Category Archives: commercial law

Ontario Court of Appeal Moves the Needle in Favour of Creditor Rights

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Two decisions of the Ontario Court of Appeal made in the past year have the potential to significantly diminish the effectiveness of creditor-proofing techniques commonly used by companies and businesspeople. 

FNF Enterprises Inc. v Wag and Train Inc.

The first such case was FNF Enterprises Inc. v Wag and Train Inc.  The company Wag and Train Inc. was the tenant of the landlord FNF Enterprises Inc. pursuant to the commercial lease. 

Before the end of the lease, the sole owner of Wag and Train Inc. engaged in a creditor-proofing technique known as “asset-stripping” or “value-stripping”.  She set up a new corporation and transferred all the assets of Wag and Train Inc. to that new corporation. The new corporation then carried on the same business in another location and abandoned the rented premises before the end of the lease.  The prior corporation (Wag and Train Inc.) thus became a shell corporation with no assets, and FNF Enterprises Inc. had no way of recovering damages from Wag and Train Inc. for breach of the commercial lease.  

The Court of Appeal ruled that the landlord could not pierce the corporate veil and bring a claim against the owner of Wag and Train Inc. in her personal capacity, but could bring an oppression claim against the owner of Wag and Train Inc. in her capacity as a director of the corporation.  The landlord had standing under the Business Corporations Act to bring an oppression claim against the corporate director because, as a creditor of the defendant corporation, it qualified as a “complainant” within the meaning of the Act.

Ontario Securities Commission v Camerlengo Holdings Inc.

The second case was Ontario Securities Commission v Camerlengo Holdings Inc. The defendant Camerlengo Holdings Inc. was owned by Fred Camerlengo.  Back in 1996, when he first set up his company, Fred transferred his house to his wife for nil consideration.  A reasonable assumption to draw from this transaction is that Fred was attempting to put the house out of reach of his and his company’s creditors.  In so doing, Fred was doing only what many similarly-situation businesspeople have done for decades: moving assets into the name of family members to protect them from potential seizure.

It should be noted that Camerlengo Holdings was not in trouble with the Securities Commission: it had borrowed $200,000.00 from an entity called Bluestream—and Bluestream was in trouble with the Securities Commission.  In this lawsuit, which it commenced in 2019, the Securities Commission was trying to recover that $200,000.00 loan from Camerlengo Holdings so that it could seize those funds in partial satisfaction of the moneys that were owed by Bluestream to the Ontario Securities Commission. 

Reversing the motion judge’s decision, the Ontario Court of Appeal ruled that a creditor could, under the Fraudulent Conveyances Act, attack a prior transfer of assets from a co-owner to his wife, even though the transfer of the property had taken place many years before the creditor became a creditor of that company.  Obviously, when Mr. Camerlengo transferred his house to his wife in 1996 he did not do so to protect his asset from the Ontario Securities Commission, because his company did not owe any money to the Ontario Securities Commission at that time.  Nevertheless, the Court of Appeal held that a subsequent creditor who was not a creditor at the time of the transfer can still attack a transfer under the Fraudulent Conveyances Act if it was made with the intent to “defraud creditors generally, whether present or future”.

It is important to note that in both these cases, the creditor has not yet recovered against the respective defendants: the Court of Appeal simply ruled that FNF enterprises Inc could proceed with a claim under the Business Corporations Act and the Ontario Securities Commission could proceed with a claim under the Fraudulent Conveyances Act.

These legal precedents mean that, in this future, these commonplace creditor-proofing techniques are likely to be considerably less effective.  While they may delay creditors, they will likely not ultimately defeat motivated and well-resourced creditors.

Judge Slams Toronto Landlord as Racist

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The Elias Restaurant is a 1,500 square foot hole-in-the-wall in a dreary post-capitalist strip mall on one of the busiest arterial roads in the far reaches of Toronto’s soul-crushing urban sprawl.  It is sandwiched between a nondescript beauty supply store and an equally nondescript convenience store.  It is two doors down from a “New York Fried Chicken”.  Situated in this desert of concrete, power lines, and cell phone towers, Elias Restaurant has managed to carve out a niche for itself, serving an Afro-Caribbean menu since it opened its doors in 2013. 

They must have been moving a lot of jerk chicken, because they never missed a monthly rental payment under their lease, even though the rent was close to $50 per square foot per year (which seems like a lot to me).  Good thing they are situated on that aforementioned busy arterial road. 

