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.

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.

It has now become commonplace for commercial agreements to include mandatory arbitration clauses. Where a party to such a contract seeks to litigate a dispute under such an agreement, the other party should be able to get the lawsuit dismissed on the basis that the dispute must be arbitrated and cannot be litigated in court.

Typically, arbitration clauses are included in agreements at a time when the parties to the agreement are looking forward to a contractual relationship that is harmonious and cooperative, or at least civil and businesslike. Unfortunately, when a dispute arises so that the arbitration clause becomes relevant, normally the attitude of each party towards the other will be very different.

Unlike judges, arbitrators must be paid by the parties. Unless the arbitration clause in the contract provides otherwise, the arbitrator will require an equal deposit from each party with further deposits to be made as the process evolves. But what if one side refuses to pay its share of the arbitration fees?

The other party’s response in these circumstances may be to pay both shares of the arbitration expenses and proceed with the arbitration in the hope of recovering those expenses at the hearing. The conventional wisdom is that a party refusing to pay its share of the expenses is not going to be permitted to attend the arbitration in any event so the exercise will be a one sided affair, presumably resulting in success for the party that paid the entire fee.

It should be noted that while beyond the scope of this post, there is authority for the proposition that a party refusing to pay its share of the arbitration fee nevertheless has the right to attend at the arbitration and present its position. Obviously that is a controversial point, worth exploring in future posts.

For the moment, however, let’s assume that the party willing to pay its share of the arbitration fee (presumably the party that initiated the arbitration) is either unable or unwilling to pay both shares. What are its options?

As indicated above, courts are reluctant to get involved in disputes involving contracts with mandatory arbitration provisions. However, there is now American authority for the proposition that in circumstances in which the opposing party refuses to pay its share of the fees, the initiating party will have the right to abandon the arbitration process and proceed by way of legal action.

The case is called Roach v. BM Motoring, LLC and was dealt with recently by the New Jersey Supreme Court.

In that case, a series of plaintiffs purchased used cars at different times from a car dealer. Each purchaser signed an agreement that provided for mandatory arbitration and, somewhat unusually, that the defendant car dealer would advance both parties’ arbitration fees, subject to reimbursement by decision of the arbitrator.

In each of these cases, the purchasers filed demands for arbitration because of complaints with their vehicles. The car dealer simply refused to respond, by paying arbitration fees or otherwise. The plaintiffs then joined forces and sued the car dealer in state court. The trial court dismissed the case, ruling that the parties had intended to arbitrate by signing the contract and “should remain faithful to that clause”. The plaintiffs appealed and lost again. To the appeal court, there was enough factual dispute about the proper form for arbitration that the car dealer’s failure to respond to the demand was neither a material breach of the contract nor a waiver of its right to require arbitration.

The plaintiffs appealed again, to the New Jersey Supreme Court. That court reversed the decisions below it. It ruled that just as in the case of other contracts, if a party materially breaches an arbitration agreement, the other party is relieved of its obligations under the agreement to proceed by way of arbitration. In this case, the refusal of the car dealer to pay the arbitration fees as provided for under the contract was considered a material breach; therefore, the plaintiffs were no longer bound to proceed by way of arbitration at all.

This case does not mean that every delay in paying arbitration fees or responding to a demand for arbitration will amount to a material breach of the arbitration agreement or a waiver of the right to enforce it. The Court itself made it clear that whether or not such behaviour constituted a material breach would have to be considered on a case by case basis in the light of the terms of the contract and the conduct of the parties.

One way of avoiding the problem at the very beginning, of course, is to draft the arbitration clause in the contract to provide that any failure by either side to advance its share of the arbitration fees will give the other party the option of pursuing the matter in court. However, even without that provision, there is now authority for the proposition that in an appropriate case, the non-defaulting party will be able to do just that.

As litigators know, the Rules of Civil Procedure provide for what is usually referred to as the “Deemed Undertaking” between parties to a lawsuit not to disclose documents gathered in the course of a lawsuit to parties outside of that lawsuit unless compelled to by law.

This rule does not relate to the obligations of a party to disclose documents to the other party. The Rules specifically require every party to a lawsuit to disclose to the other party the documents in that party’s possession, custody or control that are relevant to the lawsuit.

