august 2011 ontario take five

August 2011

Ontario Edition

ON PO I N TLEGAL RESEARCH

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Inside this Issue:

This month we have summarized what we feel are the five most interesting cases from the Ontario C.A. in July 2011.

We highlight cases from the following areas of law:

Civil Procedure; Settlements; Enforceability - p.3

Bankruptcy and Insolvency; Limitation Periods - p.5

Civil Procedure; Material Facts; Contracts - p.7

Wills, Estates and Trusts; Express Revocation of Will; Extrinsic Evidence - p.9

Bankruptcy and Insolvency; Disallowance of Claims; Repudiation of Lease; Landlord and Tenant - p.11

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August 2011


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Charter Building Company v. 1540957 Ontario Inc. (Mademoiselle Women’s Fitness & Day Spa), 2011 ONCA 487Areas of Law: Civil Procedure; Settlements; EnforceabilityUnder Appeal: Justice Jane A. Milanetti

The appellants were Mademoiselle Women’s

Fitness & Day Spa and Neil Proctor. The respondent was Charter Building Company, a division of Ladson Properties Limited. In February 2008, the respondent sued the appellants on a promissory note and unpaid invoices. After the appellants served a notice of intent to defend, the respondent granted a waiver of defence to allow settlement negotiations to proceed. No statement of defence was served. In August 2008, a tentative agreement was reached. After further fine tuning, the appellants never signed the minutes of settlement nor further communicated with the respondent. No payments were made as contemplated by the agreed-upon repayment schedule. The respondent obtained default judgment in March 2009. However, counsel for the respondent

failed to revoke the waiver of defence. The respondent later gave the appellants notice that writs of seizure and sale had been filed with the Sheriff, and also enclosed the default judgment. The appellants brought a motion to set aside the default judgment. The respondents brought a cross-motion seeking to enforce the settlement. The motion judge found that the parties had reached a settlement in October 2008 despite the failure to sign the minutes of settlement. At issue was whether or not a party, by pursuing rights under the action through an erroneously obtained default judgment, is precluded from seeking to enforce a settlement agreement.

BACKGROUND

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Charter Building Company v. 1540957 Ontario Inc. (cont.)

The appeal was allowed. The order of the motion judge

was set aside. The court held that the motion judge erred in making an order to enforce terms of an agreement that no longer existed. The common law doctrine of election applied. Where a party has a choice between two inconsistent courses of action that affect another party’s rights or obligations, and the first party, knowing that the two courses are inconsistent and that he has the right to choose between them, makes a choice and communicates that choice to the other party, the party is then precluded from resorting to the rejected course. The respondents had the choice to elect to affirm

the settlement and hold the appellants to their contractual obligations, or to elect to accept the breach as a repudiation of the contract and proceed with the action. The fact that the default judgment was technically unavailable did not alter the fact that the respondent chose to pursue its rights under the action rather than seeking to enforce the settlement. Once a party accepts repudiation of a contract by pursuing a different course, that party is no longer entitled to assert its rights under the contract.

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August 2011


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The appellant was Food Family Credit Union (FFCU). The

respondent was Rusinek & Associates Inc., Trustee of the Estate of Rodney Patrice Edwards, Bankrupt. The respondent filed a motion pursuant to s. 95 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) for the return of payments made by Rodney Edwards to FFCU on the basis that such payments were a fraudulent preference. The registrar dismissed the motion, finding that the respondent’s claim fell outside the two-year limitation period of s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24 (“LA”) which applied to the federal BIA. The Superior Court justice disagreed and allowed the appeal, stating that application of a provincial limitation period would trigger a conflict of laws, and, under the doctrine of paramountcy, would render the LA inoperative.

