About Irvin Schein

I am a happily married father of 4.

The Latest on Certificates of Pending Litigation: How Unique Does the Property Have to Be?

The recent Ontario Superior Court of Justice’s decision in THMR Development Inc. v. 1440254 Ontario Ltd. may exemplify a judicial trend in favour of a more liberal view of the extent to which a property must be “unique” before a certificate of pending litigation may be granted.

Where a real estate transaction has been terminated by a vendor and the purchaser still insists on closing, one remedy available to the purchaser as part of a lawsuit for specific performance of the contract is the issuance and registration of a certificate of pending litigation on title.  This device should ensure that the vendor cannot sell the property out from under the purchaser while the purchaser’s claim is proceeding before the Court.

In this case, the plaintiff/purchaser agreed to purchase from the defendant a commercial property in Port Perry.  The property was located on the last street in Port Perry that is parallel to the waterfront.  The purchaser claimed that this location was highly desirable for its business and that it had been looking for such property in Port Perry for several years.  It was close to other properties owned by the plaintiff and was the only suitable such property for sale in the plaintiff’s price range.

The agreement of purchase and sale was conditional on the plaintiff obtaining the approval of the existing mortgagee to assume the existing first mortgage.  The approval had to be obtained by the 40th business day following the day on which the agreement was “fully executed”.

The purchaser took steps to obtain the first mortgagee’s approval and ultimately obtained a letter from the first mortgagee consenting to the plaintiff’s assumption of the mortgage.  The vendor took the position that, among other things, the approval had been provided by the first mortgagee after the deadline date and accordingly, the transaction was terminated.

The parties disagreed about the deadline date.  The purchase agreement had been negotiated back and forth over some period of time and there did appear to be some ambiguity as to when the 40 day time period started to run.

In any event, the purchaser sued for specific performance and brought a motion for a certificate of pending litigation.

The Court pointed out that the test on such a motion, brought on notice to the vendor, is the same as the test on a motion by a vendor to discharge a certificate obtained without notice.  The question in either case is whether or not there is a triable issue as to an interest in the land, and not whether or not the purchaser is likely to succeed at trial.

The Court outlined the various tests involved in the process including, importantly, whether or not the land is unique.  The Court will also consider whether there is an alternative claim for damages, the degree of difficulty in calculating damages, and whether damages would be a satisfactory remedy.  Overall the Court will consider the harm to each party if the certificate is or is not issued as well as any other relevant matters between the parties in the exercise of the Court’s discretion in equity.

In this case, the Court had little difficulty concluding that there was indeed a triable issue as to a reasonable claim to an interest in the property.  The Court was also satisfied that the property was unique.  The Court approved previous authority to the effect that the purchaser need not demonstrate that the land is unique in the strict dictionary sense that it is entirely different from any other piece of property.  It is sufficient to demonstrate that the property has a quality that makes it especially suitable for the purchaser’s proposed use and that the property cannot be reasonably duplicated elsewhere.

In this case, given the property’s location and its particular suitability to the purchaser, the Court considered it unique.  The Court specifically rejected the argument that as a rule, commercial parties are not entitled to certificates of pending litigation.

There was a time that commercial purchasers understood that the availability of a certificate of pending litigation in a case of the purchase of commercial property was virtually nil.  Clearly, that is no longer the case.

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Avoiding Arbitration: Is the Case a Proper One for Summary Judgment?

The Courts in Ontario have made it clear that parties to a contract containing an arbitration clause will be required to arbitrate rather than pursuing a lawsuit, unless they both agree otherwise. The Arbitration Act itself specifically provides that Courts are not to interfere in disputes covered by an arbitration agreement other than for the limited purposes of assisting in the conduct of arbitrations, ensuring that they are conducted in accordance with arbitration clauses, to prevent unequal or unfair treatment of parties to arbitration clauses, and to enforce arbitration awards.

According to the legislation, if a party to an arbitration agreement starts a lawsuit instead of proceeding with an arbitration, the Court will stay that proceeding upon motion brought by the other party to the arbitration agreement.

However, there are exceptions.

