Corporate/Commercial Law - OCA

During a CCAA restructuring of Stelco Inc., the board of directors appointed two new directors who were associated with major shareholders.

Employee stakeholders, fearing the new directors would favour shareholder interests over employee interests in the restructuring, successfully applied to the supervising judge to have the directors removed based on a reasonable apprehension of bias.

The Court of Appeal granted leave to appeal and allowed the appeal, holding that the supervising judge lacked inherent jurisdiction or statutory authority under section 11 of the CCAA to remove duly appointed directors.

The Court further held that the administrative law concept of reasonable apprehension of bias does not apply to corporate directors, whose conduct is governed by fiduciary duties and the business judgment rule.

The appellants appealed a trial judgment that found a mutual mistake in a soil disposal contract and implied an industry standard for calculating volume.

The respondent had billed the appellants based on truck capacity rather than actual soil removed, resulting in a significantly higher invoice.

The Court of Appeal allowed the appeal, finding the trial judge misapprehended the evidence regarding mutual mistake, the ability to calculate volume from weight, and the industry standard.

The Court held the contract was clear on its face and the appellants were only liable for the actual volume of soil removed.

The Liquidator of Shoppers Trust Corporation applied for directions regarding the distribution of unanticipated surplus funds of approximately $6 million.

The motion judge ruled that a previous order fixing an earlier interest calculation date precluded creditors from claiming interest up to the winding-up date, thereby allowing the surplus to be paid to a subordinated noteholder.

The Court of Appeal allowed the appeal, holding that the motion judge erred in treating the motion for directions as a motion to vary and in failing to apply the fundamental insolvency principle of pari passu distribution.

The Court held that creditors are entitled to prove their claims for principal and interest to the date of the winding-up in priority to subordinated noteholders.

The appellants appealed a summary judgment dismissing their claim for life insurance benefits.

The insurer argued that a diagnosis of cancer was made within the 90-day exclusion period.

The Court of Appeal allowed the appeal, finding that while a diagnosis does not need to be communicated to the patient or made by a treating physician to be effective, the policy specifically defined 'cancer (life-threatening)' to exclude some cancers.

Because the doctor's report did not clearly indicate whether the cancer detected met this definition, a triable issue existed.

The summary judgment was set aside.

The appellants appealed a trial judgment finding corporate breach of a distribution agreement, personal liability of a director, and awarding damages.

The Court of Appeal allowed the appeal in part, setting aside the finding of personal liability against the director as there was no evidence he acted outside his authority or for his own benefit.

The court also set aside the damages award, finding the trial judge erred in awarding mitigation costs beyond the notice period and relying on unproven financial statements.

The matter of damages and trial costs was remitted for a new trial.

The appellant landlord appealed a trial judgment ordering it to pay damages to the respondent tenant based on promissory estoppel.

The trial judge found the tenant undertook renovations based on the landlord's representation that the premises could be used for film and photography, but the landlord later interfered with this business.

The Court of Appeal upheld the liability finding but reduced the damages award from $55,120 to $34,120, finding the trial judge failed to adequately consider evidence of a slow market when calculating lost revenue.

The appellant mortgage broker appealed the trial judge's dismissal of its action against the respondents for unpaid commissions.

The appellant argued the respondents should be liable for breach of contract, oppression, or as principals by piercing the corporate veil.

The respondents cross-appealed the trial judge's refusal to award them costs.

The Court of Appeal dismissed the appeal, finding no error in the trial judge's refusal to pierce the corporate veil or find oppression in what was an ordinary breach of contract by the corporate defendant.

The cross-appeal was also dismissed, as the trial judge's decision to deprive the successful respondents of costs due to their borderline dishonest conduct was justified.

The respondent, an Ohio corporation, obtained a consent decree and a contempt order against the appellant, an Ontario corporation, in a U.S. District Court for trade-mark infringement.

The respondent sought to enforce these non-monetary foreign orders in Ontario and was granted summary judgment.

On appeal, the Court of Appeal allowed the appeal and dismissed the motion for summary judgment.

The Court held that even if the rules for enforcing foreign non-monetary judgments were relaxed, the foreign orders in this case were too ambiguous in their material terms, particularly regarding their extra-territorial application, to be enforced by Ontario courts.

The respondent, a judgment creditor of a deceased's estate and his company, brought an action claiming relief under the oppression remedy provisions of the Business Corporations Act.

The trial judge found that the transfer of the company's assets to other companies controlled by the deceased's widow, and the assumption of a mortgage, constituted oppression and ordered the appellants to pay the judgment debt.

On appeal, the Court of Appeal found that the trial judge misapprehended the evidence regarding the mortgage, which was a legitimate charge against the company's assets.

The Court also held that the respondent, as a contingent creditor, did not have a reasonable expectation that the company would be managed to ensure his debt was paid in priority to others, including tax authorities.

The appeal was allowed and the action dismissed.

The appellants appealed a trial judgment in favour of the respondent, arguing the trial judge unfairly set aside formal admissions and relied on unpleaded doctrines of frustration and lack of consensus ad idem.

The Court of Appeal found that the trial judge did not set aside formal admissions, but rather distinguished between agreeing to purchase shares and actually purchasing them.

While the trial judge erred in referencing the doctrine of frustration, his conclusion was supported by his finding of an implied term governing the respondent's resignation from the partnership before purchasing shares.

