In the world of contract law, the duty of honest performance plays a vital role in ensuring that parties to a contract act in good faith and deal with each other honestly. Breach of this duty can lead to significant consequences, including potential damages. However, a recent case has highlighted a crucial aspect of this duty: the absence of a presumption for damages in cases of its breach. In this blog post, we will delve into the case where the court found that there is no presumption for breach of damages for a breach of the duty of honest performance.

The Case in Question

Bhatnagar v. Cresco Labs Inc., 2023 ONCA 401, revolves around a breach of the duty of honest performance by Origin House and the subsequent appeal. The central issue at hand was whether the application judge erred in refusing to presume loss as a result of the breach of the duty of honest performance.

In the case at hand, 2360149 Ontario Inc., operating as 180 Smoke, a company specializing in vape products, was founded by appellants Boris Giller, Ashutosh Jha, and Gopal Bhatnagar. They sold 180 Smoke to CannaRoyalty Corp., operating as Origin House, through a share purchase agreement in 2019. The agreement included provisions for additional payments to the vendors if certain milestones were met over the following three years. The agreement also provided that if Origin house was sold during the earn-out period, the Vendors would be paid for all future unearned milestone payments.

A change of control occurred at Origin House when it was acquired by Cresco Labs Inc. The transaction was expected to close in 2019 which would have triggered the payment of three years of unearned milestone payments to the Vendor. The closing was delayed, and the transaction did not close until 2020, thereby providing the Vendors with only the 2020 and 2021 milestone payments, since 180 Smoke did not meet revenue targets for the 2019 earn-out.

The appellants claimed that Origin House’s failure to promptly update them on the new closing date constituted a breach of the duty of honest performance. Despite finding this breach, the court did not award damages due to a lack of evidence demonstrating a lost opportunity on the appellants’ part. Even if the Vendors were promptly informed of the change in the closing date, they would not have been able to achieve the revenue targets or expedite the Cresco transaction’s closure. As a result, there was no indication of a missed opportunity, and the judge determined that no such evidence could be presumed.

The Application Judge’s Reasoning

The application judge rejected the notion that a breach of the duty of honest performance automatically triggers a presumption of damages. The key argument put forth by the appellants was based on a passage from a previous case, C.M. Callow Inc. v. Zollinger, 2020 SCC 45, which seemed to suggest that such a presumption existed. However, the application judge found that this interpretation was flawed.

In Callow, the court stated, “[E]ven if I were to conclude that the trial judge did not make an explicit finding as to whether Callow lost an opportunity, it may be presumed as a matter of law that it did, since it was Baycrest’s own dishonesty that now precludes Callow from conclusively proving what would have happened if Baycrest had been honest.”

The application judge concluded that while the appellants had indeed suffered harm, they had failed to establish a clear causal link between the breach and the loss. Therefore, there were no damages inferred or proven that flowed directly from the breach.

The Parties’ Positions on Appeal

On appeal, the appellants argued that the court should presume damages once a breach of the duty of honest performance is established, regardless of whether there is concrete evidence of a lost opportunity. They believed that the application judge had erred in demanding an evidentiary foundation to prove the facts on which damages were estimated.

Conversely, Cresco, the opposing party, contended that the application judge had correctly found that there was no evidentiary basis for the damages claim. They argued that even if a lost opportunity could be presumed or inferred, the evidence should still establish what was lost and demonstrate that it was lost due to a breach of the duty.

Analysis of the Case

The reviewing court ultimately rejected the appellants’ argument and upheld the application judge’s decision. It emphasized that Callow did not establish an automatic presumption of damages for breach of the duty of honest performance. Instead, the majority decision in Callow placed the burden on the claimant to provide some evidence on which the court could conclude that the breach precluded the claimant from an opportunity to protect their interests or caused a loss of an opportunity.

Crucially, the court noted that the Callow case had specific facts and evidence that supported the damages claim. In Callow, Mr. Callow had opportunities to bid on other contracts but chose not to due to a misapprehension caused by Baycrest’s deception. The Defendant’s deception prevented the Plaintiff from definitively establishing its losses, but the Plaintiff did successfully demonstrate the actions it would have pursued to avoid its losses, had it not been for the Defendant’s lack of honesty.  This evidentiary foundation was absent in the current case to presume a loss of an opportunity.

