Source: https://irvinschein.com/
Timestamp: 2019-04-25 14:08:10+00:00

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In my blog post on June 28, 2017, entitled “Real Estate Transactions and Misrepresentations: When Can a Purchaser Back Out of the Deal?“, I reviewed the Superior Court decision in Beatty v. Wei. That case involved the sale of a residential property. The sale agreement included a clause in which the seller represented and warranted that during the time that the seller owned the property, it had not been used to grow or manufacture any illegal substances. The clause also provided that at the best of the seller’s knowledge and belief, the property had never been used for that purpose by anyone else.
Between the date that the sale agreement was signed and the closing date, the purchaser’s real estate agent discovered that the property had in fact been used to grow marijuana plants before the seller had purchased the property. There was no evidence that the seller had known this before, but everybody now knew this prior to closing.
The purchaser took the position that as at the closing date, the seller’s representation that to the best of his knowledge, the property had never been used for this purpose, was no longer true. As the purchaser felt that this fact devalued the property, he refused to close.
When the issue came to Court, the judge ruled in favour of the purchaser. The judge concluded that the seller’s statement that to the best of his knowledge, the property had never been used to grow illegal substances had to be true not only at the date of the sale agreement, but right up until the closing date. As this was not the case, the purchaser was entitled to back out of the deal.
The seller appealed that decision to the Ontario Court of Appeal.
In a decision released earlier this summer, the Court of Appeal reversed the lower Court judge’s decision and found in favour of the seller. After a discussion about the differences between representations and warranties in real estate contracts, the Court of Appeal focused on the essential issue in this case, which was the effective date of the representation contained in the sale agreement as to the seller’s knowledge about the previous use of the property. In the view of the Court of Appeal, the seller’s representation and warranty that the property had never been used to grow illegal substances referred only to his knowledge and belief as it existed at the date that the sale agreement was signed. There were several reasons for this conclusion.
Firstly, the Court found that this interpretation was more consistent with the plain language in the clause in the sale agreement itself.
Secondly, there was an absence of any language in the clause dealing with the seller’s knowledge at the date of closing, unlike a number of other clauses in the sale agreement.
Accordingly, the Court of Appeal concluded that the representation as to the seller’s knowledge and belief had to be true as of the date of the sale agreement when the representation was made. It did not have to continue to be true up to the date of closing. For the purchaser to have succeeded, he would have had to prove that the seller knew at the time that the sale agreement was entered into that the house had been used for this purpose in the past. There was no evidence to this effect at all.
This case highlights the fact that purchasers must be careful to protect themselves in these circumstances right up until the closing date by insisting that any representations and warranties, relating both to existing facts and to the state of the seller’s knowledge, be true and correct as of the closing date.
A Commercial Tenant Fails to Pay Rent and Gets Locked Out: Will the court let them back in?
The scenario is not terribly unusual, especially in tough times. A commercial tenant falls behind in rent and fails to bring it current notwithstanding the landlord’s demands. The landlord finally decides to terminate the lease and arranges to have the locks changed, shutting the tenant’s business down. The tenant scrambles to find the money to bring the rent into good standing so that he can save his business. Is it too late?
A tenant in such circumstances does have the right to ask the Court to order the landlord to let the tenant back in, under the doctrine of relief from forfeiture.
As the Court pointed out in the case of 931576 Ontario Inc. v. Bramalea Properties Inc., generally speaking the Courts do not look favourably upon the forfeiture of a lease. Where a lease has been terminated for non-payment of rent, the Court will generally grant relief from forfeiture where the tenant comes to Court with “clean hands”, there has been no outright refusal by the tenant to pay rent, the rent has been in arrears for only a short time, and the landlord has not suffered any serious loss because of the delay in paying rent.
Where the tenant has breached terms of the lease other than those relating to the payment of rent, its chances of obtaining relief from forfeiture will depend upon its ability to remedy the default. In the case of non-monetary defaults, the landlord is obliged under Ontario legislation to provide the tenant with notice of default and a reasonable opportunity to cure it. If a default is curable but the time given by the landlord in which to remedy it is unreasonably short so that the tenant does not have a realistic opportunity to address the issue, the tenant might reasonably expect to receive favourable consideration from a Court. If the breach cannot be remedied regardless of the amount of notice provided, the tenant should not expect to succeed.