Edwards Estate v. Food Family Credit Union, 2011 ONCA 497Areas of Law : Bankruptcy and Insolvency; Limitation PeriodsUnder Appeal: Justice Frank N. Marrocco

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The appeal was allowed, the order

of the Superior Court Justice was set aside and the order of the registrar was reinstated. The court held that the registrar was correct to conclude that there was no conflict between s. 4 of the LA and s. 95 of the BIA, and that the two-year limitation period applied. The Supreme Court of Canada has previously held that general limitation periods in provincial statutes apply to bankruptcy proceedings. The relationship between s. 4 of the LA and s. 95 of the BIA does not fit into either of the limited circumstances where provincial laws should be rendered constitutionally inoperative:

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1. Where the provincial law is in an operational conflict with federal law, such that there is an impossibility of dual compliance, or

2. Where the operation of the provincial law would frustrate the purpose of the federal law.

Having resolved the constitutional issue and having found that two-year limitation period applied, the court further stated that there was no error in the registrar’s findings of fact nor legal analysis regarding discovery of the preference issue and the issue of an implied agreement between the parties tolling the operation of the limitation period.

Edwards Estate v. Food Family Credit Union (cont.)

APPELLATE DECISION


August 2011


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The appellants were NHL Enterprises, L.P. (“NHL”)

and Molson Coors Canada Inc. (“Molson”) in addition to several related companies. The respondents were Labatt Brewing Company and Labatt Breweries of Canada LP (“Labatt”). At issue was whether or not NHL and Labatt reached a binding sponsorship agreement on November 12, 2010 which prevented NHL from entering into a similar agreement with Molson on February 8, 2011. A renewal provision in the previous sponsorship agreement between NHL and Labatt contained a provision for a 60-day exclusive negotiation period. Labatt did not plead that the parties reached a binding sponsorship agreement on November 12, 2010. Labatt never asserted during the application that a binding sponsorship agreement existed, and, at the hearing, disavowed that it had reached

such an agreement with NHL. Labatt did argue that the parties reached “Terms of Renewal” which obligated NHL to continue negotiations toward a sponsorship agreement. The application judge never raised the issue of the existence of a binding sponsorship agreement with NHL or Molson, but he still found that a binding sponsorship agreement had been reached on November 12, 2010.

Labatt Brewing Company Ltd. v. NHL Enterprises Canada, 2011 ONCA 511Areas of Law : Civil Procedure; Material Facts; Contracts; Binding AgreementsUnder Appeal: Justice Frank J.C. Newbould

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The appeal was allowed, the

judgment of the application judge was set aside and the matter was remitted to a different judge of the Superior Court of Justice for further proceedings. The court found that the application judge erred in considering whether or not NHL and Labatt reached a binding sponsorship agreement on November 12, 2010, given that Labatt did not advance such an argument in the proceeding below and thus NHL had no

chance to respond to such an argument. The decision of the application judge was not “…anchored in the pleadings, evidence, positions or submissions of any of the parties” and thus was procedurally unfair and contrary to natural justice. There was a significant difference between interpreting the renewal provision of the previous agreement (a pure question of law) and determining whether a binding agreement had been made (involving a determination of factual issues). The application judge’s analysis of the renewal provision, and his conclusion that a binding agreement had been reached, created procedural unfairness.

Labatt Brewing Company Ltd. v. NHL Enterprises Canada (cont.)

APPELLATE DECISION


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August 2011

The appellant was Dr. Richard Rondel

(“Rondel”). The respondents included Sheldon Norman Silverman (“Silverman”), who was the Trustee of the estate of Blanca Esther Robinson (the “testator”) as well as her solicitor, and various relatives and friends of the testator. The testator, born in Spain, first met Rondel while working in the UK. Sometime during the 1960’s, the testator moved to Canada and became a Canadian citizen. She married Tom Robinson, who, some 30 years later, was institutionalized due to Alzheimer’s disease. The testator then began a relationship with Rondel. The testator owned property in Spain, England, and Canada, and owned a condominium in the U.S. in joint tenancy with Rondel. She executed a will in Spain (the “2002 Spanish Will”) to distribute her European property in equal shares to her sisters with a life interest in a London flat to Rondel. The 2002 Spanish