Commercial leases, like all contracts, are infinitely malleable.  A contract can say pretty much whatever the parties to the contract want it to say.  For example, this particular lease expired in 2017.  But the lease also contained a provision which allowed the tenant to renew the lease if it wanted to stay. 

When the lease expired in 2017, Elias Restaurant did not exercise their option to renew within the required time.  So what happens if the tenant doesn’t legally renew the lease, but stays in the unit anyway?  That’s called “overholding”, and this lease said that if the tenant did overhold they would have to pay rent at the rate of 125% – which Elias Restaurant did.  This case came to court because the landlord tried to evict Elias Restaurant (on the basis that the lease had expired without being renewed), even though Elias Restaurant had never missed a rental payment. 

It is very difficult to evict a tenant who is current with the rent.  This landlord’s efforts to kick out the tenant backfired spectacularly.  The tenant went to Court and asked for “relief from forfeiture”.  Not only did they get the relief they were seeking, but they got it in the most sensational way possible. 

In ordering that the tenant could remain in the premises, the judge also found that the landlord was motivated to try and evict this tenant because of its prejudice against this tenant’s black proprietors and (overwhelmingly) black customers.  In other words, the judge called this commercial landlord racist.  While he stopped short of using the “r-word” specifically, he did say that the landlord’s actions were based on “prejudices” and “stereotypes”, and also said there was “some good reason” to describe the landlord’s conduct as “unseemly” and “uncalled for”.  Reading the decision as a whole, there is no ambiguity about what the judge meant.

Some commentators have described the judge as ruling that the landlord acted on the basis of “unconscious bias”, but the judge wasn’t even that generous with this landlord.  He actually said that the landlord acted on the basis of its “subjective, if perhaps unconscious prejudices.”  He was only willing to grant that the landlord’s prejudices were perhaps unconscious – which, of course, leaves the insinuation that the landlord’s prejudices may very well have been conscious. 

There are a couple of lessons to be taken from this remarkable case.  The first is that judges are human.  They are just as susceptible to trends and societal developments as the rest of us.  If this case had come to court in 2019, the decision would have been very different.  The outcome probably would have been the same: the judge would have simply and quietly applied the test for relief from forfeiture, determined that there is no prejudice to letting a paying tenant stay in the unit, and moved on without providing extensive comments on the landlord’s perceived racial prejudices.  But in 2020, with the widespread publicity of the Black Lives Matter movement, this routine commercial lease dispute took on a completely different tenor.  This decision is a product of the zeitgeist.  It shows that the judiciary are not perfectly detached and dispassionate.  They can be influenced by societal developments and prevailing political moods, just like the rest of us can. 

The second lesson is the unpredictability of going to court.  Regardless of how stubborn or hard-headed this landlord was, NO ONE goes to court if they think there is even a one percent chance that they are going to end up being called a racist by the judge.  Clearly, the landlord did not see this coming.  Something went badly wrong for the landlord in the preparation of this case.  Losing in court?  That happens.  Losing in court and getting called racist by the presiding judge?  You can’t just chalk that up to a bad day at the office. 

There is a lot going on in this headline-grabbing case.  How it ended up getting this far in the first place is a question the landlord needs to ask itself.

The End of the Suspension of Legal Deadlines in Ontario

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In response to the COVID-19 pandemic, the Government of Ontario temporarily suspended most statutory and regulatory limitation periods.  This applied to a lot of legal deadlines, chief among them Ontario’s “basic” limitation period which states that most lawsuits have to be started within two (2) years. 

The suspension of most limitation periods went into effect on 16 March 2020.  The Government of Ontario ended the suspension last month, and the suspended time periods resumed running on 14 September 2020.  If we say that 13 September 2020 (which was a Sunday) was the last day of the suspension period, that means the suspension period ended up being 182 days long. 

(I keep saying “most” limitation periods, because there were some legal deadlines which were not suspended by the government, such as deadlines created by a court order.  Other deadlines were suspended for less than the entire duration of the suspension, such as deadlines under the Construction Act, which were suspended for only 31 days.)

Protect Your Legal Interests

If you are sitting on a possible legal claim, do not fall into the trap of thinking you have an extra 182 days beginning on 14 September 2020 within which to commence it.  If your limitation period would have expired after 16 March 2020 but before 14 September 2020, then you only have as much time after 14 September 2020 as you would have had after 16 March 2020. 

