no force majeure clause within their contract, which creates an exception to the Act. A force majeure clause is a provision protecting parties from events beyond their control even if those events make it impossible to fulfill the terms of the contract. This includes events such as those that are an “act of God,” war, a pandemic, and so on. The clause must state something to the effect that the contract will survive the pandemic (or other force majeure) and the clause must set out an alternative measure for fulfilling the contract. However, couples may be in luck as the recent amendments to the Consumer Protect Act, 2002 can potentially come into play when a contract clause appears to limit the Frustration of Contracts Act. What to Look Out For in the Future We plan to release a follow-up blog when the Ontario courts have issued decisions regarding wedding cancellation and frustration of contracts. This issue has been addressed in BC, where the “small claims” court in BC (British Columbia’s Civil Resolution Tribunal) denied that government restrictions due to the pandemic have radically changed parties’ original wedding agreements, and ruled that frustration of contracts is inapplicable. The legal decision turned on the judge’s perception of what are the “essential elements” of a wedding contract. Somewhat similar to BC’s ruling, though not related to weddings, the Ontario Superior Court ruled that frustration of contract didn’t apply to standard loan and security agreements (see Bank of Montreal v. 2643612 Ontario Ltd., 2021 ONSC 4401). It did not apply to the debtors in this case because the pandemic did not render the agreement “substantially” different. Seeing as the frustration of contracts is a fact-driven analysis, couples should seek advice from our lawyers at Devry Smith Frank LLP (‘DSF’) if they are faced with a situation involving an event that has been cancelled due to COVID. To further discuss your matter, please contact Graeme R. Oddy at (416)-446-5810 or by email at 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 situations and needs.” This article was co-authored by Katherine Berze* [1] Frustration of Contracts, R.S.O. 1990, c. F.34, s. 2 (1); 1993, c. 27, Sched. [2] Kerr v. Baranow and Vanasse v. Seguin, 2011 SCC 10 By Fauzan SiddiquiBlog, Commercial LitigationJuly 4, 2022August 31, 2022
What Happens To The Deposit When A Real Estate Transaction Doesn’t Close? It is routine in real estate transactions for a buyer to provide a deposit to the seller as a ‘guarantee’, serving to incentivize the completion of the sale. But what happens to a deposit if the sale falls through, further, what if it is not the buyer’s fault for the sale failing to be completed? In the event, an agreement of purchase and sale is “repudiated”–meaning one party chooses not to fulfill their obligations under the contract–the determination of who is entitled to receive the deposit will usually depend on which party is at fault. If Buyer is at Fault: Deposits typically are provided as security for the buyer’s performance of a contract, thus where a sale has fallen through and the buyer is at fault, the seller is presumptively entitled to keep the deposit as compensation for their lost opportunity. In Azzarello v. Shawqi the Ontario Court of Appeal stated “[it] is well-established by case law that when a purchaser repudiates the agreement and fails to close the transaction, the deposit is forfeited, without proof of any damage suffered by the vendor”.[1] Even if an agreement does not explicitly state what is to happen to the deposit if the transaction fails, the law will presume that the deposit is forfeited by the at-fault buyer unless there is a basis to rebut this presumption. If Seller is at Fault: As is provided in most standard agreements of purchase and sale, where a seller is at fault for a transaction not closing, the buyer will be entitled to have their deposit returned to them absent exceptional circumstances. In Kalis v. Pepper, the Ontario Superior Court was tasked with determining which party in a failed home purchase was entitled to keep the deposit. Ultimately, the deposit was returned to the buyer due to a lack of clear evidence that the buyer has repudiated the agreement.[2] Exceptions to the Presumptive Rule: While the above assumptions apply when determining who gets to keep a deposit in a failed real estate transaction, the default outcome may be overridden in some circumstances. If parties have specifically negotiated an alternative outcome for what will happen to the deposit in the event of a breach, and it is reflected in their agreement of purchase and sale, then courts will often respect that clause. Additionally, the courts have the discretion to displace the presumption that the non-breaching party will be entitled to the deposit. Section 98 of The Courts of Justice Act provides “[a] court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise are considered just”.[3] The court has exercised this discretion in circumstances where the amount of the deposit is disproportionately larger than the harm suffered as a result of the transaction failing, or in instances of unconscionability (where the agreement is the result of substantial unfairness and inequality of bargaining power).[4] For example, in Lucas et al v 1858793 ON the court ruled that the buyer did not have to forfeit its $90,000 deposit on the purchase of a condo unit because that amount was “grossly disproportionate to the harm if any, that the [seller] suffered”.[5] Further, the Application judge felt the seller had only used the breach of the contract (allowing a friend to live in the unit for free – which the seller claimed was leasing the unit without their consent, contrary to their agreement) as an excuse to terminate the agreement before closing and keep the deposit. Determining which party is “at fault” depends on the facts of each transaction and the steps taken by the parties leading up to closing. If you’re having a dispute over a deposit on a purchase, or if you were involved in a failed real estate transaction, please contact Graeme Oddy at (416) 446-5810 or Graeme.Oddy@devrylaw.ca for more information. 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 Chloe Carr* [1] Azzarello v Shawqi, 2019 ONCA 820 at para 45. [2] Kalis v Pepper, 2015 ONSC 453 at paras 13-14. [3] Courts of Justice Act, RSO 1990, c C 43, s98. [4] Uber v Heller, 2020 SCC 16. [5] Lucas et al v 1858793 Ontario Inc. o/a Howard Park et al, 2020 ONSC 964 at para 55. By Fauzan SiddiquiBlog, Commercial Litigation, Real EstateJune 23, 2022June 10, 2023
