Court Of Appeal Summaries (April 5 – April 9, 2021) - Professional Negligence

Good evening.

Please find below our summaries of the civil decisions of the Court of Appeal for the week of April 5, 2021.

Civil Decisions

Madison Joe Holdings Inc. v. Mill Street & Co. Inc., 2021 ONCA 205

Keywords: Contracts, Debtor-Creditor, Promissory Notes, Guarantees, Fair Protection Rule, Civil Procedure, Summary Judgment, Standard of Review, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, Kevin McGuinness, The Law of Guarantee, 3rd ed. (Toronto: Lexis Nexis Canada, 2013)

Goldentuler v. Simmons Dasilva LLP , 2021 ONCA 219

Keywords: Torts, Professional Negligence, Lawyers, Wills and Estates, Civil Procedure, Striking Pleadings, Capacity, Rules of Civil Procedure, Rule 21.01(3)(b), Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34

Farrell v. Kavanagh, 2021 ONCA 213

Keywords: Contracts, Real Property, Mortgages, Torts, Fraud, Civil Procedure, Appeals, Stay Pending Appeal, RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 2257573 Ontario Inc. v. Furney, 2020 ONCA 742, Circuit World Corp. v. Lesperance (1997), 33 O.R. (3d) 674 (C.A.), Starkman v. Home Trust Company, 2015 ONCA 436

Catholic Children's Aid Society of Toronto v. V.R. (Publication Ban), 2021 ONCA 209

Keywords: Family Law, Child Protection, Crown Wardship, Access, Best Interests of the Child, Child, Youth and Family Services Act, 2017, S.O. 2017, c. 14, Sched. 1, ss. 74(3), 105(5)-(6).

Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONCA 215

Keywords: Contracts, Real Property, Mortgages, Civil Procedure, Settlements, Enforcement, Writs of Possession, Appeals, Security for Costs, Rules of Civil Procedure, Rule 61.06(1)(a), Rule 63.01(1), Rule 63.02(1), Courts of Justice Act, s. 7(2), s. 134(2), Heidari v. Naghshbandi, 2020 ONCA 757, Hakim Optical Laboratory Ltd. v. 1570710 Ontario Ltd., 2010 ONCA 627, Waxman v. Waxman (2003), 168 O.A.C. 217 (C.A.), Abuzour v. Heydary, 2015 ONCA 249, RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311

Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd.a, 2021 ONCA 221

Keywords: Contracts, Debtor-Creditor, Security Agreements, Control Agreements, Share Pledges, Enforcement, Foreclosure, Notice of Intention to Enforce Security, Right of Redemption, Statutory Interpretation, Principle of Implied Exclusion, Personal Property Security Act, R.S.O. 1990, c. P.10, ss. 17.1 and 63(4), Securities Transfer Act, 2006, S.O. 2006, c. 8, s. 24, Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, University Health Network v. Ontario (Minister of Finance) (2001), 208 D.L.R. (4^th) 459, Casse v. Credifinance Securities Ltd. (1999), 14 P.P.S.A.C. (2d) 352

Short Civil Decisions

Ritchie v. Castlepoint Greybrook Sterling Inc., 2021 ONCA 214

Keywords: Contracts, Real Property, Agreements of Purchase and Sale of Land, Exclusion of Liability Clauses, Allocation of Risk

CIVIL DECISIONS

Madison Joe Holdings Inc. v. Mill Street & Co. Inc., 2021 ONCA 205

[MacPherson, Gillese and Nordheimer JJ.A.]

Counsel:

M Simaan, for the appellants

J Berall, for the respondent

facts:

Madison Joe Holdings Inc. ("MJH") was the 100% owner of All Source Security Container Mfg. Corp. ("All Source"). In 2014, Mill Street & Co. Inc. ("Mill Street") purchased a 50% interest in All Source from MJH. Part of the payment was by way of promissory notes. Mill Street acquired the remaining 50% interest in All Source from MJH in 2016. At the time of the second 50% purchase, Mill Street still owed payments to MJH under the existing promissory notes it had issued in connection with the first 50% purchase. To restructure that debt, the existing promissory notes were extinguished and All Source executed two new promissory notes to MJH in their place. The new promissory notes were guaranteed by Mill Street, Noah Murad ("Noah") and Roy Murad ("Roy") (collectively, the "Guarantors"). In connection with the second 50% purchase, Noah, on behalf of All Source, entered into a Loan Agreement with TD Bank. All Source, MJH and TD Bank then entered into an Inter-Creditor Agreement.

