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By David Sunday 2015/06/10

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In the recently decided case of Puslinch v. Monaghan, 2015 ONSC 2748 (the “Puslinch case”), the Ontario Superior Court has confirmed that Zoning By-laws that purport to regulate short-term rental use of a property cannot do so in a way that is discriminatory, vague, uncertain, or insufficiently specific.

In the Puslinch case, the Township of Puslinch (the “Township”) brought an application against the owner of a residential property on the shores of Puslinch Lake. The Property was being used both for the owner’s personal use as a vacation property and at times by short-term renters. The Township sought an injunction enjoining the owner from allowing her property to be used by short-term renters.

The Township argued that, under its Zoning By-law, use of the property by short-term renters was use as a “Tourist Establishment”, which was not a permitted use of the property under the Zoning By-law. The Zoning By-law defined this term as:

“… any premises operated to provide sleeping accommodation for the travelling public or sleeping accommodation for the use of the public engaging in recreational activities, and includes the services and facilities in connection with which sleeping accommodation is provided, and without limiting the generality of the term, also includes a cabin establishment, a tourist home, a tourist cottage and a housekeeping cottage …

Counsel for the owner (represented by David Sunday and Michael Letourneau of SorbaraLaw) argued that while the Township had the capacity to regulate short-term rental use of residential properties, the Zoning By-law was ineffective in this regard because the use of the property by short-term renters was substantively the same as personal use by the owner, which the Township conceded was permitted as a “single detached dwelling” use.

The Township ultimately took the position that only the owner, by virtue of her ownership of the property, could use it on a short-term basis, notwithstanding that she (like her renters) resided elsewhere and only occupied it for short periods of time and generally for recreational purposes. The Township also took the position that the owner could not loan the property to her friends and family, as such use would also constitute use as a “Tourist Establishment” and offend the Zoning By-law.

The Court rejected the Township arguments and found that “to the extent the Tourist Establishment by-law seeks to regulate short term use in the RR Zone, it seeks to regulate people not use and, therefore, is ultra vires the Planning Act”.  The Court further noted that the Township reasoning “fails to explain Ms. Monaghan’s exemption from the application of the Tourist Establishment bylaw. Ms. Monaghan’s primary residence is in Cambridge. The primary residences of vacationers, friends and family of Ms. Monaghan are also at a different location than [the property].

Short-term rentals continue to receive significant attention throughout Ontario and beyond. As municipalities grapple with these issues, the lesson of the Puslinch case is that those municipalities that seek to regulate short-term rental use through their Zoning By-laws need to do so in a way that is clear and non-discriminatory, otherwise such regulation is likely to be ineffective.

* * This article is intended only to inform and educate. It is not legal advice. Be sure to contact a lawyer to obtain legal advice on any specific matter.

David Sunday is the Group Leader in the Municipal, Land Use & Development Law Group at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario.

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By David Sunday 2015/05/21

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The Supreme Court of Canada has denied leave to appeal in the case of Vincorp Financial Ltd. v. Oxford (County), 2014 ONCA 876 (CanLII) (“Vincorp”). Notwithstanding the case has now been looked at by the highest court, the law around municipal bonusing is not a whole lot clearer today than it was back when we wrote our previous blog post on the lower court decision in November 2014.

As reviewed in that earlier blog post, the lower court in Vincorp decided that for an advantage conferred on a commercial entity to constitute a “bonus” within the meaning of s. 106 of the Municipal Act, 2001 there must be an “obvious undue advantage”.  The lower court found that there was no such advantage on the facts, but unfortunately provided little guidance on how distinctions between  “obvious undue advantages” and “merited advantages” should be made.

When the matter was heard by the Court of Appeal, the appellant maintained the argument that there had been a bonus to Toyota and that this should invalidate the expropriation of the appellant’s lands. In rejecting this argument, the Court of Appeal said “[e]ven if the subsequent sale and transfer to Toyota had breached s. 106, this breach would not invalidate or vitiate the proper purpose for the expropriation and would not render the expropriation invalid”.  The Court of Appeal went on to say “the appellants have an interest in the legality and propriety of the expropriation process and are entitled to receive the fair value of the mall lands as determined under the Expropriations Act, but their interests are not at stake in reviewing the second transaction [involving the alleged bonus to Toyota]”.  The Court of Appeal also took the opportunity to remind us that the legislative purpose underlying s. 106 is “to level the playing field between municipalities competing to attract development”.