One of the exceptions specified by the Act is any case in which the matter is a proper one for default or summary judgment.

This provision was added to the Act in 1991, when summary judgments were still rare and difficult to obtain. At that time, disputes involving numerous contested facts, and particularly cases where credibility issues existed between the parties, would rarely be dealt with by means of summary judgment. As a result, there have been very few cases determining what might or might not be a “proper” case for summary judgment within the meaning of the Act.

The cases that have dealt with the issue provide that a Court would have to be satisfied that a motion for summary judgment, if brought, would appear to have a high prospect of success and was not being used as a device to avoid the arbitration agreement. It has been understood that the summary judgment exception would be exercised sparingly and only in the most simple and clear cases.

Much more recently, however, the Supreme Court of Canada decision in Hryniak v. Mauldin held that “a trial is not required if a summary judgment motion can achieve fair and just adjudication… and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial”.

It is clear from subsequent cases that this decision has dramatically lowered the threshold required for a party to obtain a summary judgment.

Accordingly, it can certainly be argued that many more cases than before may be considered to be “proper” cases for summary judgment. A party now faced with the prospect of having to arbitrate a dispute may now have a realistic opportunity to avoid that process, if so desired, if there is any reasonable prospect of persuading the Court that the case may be more efficiently resolved by means of a summary judgment motion than an arbitration.

It should be borne in mind that nowhere does the Act specify that a motion for summary judgment must actually be brought. It merely has to appear, presumably at an early stage, that the case is a proper one for summary judgment.

In other words, a party to an arbitration agreement may choose to commence a lawsuit.  The defending party, presumably, would bring a motion to stay the action given the existence of the arbitration clause. If the plaintiff can demonstrate that the case is a proper one for summary judgment, the Court may well exercise its discretion to refuse the stay and permit the lawsuit to continue. The successful plaintiff is under no obligation to actually bring a motion for summary judgment. There is no jurisprudence that suggests that the unsuccessful defendant may bring a new motion for a stay at some point down the road on the basis that the plaintiff had failed to bring its summary judgment motion.

An arbitration is often a cheaper and faster way of resolving a dispute, compared to a lawsuit. However, that is not always the case. There are many instances in which an aggrieved party would prefer a lawsuit, but cannot commence one because of an arbitration clause. In such instances, the existence of the summary judgment exception should be borne in mind and may provide an escape route.

Online Defamation: What if the Author Can’t Be Identified?

The recent case of Carleton Condominium Corporation No. 282 v. Yahoo! Inc. and Yahoo! Canada Co. provides useful guidance on how a potential Plaintiff in a defamation case can identify the author of a defamatory statement made online.

This case involved an individual, using a false name, sending a series of emails from an email address which did not provide a clue as to the author’s identity.  The emails were sent to residents of the condominium building, following the resignation of the condominium corporation’s superintendent, and stated that the members of the board of directors had been harassing the superintendent and deliberately ignoring a variety of problems.  The emails also accused the board members of receiving kickbacks and generally mishandling problems.

The President of the board of directors emailed this individual asking him to identify himself.  The author refused to do so.

The emails were sent using a Yahoo! email address.  The condominium corporation brought an application to the Court for what is known as a Norwich order.  A Norwich order is an order requiring a third party to a potential action to disclose information that would otherwise be confidential.  The condominium corporation asked that Yahoo! be ordered to disclose the identity of the author of the emails.

The Court observed that the following factors apply to an application for a Norwich order:

  • does the Applicant have evidence of a valid claim;
  • does it appear that the third party is somehow involved in the acts complained of;
  • is the third party the only practical source of the information available;
  • can the third party be indemnified for any costs to which the third party may be exposed as a result of the disclosure; and
  • do the interests of justice favour obtaining the disclosure?

The Court of Appeal has made it clear that a Norwich order is a discretionary remedy.  Given that it is intrusive and extraordinary, it is to be exercised with caution.  An Applicant for such an order must show that the information sought is required to permit a perspective lawsuit to proceed although it is not necessary for any Applicant to make a firm commitment to actually start the action.