After the promissory notes were executed in 2016, All Source paid the required monthly interest payments, but failed to pay the principal and outstanding interest owing under the promissory notes on their maturity dates. MJH commenced an action against All Source and the Guarantors. MJH then moved for summary judgment on the unpaid promissory notes. The motion judge found that the Inter-Creditor Agreement restricted All Source from repaying the principal but not the monthly interest under the promissory notes, which was payable before and after their maturity dates. She found that the Inter-Creditor Agreement did not shield the Guarantors from their joint and several obligations to pay the principal and monthly interest amounts under the promissory notes. Accordingly, the plaintiff was granted judgment against All Source and each of the Guarantors.

issues:

Did the motion judge err in her interpretation of the guarantees in ignoring the "in accordance with its terms" language, which prevented enforcement of the guarantees on the same terms as enforcement could be made on the promissory notes?

holding:

Appeal dismissed.

reasoning:

No. The motion judge was required to interpret several commercial and contractual documents as part of her analysis. Contractual interpretation involves issues of mixed fact and law, meaning deference is owed to the court of first instance and the "palpable and overriding" standard applies on appellate review.

The guarantees stated that they were to be resorted to only if the debtor defaulted in making payments under a promissory note in accordance with its terms. The appellants argued that non-payment did not equal default in certain circumstances, and that without default there could be no enforcement on the guarantees. The appellants further submitted that their proposed interpretation was commercially reasonable and consistent with the Guarantors' agreement to only be liable if the default was caused by events other than the financial situation of the debtor, which was inextricably linked to a formula under the Inter-Creditor Agreement.

The motion judge rejected the appellants' argument. She stated that the alternative interpretation urged by the appellants would render the security of the guarantees illusory because it would mean that if All Source was not in a financial position to repay the promissory notes because of its other financial obligations, then the Guarantors would not have to pay either, whereas a guarantee would ordinarily be called upon in precisely that circumstance.

The Court agreed with the motion judge, and that she therefore had not committed any palpable and overriding error. The motion judge's interpretation was consistent with legal scholarship on guarantees and the "Fair Protection Rule". Guarantees are read so as to give effect to the apparent intent of the parties, so as to afford fair protection to a creditor in accordance with that apparent intent. The Court concluded that all the elements of the guarantee in this case had been satisfied. All Source defaulted in making payments due under the promissory notes. As a result, All Source owed money to MJH, and the guarantee was triggered as a result.

Goldentuler v. Simmons Dasilva LLP, 2021 ONCA 219

[Juriansz, Nordheimer and Jamal JJ.A.]

Counsel:

S. Dewart and A. Lei, for the appellants

E. Goldentuler, in person

facts:

The respondent's late brother, a lawyer in private practice, had commenced an action before he passed away. The respondent, also a lawyer, obtained an order to continue the action in the name of his late brother's Estate. The Estate obtained judgment. In his capacity as Estate trustee, the respondent retained the appellants to pursue an appeal which was successful, resulting in the damages award in favour of the Estate being increased. A dispute arose concerning the appellant's fees, regarding which the respondent commenced this solicitor's negligence action in his own name and in his personal capacity. He sought damages, alleging that the appellants fell below the standard of care in conducting the appeal.

The appellants brought a motion to dismiss the action on the grounds that the respondent did not have legal capacity to sue them, as the appellants had acted for the Estate, not the respondent. The motion judge dismissed the motion to dismiss the action, finding that the appellants were aware that the respondent had purchased the law firm from his late brother's wife, who was the executor of the Estate. The motion judge concluded that the respondent had capacity to bring the action because: (i) the account for legal fees was directed to the respondent and (ii) the respondent was the only party who could have been affected by the outcome of the appeal, since he had purchased the law firm.

issues:

Did the motion judge err in dismissing the motion?

holding:

Appeal allowed.

reasoning:

Yes. The Court held that the motion judge made a palpable and overriding error. The crucial question was, who retained the appellants? It was clearly the Estate. It was the Estate in whose name the original litigation was continued, it was the Estate that was the party on the appeal and for whose benefit the damage award was increased. The Court noted that it was the Estate to whom payment was made on the ultimate judgment and on whose behalf the retainer agreement with the appellants was signed. The Court added that nothing of consequence turned on the fact that the account for legal fees was directed to the respondent. He was the individual who provided instructions to the appellants on behalf of the Estate. The addressee of the account ded not change on whose behalf the appellants were retained. The Court held that the respondent did not have a personal claim arising from the retainer of the appellants given the party on whose behalf the appeal was brought and on whose behalf the appellants were retained. He did not, therefore, have capacity to bring the solicitor's negligence claim. As a result, the appeal was granted and the action was dismissed.