On a number of occasions, I have requested production of a document from opposing counsel in the context of a lawsuit only to be met with a refusal for two reasons: firstly, because the document is allegedly not relevant, and secondly, because production of the document would cause the producing party to violate the Personal Information Protection and Electronic Documents Act (“PIPEDA”). PIPEDA is a data privacy legislation governing the manner by which private organizations collect, use and disclose personal information in the course of commercial business. Among other things, it regulates the basis upon which a party can and cannot disclose information that reveals personal information about a third party.

Such an objection gives rise to the broader question as to whether or not PIPEDA is ever available to a party attempting to avoid the disclosure of a document in the course of a lawsuit simply because it contains information about a third party.

The issue was specifically dealt with by the Office of the Privacy Commissioner of Canada last year in PIPEDA Case Summary Number 2016-011, resulting in an interesting ruling.

In that case, after a car accident leading to a lawsuit, the insurance company for the Defendant retained a psychiatrist to conduct a psychiatric assessment of the Plaintiff. After that was completed, the Plaintiff requested access to his personal information held by the psychiatrist.

The psychiatrist would only provide a limited amount of information including a redacted copy of his report. The Plaintiff felt that there was additional information to which he was entitled and also that some of the information held by the psychiatrist might not be accurate. Accordingly, he filed a complaint with the Office of the Privacy Commissioner and requested a ruling.

The Commissioner ruled that PIPEDA had no application to this situation. PIPEDA applies to the collection of information in the course of a commercial activity. In this case, the collection and use of the Plaintiff’s information by the psychiatrist took place for the purpose of defending a lawsuit and not a commercial activity. While there was commercial activity between the Defendant in the lawsuit and his insurance company, there was no commercial activity between the Plaintiff and the Defendant, and accordingly, none between the Plaintiff and the Defendant’s insurer or its psychiatrist.

Accordingly, it seems that PIPEDA cannot be relied on as a reason to refuse to produce personal information in the context of a lawsuit if the information was collected for a purpose other than commercial activity as between the parties. If such information is not protected by some type of privilege, PIPEDA cannot be relied on to avoid its production.

In the recent case of Meehan v. Good, the Ontario Court of Appeal dealt with a situation in which a lawyer was retained to represent a client with respect to the assessment of the accounts of the client’s former lawyer.

The former lawyer had represented the client in the settlement of a personal injury action and had rendered an account which the client wished to challenge by way of assessment.

The client entered into a written retainer agreement with the new lawyer that specified that the new lawyer was being retained to conduct the assessment proceeding. Nowhere in the retainer agreement was there any mention of a duty on the new lawyer to advise the client about a possible negligence action against the former lawyer, or any limitations issue in that connection (i.e., any time limit on the bringing of a negligence action against the former lawyer).

In this case, it would appear that the client may have had a valid claim of negligence against the former lawyer but that the claim was not brought in time. The client sued the new lawyer alleging that the new lawyer had been negligent in failing to warn him about the time limit. The new lawyer moved for summary judgment to dismiss the claim on the basis that he owed no duty of care to the client to discuss that point since the scope of his obligations to the client were limited by the wording in the written retainer. The motions judge agreed with the new lawyer and dismissed the claim. The client appealed to the Court of Appeal.

The Court of Appeal noted that the new lawyer had advised the client on a number of occasions to obtain legal advice elsewhere regarding any issue of negligence. The client acknowledged having received that advice.

The motions judge had determined that it would not be necessary to make any findings as to whether or not the new lawyer had, in fact, advised the client about the limitation period in relation to a possible negligence claim.

The Court of Appeal had a different view of the matter. It pointed out that to determine whether a lawyer owes a duty of care to a client, a court has to examine all of the surrounding circumstances defining the relationship between the lawyer and the client including, but not limited to, the scope of a written retainer. Where the client alleges that the lawyer’s duty extends beyond the retainer, the court has to meticulously examine all of the surrounding circumstances including the nature of the instructions, and the sophistication of the client, to determine whether a duty is owed beyond the four corners of the retainer agreement.

In this case, the motions judge did not do this. The motions judge focused narrowly on the written retainer in order to determine that no duty was owed. The motions judge did not take into account the fact that over the course of the retainer, the new lawyer communicated his views about the former lawyer’s competence, the new lawyer advised the client to raise the issue of negligence in the course of the assessment proceeding itself, and the new lawyer specifically suggested that the client obtain advice from other counsel as to a potential negligence claim. In the view of the Court of Appeal, those facts should have been taken into account in the analysis as to whether or not it might be said that the new lawyer also had a duty to point the limitations issue out to the client.