So if your limitation period would have, but for the suspension, expired on 29 May 2020 (seventy-four days after the beginning of the suspension), the limitation period will now expire on 27 November 2020 (seventy-four days after the end of the suspension).  I expect this will be an easy mistake for litigants and their counsel to make, so please be alive to this issue.  There will be people who think that they have 182 days from 14 September 2020 when they do not.  It is easy to anticipate that, over the next six months or so, some folks are going to miss deadlines. 

Also bear in mind that not all legal claims in Ontario are subject to the “basic” limitation period of two years.  There are exceptions to the basic limitation period.  In some situations, the deadline to start a lawsuit is shortened by the terms of a contract (such as most insurance contracts), or by a statutory requirement to give notice (such as in the Municipal Act or in the Libel and Slander Act, for certain types of claims).  Some types of legal proceedings are not statute-barred at all. 

If you think you might have a legal claim, protect your interests.  DO NOT rely on this blog, which is simply an informative summary and does not constitute legal advice.  Consult with a lawyer. 

Can You Daisy-Chain Your Way Around a Limitation Deadline?

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The short answer is “no”.

The long answer is contained in this fascinating case from the Ontario Court of Appeal called H.M.B. Holdings Limited v The Attorney General of Antigua and Barbuda.

Background

If you get a civil court judgment against someone in another country, you can (in most cases) have that judgment registered in Canada.  You would want to do this if the party against whom you have a foreign civil judgment owns assets in Canada which you could potentially seize in satisfaction of your judgment. 

If you have a judgment in a country which has a reciprocal enforcement treaty with Canada (such as the United Kingdom), then you can simply apply at the Court office to have the foreign judgment registered as a judgment of the court in Canada.

If the country in which you have your judgment does not have a treaty with Canada, then you have to start a traditional lawsuit in the Canadian court in which you ask the court to grant a judgment recognising and incorporating the foreign judgment.  The deadline to bring this lawsuit is governed by the limitations law of whatever province you are commencing the lawsuit in. 

Ontario, via British Columbia?

H.M.B. Holdings Limited had a judgment from an Antiguan court against the Government of Antigua and Barbuda for millions of dollars.  H.M.B. Holdings must have believed that the Government of Antigua and Barbuda had assets in Ontario, because it wanted to have its Antiguan court judgment recognised in Ontario. 

The problem for H.M.B. Holdings was that the two-year limitation period to commence a lawsuit in Ontario had already expired.  (It had been more than two (2) years since it had obtained the court judgment from Antigua and Barbuda.)

However, the limitation deadlines are not the same across the country.  The deadline for starting a lawsuit in British Columbia to recognise a foreign judgment is six (6) years, not two (2).  A law in Ontario called the Reciprocal Enforcement of Judgments Act states that the courts in Ontario have to recognise court judgments obtained in other Canadian provinces.

H.M.B. Holdings decided to seek a court judgment in British Columbia, where the limitation deadline had not yet expired and then, within two (2) years of obtaining the British Columbian judgment, bring a lawsuit in Ontario to recognise the British Columbian judgment. 

Too clever by half?  Two (2) of the three (3) judges presiding at the Ontario Court of Appeal thought so.

When H.M.B. Holdings sued to have the British Columbia judgment registered in Ontario, the court dismissed the action.  H.M.B. Holdings appealed to the Court of Appeal. 

The “Original Judgment”

One of the legal issues considered by the Court was the meaning of the term “original judgment” in the Reciprocal Enforcement of Judgments Act.  The Act prohibits registration of a judgment where the judgment debtor would have a good defence if an action were brought on the “original judgment” [subsection 3(g)].  The majority held that “original judgment” referred to the Antiguan judgment.  Since Antigua and Barbuda would have valid limitations defence to an action to register the Antiguan judgment, the Act prohibits the registration of that “original judgment”, even if it takes a pit stop in Vancouver.

In dissent, Justice Nordheimer expressed his view that the term “original judgment” in the Act had to mean the specific judgment which the plaintiff sought to have registered which, in this case, was the British Columbian judgment. 

One can easily see both sides of this.  One could say that a litigant should not be allowed to do through the back door what it could not have done through the front door.  At the same time, one could equally say that judgment debtors should not be able to escape having to pay the judgment against them by having the enforcement proceedings defeated on procedural, rather than substantive, grounds.  There is also an argument that creative counsel should be rewarded, not punished, for using all of the legal mechanisms available to them in pursuit of justice for their client. 

UPDATE: We will have the opportunity to see this dispute go the next level, because the Supreme Court of Canada has granted H.M.B. Holdings Limited leave to appeal this decision. It will be fascinating to see how the Supreme Court deals with this question which divided the Ontario Court of Appeal.