Farrell v. Kavanagh, 2021 ONCA 213

[Paciocco J.A. (Motion Judge)]

Counsel:

M. J. Neirinck for the moving parties

D. P. Preger, D. Seifer and Reeva M. Finkel for the responding parties

facts:

The moving parties appealed a Judgment from December 2020 dismissing their action concerning the validity of a mortgage (the "Action"). The Action involved a mortgage debt of $5 million that was secured against two properties owned by the corporate moving party (the "Properties").

In the Action, the moving parties claimed that the mortgages were fraudulent and sought a money judgment against the respondent, J.K. They also sought a declaration that the mortgage was invalid based on what they alleged the responding party mortgagee knew about the supposed fraud. After years of litigation, the trial judge in the Action ruled against the moving parties and declared the mortgage valid.

In this appeal, the moving parties sought a stay of that declaration of validity and of the enforcement of the mortgage pending the outcome of the appeal.

issues:

Should the moving parties be granted a stay of the declaration of validity and of the enforcement of the mortgage pending the outcome of the appeal?

holding:

Motion dismissed.

reasoning:

No. The Court was not persuaded that a stay pending appeal was in the interests of justice. To obtain a stay pending appeal, a moving party must meet the three-part RJR-Macdonald test for an interlocutory injunction.

i. Is there a serious question to be determined on the appeal?

The threshold to establish a serious question on the appeal is low and courts must make a preliminary assessment of the merits of the case and determine whether the issues on appeal are either frivolous or vexatious. The Court in this case held that the serious issue to be determined on appeal criteria was met, however, the Court emphasized that it had barely been met.

In coming to this conclusion, the Court stated that it agreed with the responding parties that the grounds of appeal advanced did not identify any palpable or overriding errors and were largely an attempt by the moving parties to re-try factual findings and credibility determinations. However, the Court also stated that since it had not found that the grounds of appeal were frivolous or vexatious, they satisfied the low-threshold of whether there was a serious issue to be determined.

ii. Will the moving party suffer irreparable harm if the stay is denied?

The Court found that the moving parties would not suffer irreparable harm if the declaration of validity remained and enforcement efforts were permitted to proceed. Irreparable harm is a "harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other" (RJR-MacDonald). The Court found that there is nothing unique about the Properties at issue, and that the moving parties' concerns that current poor market conditions would make a sale improvident were not supported by evidence. Further, any claims that market conditions would improve if a sale was delayed until the end of the appeal period were speculative. Thus, the Court held that even if the moving parties were successful in the appeal, any loss they incur as a result of the sale of the Properties prior to the appeal being heard could be compensated by a monetary award. As well, there was no suggestion that the responding party mortgagees could not pay a money judgment to compensate the moving parties, if required.

The Court also noted that the responding mortgagee had scheduled an upcoming hearing to seek the appointment of a receiver. If a receiver is appointed, the receiver will be obliged to consider the moving parties' interests as well as any offers they have procured, as one of the purposes underlying court-supervised receivers is to avoid improvident sales. Therefore, any risk the Properties would be sold at less than market value was speculative.

iii. Which party does the balance of convenience favour if the stay is granted?

The Court found that the balance of convenience did not favor granting a stay pending appeal. The moving parties argued that they would be inconvenienced if the mortgage was enforced because they expected that enforcement would not be sought until the action was finally disposed of on appeal. The Court found that there was no clear agreement to this effect and no evident breach of such an undertaking. The moving parties also did not present evidence supporting their position that there was ample equity in the Properties to mitigate the risk to the responding parties if a stay was granted. While the Court accepted that there would be inconvenience to the moving parties to recover from the 13 responding party mortgagees if the appeal was successful, this inconvenience did not outweigh the continued costs to the responding parties.