Even where the issue is non-payment of rent and the tenant shows up in Court with a certified cheque in hand, that will not end the matter. Where the tenant’s track record in terms of the payment of rent and the observance of other covenants in the lease is poor, or the tenant’s behaviour generally has been disruptive, the Court may well determine that the tenant has not come to Court with clean hands and the tenant’s application for relief from forfeiture will be denied.
As in most business relationships, one reaps what one sows. Tenants should be mindful of the fact that their behaviour during the currency of the lease may well be relevant in the event of a breach at some future date. Landlords wishing to be rid of problem tenants should be ready to pounce in the event of what may be even a minor breach, as a tenant in such circumstances may be unable to get back in even if they are ready and able to bring the rent into good standing.
The Court pointed out that there is a “very strong legislative direction” under the arbitration statutes and numerous cases holding that the Court should only refuse to refer a matter to arbitration if it is clear that the dispute falls outside of the arbitration clause. This was not such a case.
The point to be taken from the case, is that before agreeing to the terms of a business relationship where the contract contains an arbitration clause, some attention should be paid to it. In situations like Uber, where all of the documentation appears online and there is no actual negotiation of any of its points, it is all too easy to simply click “I Agree” without reading the provisions to which one is agreeing. When a contract requires disputes to be arbitrated in some foreign country, the person signing it needs to know that enforcing his/her rights will be very difficult and expensive. That is something that people should recognize at the outset of a business relationship, and not simply once a dispute arises.
An employee is notified that the business he works for has been sold. The purchaser asks the employee to stay on and continue working. What is the position of the employee at common law?
The recent decision of the Court of Appeal for Ontario in Krishnamoorthy v. Olympus Canada Inc. provides useful guidance on this question.
In this case, the plaintiff worked for Carsen Group Inc., a Canadian distributor for Olympus America Inc. He had worked for Carsen for five years until 2005 when Olympus America Inc. decided to terminate its distribution agreement with Carsen and continue distributing its products in Canada through a new related company, called Olympus Canada Inc. (“Olympus Canada”).
The plaintiff received an offer of employment from Olympus Canada under the terms of a written agreement. The terms of this agreement were substantially similar to the terms of his agreement with Carsen except for a termination provision that limited the amount of compensation the plaintiff would receive in the event of termination without cause. The new limit consisted of the greater of the minimum notice set out in the Employment Standards Act or four weeks’ pay per year of service with either Olympus Canada or Carsen up to a maximum of ten months.
The agreement also provided that the plaintiff would be treated as a new employee and that except for the reference to his employment with Carsen in the termination provision, his service with Carsen would not be recognized.
The plaintiff signed the agreement. He received no signing bonus or any additional compensation for doing so. He also received no pay in lieu of notice from Carsen.
The plaintiff continued to work as an employee of Olympus Canada until May, 2015 when his employment was terminated without cause. He was offered compensation in accordance with the termination provisions of the agreement. He refused the offer, sued Olympus Canada for damages for wrongful dismissal, and moved for summary judgment.
The plaintiff argued that the termination clause in the agreement was unenforceable because Olympus Canada had failed to provide him with consideration for amending his employment agreement to include the termination clause. He also argued that for the purpose of calculating his entitlement to notice, his employment with Carsen and Olympus Canada had been continuous.
The motion judge accepted the plaintiff’s argument, implicitly concluding that the offer of new employment by Olympus Canada did not amount to sufficient consideration and as a result, the termination clause was invalid. The plaintiff was awarded about $310,000 in damages.
Olympus Canada appealed to the Ontario Court of Appeal.
The Court of Appeal pointed out that at common law, if a sale of a business results in a change in the legal identity of the employer, there is a constructive termination of the existing employment. If the employee accepts employment by the purchaser of the business, he thereby enters into a new contract of employment.
Accordingly, the plaintiff’s employment with Carsen was terminated and he entered into a new contract with Olympus Canada. The only issue is as to whether or not there was consideration for the new contract.
The Court pointed out that it is well established that a promise to perform obligations under an existing contract is not consideration. There would have to be new or additional consideration to support a variation of an existing contract. In this case, however, the plaintiff did not agree to a variation of an existing contract but rather entered into an entirely new contract with a new employer. The fact that his day to day job did not materially change after the sale was not relevant.
The Employment Standards Act does provide that where there is a sale of a business and the employee becomes employed by the purchaser, the previous employment is deemed not to have been terminated for the purposes of the legislation and the employee will be deemed to have been employed continuously for the purpose of any subsequent calculation of the employee’s length or period of employment.