To the extent there has been any clarification of the law of bonusing, it appears to be only this: an expropriation will not be invalidated only on the basis of some indirect connection to another transaction involving a bonus.

While we had hoped the Court of Appeal might provide further guidance on how distinctions between  “obvious undue advantages” and “merited advantages” should be made, unfortunately that was not in the cards. As a result, significant uncertainty around where to draw the line between an “obvious undue advantage” and a “merited advantage” remains.

* * This article is intended only to inform and educate. It is not legal advice. Be sure to contact a lawyer to obtain legal advice on any specific matter.

David Sunday is the Group Leader in the Municipal, Land Use & Development Law Group at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario.

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By Greg Murdoch – 2015/05/11

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The transmission and storage of messages, sensitive documents and data has become routine for many companies. Construction companies routinely send information back and forth between employees/colleagues, clients, and subcontractors using email. Businesses also maintain and store information and move it about in other formats such as USB keys and CDs. Some of this information is highly sensitive for personal and/or business reasons.

The pervasive use of technology to transmit and store information introduces a wide variety of risks to your business. These include legal/regulatory risks and competitive risks.

One legal risk of particular concern to companies is the release of confidential client information.  Aside from the harm to a business reputation and damage to client relations which may result a negligent company could be responsible for civil damages if their client suffers harm as the result of the unauthorized release of their confidential information.

The release of personal information of either employees or clients is also a matter of concern.  The Personal Information Protection and Electronic Documents Act regulates the collection and use of personal information.   Any company that collects personal information must take appropriate measures to safeguard this information including appointing a specific individual to oversee the management of personal information.  Companies must take adequate steps to safeguard personal information.   The Federal Court of Canada has authority to award damages to complainants for the unauthorized release of personal information.

Inadequate safeguards on your stored data can put your business at a competitive disadvantage. Commercial espionage while exotic sounding is real.   The release of confidential information such as pricing strategies to a competitor can have obvious negative consequences

There are relatively easy and inexpensive safeguards which can be implemented to protect your data.

In general, always be aware of what you’re doing with your information. Never assume any device or storage method is secure by default because it probably is not.

It is important to secure any over-the-air transmissions.  Never use unencrypted wi-fi as this exposes transmissions to interception. Always be sure that you are on an encrypted network before transmitting.

Avoid the use of Bluetooth accessories (e.g. headsets, keyboards) in areas where an eavesdropper could easily connect to them.  When using cell phone networks ensure that the wi-fi function on your device is turned off entirely.

Employees should be instructed that if they work from home they must use strong password protection (WPA2 or higher). In the workplace access to networks must be controlled and passwords should be changed regularly. Employee passwords should be kept track of so that they can be revoked or changed if they leave the business.

For storage of data on external drives such as USB it is important to maintain passwords and an appropriate chain of control.   Common sense dictates that businesses are aware of and control the use of media storage devise.

In order to ensure data is secured the following actions are recommended:  Use password protection on files where possible;   Use password/passcode protection on mobile devices, Ensure that laptops that go into public places / sites have multiple levels of password protection – consider encrypting hard drives,

It is also important to be aware of external risks such as malware and phishing.

In summary, it is better to take proactive steps to protect your information, in order  to prevent it from reaching unauthorized parties than it is to be subjected to legal/regulatory actions or the resulting damage to reputation and business relations.

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter. This article was originally published in the March/April 2015 Issue of the Grand River Construction Authority Journal.

 Author: Greg Murdoch is a partner and the head of litigation at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario. Greg may be reached at (519) 741-8010 ext.223  or at gmurdoch@sorbaralaw.com.

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by Cameron Mitchell 2015/03/18

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Further to an earlier post, just eight months after Canada’s Anti-Spam Legislation (“CASL”) came into force on July 1, 2014, the Canadian Radio-television and Tele-Communications Commission (“CRTC”) has issued the first significant Notice of Violation against a Quebec-based company called Compu-Finder. CASL prohibits commercial electronic messages (“CEMs”) sent for the purpose of encouraging commercial activity without the express or implied consent of the recipient. The new legislation also requires inclusion of an ‘unsubscribe’ option on such electronic communication. Under CASL, the CRTC can impose penalties of up to $10 million on corporations and $1 million on individuals for violating the CEM rules.