Regarding the continued costs to the responding parties, the Court was not persuaded that the delay would benefit the responding parties. The responding party mortgagees had seen none of the interest owing under the mortgages and had enjoyed no benefits from their investment. Thus, the enforcement delay would only perpetuate this for what the moving parties estimate would be at least another year. Therefore, the Court found that the balance of inconvenience arising from the risk of financial shortfall favoured the responding party mortgagees.

Interests of Justice

The final submission by the moving parties was that the interests of justice required a stay in this case because they contested the validity of the mortgage debt. Although the moving parties were not seeking to stay enforcement measures they had agreed to accept when the mortgage was executed, the moving parties had benefited from a significant portion of the money advanced and had paid virtually nothing in return. Further, the trial judge had already found that the mortgage entered into was valid, both in fact and in law. Therefore, the Court held that it could not accept this submission.

Catholic Children's Aid Society of Toronto v. V.R. (Publication Ban), 2021 ONCA 209

[Fairburn A.C.J.O., van Rensburg and Huscroft JJ.A.]

Counsel:

D. Miller, for the appellant

C. Andrikakis, for the respondent

Keywords: Family Law, Child Protection, Crown Wardship, Access, Best Interests of the Child, Child, Youth and Family Services Act, 2017, S.O. 2017, c. 14, Sched. 1, ss. 74(3), 105(5)-(6).

facts:

D.R. was seriously injured on two occasions in the first few months of her life. At a few weeks old, she suffered a fracture to her upper arm. At four months old, she suffered a head injury and seizures as a result of blunt force trauma and/or inertial forces. The trial judge found that D.R was injured in the care of her parents and that her injuries were intentionally inflicted by either or both parents. D.R. was placed in the extended care of the Catholic Children's Aid Society with no parental access and with a view to adoption by her foster parents.

The appellant mother appealed. The appeal judge found that the trial judge wrongly put the onus on the appellant to demonstrate that access would be in the child's best interests. Rather than remit the matter, the appeal judge assumed jurisdiction to determine the access question. The appeal judge concluded that access was not in the best interests of the child and made the "no access" order that was the subject of this appeal. D.R.'s father did not participate in any of the proceedings and he was deported to Portugal in 2018. The appellant was also deported to Portugal prior to this appeal being heard.

issues:

Did the appeal judge err by determining the access question rather than remitting the matter?

holding:

Appeal dismissed.

reasoning:

No. The appellant argued that on any reasonable application of the best interests analysis on the evidence in this case, an access order should result. The appellant said she demonstrated normal, healthy parenting skills, D.R. enjoyed her access visits, and that access would not impair D.R.'s opportunities for adoption by her foster parents. The Court found that the appellant's submission was effectively an attempt to retry the matter, which was not the function of an appeal. The appeal judge conducted a best interests analysis, and considered whether the relationship was beneficial and meaningful to the child in light of the criteria and relevant circumstances set out in s. 74(3) of the Child, Youth and Family Services Act, 2017. The Court saw no error by the appeal judge that warranted intervention.

The most significant consideration was the degree of risk to the child that led to the protection finding. During the short time she was cared for by the appellant, D.R. was seriously injured on two occasions. The trial judge found that either or both of the parents had intentionally inflicted the injuries on D.R. or failed to protect her from the other parent. The trial judge rejected the appellant's explanation for how D.R.'s injuries occurred. By contrast, D.R. has spent most of her life in her foster parents' care and has thrived due to the continuity of the care she has received.

The appeal judge's finding that the most significant circumstance was the degree of risk that led to the protection finding was supported by the evidence and was reasonable. So too was the appeal judge's finding that there was no factual foundation to support that the parental relationship was beneficial and meaningful to D.R., regardless of how well the access visits had gone. The appeal judge's decision was fortified by the affidavit evidence of D.R.'s foster father. Therefore, there was no basis to interfere with the appeal judge's no access order.

Sub-Prime Mortgage Corporation v. Kaweesa, 2021 ONCA 215

[Paciocco J.A. (Motion Judge)]

Counsel:

G. Cohen, for the moving parties Sub-Prime Mortgage Corporation and Elle Mortgage Corporation

R. Das, for the moving party T.W.

M. Tubie, for the responding parties

facts:

This motion concerned a heavily encumbered residential property in Toronto (the "Property"). The moving party mortgagees (the "Mortgagees") collectively hold first, second and fifth mortgages over the Property. When these mortgages fell into default, the Mortgagees initiated enforcement proceedings, while the responding parties issued a counterclaim.