Furthermore, the court pointed out that the Emphasized Words in Callow were permissive, using the word “may” rather than “must.” This permissive language indicated that a presumption of loss is not mandatory but subject to the presence of certain conditions.

Conclusion

The case in question serves as a reminder that while the duty of honest performance is a crucial aspect of contract law, it does not automatically lead to a presumption of damages upon its breach. Instead, claimants must provide some evidence linking the breach to their losses, and the court will carefully consider the facts and evidence in each case. This nuanced approach ensures that the duty of honest performance remains a meaningful legal concept while preventing unwarranted claims based on speculation or flimsy evidence.

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The Appellant appealed a judgment from the Small Claims Court challenging the fairness of the trial process and the adequacy of the Deputy Judge’s reasons. Specifically, the Appellant claimed that the Deputy Judge made palpable and overriding errors in their assessment of the evidence.

The dispute was over an unpaid landscaping invoice between the plaintiff, Terra Scapes Construction Inc. (“Terra”), and the defendant property owner (the “Appellant”). Both parties were self-represented at the Small Claims Court proceeding.

The Appellant alleged unfairness as the Deputy Judge failed to inform and direct the self-represented litigants of their right to cross-examination, even in the face of conflicting evidence submitted by the parties.

Trial fairness requires the parties have an opportunity to cross-examine each other. Without this, there is no basis for distinguishing contradictory testimonial evidence. Despite there being no cross-examination in this case, the Deputy Judge chose to prefer the Terra’s evidence to that of the property owner.

The Divisional Court referenced the Small Claims Court mandate, which ensures that the Court handles a large volume of cases in an efficient and economical manner. However, the Divisional Court found that the absence of cross-examination of either party was a significant gap in the proceeding, giving rise to unfairness in the trial. The unfairness was further solidified by the fact that the Respondent, Terra, was given an opportunity to explain the evidence he was entering onto the record, whereas the Appellant property owner was not provided with the same. As such, the proceeding was held to be unfair and a breach of procedural fairness. A new trial was ordered before a different Deputy Judge of the Small Claims Court.

Formal cross-examination is not required in every matter before Small Claims Court. In Earthcraft Landscape Ltd. v. Clayton, 2002 NSSC 259,the Court specified that the main concern is whether the evidence has been tested in some form, by cross-examination or otherwise: “it is the substance, rather than the form of cross-examination that is required.”

In conclusion, testing the evidence submitted by the parties is crucial to the overall fairness of the proceeding. As long as parties have an opportunity to do so, and the presiding judge is provided an opportunity to detail why one version of facts is preferred from the other, then procedural fairness would be considered achieved.

This article was written with the assistance of our Articling Student Melisa Delibasic.

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A holdback is a requirement that all owners, contractors and subcontractors withhold 10% of the cost of the services or materials supplied on a project until the lien expiry period has lapsed. This helps to ensure that there is enough money to satisfy any lien claims that may arise.

A few changes with respect to holdback obligations and payment have taken effect since July 1, 2018. Again, it is important to remember that the old rules and timelines with respect to holdback will continue to apply to a project if any one of the following markers occurred BEFORE July 1, 2018:

1. the contract for the improvement (i.e. the project) was entered into between the owner and contractor before July 1, 2018; and

1. the procurement process, if any, for the improvement was commenced by the owner of the premises before July 1, 2018

Mandatory Release of Holdback

Under the rules of the old Construction Lien Act, payment of the 10% holdback is permissive once liens that may be claimed against the holdback have expired or have been satisfied, discharged or otherwise provided for under the old Act.

The new Construction Act has been amended to require the payment of the holdback once all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under the Act. It is important to note that even after the lien period expires and it is confirmed that no liens have been preserved, the use of holdback funds to address deficiencies will be prohibited, subject to notice requirements.


Annual and Phased Release of Holdback

The old Construction Lien Act does not provide for the holdback to be released on an annual or phased basis.  The new Construction Act, provides that a payer can make payment of the basic holdback on an annual or phased basis if certain conditions are met, including the following:

• the contract provides for a completion schedule that is longer than 1 year (if paid on annual basis);
• the contract provides for payment of accrued holdback on an annual or on a phased basis (and identifies each phase);
• the contract price at the time the contract is entered into is $10 million or higher; and
• If, as of the applicable payment date, there are no preserved or perfected liens in respect of the contract, or all liens have been satisfied, discharged or otherwise provided for under the Act.

