Tuesday,December 10, 2019

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Recent Commercial Cases That May Impact Your Real Estate Practice

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Pa

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Mark DunnGoodmans LLP

Francy KussnerGoodmans LLP

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Topics

• Enforceability of arbitration agreements

• Current state of the law on good faith

• Estimating potential damages for breach of contract

• The limits of limitation clauses

• Entire agreement clauses, and when they will be enforced

• Personal liability and piercing the corporate veil

• Limited partnerships, and the impact of dissolution on the entitlement of limited partners

• Recent developments in the law of limitations

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Enforceability of Arbitration Agreements

Alectra Utilities v. Solar Power

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Enforceability of Arbitration Agreements

Section 7.1 of the Agreement:

Subject to and in accordance with the provisions of this Article 7, any and all differences, disputes, claims or controversies between the Vendor and the Purchaser arising out of or in any way connected with this Agreement, whether arising before or after the expiration or termination of this Agreement, and including, its negotiation, execution, delivery, enforceability, performance, breach, discharge, interpretation and construction, existence, validity and any damages resulting therefrom or the rights, privileges, duties and obligations of the parties under or in relation to this Agreement (including any dispute as to whether an issue is arbitrable) (a "Dispute") shall be resolved [sic] the manner described in this Article 7. (emphasis added by ONCA)

“There is no ambiguity here: there is no appeal to the court, period. The arbitrator’s determination is final and binding.”

The Honourable Justice Huscroft

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Real Estate Implications – Arbitration

• Beware of pro forma precedents

• Focus on specific wording

• Parties should consider addressing the following in their arbitration agreements:◼ Scope of agreement ◼ What rules will apply◼ Location and language ◼ Governing law◼ Number of arbitrators ◼ Time frame◼ Confidentiality ◼ Ability to appeal

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Good Faith

• Consider handshake, negotiations

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Good Faith

CM Callow Inc. v. Zollinger

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Good Faith

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District

“In the circumstances of this case the Arbitrator attempted to do what was fair, not as grounded in the [Agreement] but in a more general sense. Bhasin is not authority for the proposition that contracts may be adjusted to accommodate situations where one party regrets the contract in hindsight.”

Justice MacEwan, British Columbia Supreme Court

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Good Faith

• Joint appeal to the SCC

• Cases heard on December 6, 2019

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Real Estate Implications – Good Faith

• Bhasin clarified obligations owed as between parties when performing contractual obligations

• SCC reserved in joint appeal:◼ Perform contractual obligations fairly◼ Build protections into agreements◼ Make sure metrics for assessing

things like discretion are spelled out in the language of the agreement

◼ Courts will not be inclined to re-write a bad contract

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Damages for Breach of Contract

Saramia v. Delco Wire and Cable Limited

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Damages for Breach of Contract

Damages are recoverable for breach of contract if…

In the “usual course of things”, they arise fairly, reasonably, and naturally as a result of the breach of contract

The damages were within the reasonable contemplation of the parties at the time of the contract

OR

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Damages for Breach of Contract

“…in appropriate circumstances a sale could be mitigation for loss of a tenant, and in those circumstances efforts to sell could be considered as satisfying the duty to mitigate.”

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Real Estate Implications – Damages

• Damages for breach of a lease = the present value of the unpaid stream of rental payments to the expiration of the lease

• Damages for lost capital appreciation of a rental property are too remote

• Selling a rental property, in certain circumstances, may constitute sufficient mitigation

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Limitation and Entire Agreement Clauses

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Limits of Limitation Clauses – Framework

• As a matter of contractual interpretation, does the exclusion clause apply to these circumstances?

• If the exclusion clause applies, was the clause unconscionable at the time the contract was made?

• If the exclusion clause is valid and applicable, should the Court refuse to enforce it because of overriding public policy concerns?

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Limits of Limitation Clauses – Interpretation

Goodlife Fitness Centres Inc. v. Rock Developments Inc.

When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. [Underline in original]

• Evidence of negotiation history is generally inadmissible

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Limits of Limitation Clauses – A Practical Approach

• What does the clause say?

• Who are the parties?

• What did the parties do before and after signing the contract?

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The Limits of Limitation Clauses – An Example

Gendron v Doug C. Thompson Ltd. (Thompson Fuels)

Thomson Fuels is not responsible for the inspection and/or maintenance of any fuel oil tank located on the premises.

Thompson Fuels shall not be liable for any injury or damage to any person or property resulting from the existence and operation or non operation of any oil burning installation at your premises. Further Thompson Fuels shall not be liable for any damage caused by furnace failure while your residence is vacant nor for any special or consequential damages resulting from the failure to perform its obligations under this contact.