The Court pointed out that this provision related only to the calculation of the employee’s statutory benefits under the Act. That was not the issue in this case. The issue in this case was as to whether or not there was consideration for the new contract, so that the termination clause was valid. That is the finding that the Court made. The Court allowed the appeal and ordered that the matter proceed to trial.
The position of an employee where a business has been sold is not simple. As this case points out, the question of the extent to which the employee’s previous employment will be relevant to any future developments will vary with the issue at hand. If the employee signs a new employment agreement, by and large it is the provisions of that agreement that will determine the significance of the employee’s tenure with the previous employer.
Signing a Release? Make Sure You Understand What it Includes.
The recent Court of Appeal decision in Biancaniello v. DMCT LLP provides a very useful review of the law of Releases in general, and the extent to which a full Release will include claims of which the parties may not even be aware.
In this case, the defendants, a firm of accountants, provided services to the Plaintiff on three separate matters in 2007. One had to do with an application for a Scientific Research and Experimental Development Tax Credit. The second had to do with the negotiation of the departure of an employee. The third involved the structuring of a “butterfly” transaction in which the Plaintiff’s business was divided into separate companies on a tax-free basis.
The Defendant billed the Plaintiff about $66,000.00 for these services. The Plaintiff complained about both the amount of the fees and the quality of the work and refused to pay.
The Defendant sued for its fees. In 2008, the parties settled on the basis that the Plaintiff would pay $35,000.00. As part of the settlement, the parties executed a Mutual Release which provided that in consideration for that payment, the Plaintiff released the Defendant from any and all claims arising out of the services provided by the Defendant through to the end of 2007, including all claims that were either pleaded or could have been pleaded in the lawsuit over the fees.
Three years later, in the course of a restructuring, the Plaintiff learned that the butterfly transaction as structured by the Defendant was not at all tax free. In fact, the Plaintiff found that it could be subject to a tax liability of over $1.24 million.
The Plaintiff then sued the Defendant in negligence, seeking an order setting aside the Release and for damages. The Defendant moved for summary judgment dismissing the action on the basis that the Plaintiff’s claim was barred by the Release that it had signed in 2008.
The motion led to an expensive and lengthy journey through the court system. It was initially heard by a single judge, who dismissed the motion after finding that the Release did not bar the Plaintiff’s claim. She felt that the Release referred to claims as of the end of 2007, and that the Defendant’s negligence with respect to the tax issue only came to light in 2011.
The Defendant sought leave to appeal the decision to the Divisional Court. Leave was granted by the presiding judge who found that it was “open to serious debate that this wording is broad enough to cover any claim, even a future claim, in relation to the advice that the Defendants gave to the plaintiffs prior to December 2007”.
The Divisional Court, consisting of three judges, heard the appeal and dismissed it. Agreeing with the motion judge, it held that unless it has “exceptionally comprehensive language”, a Release would apply only to claims known to the parties at the time it was signed. A dispute that had not emerged by that time, or a question that had not arisen, could not be absorbed by the words of a general Release. If the parties want to bar unknown claims, that has to be spelled out in clear language.
The Defendant then obtained leave to appeal to the Court of Appeal.
By the time the matter reached a three member panel of the Court of Appeal, it had been considered by a total of six judges. Four of them felt that the claim could proceed. The two judges who granted leave had serious doubts about the point.
The Court of Appeal unanimously allowed the appeal and dismissed the action on the basis that the claim was, indeed, barred by the Release. To the Court of Appeal, no explicit language was required in the general Release signed by the Plaintiff in order to bar claims unknown to it. The negligence claim came into existence before the Release was signed, even if nobody realized it. It could have been discovered by the Plaintiff if it had hired another set of accountants to review the documents (although there was no discussion as to why the Plaintiff would ever have done such a thing at the time). Therefore, it was caught by the broad language of the Release barring any claims existing up to December, 2007. The only limiting factor in the Release, as this one had been drafted, was that the released claims would have to have been related to accounting work done by the defendants up to that date.
In my world, Releases are frequently the subject of considerable negotiation. The party signing the Release will want to limit it to the extent possible, and hopefully to only those claims actually articulated in the litigation being settled. The party receiving the Release will want to know, in essence, that it will never hear from the Plaintiff again under any circumstances.
