Mortgages in Ontario are governed by a couple of different laws, primarily the Mortgages Act, the Land Titles Act (or the Registry Act in a very small number of cases), and the Land Registration Reform Act.

The legislation noted above outline certain rights and obligations for both the lender and the borrower. For example, the borrower must make mortgage payments as required by the mortgage loan, and so long as the borrower complies with his or her obligations the lender must let the borrower use and enjoy the property.

The rights and obligations set out in the law itself are very limited. Because of this, specific terms are added to a mortgage at the time of registration.

Realizing that many of these specific terms were being added to each and every mortgage registered in relation to a specific lender, the Land Registration Reform Act allows a lender to file a set of standard charge terms. That way, each time a mortgage is registered, the filing number for the standard charge terms can be referred to, and the provisions of those terms are incorporated by reference into the mortgage without needing to attach all of the terms to the registered mortgage itself.

While it is very important for a borrower to be aware of the standard charge terms, especially as the borrower must acknowledge the standard charge terms at the time the borrower signs closing documents, it is equally important for lenders to know what their rights and obligations are in relation to that mortgage loan.

All of Canada’s institutional lenders have developed their own sets of standard charge terms.  Most if not all lenders in Ontario who have not filed their own standard charge terms incorporate certain standard charge terms filed by Dye & Durham in 2000. These charge terms, filed as number 200033, contain a number of very important clauses to protect a lender’s interests. The Dye & Durham terms tend to be incorporated into private mortgages because, in part, the vast majority of the other standard charge terms are not generic, being drafted specifically for one particular lender.

Unfortunately, the Dye & Durham terms do not contain certain provisions now commonly included in standard charge terms filed by a bank.

Over the past number of months my office has developed and filed an updated set of generic standard charge terms. These standard charge terms, which can be used by any lender in Ontario, addresses matters not found in the Dye & Durham document, including:

1. provisions for leasehold mortgages
2. clauses relating to interest-only loans
3. a prohibition on hazardous and illegal substances, and environmental contamination
4. specific requirements for demolition, alteration and construction financing
5. enhanced insurance requirements, including life insurance upon request
6. clauses related to farm properties, and the Farm Debt Mediation Act
7. extended foreclosure, power of sale and receivership rights
8. additional language regarding the payment of lender fees
9. the right of the lender to inspect the property
10. consent to delivery of notices by electronic mail
11. equivalent interest rates, to comply with the Interest Act

While the Dye & Durham standard charge terms continue to be available, and serve Ontario lenders well, if you believe that you or your clients could benefit from these new standard charge terms please do not hesitate to contact my office to discuss further.

After all, not all loans are the same, and not all standard charge terms are same either.

In examining the topic of removal of directors under the Condominium Act, 1998, it is important to first review the responsibility and role of the board of directors of a condominium corporation.

The board of directors is mandated to “manage the affairs of the corporation”. To “manage” is to exercise a supervisory and administrative role in the operations of the corporation. The board is to direct, and others perform to the direction.

Practically speaking, the task of managing condominium affairs will vary from condominium to condominium depending upon the complexity of the property, assets and operations, including whether or not the corporation has engaged professional property management.

The board, then, is the body primarily responsible for ensuring the provisions of the Condominium Act, the declaration, by-laws and rules are respected, and as such the board will be the focal point for dissatisfaction of any and all owners.

Other that the first board’s term of office, which is dependent upon the turnover of the condominium by the declarant, all board members elected at and after the turnover meeting will hold office for three years or, if the by-laws so prescribe, a lesser period. By-laws can provide for staggered terms for directors or the allocation of directors positions amongst certain units, provided the one owner one vote rule prevails.

A director’s position on the board will automatically terminate upon the end of that director’s term in office, if a certificate of lien is registered against a unit owned by the director that is not discharged within 90 days of the lien being registered, or upon the director’s bankruptcy or inability to manage property. What happens, though, if someone, or a group of people, wish to remove the director without one of these events being triggered?

Any director can be removed from office by a vote of the unit owners. In the case of a director elected under section 51(6) by owner-occupants, the director may be removed by a vote of more than 50% of the owner-occupants. Other directors may be removed where the owners of more than 50% of all the units in the corporation vote in favour of removal. Section 33 makes it clear that the 50% plus 1 requirement is not merely a quorum requirement, as courts have held under the previous section 15(8), but instead the owners of more than 50% of all the voting units in the condominium corporation must vote in favour of removal.

A new director may or may not be elected at the same meeting to replace a director who has been removed. Any director elected as a replacement for a director who was removed would complete the term of the director so removed.

The only legal way to remove a director is by following the procedures of the Condominium Act.

In many cases a vote to remove a director is held at a meeting requisitioned by unit owners, and not called by the board. Any owner, or group of owners, who own not less than 15% of the units, who are listed on the corporation’s records as owners and who are entitled to vote, may requisition a meeting of the owners to deal with the business set out in the requisition. The requisition must be in writing and signed by the requisitionists, state the nature of the business to be presented in the meeting and be delivered personally or by registered mail to the president or secretary of the board or deposited at the address for service of the corporation.

If the business of the meeting, though, is to include the removal of a director, the requisition must state, for each director to be voted on at the meeting, the name of the applicable director, whether or not the director was elected by owner-occupants, and specific reasons for removal. Proxy voting is permitted, however, it is important to remember the requirement that any instrument appointing a proxy for the election or removal of a director must state the name of the directors for and against whom the proxy is to vote.

A condominium can impose further requirements related to the qualification, nomination, election, resignation, removal or term of office of directors by way of a by-law, approved in accordance with the Condominium Act. Any term of the by-law, however, that is contrary to the Condominium Act will be null and void, and the provisions of the Act will govern.

Some of the above will also change once the provisions of the Protecting Condominium Owners Act, 2015, come into force.

Removing a director should not be taken lightly, by either the board or unit owners. Before any steps to remove a director are taken, or if a director or a board finds itself the subject of a removal action, it is important to review the provisions of the Condominium Act and the corporation’s by-laws applicable to the matter at hand, and, as always, consultation with a lawyer is highly recommended.

Matthew Wilson, a lawyer at the London, Ontario office of Lerners LLP, represents condominium corporations, property managers, developers and home buyers throughout Ontario. An active member of the local community, he was named one of London’s 20 Under 40 for 2013. Matthew can be reached at mwilson@lerners.ca or 519-640-6357.