On March 5, 2015, the CRTC announced that it had issued a Notice of Violation and a penalty of $1.1 million against Compu-Finder for what it called flagrant violations of CASL. The CRTC noted that Compu-Finder failed to comply with CASL by sending out CEMs promoting training courses to businesses without the consent of recipients, and also neglected to include a functioning ‘unsubscribe’ option. The CRTC became aware of Compu-Finder’s actions through the Spam Reporting Centre, where it received a significant number of complaints against Compu-Finder. Compu-Finder has 30 days to submit written representations in its defence to the CRTC. Unless it does so, the company will be found to be in violation of CASL and must pay the fine. The monetary penalty is designed to ensure compliance with CASL, and the CRTC noted that its goal in issuing violations is to encourage companies like Compu-Finder to amend their business practices to comply with the new legislation.

In its announcement, the CRTC also noted that it is in the process of investigating a number of other CASL complaints, indicating that it is taking CASL violations seriously. Whether or not the CRTC continues to issue hefty penalties against offenders, the action against Compu-Finder demonstrates that the new legislation has teeth, and should serve as a warning to businesses that the implications of CASL are not to be underestimated.  If your business has yet to implement the necessary changes in order to ensure its compliance with CASL, you should consider doing so immediately to avoid penalties.

Steps to take include:

  • Ensure that recipients of electronic communications have given their consent. Now that the CASL is in force, businesses that have not sought consent will face added hurdles, as sending electronic correspondence requesting express consent may itself be considered a prohibited CEM. Express consent is not time-limited and therefore continues until it is revoked.
  • Consider whether implied consent has expired. Under CASL, implied consent based on an existing business or non-business relationship with recipients lapses two years after the event that triggered the relationship, such as the purchase of a product. Implied consent also applies to addresses that have been conspicuously published.
  • Keep records of how you have obtained consent. The onus on proving that consent is on the party sending the CEM.
  • Exercise diligence in ensuring that CEMs include the requisite ‘unsubscribe’ option and that it is properly functioning. This appears to be a key factor in the review of a company’s CASL compliance.

This first action taken by the CRTC should send a message to businesses that violators of CASL risk facing considerable consequences. It is in the best interest of businesses to ensure that they have taken the necessary measures to ensure CASL compliance.

If you have any questions regarding CASL or your business’ compliance status, please contact Cameron Mitchell at cmitchell@sorbaralaw.com.
* * This article is intended only to inform and educate. It is not legal advice. Be sure to contact a lawyer to obtain legal advice on any specific matter.

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by Art Linton 2015/03/06

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A controversial decision in Moore v. Getahun 2014 ONSC 237 (“Moore”) left Ontario lawyers and expert witnesses in a state of conflict and uncertainty.  A year later, the Court of Appeal has provided clarity regarding the preparation and use of expert reports before courts and tribunals, Moore v. Getahun 2015 ONCA 55.  Expert witnesses and the lawyers who engage them would be wise to carefully consider this case and stay within the guidance provided in the Court of Appeal’s ruling.

Two things should be apparent from the arguably aggressive decision by the Superior Court and the thorough guidance in the subsequent ruling of the Court of Appeal.  First, courts are frustrated with counsel whom they believe may use the editing process to influence expert reports in favour of their client.  They have now demonstrated that they are prepared to act aggressively to sanction any perceived collusion.  Secondly, the Court of Appeal has been careful to provide clear guidance to both counsel and experts as to their responsibilities regarding expert testimony.  This guidance provides a standard that courts, tribunals, and professional disciplinary bodies, can use to asses the conduct of counsel and the professionals they engage as expert witnesses.

Counsel and expert witnesses should now be fully alert to the possibility of court sanctions and to the danger of subsequent disciplinary action by their professional regulators should their conduct step outside the boundaries set by the Court of Appeal.

In Moore, the Superior Court concluded at para 50 that “…counsel’s prior practice of reviewing draft reports should stop.  Discussions or meetings between counsel and an expert to review and shape a draft expert report are no longer acceptable.”  Moreover, at para 52, the court stated: “The practice of discussing draft reports with counsel is improper and undermines both the purpose of Rule 53.03 as well as the expert’s credibility and neutrality.”

That decision gave rise to extensive concern among the litigation bar and among experts who testify at trials or before tribunals.  Many felt strongly that appropriate consultation between counsel and expert is essential to ensure that expert witness reports comply with the Rules and the expert’s common law duties.  It has also been argued that effective communication between counsel and experts helps experts understand the legal concepts at issue so they might better assist the court to integrate complex expert evidence.