Sprayed in the Face with a Fire Extinguisher at Wal-Mart

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Wal-Mart gets involved in a lot of litigation in Ontario, usually not by choice.  The most recent lawsuit against Wal-Mart to make it through the courts is a doozy.

It was brought by a guy name Kim Manos who was accidentally sprayed with a fire extinguisher by an employee at the Waterdown Wal-Mart.  This is amazing to me for a few reasons.  First, how does a fire extinguisher go off accidentally anyway?  Second, what employee thinks it is a good idea to handle a fire extinguisher within spraying-distance of a customer?  And, of course, what are the chances you are going to hit the customer who already has respiratory problems?

I’m also fascinated by this case because I used to live in Waterdown and the Waterdown Wal-Mart is the Wal-Mart I have visited more than any other.  From a customer’s perspective, it was a really well-run store.  It was clean, safe, and well-organised.  My personal experience would be that it was one of the better-run Wal-Mart stores I have seen.  It is unlikely to make an appearance on the “People of Wal-Mart” blog.  (The Wal-Mart here in Stratford, on the other hand . . .)

Kim Manos sued Wal-Mart and the matter went to trial.  Wal-Mart retained medical experts who disputed the Plaintiff’s contention that he had developed a particular respiratory condition.  Wal-Mart’s experts also opined that, even if the Plaintiff did have that respiratory condition, it wasn’t caused by the fire extinguisher accidentally discharging in his face in the Waterdown Wal-Mart.  (It sounds more and more ridiculous each time I say it.)

The Plaintiff won at trial.  In addition to compensation for his actual monetary losses, the trial judge also awarded him $225,000.00 in general damages for his pain and suffering which, for sure, is on the high end for this kind of injury.

Insufficiency of Reasons

In giving his reasons, the trial judge accepted the evidence of the Plaintiff’s medical experts and did not accept the evidence of Wal-Mart’s medical experts.  The problem was that he never explained in his reasons why he was rejecting the evidence of Wal-Mart’s expert witnesses. 

Wal-Mart appealed.  The Court of Appeal granted the appeal and ordered a new trial.  The Court of Appeal’s rationale was that the trial judge failed to give adequate reasons for rejecting the expert evidence put forward by the Defendant.  The Court of Appeal confirmed that the trial judge was entitled to reject the Defendant’s expert evidence if he wanted to, but he had to give intelligible reasons for doing so.  By giving no reasons at all, he made it impossible for the Defendant to know why it had lost and made his decision incapable of meaningful appellate review. 

This is another reason why I find this case so fascinating because the very first appeal I ever argued, way back in my law school days, was successful for the very same reason.  In that case, we were appealing a decision of the Discipline Committee of the College of Physicians and Surgeons of Ontario.  The Committee had a report from an independent assessor which was critical of the doctor in question.  In its decision, the Committee did not accept the conclusions of the report, but neither did it give any reasons for rejecting the report’s conclusions.  In the appeal to the Health Professions Appeal and Review Board we argued that this was unreasonable, and the Board agreed.  The Board held, “The Committee is not bound to accept the report of an independent assessor, but it is incumbent on the Committee to offer cogent reasons if it chooses to reject or discount the opinion of an assessor.”

That case was sent back to the Committee for re-consideration, just like the Manos case was sent back for a new trial. 

Appeal to the Supreme Court of Canada?

So when will the Manos case be re-tried?  Not any time soon, because (plot twist!) Mr. Manos has sought leave to appeal to the Supreme Court of Canada.

The overwhelming majority of applications for leave to appeal to the Supreme Court of Canada are dismissed, and my money would be on this application for leave being dismissed as well. 

So why would the Plaintiff seek leave when the chance of getting it is so low?  Well, one reason might be because the pay-off would be very much worth it in the unlikely event that that leave (and the subsequent appeal) are granted.  Success at the Supreme Court could mean that the Plaintiff gets to keep his $225,000.00 general damages award and would not have to put in the time and expense of a re-trial (which he might not even win, and which could also be appealed . . .).  I suspect that the Plaintiff knows very well that, even if he wins the re-trial, his is not going to get anywhere near the $225,000.00 he got the first time, because that really is on the high end of damages for the type of injury which he allegedly suffered.  If he can get the Supreme Court to overturn the Court of Appeal’s ruling the $225,000.00 damages award will stand and he will almost certainly be better off than he would be after winning the re-trial. 

I will keep a close eye on this fascinating case and provide an update once the application for leave to appeal is decided by the Supreme Court.