• This clause failed because it: ◼Did not expressly exclude liability resulting from breach of regulatory

obligations◼Was contrary to public policy

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Clauses that provide that the contract can only be amended in writing, and sometimes require that the written amendment be signed by both parties

Clauses that require that each party certify that they have not been induced to enter into the contract by any representations, except for those included in the contract

Clauses that state that the parties have reduced their entire bargain to a written contract and that there are no other agreements between the parties

Entire Agreement Clauses

Written Agreement

Written Amendment

No Representation

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Entire Agreement Clauses

• Begin with a well-drafted entire agreement clause◼ What do the parties seek to exclude from their bargain?◼ Who could have made representations or promises before the contract

was entered into?◼ When is the entire agreement clause going to apply?

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Entire Agreement Clauses – Singh v. Trump

Agreement of Purchase and Sale:31. The Vendor and the Purchaser agree that there is no representation, warranty, collateral agreement or condition affecting this Agreement or the Property or supported hereby other than as expressed herein in writing.

Disclosure DocumentPurchasers are advised that no representations are made with respect to expected or projected rental income. There is no assurance that Hotel Units will be able to be rented at any particular rate or for any particular period of time…

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Limits of Limitation Clauses

Notwithstanding anything contained in this Lease Agreement, the Lessor shall not be liable for any loss, injury or damage of any kind whatsoever caused or purported to be caused by the raising or lowering of any body of water.

Berscheid v. Government of Manitoba

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Limiting Personal Liability – The Corporate Veil

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Limiting Personal Liability – The Corporate Veil

• The test for personal liability under the oppression remedy ◼ Oppressive conduct must be “properly attributable to the director” because

the director is “implicated in the impression” ◼ Personal liability must be “fit in the circumstances”

Dewan v. Burdet“Where, as here, it is clear that a director is the motivating force behind the

oppressive conduct, he or she should be held personally liable”

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Limiting Personal Liability – The “Directing Mind”

6071376 Canada Inc. v. 3966305 Canada Inc. et al.◼ Director of defendants personally liable and owed a fiduciary duty in his

personal capacity because:Held the Plaintiffs’ funds, through the defendant companyActed as the controlling mind, and was sold shareholderExpressly caused a wrongful act

• Does this reasoning apply only to bad actors?

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Real Estate Implications – Corporate Veil

• Single purpose entities must establish and maintain separate existence

• Principal, or operating company, should consider:◼ Shareholder or joint venture

agreement to define and limit reasonable expectations

◼ Document corporate decisions◼ Appropriate indemnity and insurance

must be maintained◼ Express limitation on liability

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Limited Partnerships – Canadian Home Publishers Inc. v. Parker

• Limited partnership terminated on death of only limited partner

• Limited partner had received 50% of profits during life of partnership

• Limited partner found to have no entitlement to residual value of partnership assets on dissolution

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Real Estate Implications – LPs

• Limited partnerships are common joint venture structure for tax reasons

• Structures are very often driven by how profits will be taxed

• Dissolution and termination must also be considered: ◼ When can the venture be terminated?◼ What happens to the joint venture assets

• When and how a joint venture can be terminated – and the consequences of termination are also important

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Limitation Issues

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Limitation Issues – Discoverability

A claim is discovered, and the two year limitation period begins to run, when the plaintiff knew or ought to know: (i) that the injury, loss or damage had occurred,(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,(iii) that the act or omission was that of the person against whom the claim is made, and(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it;

The plaintiff is presumed to discover the claim when it arises, unless the contrary is proven.

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Limitation Issues – When is a Claim “Appropriate”?

• The balance: ◼ Plaintiffs should not rush to

court if there is another option◼ But Defendants are entitled to

have claims asserted in a timely manner

Attibution: Andrew F. Scott (Creative Commons)

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Limitation Periods and Indian Meal Moths

• Marvelous Mario’s v. St Paul Fire and Marine Insurance ◼ Business interruption losses

caused by Indian meal moth infestation

◼ Company sued insurer for resulting losses

◼ Turned on concept for a “rolling” limitation period

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Limitation Periods and Recurring Breach

Breach

DiscoveryLimitation

Period Commences

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Cases Referenced

• Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254

• CM Callow Inc. v. Zollinger, 2018 ONCA 896

• Greater Vancouver Sewerage v. Wastech Services Ltd., 2019 BCCA 66

• Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519

• Gendron v. Doug C.Thompson Ltd. (Thompson Fuels), 2019 ONCA 293

• Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58

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Cases Referenced

• Singh v. Trump, 2016 ONCA 747

• Berscheid v Government of Manitoba, 2019 MBQB 79

• Wilson v Alharayeri, 2017 SCC 39

• Dewan v Burdet, 2018 ONCA 195

• 6071376 Canada Inc. v 3966305 Canada Inc. et al., 2019 ONSC 3947

• Canadian Home Publishers Inc. v. Parker, 2019 ONCA 314

• Presley v. Van Dusen, 2019 ONCA 66

• Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co., 2019 ONCA 635

Francy KussnerGoodmans LLP

fkussner@goodmans.ca

416.597.4188

Mark DunnGoodmans LLP

mdunn@goodmans.ca416.849.6895

Questions?