In this case, the Court was satisfied that the condominium corporation had an apparently valid claim for damages for defamation.  Yahoo! Inc. and Yahoo! Canada Co. were involved in the alleged wrongful acts simply by virtue of the fact that they are communication service companies that had provided the web based email services.  Clearly they were the only practicable sources of the information, the costs of compliance with the Norwich order would be nominal, and the interests of justice strongly favoured the disclosure.

Accordingly, the order was granted and Yahoo! and Yahoo! Canada were ordered to disclose their information regarding the identity and contact information of the individual using the fictitious user name and email address as well as the internet protocol address (IP address) associated with them.

Individuals making defamatory statements through email or on social media may feel secure in hiding behind fictitious names.  This case is an important reminder that, as has been said in other contexts, you can run but you can’t hide.

Real Estate Transactions and Misrepresentations: When Can a Purchaser Back Out of the Deal?

In the recent Superior Court decision in Beatty v. Wei, the Court provided a helpful overview of the law relating to misrepresentations in real estate transactions.

This case involved the sale of a residential property. The sale agreement included a clause in which the seller represented and warranted that during the time the seller owned the property, no part of the property had been used for the growth or manufacture of any illegal substances. The clause went on to say that to best of the seller’s knowledge and belief, the property had never been used for that purpose.  Finally, the clause provided that the warranty would survive closing.

Between the date that the sale agreement was signed and the date set for closing, the purchaser’s real estate agent conducted an internet search and discovered that the property had been used to grow marijuana plants before the seller had purchased the property.

The purchaser refused to close and the matter came before the Court.

The Judge examined the clause closely and noted that it contained both a warranty and a representation. A warranty is a contractual promise that the thing being sold has some particular quality. This clause did not provide any promise that the property had never been used for the growth of illegal substances. The seller only warranted that he had never used it for that purpose and that he had no knowledge that the property ever had been used for that purpose. The Court accepted that this promise on the part of the seller had been honoured.

However, the clause also contained a representation to the same effect. The representation was that to the best of the seller’s knowledge, the property had never been used to grow illegal substances. The Court interpreted that representation as a statement of a present fact that was intended to be relied upon by the purchaser when it was made by the seller, and upon which the purchaser could continue to rely at least until the closing date.

Where a representation is made in the belief that it is true and the party who makes it discovers before closing that it is untrue, that party cannot remain silent. In other words, had the seller found out through his own sources of information, at any time prior to closing, that the property had indeed been used to grow marijuana plants, the seller would have had an obligation to report that to the purchaser.

In this case, the seller did discover this information before closing. The source of the information was the purchaser himself. In the Court’s view, this did not make a difference. The fact is that at some point prior to closing, the seller did discover that the representation contained in the agreement of purchase and sale was untrue. As a result, as at the closing date, the clause was deemed to contain a misrepresentation.

Where a misrepresentation in a contract is material and induces a party to enter into a contract, the innocent party may rescind the transaction prior to closing. The term “material” means that the misrepresentation must be substantial, or go to the root of the contract itself.

In this case the Court was persuaded that the representation was material to this purchaser and in general. After the deal collapsed, the property was resold at a purchase price almost $100,000.00 less, under an agreement in which the previous use of the property was fully disclosed. The Court saw this reduced price as evidence of the materiality of the issue.

It is open to a seller to avoid an adverse result by proving, either that the purchaser knew of the true state of affairs at the time the sale agreement was signed, or that the purchaser did not rely on the representation whether he knew the facts or not. The seller was unable to do so in this case.

As a result, the Court found that the purchaser was entitled to walk away from the transaction and recover his deposit.

On a plain reading of the clause, it would have been reasonable to conclude that as long as the seller did not know about the previous use of the property at the time the sale agreement was entered into, and of course as long as the seller himself had not used the property for that purpose, the representation would have been satisfied and information acquired afterwards would not matter. That is not the correct interpretation of the law.  This case makes it clear that a seller’s obligation in this area continues right up until closing.

When Should an Employer Require an Employee to Obtain ILA?