On appeal, the Holland Access to Justice in Medical Malpractice Group argued that the ruling impaired “normal, reasonable and prudent litigation practices, would substantially increase the cost of litigation, would do a disservice to the Court in terms of hearing fulsome, well-organized, and appropriate evidence, and ultimately result in a chilling and significantly restrictive effect on access to justice.”  The Canadian Defence Lawyers’ association asserted the ruling was  “unprecedented, unsupported in law and seriously flawed”.  The Advocates’ Society presented the court with its Principles Governing Communications with Testifying Experts (Toronto: The Advocates’ Society, June 2014) and a Position Paper on Communication with Testifying Experts (Toronto: The Advocates’ Society, June 2014).

Each of the six interveners permitted at the Court of Appeal challenged the Superior Court judgment as simply wrong.  The Court of Appeal agreed, finding at para 49 that “if accepted, the trial judge’s decision would represent a major change in practice.  It is widely accepted that consultation between counsel and expert witnesses … is necessary to ensure the efficient and orderly presentation of expert evidence and the timely, affordable and just resolution of claims.”

Courts have long emphasized the necessity for experts to testify independently and objectively, and have cautioned expert witnesses against acting, or appearing to act, as advocates for the parties that retain them.  The correct role of an expert is always to fairly and impartially assist courts and tribunals with matters that fall within their areas of expertise.

In setting out the common law duties of expert witnesses, the Court of Appeal cited National Justice Compania Naviera S.A. v. Prudential Assurance Co. Ltd. (“The Ikarian Reefer”), [1993] 2 Lloyd’s Rep. 68, at p. 81 (Eng. Q.B. Comm.):

  1. Expert evidence presented to the Court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation [citation omitted].
  1. An expert witness should provide independent assistance to the Court by way of objective unbiased opinion in relation to matters within his expertise [citation omitted]. An expert witness… should never assume the role of an advocate.

For further guidance, the Court of Appeal at para 57 endorsed the Advocates’ Society submission: “I attach as an Appendix to these reasons The Advocates’ Society’s Principles Governing Communications with Testifying Experts, which provides a thorough and thoughtful statement of the professional standards pertaining to the preparation of expert witnesses.”  These principles are available on line at: http://www.advocates.ca/assets/files/pdf/The_Advocates_Society-Principles_Governing_Communications_with_Testifying_Experts_3_sep18.pdf

If it was ever unclear, there should no longer be any uncertainty that expert testimony must be scrupulously unbiased and of service to the court.  Further, counsel and expert witnesses wishing to avoid sanction would be prudent to measure both their retainer and subsequent conduct against the standards set out in the Advocates’ Society’s Principles Governing Communications with Testifying Experts.

Art Linton is a lawyer in the Municipal, Land Use & Development Law Group at Sorbara, Schumacher, and McCann LLP, one of the largest and most respected regional firms in Ontario.

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

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The use of corporations by doctors and lawyers is a relatively recent regulatory concession. Historically, medicine and law were considered more vocational than commercial. Client relationships were sacrosanct and corporations, with their commercial connotations and limited liability, anathema. And so, doctors and lawyers, through their respective self-governing bodies, were denied the benefits of incorporation. This has, however, changed in recent years. Today, doctors and lawyers can incorporate their practices and thereby access certain tax benefits widely available to others. As the tax benefits available to doctors and lawyers differ significantly in favour of doctors, this article focuses exclusively upon the medical profession and the tax planning opportunities available to its members.

To begin, there are three tax benefits of incorporating a medical practice, generally known as a “medicine professional corporation”. These are:

•  maximizing investment capital and paying off debts;
•  income splitting; and
•  accessing and multiplying the lifetime capital gains exemption.

It should be noted at the outset that medicine professional corporations do not limit a doctor’s liability for malpractice. One’s professional responsibility is in no way lessened. Liability is, however, limited in other respects, such as in relation to trade creditors and lenders—provided, of course, that no personal guarantee is given.