Non-Payment of Holdback

The old Construction Lien Act does not provide for a notice of non-payment of holdback. Under the new Construction Act, an owner may refuse to pay some or all of the holdback required to pay to a contractor if the owner does the following:

• Publishes a Notice of Non-Payment of Holdback (Form 6) specifying the amount of holdback owner refuses to pay, and the notice is published no later than 40 days after the publication of a certificate of substantial performance (or, if there is no CSP, the date on which the contract is completed, abandoned or terminated); and

• Notifies the contractor of the publication of the notice in writing (electronic or paper format) within 3 days of publication.

Come October 1, 2019, a contractor may also withhold payment of holdback to subcontractors, but only if:

1. the owner has refused to pay the holdback,
2. the contractor refers the matter to adjudication, and
3. the contractor notifies every sub of the amount not being paid and of the adjudication referral.

Similar rules will also apply to subcontractors who may withhold payment of holdback to sub-subcontractors and suppliers.

The above information is provided by way of guidance as to the application of the amended legislation. It is not exhaustive in its scope and is not legal advice. It is strongly recommended that you consult with a specialized construction lawyer to determine how the amendments will affect your business and what you need to do to prepare.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author atipichini@freedinrowell.com or (905) 276-0420

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NAVIGATING SMALL CLAIMS COURT
If you have a dispute with an individual or corporation where the value of the claim is for $25,000.00 or less or are looking to have personal property, valued at a maximum of $25,000, returned to you, you are likely considering pursuing an action in Small Claims Court. Although Small Claims Court is intended to be easily understood by self-represented parties, it can become confusing or intimidating for a person without a legal background. Below is a breakdown of the main components of a Small Claims Court proceeding to help you get started in navigating a Small Claims Court action.

PLEADINGS
The pleadings are the first stage in an action. Pleadings are the documents that initiate the Court process and demonstrate to the Court the nature of the dispute, the relief sought by the Plaintiff and the defence relied upon by the Defendant.

The PLANTIFF’s CLAIM
The party who commences the action is called the Plaintiff and initiates the process by preparing and filing a Plaintiff’s Claim. The Plaintiff’s Claim will be filed with the Court and delivered to the individual or business that the Plaintiff is suing. Contained in the Plaintiff’s Claim is the relief the Plaintiff is seeking, a short clear summary of the events that took place and the reasons why the Plaintiff believes they are entitled to the relief sought. Importantly, there may be a limit on how long you can wait before making your claim. Generally, a claim cannot be filed if more than two years have passed since the incident.

The DEFENCE
The party who defends the action is called the Defendant and files a Defence which responds to the claims set out in the Plaintiff’s Claim. The Defence is used to clearly outline what the Defendant disagrees with, the reasons supporting the disagreement and the statements in the Plaintiff’s Claim, if any, that the Defendant agrees with. The Defence must be filed at the Court within 20 days after the Defendant has been served with the claim. After the 20 day mark, the Plaintiff has the opportunity to note the Defendant in “default”. If a Defendant is noted in default, they cannot file a defence or take any other steps in the proceeding, except to bring a motion to set aside the noting of default and the Plaintiff may obtain default judgment against them.

SETTLEMENT CONFERENCE
The Court will schedule a settlement conference to take place within 90 days of the Defence being filed. A settlement conference is a mandatory step of the proceedings. It allows the parties to discuss the matter in the presence of a judge and will assist in clarifying the issues to be addressed at trial, help the parties reach a settlement without having to proceed to trial and require the parties to provide one another with full disclosure. The settlement conference is a confidential procedure intended to bring about a settlement of the action. The judge cannot make a decision at the settlement conference and will not preside as the judge at trial.
There are special rules for claims $2,500 or under. If Parties in this scenario are unable to reach an agreement at the settlement conference, the presiding judge, with the parties’ consent, may conduct a more thorough review of the issues and evidence and decide the case.

TRIAL
The trial is the final stage in the Small Claims Court proceeding and is where the Plaintiff and Defendant will present their respective positions in the presence of a judge who will render a decision.