The recent decision of the Ontario Superior Court in Mottillo v. O.E. Canada Inc. provides a useful reminder of the purpose of independent legal advice (or “ILA”) in the context of a subsequent action that tests the enforceability of a contract.

In this case, the Plaintiff entered into an employment agreement with O.E. Canada Inc. which included, as part of his remuneration, equity and profit sharing provisions.

In addition to an employment agreement, the Plaintiff signed an option agreement and an option amending agreement at his employer’s request.

The Plaintiff’s employment was terminated. The Plaintiff sued for damages for wrongful dismissal as well as damages for oppressive conduct. As part of the claim, the Plaintiff challenged the validity of the option amending agreement on the basis that prior to his signing, it had not been explained to him and he had not been advised to obtain independent legal advice.

The Defendant brought a motion for partial summary judgment, seeking an order declaring the option agreement and the option amending agreement were valid and enforceable.

First addressing the question of whether or not these documents were explained to the Plaintiff, the Court concluded that the Plaintiff did not require them to be explained to him. They were drafted in English which the Plaintiff was able to read and understand. There was no suggestion that the Plaintiff was forced to sign these documents and in fact, his own evidence was that before signing them, the effect of the agreements were explained to him and any questions had been answered by his employer to his satisfaction. In addition, he was not required to sign them immediately. In the case of the option amending agreement, he had the agreement in his possession for almost three weeks before signing it.

The Court found that the Plaintiff was an experienced, business-savvy individual with extensive experience in negotiating contracts. The Court pointed out that there is no duty on a party to explain the provisions of an agreement to the other party where the other party has the opportunity to read the agreement and any potentially offending terms are clearly set out in the document.

In his pleading, the Plaintiff alleged that the Defendant had failed to advise him to obtain ILA. The Court observed that ILA is not a pre-condition to the enforceability of a contract. It simply reduces the risk that a party to a contract will later claim that he or she did not understand its terms and his or her obligations and entitlements. Accordingly, a failure to ensure that a party obtains ILA before signing a contract does not of itself create a defence to the contract’s enforceability.

The situation would be different if the party signing the contract is misled as to its contents, if it contains provisions that one would not ordinarily expect to find in a contract of the nature being discussed, and if the party putting the contract forward knows or should have known that the other party would not actually read the contract. In that type of case, the contract cannot be said to represent the true intention of the person being asked to sign it, and the signing party might very well be able to have the contract invalidated. ILA should remove that possibility.

In that sense, ILA does not simply protect the interests of the party obtaining the independent advice. It actually protects the interests of both sides. Assuming that both sides are acting in good faith, ILA might be unnecessary but it is hard to think of an instance in which it would be inadvisable.

A Mediator’s Pet Peeves – Part III

In my previous blog posts on this subject, I discussed lack of preparedness on the part of counsel and/or client, and the counterproductive use of the opportunity to make an opening statement, as two of my pet peeves as a mediator.

In no particular order, my third pet peeve has to do with unreasonable settlement positions.

At some point in every mediation, and usually fairly early on, a party will be called on to take a formal settlement position by making an offer to settle.  Most of the time in commercial cases, the offer will involve either the payment or the receipt of money.  Invariably, the offer is made in the setting of a private consultation between a party, his or her counsel and me and it is intended that I convey the offer to the opposing side in a separate private consultation.

From time to time, offers are provided to me with the accompanying caution that this is that party’s final position or, alternatively, that while it may not be the final position, there is very little room to move.

Nobody ever believes that.  Mediators don’t believe that, and opposing sides certainly never believe it.  If the party making such an offer is actually telling the truth, then the offer has to be revised in order to leave more room for movement before it is presented to the opposing side.  The nature of the process, and human nature generally, is such that a party receiving an offer will assume that there is room to move and simply will not believe anything to the contrary.