Maximizing investment capital and paying off debts

Use of a medicine professional corporation provides greater after-tax profits with which to either pay off the practice’s debts or to invest. The corporate tax rate on income from a medical practice is generally 15.5% whereas the corresponding personal rate is 49.53%. By leaving income in the corporation, the taxpayer therefore has an additional 34.03% to either invest or apply against the corporation’s debts. Earnings on the corporation’s investments would then be taxed at 46.2% while distributions would be taxed in the shareholders’ hands at 40.13%. This higher corporate rate on investment income is intended to offset the tax deferral otherwise achieved by investing through a corporation. That tax is then partially refunded when the income is passed through to the shareholder so that the net tax approximates the tax otherwise payable had the shareholder held the investments directly. Again, then, the primary benefit lies in increasing the corporation’s investment capital by 1/3 or correspondingly increasing the corporation’s ability to pay down its debts.

The above statement of rates includes various assumptions. All rates represent the combined Federal and Ontario rates applicable before any changes to be announced in the February, 2015 federal budget speech—which follows the time of writing. The 15.5% rate applies to active business income earned by Canadian-controlled private corporations on the first $500,000.00 of annual income, which would generally include all professional income earned by medicine professional corporations. Active business income above that threshold is taxed at 26.5%. At the shareholder level, the 49.53% rate is the top marginal rate applicable to individuals on annual income above $220,000.00.

It is important to note that investing must be subordinate to the primary medical purpose of the medicine professional corporation.

Income Splitting

When medicine professional corporations were first introduced, income-splitting was not permitted since only members of the College of Physicians and Surgeons could hold shares. That restriction was soon lifted, however, so that medicine professional corporations may now be used to allocate income among immediate family members. Given the graduated personal tax rates, allocating income among lower-income earners results in lower overall tax. Provided that the income-splitting is handled properly, such tax planning is entirely acceptable, having been ratified by the Canadian courts and the Canada Revenue Agency.

One should, however, be aware of the “kiddie tax”. Individuals below the age of 18 (in tax parlance, individuals who have not attained the age of 17 years “before the year”) are subject to tax on dividends at the top marginal rate applicable to individuals. This tax applies equally to taxable shareholder benefits. One cannot, then, effectively split income with one’s minor children.

Accessing and Multiplying the Lifetime Capital Gains Exemption

The lifetime capital gains exemption refers to an exemption available to individuals (not trusts) from tax on the first $800,000.00 of proceeds realized upon the disposition of “qualified small business corporation shares”. In general, the shares of medicine professional corporations would qualify such that the use of incorporation represents a significant tax savings upon a sale of the practice. Since only 50% of capital gains are taxable, this results in a deduction of up to $400,000.00 against taxable income which, at the top marginal rate, represents a cash savings of up to $198,119.00.

If shares have been issued among family members then the sale proceeds must be allocated accordingly, and the lifetime capital gains exemption is effectively multiplied. If one is married with three children then the above $200,000.00 cash savings becomes $1,000,000.00.

As a practical matter, purchasers may prefer to buy the assets rather than the corporation in order to avoid any “skeletons in the closet” and to be able to depreciate the purchase price. In this circumstance, the benefit of the lifetime capital gains exemption is not lost; rather, it becomes leverage to negotiate a higher sale price in order to compensate for the lost tax savings.

Conclusion

Much remains to be said about the incorporation and use of medicine professional corporations. These corporations are governed not only by the Business Corporations Act (Ontario) by also by the Health Professions Procedural Code and regulations under the Regulated Health Professions Act. And, of course, layered above all is the Income Tax Act (Canada). If, therefore, one is interested in learning more about incorporating a medical practice, it is essential to consult an advisor well-versed in both corporate and tax law as well as the medical profession’s governing legislation and regulations.

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Article written by 

Patrick Westaway. Patrick is a corporate/commercial and tax lawyer at SorbaraLaw. He regularly advises in such technology industries as animated feature film production, online gaming and telecommunications with an emphasis upon cross-border enterprise and investment structuring.

By Greg Murdoch 2015/01/08

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Many property owners insist on a liquidated damages clause in their construction or renovation contracts as a motivator for project completion within a specified time.

Deadlines for the completion of construction projects are good for both owners and contractors. The owner wishes to use the finished product as soon as practical so that he or she may enjoy the benefits of its investment. The contractor who allocates resources to a project wants to ensure that those resources are earning an appropriate return. A delayed project can erode profits and prevent resources from being deployed elsewhere.