The Release negotiated in this case was fairly typical. It was restricted as to subject matter (accounting work) and time (the end of the year in which the services had been rendered) but not in any other way. So one would have to assume that, if properly advised, this Plaintiff would have understood that in signing the Release, it was signing away any claim it might ever have against the accounting firm up to that date whether it was aware of the existence of the claim or not. In a perfect world, a Plaintiff in that position would indeed hire another accountant to check all of the work ever done by the Defendant up to the cut-off date. This is not something that would normally be done, although in this case, given that the Plaintiff was complaining that the Defendant’s work quality was poor, it might not have been a bad idea.
In any event, the moral of the story is that Plaintiffs being asked to sign Releases of this nature must understand that they are walking away from any claim they might ever have against the party being released as of that time. If there is the slightest doubt that another claim might be out there somewhere, it is up to the Plaintiff to investigate that possibility thoroughly before signing on the dotted line.
A number of years ago, a case in New Mexico called Liebeck v. McDonald’s Restaurants made headlines when a 79 year old plaintiff won an award worth U.S. $2.9 million from a jury. Most of the award was made up of punitive damages. It was substantially reduced by the trial judge. The Judgment was appealed and the case was settled before the appeal could be heard. Nevertheless, the case made headlines given what appeared to be a tremendous discrepancy in the public’s perception between the amount awarded and the type of compensation that any person spilling coffee on themselves could possibly hope for in his or her wildest dreams.
In Canada, much of the commentary reflected the common perception that American cases are capable of ending with crazy decisions.
The recent decision of the Ontario Court of Appeal in Dittmann v. Aviva Insurance Company of Canada suggests that Canadians should not be pointing fingers quite so quickly.
In this case, the plaintiff purchased a cup of coffee from a McDonald’s restaurant drive through. After stopping at the first drive through position to place her order, she drove up to the window to pay for her coffee and to receive it. Her car was running and in gear at the time but it was not moving. When she was handed the coffee, she attempted to move it across her body to the car’s cup holder while holding it by its lid. The cup released from the lid before it made it to the cup holder, spilling hot coffee on her.
She was wearing her shoulder/seatbelt at the time, presumably preventing her from taking any evasive action to avoid the spill.
At the time she had car insurance with Aviva. As such she was eligible for accident benefits under Ontario’s Statutory Accident Benefits Schedule (“SABS”), which provides for statutory accident benefits in accordance with the terms of a person’s insurance policy.
The plaintiff sought these benefits and Aviva took the position that she was not entitled to them.
Eligibility for SABS requires a consideration as to whether or not the use or operation of a vehicle was a cause of injury and if so, if there was any intervening act resulting in the injury outside of the ordinary use or operation of the vehicle.
Aviva conceded that using a drive through window is an ordinary activity to which vehicles are put. The real question was as to whether or not the use of the vehicle was a cause of the plaintiff’s injuries. The matter was dealt with by motion. The motion judge found that the use and operation of the vehicle was indeed a direct cause of the injuries. He ruled that but for her use of the vehicle, the plaintiff would not have been in the drive through lane, would not have received the coffee cup while seated, would not have been transferring it to the cup holder, and would not have had it spill on her lap. In addition, but for her being belted in, she may have been able to take evasive action to avoid the coffee or at least reduce the amount that was spilled on her.
The decision was appealed to the Court of Appeal. The Court of Appeal confirmed the motion judge’s decision. The Court of Appeal pointed out that the issue was not what the triggering event of the incident was, but rather, what caused the problem. In this case, the use of a vehicle with the engine running and in gear to access the drive through, and the seatbelt restraint, were direct causes and dominant features of the injuries suffered by the plaintiff.
I learned a long time ago, the hard way, that holding a fast food restaurant beverage by the lid was not a good idea. I also learned to accept responsibility for my own mistakes. In this case, the plaintiff was able to learn the lesson and get paid for it in the process. So the next time you receive your car insurance premium notice and wonder why it is so high, think about cases like this one.
Lawsuits and the Limitations Act: When is a Claim Discovered?
In Ontario, the basic limitation period on the commencement of a lawsuit is defined by the Limitations Act (or the “Act”) as being “the second anniversary of the day on which the claim was discovered”.
The Act provides that a claim is “discovered” on the earlier of either the day on which the person with the claim first knew of the problem and who had caused it, or the day on which a reasonable person first ought to have known about the problem and who had caused it.
A determination of when a claim was or ought to have been discovered can be extremely tricky, as illustrated by the recent case of The Corporation of the United Counties of Prescott & Russell v. David S. Laflamme Construction Inc. (“Laflamme”) and Waterproof Concrete (Canada) Ltd. In this case, the plaintiff municipality retained WSP Canada Inc. (“WSP”) in 2004 to prepare a proposal for the rehabilitation of a bridge. WSP was then retained as the consulting engineer for the project and prepared the specifications for it in April, 2005. The specifications included the use of a particular substance in the concrete for the new bridge.