The parties eventually executed minutes of settlement (the "Minutes") in November 2020. A key term of the Minutes required the responding parties to pay $2.1 million to one of the Mortgagees before January 25, 2021. If the responding parties failed to make such payment, the Mortgagees would be entitled to a payment of $2.7 million, a dismissal of the responding parties' counterclaim, as well as leave to issue a writ of possession for possession of the Property.

When the responding parties failed to make the payment before the deadline, the Mortgagees brought a motion for judgment in accordance with the Minutes. The responding parties contested the motion and requested an extension of the payment deadline, arguing that the Minutes had been frustrated due to difficulties securing financing as a result of the ongoing COVID-19 pandemic.

The extension was denied and the Minutes were enforced. Namely, by awarding a monetary judgment in the amount of $2.7 million, terminating the respondents' counterclaim, and issuing a writ of possession against the Property (the "Judgment"). However, the writ of possession was temporarily stayed for a period of 90 days following the termination of Ontario's state of emergency. Further still, such temporary stay was conditional on the responding parties making monthly payments of $3,000 to the City of Toronto in connection with realty tax arrears (the "Stay Condition").

The responding parties subsequently failed to comply with the Stay Condition, but argued that they were no longer required to comply because of an apparent agreement with the City of Toronto relieving them from paying the tax arrears until this action was settled.

issues:

Should an order be granted requiring the responding parties to post security for the moving parties' costs of the appeal?
Should an order be granted revoking the temporary stay of the writ of possession?
Should an order be granted requiring the responding parties to post further security for the costs awarded in the Judgment?
Should an order be granted expediting the hearing of the appeal?

holding:

Motion granted in part.

reasoning:

Should an order be granted requiring the responding parties to post security for the moving parties' costs of the appeal?

Yes. Under Rule 61.06(1)(a) of the Rules of Civil Procedure, an order for security may be made if: (i) there is good reason to believe that the appeal is frivolous and vexatious; and (ii) the responding parties have insufficient assets in Ontario to pay the costs of their appeal.

With respect to the first condition, the motion judge concluded that the appeal appeared to be both frivolous and vexatious. It was frivolous in the sense that there was good reason to believe that the various grounds of appeal were "devoid of merit, with little prospect of success" (Heidari v. Naghshbandi, 2020 ONCA 757).

Vextiousness was established by the finding that various allegations made by the responding parties did nothing to actually advance the appeal on its merits, but simply served to impugn the integrity and/or professionalism of various individuals involved in the proceedings. As further noted in Heidari, an appeal is vexatious when it is "taken to annoy or embarrass the respondent or conducted in a vexatious manner."

With respect to the second condition, it was apparent that the Property was the sole asset claimed by the responding parties. Notwithstanding the valuation of the Property at $3.5 million, its heavily encumbered nature meant that there was insufficient equity to cover the proven encumbrances, plus the costs of the appeal. Accordingly, both requirements under Rule 61.06(1)(a) were established.

2. Should an order be granted revoking the temporary stay of the writ of possession?

Yes. First, the motion judge rejected the responding parties' argument that they were not in breach of the Stay Condition as a result of the apparent agreement with the City of Toronto. First, the responding parties provided no evidence that this agreement actually existed. Second, even if such agreement did exist, the Stay Condition was never contingent on the City of Toronto demanding payment, it simply provided that monthly payments were to be made in reduction of the realty tax arrears.

The motion judge also rejected the responding parties' argument that a conditional writ of possession is automatically stayed on appeal pursuant to Rule 63.01(1). It was clear that Rule 63.01(1) is intended to automatically stay monetary remedies pending appeal, not in rem remedies.

The motion judge also cited his authority for making an order revoking the temporary stay, being section 134(2) of the Courts of Justice Act (the "CJA"). The jurisdiction conferred by s. 134(2) of the CJA may be exercised by a single judge of the Court of Appeal pursuant to s. 7(2) of the CJA (Hakim Optical Laboratory Ltd. v. 1570710 Ontario Ltd., 2010 ONCA 627). However, while the authority under s. 134(2) is broad, it is not unlimited, and any remedy provided under s. 134(2) must be focused on the interests of justice and preventing prejudice (Waxman v. Waxman (2003), 168 O.A.C. 217 (C.A.).