Liquidated damages are defined as a genuine pre-estimate of the probable loss that would be suffered from the late completion of a contract. In order to be enforceable, liquidated damages must not be a penalty. Liquidated damages will be considered to be a penalty if they are extravagant or oppressive in relation to the conceivable loss the owner would suffer from late completion. If liquidated damages are found to be a penalty, a Court will compensate the owner based on its actual losses.

The person arguing that liquidated damages are penal bears the onus of establishing this point. Owners will not be held to a standard of perfection. As long as the estimated amount of damages is reasonable, the clause will be enforceable. Courts recognize the utility and value of a fixed pre-estimate of damages because it saves the parties the time and expense of proving actual damages. Many contractors prefer the certainty of a fixed amount of damages if it cannot complete on schedule.

Market forces help ensure that liquidated damages are appropriately set. If the damages are set too high, contractors will not bid on a project or will inflate their bids as a safeguard, which in turn will drive up the cost of projects. If liquidated damages are set too low, a contractor may have an incentive to go over schedule if the prescribed damages are less than the acceleration costs to complete on time.

Numerous events beyond the control of the contractor can interfere with the completion of the contract within the specified time. As such, a contract with a liquidated damages clause must include provisions for extending the completion date in order for the clause to be enforceable. In the eyes of a Court, it would be unfair to charge liquidated damages without a mechanism that allows for extensions of time for events beyond the control of the contractor.

A prime example of external events causing a contract to take longer to complete are requests for extra work from the owner. Contract provisions for the extension of time to complete are as much for the benefit of the owner as the contractor, in that they adjust the completion date and thereby preserve the owner’s right to claim liquidated damages if the project is not finished by the new completion date.

Requests to extend a contract completion date must be handled properly by an owner and its consultant. An owner will lose its right to claim liquidated damages if the owner or its consultant fails to respond to a contractor’s request for an extension within a reasonable time after receiving the request. It is essential that the contractor knows the new date for completion because without this information a contractor cannot adjust its schedule and accelerate work if necessary. Liquidated damages must run from a specific date. Without a specific date they cannot be calculated and the clause will not be enforced by a Court.

The loss of the owner’s ability to charge liquidated damages does not eliminate an owner’s right to claim damages for late completion, but the test for late completion changes to proving a reasonable completion date and damages will be measured by actual losses and not a pre-estimate of damages.

It is important to review all contracts thoroughly before signing and appreciate their terms. In contracts that provide for liquidated damages, it is important to understand the provisions dealing with requests for extensions of time to complete in the event of intervening events that interfere with timely delivery. Properly documented requests for extensions for contract time, as well as insistence that consultants deal with these requests promptly, go a long way to avoiding disputes over liquidated damages charges and the end of a contract.

* * This article is intended only to inform and educate. It is not legal advice. Be sure to contact a lawyer to obtain legal advice on any specific matter.

Greg Murdoch is a partner in the firm and head of the litigation group at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario.

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By David Sunday 2014/12/02

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Through amendments to the Building Code introduced by Ontario Regulation 191/14, Ontario will increase the permissible height of wood frame buildings from the current 4 storeys to 6 storeys effective January 1, 2015.

While these changes have received broad support from the home construction industry, certain industry stakeholders have raised concerns around the increased fire risk posed by wood frame construction.  The amendments as passed respond to these concerns by requiring stairwells to be constructed of non-combustible materials and roofs to be combustion resistant.

The local municipality is the authority having jurisdiction for enforcing the Building Code. Accordingly, municipalities will need to ensure that their building officials are familiar with and able enforce the new Building Code provisions around mid-rise wood frame construction by the time they come into force on January 1, 2015, including that all requirements around fire risk prevention and/or mitigation are adhered to.

At the time of writing, the Code Advisory Unit of the Ministry of Municipal Affairs and Housing (MMAH) advised that it was developing overview material on the Code changes related to midrise wood construction which would be posted on the MMAH website shortly. George Brown College, which has responsibility for the development and delivery of Building Code training, is also in the process of updating its training materials to reflect the new content. Municipalities will want to monitor for additional information from these sources, but in the meantime will have to rely on the amended Code provisions as set out in Ontario Regulation 191/14.

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

David Sunday is the Group Leader in the Municipal, Land Use & Development Law Group at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario.

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By Cameron Mitchell and Nigel Smith, Law Student 2014/11/28

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The Supreme Court of Canada released a decision last week that could result in significant changes regarding the way that contractual relationships and business disputes are dealt with by the courts.