The work was completed by the Defendant Laflamme in 2005, using the concrete mixture specified by WSP. The concrete mixture was applied by the other defendant, Waterproof Concrete (Canada) Ltd. (“Waterproof”).
In May 2006, it became apparent that the work was deficient in some fashion. Repairs were completed by Laflamme in 2007. Further deficiencies were noted in 2008. Laflamme refused to repair the bridge again.
The municipality sued Laflamme and Waterproof in 2010. The matter went through the discovery and mediation process and in 2014, the defendants filed expert reports. Those reports raised concerns that the substance specified by WSP to have been mixed into the concrete for the bridge should not have been used because it lacked the required durability.
After the lawsuit had started, WSP continued to advise the municipality as its engineering consultant throughout the action, and ongoingly blamed Laflamme for the problem. From the outset, Laflamme had denied liability for the problem and consistently alleged that the liability lay with WSP because it had specified the use of deficient material. That position was repeated by Laflamme in its pleadings. However, the municipality did nothing to advance any claim against WSP until the point at which the expert reports were filed.
Once the reports were filed, the municipality finally made the decision to sue WSP as well. The municipality brought a motion to amend its pleading accordingly. WSP opposed the motion on the grounds that the limitation period for such an action had long since passed. The Court had to determine when the municipality “discovered” a potential claim against WSP.
WSP argued that the municipality knew of potential liability on the part of WSP shortly after the deficiencies appeared when Laflamme made the allegation that the fault was that of WSP. Accordingly, the municipality had sufficient information as to the potential liability of WSP at least five years before the expert reports had been filed, if not more.
WSP also argued that it continued to assist the municipality with the preparation of its case after the lawsuit started and would not have done so but for its apparently mistaken belief that WSP and the municipality were working in a common interest in the litigation. It argued that it had been prejudiced because the municipality obtained WSP’s assistance in that context and accordingly, it should not now be added as a defendant to the lawsuit.
The municipality argued that notwithstanding Laflamme’s allegations, WSP had consistently blamed Laflamme for the problem. WSP acted as a trusted advisor to the municipality but never suggested that it could be liable for the damage – even though, as it turned out, WSP had notified its own insurer in 2013 that there might be a potential claim against it.
The Court was satisfied that the municipality only discovered evidence supporting an issue with the substance specified by WSP for the concrete on the project when it received the 2014 expert report from Laflamme. Until then, it had no reason to believe that WSP might be liable for anything, other than the bald allegations made by the defendants.
The Court pointed out that there is a significant issue with WSP’s argument regarding its assistance provided to the municipality during the litigation. As the municipality’s advisor, WSP maintained that the problem with the bridge had to do with faulty workmanship and not the initial specifications. It would have been unreasonable for the municipality to have mistrusted or disregarded WSP’s advice given its status as its professional advisor. The municipality would have had no reason to doubt WSP’s actions. Accordingly, and on balance, the Court permitted WSP be added as a defendant.
These types of scenarios sometimes arise in the context of a solicitor-client relationship. A lawyer makes an error and a transaction is aborted. The lawyer continues to advise the client through the course of litigation with the other party to the aborted transaction. At some point during the lawsuit, it becomes apparent that the lawyer may have erred. In those circumstances, the Ontario Court of Appeal has already ruled that where a client makes the mistake of relying on his own lawyer, the lawyer will not then be allowed to use that erroneous reliance to support his position that a subsequent action against him was commenced out of time.
In this case, one must ask the question as to whether or not the clock would have started running against the municipality when the defendants pointed the finger at WSP had WSP not continued to advise the municipality in the litigation against Laflamme. In my view, the fact that WSP continued to assist the municipality simply delayed the commencement of the clock running until the expert reports were filed and the municipality was finally confronted with a serious and authoritative opinion as to WSP’s potential liability.
In the context of a solicitor-client relationship, of course, a lawyer has a specific duty to advise the client of his or her potential error at the outset. Given the result in this case, it may well be that the duty applies to professionals other than lawyers as well. Either way, it appears clear that where a potential wrongdoer continues to advise an injured party after the error is committed, the Court will likely extend the date upon which the advisor’s potential liability will be considered to have been discovered.

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