The difficulty that arises, and therefore a pet peeve of mine, is that from time to time a party will make an offer that is so outrageously excessive as to cause a complete loss of credibility.  If the offer is ridiculous, the opposing party will respond in one of a number of ways and none of them enhance the possibility of settlement.  Firstly, the opposing party may conclude that the offeror simply has no reasonable or rational appreciation for the probabilities of the offeror’s chances of success or failure in the action.  An offeror held in such low regard will generally not receive a reasonable counteroffer.  Secondly, the receiving party may conclude that the offeror has no sincere interest in settlement so that the entire process is a complete waste of time and that it might as well conclude on the spot.

Where the receiving party responds with a reasonable offer and the next number put forward by the offeror betrays the fact that the offeror obviously knew that his first number was outrageous, the receiving party will invariably resent the offeror for having wasted everyone’s time.  If the offeror’s response to the counteroffer shows only a slight movement, once again the opposing party may conclude that the entire exercise has little or no chance of success.

The bottom line, of course, is that there is no substitute for the conduct of a thoughtful and reasoned analysis by each party of the likely outcome or ranges of outcomes at trial.  Once that analysis has been conducted, there is certainly no harm in aiming at the high or low end of that range so that a party comes in within shouting distance of a reasonable result, while leaving room to move in the subsequent negotiation.  A party who shoots for the moon will likely end up shooting himself in the foot.

A Mediator’s Pet Peeves – Part II

Recently I published a blog post in which I reflected on lack of preparation on the part of parties and their counsel as a serious impediment to settlement at mediation.

Another serious impediment, and one which frequently arises at the very start of a mediation, involves opening statements.

In the classic mediation scenario, the parties and their counsel will begin the mediation by convening in a meeting room with a mediator. The mediator will begin the session by introducing himself/herself. He/she may ask the others in the room to introduce themselves as well. He/she may make a brief statement about why settlement is a good thing and going to court is a bad thing. And then he/she may ask counsel on each side to make an opening statement, an opportunity which most counsel simply use to reiterate what they’ve already written in their mediation briefs filed in advance of the mediation. The mediator may or may not invite the parties to speak as well.

The extent to which these opening statements will increase the tension in the room and the degree to which each party has demonized the other, on one hand, or contribute positively to the process by increasing the other side’s understanding of the opposing position, on the other hand, will vary from case to case.

Obviously, it is in the interests of all concerned (or at least the attendees who are seriously interested in settling the dispute) to make a positive contribution to the process through the mechanism of an opening statement. An opening statement which makes clear the position of the party delivering it, either personally or through his counsel, will be particularly helpful if the opposing party does not have a full and complete understanding of the opposing position – presumably because he has not been properly prepared (see my earlier blog post on poor or no preparation). Unfortunately, this is not always the case. More often than not, counsel take the opportunity to show their clients how tough they are by making opening statements that are simply inflammatory. In such cases, the mediator is faced with the prospect of dealing with parties who are even angrier with each other than they were before the mediation started.

A few years ago, I conducted a small survey involving a total of ten mediators: six from the United States, three from Canada, and one from Argentina. In the course of the survey I asked the mediators whether or not it was their normal practice to invite opening statements from parties or otherwise invite them to participate in open discussion at the outset of their mediations.

Their responses varied widely. Five mediators indicated either that they never ask for opening statements, or that they would not do so unless counsel specifically requested it. The other five indicated that they always, or almost always request opening statements. One of them made it clear that while his preference was to have opening statements, he would refrain from asking for them if counsel were clear that they would be counterproductive.

There was no apparent correlation between the responses from these mediators and the level of experience or training among them.

It is easy to dismiss the idea of opening statements as a source of information because mediation briefs are filed prior to the session and in theory, parties should be familiar with the position being taken by the other party. Nevertheless, an unprepared party would benefit from hearing an articulation of the opposing position at the outset – assuming that it is expressed in a reasoned and business-like fashion.

My own practice is to contact each counsel prior to every mediation and obtain their input as to whether or not they feel that an opening statement would be helpful. Where opening statements are going to be provided, I do insist that counsel refrain from making statements or adopting a tone that is aggressive or obnoxious. Counsel who do behave that way may feel that they are winning points with their client(s). That may be true. However, if an inflammatory opening statement means that the odds of a successful resolution are diminished, the client’s interests will not have been well served.