Generally, the Plaintiff will be required to prove that the Defendant caused the Plaintiff’s loss and that they are entitled to money or personal property to rectify the situation, and to establish the amount of money or goods that the Plaintiff deserves. The Defendant, on the other hand, must explain why the loss claimed by the Plaintiff is not their fault or why the quantum of money or goods is inflated.

At trial, both parties are entitled to present evidence to the judge, call witnesses and ask them questions and question the other party’s witnesses.

After hearing all of the testimony and reviewing the evidence, the judge will make a decision. Usually, the judge will make a decision shortly after both parties have presented there case; however, it is not uncommon for the judge to decide the matter later and mail a copy of the written decision to the parties.

ENFORCING JUDGMENT
So you have just gone through the entire process and have been awarded judgement in your favour. Unfortunately, this does not always mean that the Defendant, now called the debtor, will make prompt payment. In this case, the Plaintiff, now known as the creditor will need to take steps to enforce the judgment. The main two ways to enforce the judgment are through garnishment of bank accounts or wages and/or the seizure and sale of personal property, assets or land. In the event that the Plaintiff is completely unaware of the debtor’s finances or assets, they can request the Small Claims Court to hold an examination in aid of execution. At this hearing, the debtor must provide information about their job, income, property, bank accounts, debts, expenses and reasons for not paying the judgment.

Informational: Navigating Small Claims Court provided by: Shaun Singh, an associate at FREEDIN & ROWELL, and a member of the firm’s Commercial Litigation Group.

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Estate litigation is an emotionally charged area of law. While family disputes over inheritance are nothing new, we are seeing more of these types of claims. Below is a brief overview of the common sources of estate and trust disputes.

1) Blended families and dependent relief claims

The amount of beneficiaries’ inheritance is often the subject of disputes. In a typical example, the deceased leaves a will in which a beneficiary(s) feels that they have not received enough of an inheritance or they may have been excluded completely. Blended families can find themselves in the middle of an estate dispute if children from a previous marriage of the testator have been excluded or feel they have received less than the testator’s new spouse and/or children.  Documenting reasons for the differences in amounts is important when arguing the will should be upheld.

Similarly, common-law spouses may be under the assumption that they have the same rights as legal spouses, which is not the case in Ontario. Therefore, if proper estate planning is not undertaken by the testator/deceased to ensure their common-law partner is provided for, that spouse may have no other alternative but to make claims against the estate for dependent relief. The risk of such claims is much higher if a deceased did not leave a will so it is very important for individuals with blended family situations to have a proper estate plan in place.

2) Estate Trustee conduct

Another source of disputes is the conduct or the perceived conduct of an estate trustee. If an estate trustee is not being forthcoming with information about the estate or is difficult to communicate with, the beneficiaries can feel that the estate trustee is being evasive which in turn fuels suspicion that they are hiding something. While an estate trustee is not required to advise of every single step they are taking with respect to the administration of the estate, there are important steps where it is especially important to notify beneficiaries, for example when the estate trustee is applying for probate, and it is wise to generally keep beneficiaries informed as to the status of the administration of the estate. If beneficiaries feel that the estate trustee is being dishonest or hiding something and they are having trouble communicating, it is highly likely that they may retain a lawyer to start court proceedings to remove the estate trustee.

In order to mitigate the risk of removal as estate trustee, it is best that an estate trustee consult with lawyers specialized in this area of estates and trusts law about communicating with beneficiaries and generally their rights and obligations concerning the administration of the estate.


3) Power of Attorney Challenges

As people are living longer, we are starting to see an increase in challenges to powers of attorney. Typically, questions are raised as to whether powers of attorney may have been procured by undue influence or that an individual lacked the capacity to sign such  powerful documents, which in turn has led to alleged abuse of an elderly individual’s finances or improper decisions with respect to personal care have been potentially been made.

4) Accounting and Trustee compensation and expenses

Disputes regarding compensation and the expenses the estate trustee is entitled to recover from the estate can be another source of contention with the beneficiaries.

Problems may arise if an estate trustee has pre-taken compensation prior to completion of the administration of the estate, especially if they were not authorized to do so under the will or without consent of the beneficiaries.