On November 5, 2015, David Orazietti, Ontario’s Minister of Government and Consumer Services, announced an independent review of the Ontario New Home Warranties Plan Act and the Tarion Warranty Corporation.

The review, conducted by The Hon. J. Douglas Cunningham, former Associate Chief Justice of the Ontario Superior Court of Justice, will focus on ways to improve consumer protection, accountability, transparency and the governance of the Tarion Warranty Corporation. Justice Cunningham served on the Ontario Superior Court from 1991 until his retirement on September 30, 2012.

Tarion is responsible for administering the Ontario New Home Warranties Plan Act, which was passed in 1976. The Act provides new home warranty protections and regulates the construction and sale of new residential dwellings in Ontario. Except in a limited number of cases, new homes built for resale or under contract with an owner must be enrolled in the warranty program, and builders must be registered with Tarion.

365,392 homes in Ontario were under warranty at the end of 2014. 49,890 new homes were enrolled in that year, built by Tarion’s 5,400 registered builders. Of those new homes, 19,087 (38.3%) were condominium units.

In 2014, Tarion paid out 419 claims totalling almost $9.9 million.

Tarion recently implemented a number of changes, including enhancing warranty coverage and improving enforcement against illegal building. The Protecting Condominium Owners Act, 2015, brings further changes by providing some coverage for residential condominium conversion projects. As part of the Protecting Condominium Owners Act, 2015, the Ontario New Home Warranties Plan Act will be amended so that most of the warranty protections available to buyers of new condominium units will also apply to certain condominium conversion projects. The warranties will not apply to the pre-existing elements of a condominium conversion, meaning that no warranty will be provided to ensure pre-conversion building elements have been constructed in a “workmanlike manner” and are free from defects. All other statutory warranties will apply.

Condominium conversions are not currently protected by the statutory warranty plan. With a growing number of condominium projects involving the conversion of an existing building, whether previously residential or otherwise, the Province was concerned that purchasers of units received no statutory warranty coverage even if significant new construction was required to complete the conversion to condominium units.

The current review will assess best practices in the area of new home warranties, examining Ontario’s current scheme and comparing it to those in other jurisdictions. Justice Cunningham will also consult consumers, the home building industry, the municipal sector and others as appropriate, to assist him with preparing recommendations that will enhance Tarion and the entire warranty program.

Although the review will provide recommendations related to accountability, transparency and board governance, the main focus appears to be on improving consumer protection. It is expected that the report may comment on topics including the claim submission process, repair timelines, the dispute resolution process, warranty coverage levels and duration, and the homeowner’s onus to prove defects.

This approach is consistent with other reviewed recently conducted by the province, including the recent review of the Condominium Act, 1998.

Justice Cunningham will be holding public consultations in early 2016. He intends to provide a draft report to the Minister by May 31, 2016, with a final report with recommendations being submitted prior to June 30, 2016.

I know of many situations where home buyers and condominium corporations were successful in pursuing a warranty claim with Tarion. I also know of many other situations where home buyers and condominium corporations were not successful, for many different reasons. No matter your personal experience, this review has the potential of having a significant impact on Ontario’s home buyers, builders and condominium corporations.

I encourage everyone to provide comments on the Ontario New Home Warranties Plan Act and the Tarion Warranty Corporation by participating in this review. You can do so by emailing your thoughts and submissions to TarionReview@ontario.ca.

Matthew Wilson, a lawyer at the London, Ontario office of Lerners LLP, represents condominium corporations, property managers, developers and home buyers throughout Ontario. An active member of the local community, he was named one of London’s 20 Under 40 for 2013. Matthew can be reached at mwilson@lerners.ca or 519-640-6357.

The law requires three elements to be proven in a breach of confidence claim: 

1. that the information must have the necessary quality of confidence;
2. that the information must have been imparted in circumstances importing an obligation of confidence; and,
3. that there must have been an unauthorized use of that information to the detriment of the party communicating it – you.

The recognition of breach confidence in Ontario law is a fairly recent development.  The tort applies to both commercial and personal breaches of confidence.  Each of the three elements required for the tort can be considered as separate steps.

Step One: The information has the necessary quality of confidence.  Information in the public realm will not usually have this quality. To have this quality, the information will usually need to be private and personal to you and not otherwise publicly available.

Step Two: The obligation of confidence will usually arise from a direct promise, or from circumstances that make it clear that the information is both confidential and has been communicated by you in circumstances such that the recipient knew or ought to have known it was confidential   In other words, the other person should have known that the information was not to be circulated more widely without your express consent.

Step Three: The detriment necessary to complete the claim could be a use of the information for commercial advantage to your expense or loss.  In a personal case, the detriment could involve psychological, emotional and physical harm which results from the unauthorized disclosure.  The remedy is in damages.  Damages are the monetary valuation of the effect upon you.  In a commercial case, damages are more easily determined by a return of profit or a by the calculation of the loss suffered.   In a personal case which has led to physical, emotional or psychological damages, at least in one case, the Ontario courts have recognized and granted an award of damages for pain and suffering as well as  psychological harm.

Green applied to the Court of Queen’s Bench and when the relief he sought was denied, appealed to the Court of Appeal of Manitoba which upheld the decision below.  Green v. Law Society of Manitoba, 2015 MBCA 67.   The Court of Appeal found that the requirement was consistent with the Law Society’s mandate to regulate in the public interest and not penal as Green submitted. Green has been granted leave to appeal to the Supreme Court of Canada. 

Not going to do your twelve hours?  You may want to think again.

There are laws regarding who is entitled to be paid first when an estate is insolvent (unable to pay all of its debts).  An Estate Trustee of an insolvent estate must decide whether to administer the estate as an insolvent estate, or to place the estate into bankruptcy.   In either case, the Estate Trustee must determine the priority of payment, as the failure to pay creditors in the proper order could result in personal liability to the trustee.

If the estate is administered simply as an insolvent estate, the order of payment is:

1. reasonable and necessary funeral expenses;
2. testamentary expenses and costs to administer the estate (including payment of the compensation for Estate Trustee and legal fees);
3. all other debts proportionately, including provincial Crown debts (it is unclear whether federal crown debts such as federal income taxes receive a priority over other creditors in this category).