Having failed to consider that issue, the motions judge erred. The Court of Appeal allowed the appeal and ordered that the matter proceed to trial.

Both lawyers and clients often assume, mistakenly, that the scope of the lawyer’s duties and obligations to the client is defined by the strict terms of a written retainer agreement. This case is a useful reminder of the fact that this is not so. It is entirely possible that in the course of a professional relationship, a lawyer may take on responsibilities to his or her client, intentionally or not, that go beyond the strict terms of a written retainer agreement. In such cases, if any such additional duty or responsibility is not fulfilled, the client may well have a right of recovery.

The recent case of Sinnathamby v. The Chesterfield Shop Limited (case and endorsement) provides a useful reminder of the very high threshold to be met by an employer terminating for just cause.

In this case, the Plaintiff had been a 14-year employee of the Defendant.  On September 10, 2010, she called in sick.  Three days later, her supervisor telephoned her to discuss her absence and she apparently indicated that she was ill, without any indication of when she might be able to return to work.  She did not return to work.  On October 4, 2010, she was fired because she had failed to provide notes from her doctor supporting her continued absence from work as required by the Defendant’s written policy.

Immediately after her October 4^th termination, she faxed to her supervisor three doctor’s notes dated September 10, 17, and 27, 2010.  The first note indicated that she was unable to work but that she may be able to return to work on September 20^th.  The other notes did not specify a return date.

The Plaintiff brought a motion for summary judgment.  There were significant disputes between the parties as to what had taken place between September 10^th and October 4, 2010.  Nevertheless, the Judge concluded that, based on the evidence that was before him, he was able to make a final ruling on the matter and he proceeded to do so.

The Plaintiff claimed that she had telephoned her supervisor on the evening of September 9^th to indicate that she was ill and would not be coming in to work the next day.  She claimed that she had made additional telephone calls to him and left a series of voicemail messages, describing her medical circumstances.  She testified that she had a number of conversations with her supervisor, in which the supervisor demanded that she either return to work or provide a doctor’s note specifying a return date because no other doctor’s note would be accepted.  She denied any knowledge of a company policy about doctor’s notes.

The supervisor denied that any communications had taken place at all, other than a telephone call on September 22^nd in which the Plaintiff was told that a doctor’s note would have to be provided to support her absence.  According to the supervisor, there was no discussion as to what the doctor’s note had to say.  On October 4^th, not having heard back from the Plaintiff, the supervisor called the Plaintiff to say that because she had not provided a doctor’s note, despite the request and in breach of the company’s employment policy, her employment was being terminated for cause.

The Judge reviewed the facts carefully and made the following findings.  Firstly, he accepted the fact that the company had a policy about doctor’s notes and, furthermore, that this information had been conveyed to the Plaintiff when the supervisor specifically asked her for a doctor’s note.  He rejected the Plaintiff’s evidence that she was never told of this policy.  He also believed the supervisor’s evidence that at no time did the Plaintiff actually explain to him the nature of her illness or indicate that she had in her possession a doctor’s note saying that she could return to work on September 20^th.

The Judge accepted that the Plaintiff was sick when she called in sick, but that she had failed to provide doctor’s notes notwithstanding her supervisor’s request until after she had been fired.

However, that was not the end of the inquiry, notwithstanding the fact that she had been fired for failure to provide medical documentation contrary to a specific policy and a request from her supervisor.  The question that had to be answered was whether or not that the Plaintiff’s conduct was sufficiently serious to justify dismissal without notice.  Depending on the circumstances, an employer must consider alternatives to summary dismissal without notice before terminating for cause.  A balance must be struck between the severity of an employee’s misconduct and the penalty.

The essential question is whether or not the employee has engaged in misconduct that the Court of Appeal has defined as “incompatible with the fundamental terms of the employment relationship”.  If misconduct is sufficiently serious as to strike at the heart of the employment relationship, termination with cause is justified.  As a result, the Court has to determine the nature of the misconduct, consider the surrounding circumstances, and then determine whether or not termination is a proportional response.

In this case, the Plaintiff did nothing illegal or dishonest.  She called in sick when she really was sick.  While the Defendant’s request for a doctor’s note was quite reasonable, there was no evidence as to the consequences to this Defendant of the doctor’s note being provided several weeks late.  While the Plaintiff disobeyed a reasonable company policy and a direct request from a supervisor, her failure to provide a doctor’s note in a timely way was not an essential condition of employment and her failure to do so was not a breach of faith or trust inherent in the work relationship.  Accordingly, her summary dismissal was disproportionate to her misconduct.