Problems also arise if an estate trustee has not properly accounted for their dealings and provided a breakdown of receipts and payments of the estate, which would assist with the proper calculation of compensation.

5)Joint accounts/property and beneficiary designations

Another source of estate disputes is where joint accounts are held by an aging parent and adult child. The case law is well established, specifically in the leading case of Pecore v Pecore, which has created the presumption that an account is held this way not with the intention that the adult child is the beneficial owner of the account but is a legal/registered owner simply to assist the elderly parent with the day-to-day management. The beneficial owner is solely the elderly parent and upon the death of that parent, that asset will then form part of the estate. This is what we call a resulting trust.

Recently, the court has taken the approach in Pecore and applied the presumption of the resulting trust to accounts with beneficiary designations such as a RRIF (Calmusky v Calmusky). It remains to be seen as to whether this decision will be challenged, however it highlights the need to have a clear documented instrument or declaration from the parent who owns the account as to their intentions in order to avoid disputes.

For further questions on the information in this article or questions on how we can help you navigate your estate planning needs, please contact any member of our Business and Estate Succession group.     
​This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice based on their specific situations.

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‘Oppression remedy’ refers to the Canada Business Corporations Act. Under section 241, a shareholder or non-shareholder has the right to proceed with a court action against a corporation who has exhibited conduct that is deemed oppressive.

For shareholders to receive oppression relief, they must engage in a court action and successfully prove the company is engaging in conduct suited to a definition of oppressive or unfairly prejudicial. They must also prove the company’s decision is inconsistent with a shareholder’s reasonable expectation.
The first task an oppression remedy must accomplish is identify where oppressive conduct has occurred. A company’s actions which has resulted in a shareholder being impact unfairly compared to other shareholders, which has disregarded their interests, and/or which has caused actual harm all suits this definition. This can include;

• A company issuing shares which turns a majority shareholder into a minority shareholder.
• Providing dividends or payments selectively to some shareholders and not to others.
• Acting in the benefit of some shareholders and at the expense of others.

An oppression remedy is most likely to succeed when there is no discernible business reasoning behind a company’s conduct. To this point, a detrimental effect does not necessarily establish oppression under Ontario’s Business Corporations Act. In addition, the harm alleged must be suffered in the same capacity in which the complainant is seeking their remedy.

A remedy provided by the Court is going to be based on the rights of the parties as detailed in any articles of incorporation and/or shareholder agreement, as well as in a manner which is within objectively reasonable expectation of the complainant.

Under the Business Corporations Act, a Court can order a remedy ranging from prohibiting an act to regulating the conduct of company affairs, removing a director, appointing a director, directing the purchase or sale of shares, or liquidating a company.

Also, it must be noted that directors and offices of a corporation can be held personally liable for oppressive corporate conduct even though these acts or decisions are essentially a ‘corporate act’.

Unfortunately, oppression claims are oftentimes complicated and costly. They are claims reliant upon provable facts and rely on the credibility of the parties involved. It is not uncommon to have even the simplest claim end up before the Court for years before a decision is made. Oftentimes, they may involve multiple court appearances, extensive document discover, and witness examinations. Thereby, the cost of proceeding with an oppressive claim in addition to the risks of paying the other party’s costs should your claim be unsuccessful before the Court must be considered.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author at ybaykara@freedinrowell.com or (905) 276-0427

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We all want customers and we go to great lengths to keep them happy.  One of those lengths is letting customers pay for products in 30, 60 or even 90 days.  It is important to remember that when you do this you are lending your money to your customer. 

Here’s How to Safely Extend Credit to Your Customers

Here are six steps you should follow to make sure that lending your money to your customer is a sound business decision. 

• Get the customer to complete a credit application

1. Identify the customer’s legal name, business address, website, telephone number and any other contact information so that you know who you are lending to and so that you can find the customer in case you need to sue.  You may be delivering products to a different location or company and you may get paid by a different company.  Make sure you know exactly who you are advancing credit to.
2. Identify your customer’s bank and branch.  If the customer doesn’t pay and you get a judgment you need this information to be able to enforce.  You will also want the customer to tell you what their bank balance is, what their credit limit is, how much they owe and whether they pay regularly and to allow you to contact their bank to verify this information.
3. Collect references from your customer.  This will be a list of other supplier who supply on credit, how much credit they advance, what the payment terms are and how quickly the customer pays.  Make sure you have contact information and consent to contact the suppliers.
4. Get copies of recent financial statements.  If the customer is reluctant to provide financial information (or references or banking information) this is a red flag.
5. Check your customer’s business history. That is, find out how long your customer has been in business and how long they have been with their bank and the suppliers (references).
6. Get consent to perform a credit check.  You cannot perform a credit check without written consent.