If the estate is placed into bankruptcy, section 136 of the Bankruptcy and Insolvency Act dictates the order that debts are to be paid.  As with an insolvent estate, bankrupt estates are required to pay the reasonable funeral and testamentary expenses first.  Secondly, the costs for administering the estate (including compensation for the Estate Trustee and legal fees) get paid.  Other specific costs such as wages or commissions owed then can get paid. 

The most significant change when paying debts of a bankrupt estate as opposed to an insolvent estate is that the federal crown (including federal income tax payments) does not receive any priority under a bankrupt estate and is treated like any other unsecured creditor that has no priority.

Given the potential exposure a trustee faces if the order of payment is not made correctly when dealing with an insolvent estate, trustees may wish to retain legal counsel to assist them.

Class counsel had commenced actions in British Columbia and Ontario. Settlement discussions were taking place between class counsel and some of the defendants. Around this time, the Merchant Law Group commenced rival class actions in Saskatchewan and Alberta.  The Merchant Law Group’s proceedings were going to create delay and problems for any potential settlement. To resolve the carriage dispute, class counsel and the Merchant Law Group attended a dispute resolution conference presided over by Justice Martin in Alberta. At this conference the MLG agreement was reached. It provided for payment to Merchant Law Group of various sums depending on the size of future settlements of the class action, in exchange for ending the actions it had commenced and not initiating any new ones over the same allegations.

Justice Perell found the MLG agreement was unenforceable. Justice Perell concluded, first, that the agreement appeared to be illegal as it offended the doctrine against champerty and maintenance and, second, that the carriage dispute should have been fought instead of settled. In this regard it is important to note that the MLG agreement was reached during settlement negotiations presided over by an Alberta judge. Presumably, Justice Martin did not consider that the agreement was illegal and supported resolving the carriage dispute instead of fighting it.

Justice Perell’s view of the MLG agreement was likely influenced by his view that Merchant Law Group’s position on the carriage dispute was weak and that it was acting opportunistically by commencing actions at a late stage to take advantage of the work already done by class counsel. He believed that the interests of the class would have been better served by class counsel fighting the carriage dispute because the MLG agreement resulted in Merchant Law Group receiving fees for doing no work of benefit to the class. This is a principled position. However, one could compare the costs and delay required by a contested carriage battle to the efficiency of arriving at a mediated fee sharing agreement. Without guidance from the courts on factors relevant to being awarded carriage, opportunistic and copycat class actions may wind up being encouraged because effectively they would be rewarded. 

It is unclear what long range impact Justice Perell’s decision will have on carriage disputes and commencement of competing class actions.  At the very least the decision serves as a warning that fee sharing agreements may be problematic.

Subsequent to Justice Perell’s decision, in a related action in Saskatchewan, Justice Ball of the Saskatchewan Court of Queen’s Bench approved the same MLG agreement when approving a proposed settlement. In Hello Baby Equipment Inc. v B of A Canada Bank, 2015 SKQB 410, the Court held that it would not look behind counsel’s decision to enter a fee sharing agreement with judicial oversight. The Court refused to find that such an agreement was not in the best interests of the class or that such an agreement was unlawful.

These apparently conflicting decisions create great uncertainty over fee sharing agreements. It is appropriate for a higher court to provide guidance or class counsel will not know if fee sharing agreements are a viable way to resolve carriage disputes.

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice.  If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

Airports and aeronautics are a federal government undertaking.  Ordinarily, provincial legislation applies to areas of federal jurisdiction provided that there is no direct conflict between any federal legislation on the subject.  Where provincial legislation interferes with the core of a federal undertaking, the provincial legislation may be inoperative.  Canadian courts have held that the application of provincial lien legislation to federally governed airports can be one such situation. 

In particular, courts have held that construction lien claimants cannot register constructions liens against the ownership and/or leasehold of the federal government or a local airport authority. 

For example, the Ontario Construction Lien Act gives a lien claimant the right to sell the lands on which it worked when it has not been paid for the work.  If a contractor could sell an airport terminal building or radar tower as a result of non-payment, then it would interfere with the federal government’s ability to govern the operation of airports to ensure a safe and strong flight network in Canada.  This has been held to be the core of the federal undertaking such that the provincial legislation would not apply.  In such circumstances, he lien claimant’s right to lien the terminal building or radar tower in its entirety does not exist.      

Nevertheless, those are not the only ownership or leasehold interests in airport lands.  A restaurant may lease space for a coffee shop in the terminal building or a shipping company may lease hanger space at the airport.  Either could hire a contractor to perform work on those leased premises.  Arguably, the restaurant and shipping company businesses would not form a core aspect of the operation of an airport and, based on current case law, it may be possible to register a construction lien against those leasehold premises. 

In this way, there are situations where a contractor or subcontractor cannot lien an airport and situations where it may be possible to lien an airport.

The recent decision of the Ontario Court of Appeal in Michaela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801 has re-affirmed that the relevant factors in determining notice entitlement continue to be the circumstances of the terminated employee, the level of responsibility, expertise, age, education and training and opportunity for re-employment. 

The court clearly enunciated in this decision that “an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good.”

Employers are encouraged to seek a legal opinion as to an employee’s entitlement upon termination to avoid the possibility of a claim for wrongful dismissal.  A member of the Lerners LLP employment law team is available to discuss this or any other employment related issue.

In Green, a five judge panel of the Court of Appeal had reversed its previous decision in Sharma v. Timminco, 2012 ONCA 107 (“Timminco”), about how limitation periods for secondary market class actions operate.  The majority of the SCC in Green overruled the Court of Appeal’s reconsideration of the issue, favouring the previous approach in Timminco.

When a class proceeding is commenced, class members have the limitation period for their cause of action suspended under the Class Proceedings Act, 1992 (“Class Proceedings Act”) while the certification motion is pending.  This allows class members to wait and see whether the class proceeding will be approved and whether they would be better off opting out and pursuing an individual action.  The issue on this appeal was at what point limitation periods are suspended for secondary market claims under Ontario’s Securities Act, given that such claims require leave under the Act before they can proceed.