The appeal was dismissed.

The appellants appealed a trial judgment finding they breached a fiduciary duty to a joint venture corporation.

The appellants managed a real estate development for the joint venture and allowed the property to go into power of sale, subsequently purchasing it for themselves.

The Court of Appeal upheld the trial judge's finding that a fiduciary relationship existed and that the appellants breached their duty to avoid conflicts of interest.

The appeal was dismissed and the imposition of a constructive trust was affirmed.

The appellants, an investment firm and its employee, appealed a trial judgment finding them liable for breach of fiduciary duty and awarding $288,846 in damages to an elderly client.

The employee had executed 68 unauthorized trades in the client's non-discretionary account, contrary to her investment objectives and professional rules.

The Court of Appeal dismissed the appeal, upholding the trial judge's findings that the employee's assumption of total control over the account created a fiduciary relationship, that the client did not ratify the trades due to the employee's reassurances, and that restitutionary damages were appropriate.

The appellant landlord appealed a trial judgment that applied a 35 per cent 'betterment' discount to damages awarded for the respondent tenant's breach of repair and restoration covenants in a commercial lease.

The Court of Appeal held that while the lease's 'reasonable wear and tear' exception applied, the tenant bore the burden of proving the extent to which the damages fell within this exception.

Because the tenant failed to adduce evidence supporting the 35 per cent discount, the Court removed the discount, increasing the landlord's damages.

The Court also allowed the tenant's cross-appeal in part, reducing the interest rate to the Courts of Justice Act rate and reducing the costs award to reflect the actual rates billed to the landlord.

The appellants appealed a motions judge's decision finding that time was of the essence in a contract and that a fundamental breach had occurred.

The appellants also sought to introduce fresh evidence on appeal.

The Court of Appeal dismissed the appeal, finding no palpable and overriding error in the motions judge's application of the law from Sail Labrador Ltd. v. Challenge One (The).

The court also refused to admit the fresh evidence, concluding it did not meet the test for admission and was not relevant to the finding that time was of the essence.

The appellants appealed a summary judgment order dismissing their claims against the respondents.

The Court of Appeal found that the motion judge erred by weighing evidence and concluded there was a genuine issue for trial regarding whether one respondent was a director of the corporation, and regarding a limitation period issue.

However, the court upheld the dismissal against another respondent, as there was no evidence he agreed to be appointed as a director.

The appeal was allowed in part.

The appellant, a former director and executive, appealed a trial judgment that set aside his employment contract using the oppression remedy under s. 241 of the Canada Business Corporations Act.

The appellant argued the oppression remedy should only be available to minority shareholders unable to use normal corporate machinery, and that the trial judge improperly substituted her view for the Board's business judgment.

The Court of Appeal dismissed the appeal, holding that the oppression remedy addresses abuse of power and is not limited to minority shareholders.

The Court also upheld the trial judge's finding that the Board's process in approving the contract was seriously flawed and fell outside the range of reasonableness.

Leave to appeal the costs award was also refused despite the respondents failing to prove fraud, given the appellant's egregious conduct.

The appellant appealed a trial judgment finding it liable for breach of contract.

The dispute centered on whether the appellant knew the building was not to involve post and beam construction and whether it breached the contract by unilaterally changing the design.

The Court of Appeal found no misapprehension of evidence by the trial judge, agreeing that the parties were ad idem on the terms and that the appellant's delivery of draft drawings using an uncontracted construction technique constituted a breach.

The court also upheld the trial judge's measure of damages, which aimed to put the respondent in the position it would have been had the contract not been breached.

The appeal was dismissed with costs.

The appellant signed a distributorship and membership agreement with a company that was never legally incorporated due to restrictions under the Ontario Business Corporations Act.

The respondent sued on a promissory note related to the agreement.

The trial judge initially dismissed the action, finding the contracting company was not a legal entity.

However, after allowing a motion to call further evidence, the trial judge reversed her decision, finding the unincorporated company and a similarly named incorporated company were the same entity.

The Court of Appeal allowed the appeal, holding that the trial judge erred in reversing her initial, well-reasoned decision based on inadequate clerical evidence.

The contract was formed with a non-legal entity and was therefore unenforceable.

The landlord, Clarica, drew $677,979.24 on an irrevocable letter of credit provided by the bankrupt tenant, Lava, as security for a commercial lease.

The receiver for Lava applied for an order requiring Clarica to account for the funds drawn in excess of its statutory entitlement under the Commercial Tenancies Act and the Bankruptcy and Insolvency Act.

The application judge granted the order.

On appeal, the Court of Appeal reversed the decision, holding that under the principle of the autonomy of letters of credit, the funds paid by the bank were the bank's property, not the bankrupt tenant's.

Therefore, the receiver had no legal right to recover the funds from the landlord.

The appellant borrowed $500,000 from the respondent under an agreement that effectively charged an interest rate exceeding 60 per cent per annum, violating the criminal interest rate provisions of the Criminal Code.

The application judge found the agreement violated the Criminal Code but applied a 'notional severance' to reduce the interest rate to the legal maximum of 60 per cent.

The Court of Appeal allowed the appeal, holding that notional severance is not an available remedy.

Instead, the court applied traditional severance principles, striking out the illegal 4 per cent per month interest provision entirely, while leaving the principal repayment and other valid fees intact.