The Judge then went on to assess damages on the basis of the notice, or pay in lieu thereof, that the Plaintiff should have received based on her tenure and all the other usual factors.

It is clear that the mere breach of a company policy will not be sufficient to justify a summary dismissal.  The breach must be inherently serious and there must be some evidence before the Court as to the consequences of the breach for the employer before a termination without notice will be justified.

The recent decision of the Superior Court of Ontario in Russell v. The Corporation of the Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.

In this case, Mr. Russell owned a cottage property on the shore of Georgian Bay.  This property consisted of about 1.4 acres of land with 170 feet of water frontage.  He had a cottage located about 4.57 metres back of the high water mark fronting on to Georgian Bay.

He decided to build a 720 square foot workshop at the side of his cottage, with the front of it being the same distance to the water’s edge as the existing cottage.  He applied to the town for a permit.  After obtaining advice from external counsel, the town’s Chief Building Official denied his application on the basis that it contravened the relevant By-Law.

The By-Law in force required that any new construction on a front yard maintain a distance of 20 metres to the water.  The existing cottage was much closer to the water’s edge, but as it had been built before the current By-Law came into force, it was grandfathered.  The Town took the position that the workshop Mr. Russell wished to build, while located in the side yard of the property and not in the front yard, would nevertheless be situated closer to the water than the current By-Law permitted.  In effect, according to the judge, while the Town conceded that the workshop would be located in the side yard, it would lie within the area where Mr. Russell’s front yard would be if his cottage were newly built, instead of having been built before the Zoning By-Law came into force.

The judge pointed out that the dispute had been clouded by the fact that the parties had litigated against each other already, leaving a certain amount of ill will.  There had been a dispute concerning the issuance of a permit to build a boathouse that led to appeals to the Ontario Municipal Board and the Divisional Court, resulting in enormous legal fees on both sides.  While the judge found that this had absolutely nothing to do with the issue before him, he pointed out that the Affidavit filed on behalf of the Town included a recitation of the boathouse history in great detail.  As the judge put it, this suggested something of a departure “from the ideal of detached professionalism” that would ordinarily be expected of the town and it’s Chief Building Officer.  As the judge put it, “ruffled feathers and simmering resentment have no place in a neutral and objective application of the law by public officials”.

While the boathouse issue was not relevant, the obvious hostility of the Town towards Mr. Russell was relevant.  The matter was put before the court under a provision of the Building Code Act that permits judges to substitute their opinions for that of public officials.  There is case law to support the proposition that when considering such issues, a judge should apply a degree of deference to the expertise and experience of the public official.  The judge concluded that in this case, the history of the boathouse conflict provided him with “some added reason to approach the question of deference with caution.”  It seems that the history of ill will was taken into account by the judge in assessing the correctness of the Chief Building Officer’s decision.

The judge considered the matter as a straight forward problem of interpretation and provided the following analysis:

Mr. Russell had a waterfront lot with a cottage on it and with a front yard, side yards on each side of the cottage, and a rear yard.  These were mutually exclusive divisions of the lot, meaning that one yard ended where the other yard began and there was no part of the lot that was both a front yard and a side yard.

In Mr. Russell’s case, his front yard was 4.57 metres deep across the entire front of his lot, at which point his side yards began.  The By-Law stated that the minimum yard requirement for a front yard was 20 metres.  The cottage was grandfathered because it was built before the current by-law was put in place.  Consequently, his front yard was to be measured in relation to where his cottage was and not where it would be if it was newly built.  The By-Law in this case expressed itself by reference to front yards, not set-backs, and made clear that property owners can build accessory buildings in their side yards.  The judge ruled that if the Chief Building Officer was correct in his interpretation, and the “yard” requirement was defined as a separate set-back requirement applicable to all structures in every yard on the lot, it would strip Mr. Russell of the right to build an accessory building in his side yard when the By-Law permitted him to do so.

Accordingly, the decision of the Chief Building Officer was set aside.

Cottage owners often find it necessary or appropriate to improve their properties in ways that require the issuance of permits.  Municipal officials are often seen by cottage owners as petty local bureaucrats who have it in for big city-dwelling cottage owners.  I am not suggesting that the Chief Building Officer in this case was actually motivated by anything improper, but the fact is that, as this case points out, the courts are always available to straighten things out if required.

Yes, you can fight City Hall.