The majority decision by the SCC in Green held that on both a plain reading and a purposive reading of the legislation, the limitation period was not suspended under the Class Proceedings Act until leave for the secondary market claim was granted.  This interpretation was determined by the majority to strike the right balance between the two statutes and their respective purposes. 

The implication is that leave to bring the secondary market claim must be obtained within two years of the claim being discovered.  Merely commencing the action to obtain leave is not sufficient to suspend the limitation period under the Class Proceedings Act.  As a practical matter, this would require class counsel to move relatively quickly to obtain leave, likely before a certification motion could be brought, despite the fact there would normally be significant overlap between the issues on the leave motion and those on the certification motion. 

The SCC dissent in Green, on the other hand, sided with the Ontario Court of Appeal’s reconsideration of the issue, interpreting the Class Proceedings Act as suspending the limitation period at the time the claim is commenced, before leave is obtained.

The language of the Class Proceedings Act states that the limitation period is suspended “on the commencement of the class proceeding”. As is evident from the different views expressed by the panels considering the legislation, the proper interpretation was not obvious.  Both the majority and the dissent in the SCC viewed their own interpretation as consistent with a plain reading of the statutes as well as their respective purposes.  Given the possible interpretations, it is interesting that the SCC ultimately decided in favor of the Ontario Court of Appeal’s original interpretation in Timminco, in spite of criticism that decision attracted.

Notably, before the SCC released its decision in Green, the Ontario legislature made amendments so the limitations period under the Securities Act that governed these claims would be suspended when a notice of motion for leave is filed.  This provides some relief to the representative plaintiffs and class counsel in such actions.

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice.  If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

The plaintiff was a business development representative who worked for the defendant.  The defendant is involved with controlled heating, ventilation, HVAC and boilers.

The plaintiff went on a maternity leave in June 2010.  The maternity leave was followed by a medical leave which lasted until the fall of 2013.  In the interim, there were a number of dates of possible return to work.  Due to various circumstances, the plaintiff did not return.  However, in her evidence, it seemed clear that she felt by September 2013 that she would return to work before year end.  A graduated return to work was proposed to start on or about November 11, 2013.  However, the plaintiff was advised on October 31, 2013 that her employment was terminated effective that day. 

The plaintiff sued claiming wrongful dismissal and breach of her human rights. The defendant argued that the employment contract was frustrated, and that there had been no intent to discriminate. 

The trial judge found that the plaintiff had been wrongfully dismissed.  The trial judge also cited Wilson v. Solis Mexican Foods Inc. in deciding that the plaintiff should receive compensation in the amount of $20,000.00 for the defendant’s breach of the Human Rights Code.

Employers should therefore continue to be wary of the risk of breaching human rights legislation when deciding whether to fire an employee who has been absent from work because of sickness or disability.

1. The duty of care owed by auditors to lenders of the client under a Hercules Managements analysis in circumstances in which the auditors have a very close relationship with the client and are familiar with the bank’s financing arrangements.  In this case, there was no duty of care despite the motions judge’s findings of fact that the auditors knew that the audited financial statements would be used by the company to obtain financing, that the credit agreement required the company to provide the audited financial statements to the lenders, that the lenders had copies of the audited financial statements and the audit opinion,  that  the lenders would rely upon them, and that the auditors  did not include a disclaimer of reliance in the engagement letter.  Significantly, the motions judge found that all auditors know that lenders will rely upon their audit opinions.  
2. The liability of members of an international association of independent accounting firms where only one member was involved in the audit.  In this case, there was no duty of care owed by the member firm which promulgated auditing standards used by the auditing firm but which had no involvement in the audit and had no relationship with the lenders. Nor was there any vicarious liability because the member firms operated independently.

Although the defendants raised the defence of ex turpi causa, it was not at issue on the motion.

Key facts

On August 11, 1997, Philip Services Corp. (“Philip”) signed a credit agreement to borrow U.S.  $1.5 billion from a syndicate of 39 lenders led by, Canadian Imperial Bank of Commerce (“CIBC”).

Defendants Deloitte & Touche and certain affiliates and successors (together, “Deloitte”) were the auditors of Philip.    In making the loan, CIBC relied upon the audited financial statements of Philip for the years ended December 31, 1996, and December 31, 1997, and the Deloitte audit opinions dated February 28, 1996, and February 26, 1997.

Deloitte was the Canadian member of an international association of independent accounting firms, which included defendant Deloitte Touche Tohmatsu formerly known as Deloitte Touche Tohmatsu International, a Swiss verein (“Deloitte International”).  Deloitte is legally distinct from its members and is not organized or operated as a partnership.  Member firms are not partners, agents, representatives, subsidiaries, or branches of Deloitte International.   Deloitte International developed a manual of standards and practices to be used by all firm members for the performance of audit engagements.  The manual provided that letters of engagement could provide restrictions on the use to be made of audited financial statements.   The engagement letter between Deloitte and Philip contained no such restriction.

Deloitte had a close relationship with Philip. It maintained an office at Philip’s premises.  Many of Philip’s senior management were former Deloitte partners.  Deloitte regularly attended audit committee meetings of the Philip board of directors.  Deloitte knew how much Philip borrowed under its credit facilities, whether or not Philip had borrowing capacity under those facilities, and Philip’s need for increasing credit due to its acquisition strategy. Deloitte reviewed the credit agreements annually as part of its audit process, so each year  it knew the terms (including the provision of audited financial statements) and the consortium of lenders (which changed over time).  The lenders argued on the summary judgment motion that Deloitte was also providing counsel and advice to Philip about financing its operations and acquisition plans; however, the motions judge found that Philip took no such advice from Deloitte.  The motions judge said that while Deloitte’s audit work and tax advice provided information to inform Philip’s business plans, and while Deloitte needed to know about Philip’s business plans to prepare the audit opinions, Deloitte’s role was not that of business advisor or consultant. Deloitte’s role was limited to performing statutory audits.

On April 22, 1997, two months after the release by Deloitte of its 1997 audit opinion, Deloitte learned of Philip’s plans to seek a U.S.  $1.5 billion credit facility to finance its expansion plans and it knew that lenders would review the audited financial statements before making the loan.  Deloitte attended a May 7, 1997, Philip audit committee meeting, at which time it was advised that Philip had negotiated a U.S. $1.5 billion facility underwritten by CIBC, Wood Gundy, and Bankers Trust to be in place by mid-August and, in the meantime, the company had obtained bridge financing to December 31, 1997.  Deloitte provided no advice and was not consulted about these loans.  