• Assess creditworthiness

1. From the credit application, you should have financial statements, references and details about the customer’s existing credit. The first step will be to analyze the financial statements and speak to the customers existing lenders – both banks and suppliers. Are they happy with the customer? And more importantly, is the information the customer gave you consistent with what the other creditors are saying?
2. If the customer looks good at this point, consider further searches.  A credit report can give you an idea of the customer’s borrowing habits to date. A PPSA (security) search can tell you what other debts the customer has and whether the customer owns the assets. An execution search can tell you if there are any judgments against your customer.
3. Other considerations:

• i.How long has the customer been in business? If not long, was the customer operating using a different name/company? Why did the customer close the old company? The customer may have formed a new company to avoid creditors. 
• ii.Google the customer and the principal of the customer. For example, you may get positive or negative reviews which you can use as part of your credit decision. 
• Set smart credit limits and payment terms

1. Decide how much credit you should advance to the customer and for how long – then stick to this!
2. Deciding how much credit and what the term should be will depend on a number of factors:

• i.What risk you are prepared to take on?  The longer you wait to be paid, the higher the risk that something will go wrong and the customer won’t pay
• ii.How long you are prepared to wait to be paid?  Extending the time to get paid will affect your cash flow and force you to operate using your own line of credit – which you have to pay for!
• iii.What is the industry standard?  You still have to be competitive but there is no point in being so competitive that you run yourself out of business.  Its better not to have a customer than to have a customer who doesn’t pay. 

      3. If the customer looks promising but you have some concern, keep the payment term short – say 15 days – and keep the amount low.  Then, as your confidence in the customer builds, increase the term and the amount.

• Consider other forms of security

• Guarantee
• i.Getting a guarantee from the owner of the business gives you another pocket if you have to sue. More importantly, if you have a personal guarantee you ensure that the principal stays involved in the business even if it is struggling. It is more difficult to walk away from a struggling business if you are personally on the hook for its debt.
• Security interest
• ii.Ideally, if you are lending you get a security interest in all of the customer’s assets. If the customer doesn’t pay you can seize all the assets and sell them to recover your debt. However, this may be impossible. The customer may have an operating line of credit with a bank which will be secured against all the assets. Even if you get security you will be behind the bank. In this case you can still get security in the specific product you are delivering and that security will rank ahead of any other lenders, including the bank. This is called a “purchase money security interest”.
• Use a clearly worded credit agreement

1. The credit agreement will set out terms such as:

• i.The legal name of the customer;
• ii.The amount of credit being advanced;
• iii.The amount of time the customer has to pay; and
• iv.The maximum amount of time to report quality or quantity issues.

1. Make sure the credit agreement clearly says that you have the right to cancel credit at any time and for any reason whatsoever. If the customer’s financial situation changes you don’t want to be forced to continue supplying on credit. 
2. If you are getting a guaranty or a security interest make sure these are in writing and signed. The security agreement has to be signed by the customer. The guarantee has to be signed by the person giving the guarantee. 

• Get regular updates

1. Your initial decision to give credit will be based on all of the information above — but circumstances can change. Your client should regularly update all of this information so that you can reassess whether you should advance credit. You want to make sure you catch the customer’s problems before they become your problems. 

Advancing credit to customers is a regular part of business.  With these tips you can make sure you make the right credit decision.  If you provide credit and want to make sure you are protected, call us to review your processes.  And if you have a customer who is not paying, we can help you sue to recover the money owed to you. 
​

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author at wjaskiewicz@freedinrowell.com or (905) 276-0424

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Building inspectors help enforce the Ontario Building Code by doing, amongst other things, carrying out inspections and issuing Orders to Comply. An Order to Comply is essentially a formal warning that tells the person named in order to bring a particular premises into compliance with the Code by a certain date. Failure to comply with the order can lead to being charged under the Code, and can include a charge for having failed with order itself.