Commercial Leases during Unprecedented Times Introduction There has recently been a significant increase in commercial lease disputes between landlords and tenants as a result of the COVID-19 pandemic and the many government-mandated stay-at-home orders and business lockdowns. As a result, courts have become inundated with disputes between commercial landlords and tenants over unpaid rent. The Federal government has approved a series of bills to support commercial landlords by providing supplemental income and providing a layer of security for commercial tenants. The Ontario Provincial government has also enacted several measures to safeguard commercial landlords and tenants, including Bill 192, Protecting Small Business Act, 2020, Bill 204, Helping Tenants and Small Businesses Act, 2020, and , Bill 229, Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020,. Bill 229 implemented several notable changes to the Commercial Tenancies Act, 1990. Notably, Sections 81, 82 and 84 of the Commercial Tenancies Act, 1990 now state as follows: Eviction orders for rent arrears not effective during the non-enforcement period 81(1) despite anything in this or any other Act, a judge shall not order a writ of possession that is effective during the non-enforcement period that applies in respect of a tenancy referred to in subsection 80 (1) or (2) if the basis for ordering the writ is an arrears of rent. No re-entry during the non-enforcement period 82 No landlord shall exercise a right of re-entry in respect of a tenancy referred to in subsection 80 (1) or (2) during the applicable non-enforcement period. No distress during the non-enforcement period 84 No landlord shall, during the applicable non-enforcement period, seize any goods or chattels as a distress for arrears of rent in respect of a tenancy referred to in subsection 80 (1) or (2). What this means is that during a non-enforcement period, judges are prohibited from issuing eviction orders for non-payment of rent, and landlords are prohibited from re-entering and terminating leases due to any type of default by the tenant and from distraining on the goods of a tenant. These new restrictions may provide relief to some commercial tenants struggling to pay rent, and significantly limit a commercial landlord’s rights upon a tenant’s breach or non-compliance with a lease. While these new restrictions prevent a commercial landlord from exercising their right to eviction and distress, the provisions do not prevent landlords from suing to recover rent arrears. Relief from Forfeiture Relief from forfeiture refers to the power of the court to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract. In the context of commercial leases, relief from forfeiture is an equitable remedy that gives the court broad power to set aside any landlord termination of the lease and to reinstate the evicted tenant to the leased premises. In deciding whether to grant a commercial tenant relief from forfeiture, a court will consider the conduct of the applicant and gravity of the breaches, whether the object of the right of forfeiture in the lease was essentially to secure the payment of money, and the disparity or disproportion between the value of the property forfeited and the damage caused by the breach.[1] Courts will consider these criteria in the default of a tenant, specifically, if there is non-payment of rent: The rental arrears were significant; The tenant refused to pay rent outright; The landlord suffered a severe loss from the delay in paying rent; and The tenant acted honestly and in good faith.[2] What to Consider as a Commercial Landlord or Tenant Two recent Ontario decisions reflect the different possible outcomes in an application for relief from forfeiture. In The Second Cup Ltd. v. 2410077 Ontario Ltd., the Court declared that the termination was unlawful, reinstated the lease, and restored Second Cup’s rights as they existed prior to the landlord’s notices and termination of the lease. The Court considered the above factors due to the non-payment of rent by Second Cup and found the tenant’s rental arrears amounting to 25% of the rent to be insignificant in light of what was happening in the world as a result of the COVID-19 pandemic, specifically considering that the tenant did not have a history of default. In Ontario International College Inc. v. Consumers Road Investments Inc., the Court dismissed an application for relief from forfeiture after finding that the tenant-applicant had acted unreasonably. The tenant ultimately failed to meet the test for relief from forfeiture. Both cases are significant in showing how the Courts consider a number of factors, including the tenant’s ability to bring the lease into good standing, length of tenancy, and any history of defaults. If you have more questions about relief and renewals of commercial leases, you can contact Ryan Stubbs at 416-446-3309 or at Ryan.Stubbs@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 Angela Victoria Papeo* [1] Jungle Lion Management Inc. v. London Life Insurance Company, 2019 ONSC 780 at para 34. [2] The Second Cup Ltd. v. 2410077 Ontario Ltd., 2020 ONSC 3684 at para 59. By Fauzan SiddiquiBlog, Commercial Litigation, COVID-19January 26, 2022March 27, 2024