On May 29, 1997, CIBC issued a commitment letter to Philip and, in July, Deloitte accompanied CIBC and Phillip on a trip to allow CIBC to visit various Philip sites.  However, the motions judge found that the only interaction between Deloitte and CIBC was as travelling companions. Deloitte knew why the trip had been organized for CIBC, but CIBC did not know why Deloitte was present for the trip and obtained no information or advice from Deloitte.

On July 11, 1997, Philip and CIBC made a presentation to a group of bankers as part of its efforts to syndicate the loan.  Deloitte was present to obtain information relevant to the following year’s audit.  Deloitte had no involvement in the presentation.

On August 11, 1997, the credit agreement was signed – there were 39 lenders in the syndicate, including CIBC.  The credit agreement contained a compliance certificate signed by Deloitte.  However, at no time was there any communication between CIBC and Deloitte in connection with Deloitte’s review of the Philip financial statements or how the loan should be structured.  CIBC did not ask Deloitte to do any work for the syndicate of lenders.  CIBC did not ask Deloitte’s permission to rely upon the audit opinions for the purpose of deciding whether to make the loan.  However, the motions judge found that Deloitte knew that the financial statements would be used by Philip to obtain financing, that the credit agreement required Philip to provide the audited financial statements to CIBC, that CIBC had copies of the audited financial statements and the audit opinion, that CIBC and the other members of the syndicate would rely upon them, and that Deloitte did not include a disclaimer of reliance in its engagement letter.  Significantly, the motions judge found that all auditors know that lenders will rely upon their audit opinions.  Further, the motions judge found that CIBC and the other lenders did in fact rely upon the audited financial statements in making the loan.

In March, 1998, an accounting fraud was discovered and Philip re-stated its financial statements.  Ultimately, Philip defaulted on the loan, became insolvent, and was re-structured.   The syndicate of lenders lost U.S. $524 million.

The litigation

In 2000, Philip’s Receiver and Manager, CIBC, and High River Limited Partnership (which had purchased some of Philip’s debt from members of the leading syndicate) commenced actions against Deloitte and Deloitte International.  The claim by the Receiver and Manager against Deloitte is for breach of contract and negligence.  The lenders brought a class action against Deloitte and Deloitte International for negligence, negligent misrepresentation, and fraudulent misrepresentation with respect to the 1995 and 1996 audits. The two actions were later consolidated.

Deloitte and Deloitte International moved against the lenders for partial summary judgment for dismissal of the negligent misrepresentation claim on the basis that the auditors owed no duty of care to the lenders.  No motion was brought with respect to the claims made by the Receiver and Manager.

(a)  Claim against Deloitte

For the purpose of the motion only, Deloitte conceded that its work was negligent. Therefore, the sole issue before the motions judge was whether it owed the lenders a duty of care.  The motions judge found that on that issue alone, there was little evidence in dispute because of the admissions made by Deloitte about its knowledge.  The motions judge found that there was no duty of care because, applying the test set out by the Supreme Court of Canada in Hercules Managements:

1. Deloitte did not know the identities of the members of the syndicate of lenders.   It knew only that there would be a syndicate of lenders, not the size or composition of them.  Only knowledge of the identities of the members of the syndicate by Deloitte would address indeterminacy concerns.  Deloitte did not have that knowledge until August, 1997, months after it had issued its February, 1997, audit opinion.
2. Deloitte did not conduct its audit or issue its audit opinion for the purpose of having the audited financial statements read by the lenders.  Knowing that the lenders would rely upon the audited financial statements was not sufficient to address concerns about indeterminate liability.   Between 1994 and 1997, Philips loans had increased from about U.S. $200 million to U.S. $1.5 billion for the purpose of acquisitions of almost 50 businesses and there were other efforts to raise capital as well, including issuing shares and divestitures of businesses.

There was no significance to the fact that Deloitte did not disclaim liability for the use of the audited financial statements; one need not disclaim a liability that one does not have.  Further, the motions judge found that the alleged misrepresentations in the audited financial statements that were said to be breaches of the duty of care occurred before there were even discussions with CIBC for the U.S. $1.5 billion loan. Those discussions began in April, 1997, two months after the audit opinion was issued.

(b)  Claim against Deloitte International

Deloitte International had no relationship with CIBC and played no active role in the audits.  It made no representations to CIBC and CIBC did not rely upon anything Deloitte International did.  It owed no duty of care to CIBC.

Further, the motions judge found that there was no basis for a finding of vicarious liability.  The evidence was that there was no principal/agent, employer/employee, or partnership relationship between Deloitte and Deloitte International

There are laws regarding who is entitled to be paid first when an estate is insolvent (unable to pay all of its debts).  An Estate Trustee of an insolvent estate must decide whether to administer the estate as an insolvent estate, or to place the estate into bankruptcy.   In either case, the Estate Trustee must determine the priority of payment, as the failure to pay creditors in the proper order could result in personal liability to the trustee.

If the estate is administered simply as an insolvent estate, the order of payment is:

1. reasonable and necessary funeral expenses;
2. testamentary expenses and costs to administer the estate (including payment of the compensation for Estate Trustee and legal fees);
3. all other debts proportionately, including provincial Crown debts (it is unclear whether federal crown debts such as federal income taxes receive a priority over other creditors in this category).

If the estate is placed into bankruptcy, section 136 of the Bankruptcy and Insolvency Act dictates the order that debts are to be paid.  As with an insolvent estate, bankrupt estates are required to pay the reasonable funeral and testamentary expenses first.  Secondly, the costs for administering the estate (including compensation for the Estate Trustee and legal fees) get paid.  Other specific costs such as wages or commissions owed then can get paid. 

The most significant change when paying debts of a bankrupt estate as opposed to an insolvent estate is that the federal crown (including federal income tax payments) does not receive any priority under a bankrupt estate and is treated like any other unsecured creditor that has no priority.

Given the potential exposure a trustee faces if the order of payment is not made correctly when dealing with an insolvent estate, trustees may wish to retain legal counsel to assist them.