You may know that, while commercial parties are free to act in their own best interest, there was a general common-law principle that parties to a contract must act in good faith and carry out their contractual obligations reasonably and according to the contract’s intent or purpose.

In Bhasin v. Hrynew (“Bhasin”), our Supreme Court acknowledged the general ‘organizing principle’ or requirement of good faith in performing contractual obligations and recognized a new duty in addition to the principle of good faith: honesty.  To most businesspeople, it likely seems self-evident that parties to a contract should act honestly when carrying out their respective duties.  So what led the Supreme Court to enshrine this new, higher standard?

Summary of Bhasin

In the Bhasin case, Harish Bhasin (“B”), a retailer of financial savings plans, had been doing business with a wholesaler of savings plans since 1998. At one point, the wholesaler began doing business with another retailer (“C”). At one point, the wholesaler altered the wording of its standard contract, and B executed the new contract. A new renewal clause stated that either party could trigger non-renewal of the contract by giving notice before the expiry of a term. When the wholesaler asked that C audit B’s business, B refused to give C access to his confidential information. C was a competitor and was interested in merging with B’s business. The wholesaler ultimately gave notice to B that it would not be renewing B’s contract. B sued the wholesaler and C claiming that they had conspired against him and that the wholesaler had failed to act in good faith when terminating the standard contract; all of which diminished the value of B’s company.  Although an appeal court ruled that there was no implied duty of good faith in a contract (the standard contract did not contain a ‘good faith’ clause), B was ultimately successful at the Supreme Court.

The key part of the Supreme Court’s ruling is as follows:

“It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing             principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the           performance of their contractual obligations.

Under this new general duty of honesty in contractual performance, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.  This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.”

What Does this Mean?

As a result of the Bhasin decision, the duty of honesty in contractual performance is now part of the ‘common law’ – precedents that lower courts are bound to follow, if appropriate based on the facts of a particular case. The Bhasin decision may result in more claims based on one party acting dishonestly being brought forward, and potentially in a variety of different contexts.

As one example, imagine that your business runs out of a key component required in the production of your best-selling product.  Your normal supplier does not have the component in stock and says there is a global shortage of the components.  You approach two other suppliers who tell you they have the components and you choose Supplier A, who offers you the lowest price.  You sign Supplier A’s standard form agreement, and he says that he will deliver the shipment in 10 days.  Five days later, Supplier A calls you and says that he was mistaken and that the components in question were out of stock.  You call Supplier B and find out that they now have no components in stock.  Worse, the next day you learn that your competitor down the street got a big, last minute shipment of components from Supplier A, and apparently at a much higher unit cost than the price set out in your contract with Supplier A.  Your production line is shut down for 2 weeks until your normal supplier is able to provide you with the components.  You could consider suing Supplier A for failing to fulfill the terms of the contract even though there may be a provision in the Supplier A’s standard form of agreement which exonerates Supplier A in such circumstances. Referring to the standard outlined in Bhasin, you could argue that Supplier A breached the duties of good faith and honesty by knowingly misleading you about the status of the components.

Of course, business relationships are just one of many areas where contracts are used.  It will be interesting in the months and years to come to see how the requirement of honest performance from Bhasin is applied in other areas of the law, such as wills and estates, family law (prenuptial or separation agreements) or municipal law.  Depending on how far courts are willing to apply this new requirement of honesty, the ramifications from the Bhasin decision could prove to be profound.

Impacts and What You Need To Do

While the full impact of the Bhasin decision will likely take years to be determined, the old adage about honesty being the best policy applies more now than ever.  Like many of us remind our teenage children: it’s less about what occurred, and a lot more about how you react. In other words, bad things happen sometimes, but did you own up and tell the truth?  In the example above, if Supplier A had honoured the terms of the original contract for the components, he may have received a lower unit price on the transaction, but he would have avoided months if not years of protracted negotiations and litigation that resulted from the lie to the first customer. 

If, as a wise businessperson, you operate your business in an honest and ethical manner, then the Bhasin case will likely not impact the way you do things.  If, however, you ever find yourself in the unpleasant position of being harmed by a dishonest party, then you may have a cause of action against that party, regardless of whether or not the action is permitted under the terms of your contract.