Sometimes a building inspector will make a mistake, for example, by issuing an Order to Comply to the wrong party. What happens then? The case of Toronto (City) v Ashley Developments Ltd. give us some insight. In the Ashley case the owner of a commercial premises it was leasing was issued an Order to Comply. As it turned, out the owner’s tenant had carried out renovations at the leased premises without having obtained the required building permit. This was news to the owner. It had neither known about the renovations, nor had it consented to the same. Despite this, when the tenant failed to bring the premises into compliance with the Code the owner was charged with having contravened the Code for failing to have obtained a building permit, and for failing to comply with the inspector’s Order to Comply.

At trial, the court found that the owner was not guilty of the charge of contravening the Code because (I am simplifying) he was not in possession of the premises and did not have knowledge or consent to the renovations. The court also dismissed the failing to comply charge because the owner had proven a defence of due diligence, but also because the owner was able to successfully argue that the inspector had no right to have issued the Order to Comply to the owner in the first place.  

The prosecutor appealed, but he only appealed the court’s decision to dismiss the failing to comply charge. On appeal the prosecution argued that the trial court erred in allowing the owner to attack the inspector’s authority to have issued the Order to Comply. The prosecution also argued that the court erred in finding the owner had made out the defence of due diligence. The appeal court upheld the due diligence defence, butoverturned the trial court’s decision on the authority to issue the order defence. Interestingly, the appeal court did this even though it did not find that the inspector was within his right to have issued the order. You might ask how this is possible, or fair. The answer is something called the principle of collateral attack. In the context of the Ashley case the principle of collateral attack says that even if the inspector improperly issued the Order to Comply to the wrong party (i.e., he should have issued it to the tenant instead of the owner) the person who was improperly served with the order (i.e., the owner) is not allowed to simply stand by and wait until he is charged with a failure to comply to attack the validity of the order. In other words, the owner is not allowed to (collaterally) attack the legality of the order itself at his trial for a charge of failing to comply with that very order. The owner was, of course, free at the trial to adduced evidence showing how it did comply with the order or that it made out a defence of due diligence,  but it was not allowed to challenge the legality of the order itself.

On its face this might seem unfair, but one of the reasons the principal of collateral attack was found to apply in this case was that Code has a specific process by which the owner could have used to have the Order to Comply reviewed and set-aside (i.e., voided). In other words, at its peril the owner chose to contest the validity of the order by way of door number 2 (i.e., trial) instead of door number 1 (the Code mandated review process). At the end of the day it may no difference from a conviction stand point, as the owner beat the rap on his due diligence defence. Choosing door number 2 did, however, result in the unnecessary time and expense of a trial and an appeal. Had the owner chosen door number 1 and followed the review process under the Code he would have likely had the same result, but with less stress and expense (same amount of juice with half the squeeze, so to speak).

The moral of the story: if you or your company think you’ve been improperly named in an order to comply, move quickly to have the order reviewed pursuant to the procedures set-out under the Ontario Building Code. If you want to you can try to figure out how to go about doing this yourself, but if you have better things to I’ll be happy to help you.

Feel free to contact the author at dvansickle@freedinrowell.com or at 905-276-0413 to discuss the issues highlighted in this article or for any of your Commercial Litigation needs.

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You may be able to bring an application for compliance and/or an oppression remedy under the Condominium Act, 1998, S.O. 1998, c. 19, as amended (the “Condo Act“).

By way of example, if a unit is known to be the cause of a pest infestation (e.g., bed bugs, cockroaches, etc.), and your unit (whether you are an owner/landlord or a tenant) is an affected unit (because of the spread of the infestation), the Condo (as represented by its board of directors) has a duty to take all reasonable steps to ensure that the owners and the occupiers of units comply with the Condo Act, the declaration, the by-laws, and the rules of the Condo.

Depending on the particular Condo, the declaration, by-laws, and rules of that Condo typically set out the obligations of owners to, among other things, repair and maintain their units. These obligations are also set out in the Condo Act. Failure to carry out these obligations will permit the Condo to act in place of the owners. Often times, Condo rules will also set out procedures to be taken in the event of a pest infestation.