SLAPPs are lawsuits intended to penalize members of the public who participate in public affairs and deter others from doing so. Although anecdotal evidence provides some support for preventing such litigation, there does not appear to be any hard empirical data that SLAPPs represent a serious problem. It is easy to characterize almost any litigation as a SLAPP.

Under the new section 137.1 of the Courts of Justice Act, a party against whom a proceeding is brought may bring a motion to dismiss an action as a SLAPP. A judge must dismiss the proceeding if he or she is satisfied “that the proceeding arises from an expression made by the person that relates to a matter of public interest”, unless the responding party shows that (i) there are grounds to believe the proceeding has substantial merit, (ii) there are grounds to believe the moving party has no valid defence in the proceeding and (iii) the harm likely to be or have been suffered by the responding party as a result of the moving party’s expression is sufficiently serious that the public interest in permitting the proceeding to continue outweighs the public interest in protecting that expression.

Although the new legislation appears to set out a structured process, the real question is what level of scrutiny courts will apply on these motions. “Public interest” is a vague and fairly low threshold to meet, such that the burden may easily shift to the responding party to fulfill what appears to be a much more stringent test. The task imposed on the responding party is made more difficult by timing, as these motions will be brought pre-discovery before the plaintiff has an opportunity to test his or her case.

This is especially problematic given the high stakes of these motions. Where a proceeding is dismissed on this basis, the moving party generally is entitled to full costs on the motion and in the proceeding, while the responding plaintiff generally is not entitled to costs even if the case is found not to be a SLAPP and proceeds to trial (subject to the discretion of the judge). In addition, judges have discretion to award damages where they find that the proceeding was brought in bad faith or for an improper purpose. Moreover, such motions can be used tactically to delay the plaintiff’s claim from advancing.

Given that a proceeding found to be a SLAPP seems to inherently be for an improper purpose, exposure for a plaintiff is high, while there appears to be minimal risk to defendants in trying their luck under these provisions. Potential plaintiffs may be deterred from bringing legitimate defamation lawsuits.

Further, the legislation can be employed in ways unintended by the drafters. For example, an abortion clinic that commences an action to prevent protesters from interfering with its operations and molesting its patients may face a motion to dismiss by the defendants.

It remains to be seen how courts will balance the seemingly unequal burdens placed on the parties with the deterrent intent of the anti-SLAPP provisions. We are likely to see significant litigation under these provisions, as defendants experiment with the power they are now afforded and judges determine how to interpret and apply this new procedure.

The settlement arose in a consumer product class action regarding the rubber grips on some Sony PlayStation 4 video game controllers. It was alleged that the grips were deteriorating prematurely. The claim was for the cost of shipping that the class members had to pay to return their grips for warranty repair or replacement. In the end, the class action was much smaller than the several thousand class members anticipated and a settlement was reached for the 400 affected individuals in the modest amount of $8,000, in addition to small honoraria for the two representative plaintiffs.

As set out above, Justice Belobaba was advised that there was no written retainer agreement in this case. The retainer agreement is the foundation of the relationship between a lawyer and his/her client. In a class action, the legislature thought that a retainer agreement relating to fees and disbursements between the representative plaintiff and class counsel was so important that subsections 32(1) and (2) of Ontario’s Class Proceedings Act, 1992, provide that it must be in writing, must state the terms under which fees and disbursement shall be paid, give an estimate of the expected fee, state the method of payment and that the retainer must be approved by the Court or it is not enforceable.

The absence of a proper written retainer agreement in a class action is in no one’s interest.

Of primary concern to Justice Belobaba was the fact that the arrangement in this case was not in the best interests of the class. Without a retainer agreement regarding fees and compensation, he set out how class counsel would not be entitled to a share of any damages award at trial nor to any portion of any costs awards. He found that this provides the wrong incentive to class counsel who will be minimally committed to the class and may lead to sub-optimal settlements for the class. Justice Belobaba also found that a “glaring conflict of interest” was created as any amount that class counsel could negotiate for their fees was an amount that would potentially come out of the class members’ settlement.

Additionally, although not discussed by Justice Belobaba, the absence of a proper retainer arrangement is not in the interest of the representative plaintiff or class counsel. While the nature of class actions may make it difficult to predict at the outset what might ultimately prove to be fair and reasonable fees for class counsel at the conclusion of the litigation, this does not mean that a written retainer agreement does not serve a useful purpose or that it should be viewed as unnecessary. A representative plaintiff should be extremely wary of any such proposed arrangement.

In the absence of a written retainer agreement there is no agreed document that provides guidance and assistance in understanding the link between the results obtained for the class and the fees charged by counsel. Additionally, absent a separate indemnification agreement, a representative plaintiff may not be protected from significant adverse costs awards in a “loser pays” jurisdiction. The representative plaintiff’s costs exposure may create a wrong incentive for them and, ultimately, a conflict of interest between the representative plaintiff and the class. Further, the difficulties in instructing class counsel under an inappropriate arrangement means that the representative plaintiff might not able to meet his/her obligations to fairly and adequately represent the interests of the class. The absence of a written retainer agreement means the terms of the relationship between the representative plaintiff and class counsel are vague and it is unclear what each party’s obligations and entitlements are or will be. Finally, if there is ever a dispute between class counsel and the representative plaintiff, the lack of a written retainer agreement means any disputes will be resolved against class counsel.

This is a sufficiently important issue that, in Ontario, a practice has developed on carriage motions to put the written retainer agreements required by the legislation before the Court. The Court and class are well served to consider the presence of a proper retainer arrangement on a confidential basis to ensure that this is done. The lack of a written retainer arrangement should be held against any counsel in a carriage battle as the Court’s objective is to make the selection of counsel that is in the best interests of the class.

Finally, a non-written retainer agreement situation in a class action may not be favourable to the defendant. Although Justice Belobaba discusses how, given class counsel’s incentives, the shrewd defendant may negotiate a small settlement with an attractive amount for legal fees and come out ahead, this does not necessarily reflect the full picture. Defendants may be required to engage in two separate negotiations, one to settle the class claim and one for counsel’s fees. Moreover, the defendant will want to avoid the perception that the defendant is paying the lawyers at the expense of the class as this may potentially cause permanent reputational and brand damage to the defendant.