 

Cameron Mitchell is a business lawyer at SorbaraLaw – one of the largest and most respected regional law firms in Ontario – where he specializes in creating and negotiating all kinds of business contracts.  With more than 30 lawyers, several of whom are listed in Best Lawyers in Canada or are Certified Law Society Specialists, SorbaraLaw provides legal services to corporate, governmental and individual clients throughout Ontario.  In addition to corporate law, our lawyer’s specialty areas include employment law and civil litigation, real estate transactions, municipal law and family law.

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By David Sunday 2014/11/20

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Section 106 of the Ontario Municipal Act, 2001 is a much worried about “anti-bonusing” provision of broad application. It is worrisome because its limits and applications are far from clear. By its terms, the provision purports to create an unqualified prohibition on municipalities directly or indirectly assisting any manufacturing, industrial, or commercial enterprise through “bonusing”. The scope of prohibited “bonusing” extends to the giving or lending of any municipal property, including money, guaranteeing borrowing, leasing or selling any municipal property, or giving a total or partial exemption from any levy, charge, or fee.

Even though the anti-bonusing provision, by its terms, would appear to place very significant and wide-ranging restrictions on municipal action, in the little judicial consideration the provision has received, it has actually been construed and applied quite narrowly. Four Ontario cases have now considered the anti-bonusing provision, with the most recent consideration being in Vincorp Financial Ltd. v. The Corporation of the County of Oxford (2014) ONSC 2580 released April 30, 2014.

The judicial consideration prior to Vincorp establishes several principles applicable to the interpretation of the anti-bonusing provision. Stated briefly these are:

  1. Powers conferred upon municipalities by the Municipal Act, 2001 are to be given a broad and purposive interpretation;
  1. The anti-bonusing provision restricts municipal powers, therefore must be construed narrowly so as not to unduly detract from municipal powers;
  1. All municipal contracts confer an advantage or benefit of some kind;
  1. The anti-bonusing provision should be construed as only prohibiting the granting of “obvious undue advantages”.

The challenge with the anti-bonusing provision lies in the application of these principles to the facts of any particular situation. Determining whether there has been a contravention of the anti-bonusing provision requires a judgment call as to whether there has been an “obvious undue advantage” or, stated another way, an “unmerited windfall” to some enterprise. These are inherently subjective concepts. In the absence of further judicial guidance, precisely how municipalities and their advisors should go about making such a judgment call remains unclear.

In Vincorp, the Court had an opportunity to provide further legal guidance, but unfortunately it did not do so. The Vincorp case involved an expropriated shopping mall owner who alleged that the County of Oxford had provided a bonus to Toyota by expropriating the mall lands and then transferring those lands to Toyota at the “expropriation price” as opposed to “fair market value”. There was no evidence and no specific finding by the Court as to the actual difference, if any, between these values.

The Court in Vincorp rejected the mall owner’s position, but in reaching its conclusion simply adopted and applied past judicial analysis to conclude that any advantage conferred on Toyota did not pass the pre-existing threshold of “obvious undue advantage”. The Court noted that the County and the Province would derive significant economic benefits as a result of Toyota building a new manufacturing plant in Woodstock, such that any benefit that might have accrued to Toyota through the transfer of the mall lands at the expropriation price could not be considered an “obvious undue advantage”.

The Vincorp decision’s greatest significance appears to be that it involves a novel, albeit failed, attempt to apply the anti-bonusing provision to an expropriation for a municipal economic development purpose. Beyond that, however, it provides little by way additional judicial guidance as to how to distinguish between “obvious undue advantages” and “merited advantages”.

In the event an appeal from Vincorp is heard (and we understand an appeal has been filed), then it would be hoped that the Court of Appeal takes the opportunity to provide further guidance on how the distinction between  “obvious undue advantages” and “merited advantages” ought to be made. Municipalities should monitor for further judicial guidance on the anti-bonusing provision and, in the meantime, exercise caution to ensure that any advantage conferred by the municipality cannot be characterized as “undue”. At present, this appears to mean that the municipality needs to be able to point to significant (and perhaps proportionate) benefits to itself and/or the public any time an advantage is conferred, otherwise a municipality may be exposed to allegations of illegal bonusing.

* * This article is intended only to inform and educate. It is not legal advice.  Be sure to contact a lawyer to obtain legal advice on any specific matter.

David Sunday is the Group Leader in the Municipal, Land Use & Development Law Group at Sorbara, Schumacher, McCann LLP, one of the largest and most respected regional law firms in Ontario.

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