Pursuant to the Condo Act, no person shall permit a condition to exist or carry on an activity in a unit if the condition or the activity is likely to damage the property or cause injury to an individual. Practically speaking, this means that unit owners need to ensure their units meet the minimum standards of health and safety. Living in unsanitary conditions that ultimately cause a pest infestation is arguably a condition that is likely to damage the property (including the units of other owners) or cause injury to an individual (e.g., bed bug bites).

Condo boards are urged to take these matters seriously as they could be exposed to liability for damages and legal costs if the pest issue is left “untreated”. If the Condo fails to act at all or to act reasonably in response to a complaint of pest infestation (especially if the infestation recurs), owners have remedies they could exercise against the Condo and other unit owners and/or occupiers (e.g., tenants), including obtaining an order from the court for a compliance order and/or an oppression remedy.

With respect to a compliance order, owners, occupiers of units, and the Condo alike may apply to the court for an order enforcing compliance with any provision of the Condo Act, the declaration, the by-laws, or the rules of the Condo. Compliance orders typically deal with enforcing the repair and maintenance obligations of owners, and can be an effective remedy to address pest infestation issues. Failure to comply may be grounds for forcing a unit owner to sell and vacate the Condo.

Similarly, an oppression remedy application under the Condo Act permits an owner or the Condo to obtain an order that is proper, including an order prohibiting certain conduct and requiring the payment of compensation. The court protects legitimate expectations of the owners and the Condo, and interprets the oppression remedy broadly in a way that the unit owners and their guests are protected from oppression.

Feel free to contact the author at clun@freedinrowell.com or at 905-276-0400 to discuss the issues highlighted in this article or for any of your Commercial Litigation needs.

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In Ontario, if you have a dispute with an individual or corporation where the claim is for money or property valued between $25,000.00 and $100,000.00 an action can be commenced in the Superior Court of Justice using the Simplified Procedure process.1 It is important to note, that the Simplified Procedure does not apply to class proceedings, construction lien actions (with the exception of breach of trust claims), family law proceedings, Small Claims matters or Applications.

In Toronto, Windsor, and Ottawa, cases proceeding by way of Simplified Procedure are automatically subject to mandatory mediation to take place within 180 days after the Defence has been filed.2 Mediation is a process whereby a mediator attempts to resolve or settle the dispute between the parties prior to proceeding to trial. Even when Mediation is not required, the parties are still required to discuss settlement of the issues within 60 days of the Defence being filed in an effort to determine whether all relevant documents have been disclosed and if settlement of the issues is possible.

After the time for serving and filing pleadings has ended, the Discovery phase begins. Within 10 days of the close of Pleadings, parties are required to exchange all documents that are relevant to the matter in the form of an Affidavit of Documents. Thereafter, unlike the Ordinary Procedure, where Examinations for Discovery are required, parties in a Simplified Procedure action can choose whether to participate in Examinations for Discovery. Should the parties opt to conduct these Examinations, each party is entitled to two hours of oral discovery (as opposed to seven hours in the Ordinary Procedure).

Following the Discovery stage, the parties will begin to prepare for trial and will participate in a pre-trial conference. A pre-trial conference is a hearing before a judge or a master to determine the current outstanding issues and the positions of the parties. Further discussion does take place before a judge to determine whether the case can be resolved and if not, the parties can choose to conduct an ordinary or summary trial. Should the parties be unable to agree on the type of trial, the pre-trial conference judge or master will make that determination.

A summary trial is a shorter trial where evidence is presented in the form of a written Affidavit and can give oral evidence for up to 10 minutes by the party’s own lawyer, and be cross-examined by their testimony and Affidavit for up to 50 minutes by opposing counsel. Further, each party has 45 minutes to present oral arguments.

The Simplified Procedure is a more expeditious and cost-effective method for resolving issues and is an important consideration when determining your legal strategy. As it is a significantly more concise process than the Ordinary Procedure, understanding how to properly navigate and prepare for actions proceeding in this manner is critical to your eventual success.

1 Notably, if your claim is for property or a monetary value exceeding $100,000.00 you may be able to bring the action under the Simplified Procedure; however, if there is an objection by the Defendant(s) it will possibly proceed by way of the Ordinary Procedure.

2 In other jurisdictions, mediation is optional

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