The presence of a proper written retainer agreement in a class action is therefore in everyone’s best interest and should not be optional.

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice.  If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

1. DO NOT offer employment until you have the employment contract ready to be presented;

and

2. DO NOT allow the employee to start working until they have signed the employment contract.

One of the most common mistakes employers make is offering employment to a new employee before having an employment contract to present to the employee. 

An employment contract may actually be unenforceable if it is signed after a verbal or informal offer of employment has been made by the employer and accepted by the employee.  The same issue arises if an employee signs an employment contract after they start working (even if they sign it on their first day!).

An unenforceable employment contract can lead to various negative consequences for the employer.  The employer cannot rely on any of the provisions of the employment contract – most importantly, the termination provision.  This would largely defeat the purpose of having an employment contract in the first place.  One of the key reasons to have an employment contract in place is to limit the amount of termination pay that must be paid in the event the employment relationship ends.  If the agreement limiting the amount of termination pay due to an employee is not enforceable, then the amount owed can drastically increase. 

Other important contractual provisions include items such as non-competition and non-solicitation clauses, and layoff provisions. 

Sometimes it is important for an employer to communicate their interest in an employee as soon as possible, and employers are eager to let employees know they have been hired.  One way for an employer to communicate its intentions quickly, but still protect its rights, is to make it clear the employer will be making an offer, conditional on signing an employment contract.  If it’s clear that signing an employment contract is a condition of any offer of employment (or, better yet, if the entire offer is presented in the contract), then the employer can allow itself a bit of time to get a contract together, while confirming its intentions to the prospective employee.

The prospective employee should have time to read and understand the contract, and receive their own legal advice on the contract if they so choose.  As such, employers should be sure to provide a copy of the contract to the prospective employee well in advance of their start date, with time to review and ask questions before signing.

The bottom line:  following these two simple rules can save you a lot of grief and money.  

If you lend money to your company – take security! 

The bank takes security for the money it loans to your company, why shouldn’t you?  Banks generally do not have an issue with this.  They will treat the money advanced as equity if you give them an assignment and postponement of claim.  Assuming you do not do this at the eleventh hour, you will be a secured creditor in the event of insolvency, giving you priority over unsecured trade creditors.  You will be unsecured creditor if you do not take security for your loan.  Make sure you do this when you advance funds.  Non-arm’s length security taken within a year of insolvency is effectively void. 

If you have a business partner you need a Unanimous Shareholders Agreement.

A shareholders agreement should deal with, among other things, the governance of the company and the transfer and disposition of shares.  Think of it as a compass for your company, guiding its future direction.  A company without a shareholders agreement is like a ship without a compass.  A properly drafted shareholders agreement addresses how problems will be dealt with before they arise.  Shareholders of a company without a unanimous shareholders agreement often have to go to court to resolve their differences.  This is not only costly and time consuming, but a lack of strategic direction can threaten the very existence of a company.  One other point:  get your shareholders agreement negotiated as soon as possible.  Shareholders’ positions can become entrenched as time passes.  It’s like a marriage contract – it’s a lot easier to negotiate from the get-go. 

Keep abreast of changes in employment law.

There have been many changes to employment law in this province in recent years – and the changes have generally favoured the employee, not the employer.  Make sure any employment and independent contractor agreements you have are reflective of the current state of law.  One of the major new developments is the duty of employers to “accommodate” employees with a disability, which can include employees on stress leave.  Failure to accommodate can prove to be costly.  However, at the same time, employers want to be proactive to address unproductive employees – and avoid human rights claims and other employment related litigation. 

Make sure your “standard form” agreements are current.

Making sure that invoices, bills of sale and other related terms of sale documents are current may seem trivial.  However, minor “tweaks” to these documents can avoid huge problems.  For example, limitation of liability clauses can be inserted that limit damages that can be claimed.  If you are selling goods in the United States, it is important to have a choice of laws clause that states any dispute will be resolved by the Canadian courts, where, generally speaking, the cost to litigate is much more economical.  These are just a couple of examples of situations where small changes can make a big difference. 

Make sure your policies and procedures are in order.

Do you have a privacy policy?  Do you have a policy dealing with Canada’s anti-spam legislation?  One Quebec company that ignored Canada’s anti-spam legislation was levied a $1.0 million fine.  There have been thousands of complaints registered under this anti-spam legislation.  The federal government is currently working through them – expect more fines.  These are but two of many examples of where failure to have policies can prove to be costly. 

A wise person once said “an ounce of prevention is worth a pound of cure”.  Being proactive now can avoid a lot of problems down the road.

For those who have not been following the debate some background is in order. Since 2012, the BCCA has ruled on the ability to certify restitutionary and statutory based claims in the areas of product liability, misleading advertising, and price fixing as follows:

1. Koubi v. Mazda Canada[4] - the BCCA found that the British Columbia Business Practices and Consumer Protection Act (“BPCPA”) provides a complete code that regulates consumer transactions in that Province and that a breach of its provisions did not give rise to a restitutionary claim. It also found restitutionary claims to be inconsistent with the intent of the Sale of Goods Act;
2. Wakelam v. Wyeth Consumer Healthcare - the BCCA again found that the BPCPA provides a complete code and there was no indication of a legislative intent to create additional restitutionary causes of action. The court then went further, applying the same reasoning to the plaintiffs’ claim under the Competition Act’s misleading advertising provisions; and
3. Watson v. Bank of America Corporation – the BCCA found that Wakelam did not determine the issue of whether a breach of the Competition Act would support an unlawful means conspiracy claim and consequential restitutionary claims, but it does bar pure restitutionary claims based solely on a breach of the Competition Act.

Faced with what appeared to many to be conflicting decisions of the BCCA and the recent Supreme Court of Canada ("SCC") decisions in the Competition Act trilogy[5], Justice Perell chose to approach the matter “as a matter of first principles”. The case before him was the lithium ion rechargeable batteries price fixing case. The plaintiffs’ proposed class action alleged a breach of Section 45 of the Competition Act, and claimed damages pursuant to Section 36, and for conspiracy, interference with economic relations and unjust enrichment. In light of the SCC’s 2014 decision in Bram[6], the plaintiffs did not pursue their interference with economic relations claim. Justice Perell ultimately certified the action based solely on a breach of Section 45 of the Competition Act and the claim for consequential damages under Section 36. He refused to certify the balance of the claims. Here is how he got there.