Will clearly indicated that the testator had executed a will in Canada regarding her non-European property. After the testator’s husband died in July 2005, she instructed Silverman to draft a new will to deal with her entire estate, dividing it between her step-children, brother-in-law, business friends and nieces, but with no portion to go to her sisters. A day later, the testator instructed Silverman to add only one sister, Maria Pilar Hurtado, as a beneficiary. The new will (the “2005 Will”) contained a general clause disposing of “all my property of every nature and kind and wheresoever situate” in addition to a standard revocation of all previous wills. The testator was not asked about any previous wills, the location of assets or about family and significant others. The 2005 Will was thoroughly reviewed with the testator prior to her executing it. In July 2006, after learning she had inoperable brain cancer, the testator decided to make a bequest of $1 million to Rondel (the “2006 Will”). The 2006 Will contained revocation and general dispositive clauses and was signed by the testator in August 2006. After the testator’s death in October 2006, Silverman began to distribute assets according to the 2006 Will. After the English court refused to admit the 2002 Spanish Will to probate unless the 2006 Will was rectified to ensure the 2002 Spanish Will had not been revoked, applications were brought by Silverman and Rondel for rectification of the 2006 Will. The application judge dismissed the applications.


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Rondel v. Robinson Estate, 2011 ONCA 493Areas of Law : Wills, Estates and Trusts; Express Revocation of Will, Extrinsic EvidenceUnder Appeal: Justice Edward P. Belobaba


BACKGROUND






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The appeal was dismissed.

Direct evidence of third parties regarding a testator’s intentions is inadmissible except where there is an equivocation in the words of a will. The evidence of disappointed beneficiaries and other third parties is not as probative of a testator’s intentions as their own clear and unambiguous statement in the will. There was no way for the court to make a legal finding of fact that the testator did not intend to revoke the 2002 Spanish Will, and thus the evidence offered by Rondel and Silverman to establish the testator’s true testamentary intentions was properly rejected.

Rondel v. Robinson Estate (cont.)

APPELLATE DECISION


August 2011


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The appellant was Hewlett-Packard

(Canada) Co.(“HP”), successor to EDS Canada Inc (“EDS”). In June 2001, EDS subleased a property in Mississauga, Ontario to NexInnovations (“Nex”). In October 2007, as part of an Initial Order granting creditor protection under the CCAA, Nex was given the right to repudiate leases. The Initial Order also appointed a Chief Restructuring Officer (“CRO”) for Nex. In a February 2008 letter to EDS the CRO, on behalf of Nex, repudiated the lease. Included with the letter was an acknowledgment which was never signed, dated

or returned by EDS to Nex. Nex abandoned the premises on March 21, 2008. EDS was unsuccessful in re-letting the premises. Nex’s restructuring efforts failed and it never filed a plan of arrangement. The majority of Nex’s assets were sold pursuant to orders in the CCAA proceedings. EDS submitted a proof of claim to the Trustee in bankruptcy of TNG (formerly known as Nex) for $3,313,500.24 for unrecoverable expenses during the term of the lease up to January 30, 2012. The Trustee issued a disclaimer of the lease, bringing the lease to an end and terminating all

rights and obligations for the payment of rent on September 18, 2008. In December 2008, the Trustee obtained a sale approval and vesting order annulling the Nex Bankruptcy Order and transferring all Nex assets to TNG. Subsequently, TNG was adjudged bankrupt and all claims against Nex became claims against TNG, with all Nex assets becoming available to satisfy such claims. In October 2009, the Trustee disallowed the bulk of the claim. HP, the successor to EDS and appellant, moved to have the disallowance set aside and the claim declared valid. The Superior Court Justice dismissed the motion. HP appealed.

TNG Acquisition Inc. (Re), 2011 ONCA 535Areas of Law : Bankruptcy and Insolvency; Disallowance of Claims, Repudiation of Lease; Landlord and TenantUnder Appea : Justice Colin L. Campbell


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TNG Acquisition Inc. (Re) (cont.)

APPELLATE DECISION

The appeal was dismissed. The court

held that termination and repudiation are two distinct legal concepts: terminating a lease brings it to an end, repudiation does not (and also does not relieve the repudiating party of its liabilities for breach). In CCAA proceedings, landlords have an election to make when a tenant repudiates, and if the landlord does nothing, the lease continues in force. As the appellant did not make an election after receiving the Repudiation Letter, did not acknowledge or accept the repudiation, did not make use of alternative mechanisms in the Initial Order for

repudiation, and as there was no agreement nor compromise ever filed in the CCAA proceeding, EDS and Nex remained landlord and tenant, and thus the lease was still susceptible to statutory disclaimer by the Trustee.