Justice Perell began with another SCC case, this time from 1925. In Orpen v. Roberts,[7] the SCC concluded that the breach of a municipal by-law did not give rise to a common law cause of action. From this and subsequent authorities he drew the principle that when Parliament introduces a comprehensive statutory scheme containing a statutory cause of action, it intends to preclude tort-based claims based upon a breach of that statute. Justice Perell reviewed the legislative history of the Competition Act.  He concluded that in its 1975 amendments Parliament had signalled its intention that the scheme was to be comprehensive and was intended to “preclude a redundant and inefficient common law cause of action for conspiracy”.[8]

Next, Justice Perell turned his attention to the case law that has recognized a common law unlawful means conspiracy, including Watson. He expressed the view that Wakelam had been properly decided and Watson had not, finding that the error in Watson was to frame the question as whether Parliament had intended to provide a “new and superior”[9] method of remedying a breach of the statute. The correct question, according to Justice Perell, was whether Parliament had intended to preclude unlawful means conspiracy claims based on a breach of the Competition Act.  He noted:

Given the policy pulls of competition law, Parliament was not constrained to only introduce pro-plaintiff amendments to the Competition Act, and, in my opinion, Parliament intended to introduce a statutory cause of action that had a briefer limitation period and that did not admit of punitive damages but did offer plaintiffs a more efficient claim against price fixers.[10]

Not only did Justice Perell conclude that the statutory cause of action in Section 36 of the Competition Act precluded an unlawful means conspiracy claim, he found that it also precluded unjust enrichment claims based on a breach of the Act.  He went on to state that he would have also rejected the unjust enrichment claim on the basis that it would not satisfy the preferable procedure criterion because it would “unnecessarily complicate the class proceeding and likely make it unmanageable”.[11] He based this conclusion on his finding that the calculation of damages for an unjust enrichment claim would take “the action into largely unexplored legal territory about the calculation of a disgorgement remedy” in circumstances in which “the prospect of an aggregate assessment of damages is feasible making disgorgement redundant”.[12]

This then left the statutory cause of action and the plaintiffs’ predominant purpose conspiracy claim. Justice Perell rejected the defendants’ submissions that there were no meaningful common issues resulting in their being a lack of commonality in the proof of loss, and elected to certify the statutory cause of action. However, when it came to the plaintiffs’ predominant purpose conspiracy, Justice Perell came to a different result. Acknowledging that it was not plain and obvious that the plaintiffs could not succeed with their allegations that the defendants’ primary intent had been to injure purchasers of battery products, he found:

It does seem to me that it is plain and obvious that the plaintiffs’ chance of success for a predominant purpose conspiracy based on purely lawful conduct in the pricing of LIBs is very remote. If the plaintiffs succeed on the statutory cause of action, the predominate purpose conspiracy is redundant and if the plaintiffs fail on the statutory cause of action, it is unlikely the plaintiffs will snatch victory from the jaws of defeat.[13]

While Justice Perell may have found his own answer to the Wakelam vs. Watson debate, it remains unclear what an Ontario appellate court will do and whether Justice Perell’s approach correctly observed principles of stare decisis given the recent Supreme Court trilogy and the finding in Pro-Sys that “it is not plain and obvious that there is no cause of action in unlawful means conspiracy or in intentional interference with economic interests.”[14]

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice.  If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

In Beaudette v Alberta (Securities Commission), 2015 ABQB, Beaudette challenged the constitutionality of sections of the Alberta Securities Act which allowed him to be compelled to give evidence in relation to an investigation into the trading of shares of a United States ("U.S.") corporation in which he had a controlling interest and permitted the Alberta Securities Commission ("ASC") to share that evidence with other law enforcement authorities.  Beaudette refused to be examined on the basis that it would violate his Charter rights unless the ASC provided written assurances that any evidence compelled from him would not be shared with U.S. law enforcement agencies without notice to him to allow him to seek to resist the use of that evidence against him in a criminal proceeding in the U.S.  He noted that the securities legislation in other provinces (including Ontario) contains such protections.  The ASC was aware of a parallel investigation by the U.S. Securities and Exchange Commission and conceded that there was a possibility that information it compelled would be shared.  Beaudette’s concern (which the Court found was speculative) was that this could lead to criminal prosecution against him in the U.S.

Following previous authority, the Court found that Beaudette’s Charter rights would not be infringed by the examination because:

• The evidence from the experts on U.S. law expressed different views on whether Beaudette’s compelled evidence could be used against him in a U.S. prosecution;
• The ASC summons was not issued for the predominant purpose of obtaining incriminating evidence against Beaudette, but was for the purpose of the ASC investigation;
• Even though there was a possibility that the evidence could be used against Beaudette in a U.S. criminal prosecution, the question of what evidence could be used against him in that proceeding was a matter within the exclusive authority of the U.S. court;
• The ASC was not required to seek assurances that the evidence would not be so used since this was not a case in which the foreign consequences of the obtaining of the evidence in Canada would shock the Canadian conscience – the American Constitutional approach to the protection against self-incrimination does not shock the Canadian conscience; and
• Leaving the determination of what evidence would be admissible against Beaudette to a U.S. court would not lead to a violation of Canada’s obligations in respect of international law or fundamental human rights.

The Court distinguished this case from situations in which Canadian action was held to be unconstitutional when the extra-territorial consequences of that action would shock the Canadian conscience, such as extraditing an accused to a country in which that accused might be tortured or face the death penalty (U.S. v Burns, 2001 SCC 7, Suresh v Canada, 2002 SCC 1, and Canada v Khadr, 2008 SCC 28, for example.)  Ultimately, the Court found that in the highly regulated securities industry, state intrusion into individual participants’ privacy is justifiable and expected.

Therefore, anyone facing this risk would be wise to obtain legal advice in both Canada and the United States. This case suggests that while counsel may try to negotiate certain protections, such as separate interviews with Canadian and U.S. agencies so that the Fifth Amendment may be invoked, or assurances that any evidence will be held confidential and not shared with any other law enforcement authorities, a Canadian court is likely to compel the taking of the evidence, even if these protections cannot be obtained.