Accordingly, the test under s. 134(2) is the same test for granting a stay pending appeal pursuant to Rule 63.02(1) (Abuzour v. Heydary, 2015 ONCA 249), which is in turn based on the test for an interlocutory injunction as set out by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. Specifically, the following criteria must be considered: (i) whether there is a serious question to be adjudicated on appeal; (ii) whether the moving party would suffer irreparable harm if the relief were refused; and (iii) whether the balance of convenience favours the moving party.

With respect to the first criterion, the motion judge simply reiterated his earlier finding that the appeal was frivolous and vexatious as grounds for concluding that there was no serious question to be adjudicated. With respect to the second criterion, the motion judge noted the heavily encumbered nature of the Property, and how the passage of time meant that the prospect of full collection ever being achieved by the Mortgagees was increasingly threatened.

The motion judge did acknowledge the reality of the responding parties being displaced from their residence while considering the third criterion. However, it was also noted that displacement in the event of non-payment was a consequence that they accepted, that the responding parties have been living in the residence without paying the associated expenses for some time, and that there was never any guarantee that the responding parties could continue to possess the Property until the end of their appeal. In sum, the motion judge concluded that the interests of justice favoured lifting the temporary stay, even when considering the relevant "equitable arguments".

3. Should an order be granted requiring the responding parties to post further security for the costs awarded in the Judgment?

No. The motion judge simply commented that although making such an order was within his authority, he would not exercise his discretion to order payment of a costs order that remained a live issue.

4. Should an order be granted expediting the hearing of the appeal?

No. Given the orders made regarding security for costs and lifting the temporary stay, there was no need to expedite the appeal.

Atlas (Brampton) Limited Partnership v. Canada Grace Park Ltd., 2021 ONCA 221

[Lauwers, Miller and Nordheimer JJ.A.]

Counsel:

J. A. Kaufman and B. Adams, for the appellants

P. H. Starkman, for the respondents

facts:

One of the appellants, Romlex International Ltd. ("Romlex"), and one of the respondents, Canada Grace Ltd. ("Canada Grace"), were each shareholders in a development venture incorporated as Atlas Springbank Developments Ltd. ("Atlas"). Atlas later loaned $1.8 million to the appellant limited partnership ("Atlas Brampton"). When Atlas Brampton failed to make the first interest payment, the loan fell into default.

To address the default, the parties entered into a security agreement (the "Security Agreement"), whereby Romlex agreed to pledge all of its shares in Atlas to Canada Grace. The terms of this pledge of shares included that upon a default by Atlas Brampton, the shares would be "transferred" to Canada Grace, that the principal of Canada Grace was to have an irrevocable power of attorney to effect such a transfer as necessary, and that the principal of Romlex would be deemed to be removed as a director of Atlas.

Almost immediately after executing the Security Agreement, Atlas Brampton was put into receivership by a third party, constituting an event of default under the Security Agreement. Following an exchange of messages, the solicitor for Atlas wrote to the principal of Romlex on behalf of Canada Grace to inform him that the pledged shares had been transferred, and that he was removed as a director of Atlas. The letter did not offer any possibility of curing the default.

Afterwards, the appellants issued a notice of application seeking a declaration that the transfer of the pledged shares was null and void because the respondents failed to give appropriate notice of their intention to foreclose on the pledged shares. Specifically, the appellants contended that they were entitled to notice under s. 63(4) of the Personal Property Security Act, R.S.O. 1990, c. P.10 ("PPSA"), and were also entitled to an opportunity under s. 66 of the PPSA to redeem the pledged shares by paying the amount due under the loan.

The application judge found that Canada Grace did in fact fail to provide the requisite notice under the PPSA. However, he went on to add that this failure was inconsequential, as the respondents had acted in accordance their contractual rights under the Security Agreement, which effectively gave them the right to foreclose without any notice requirements. Because the respondents had not pursued a remedy under the PPSA, the appellants were therefore not entitled to invoke their right of redemption under the PPSA.

issues:

What was the nature of Canada Grace's security interest in the pledged shares?
Does s. 17.1(2) of the PPSA permit Canada Grace to foreclose on the pledged shares?
If s. 17.1(2) of the PPSA does not permit foreclosure, did Canada Grace foreclose on the pledged shares in accordance with the requirements of Part V of the PPSA?

holding:

Appeal dismissed.

reasoning:

What was the nature of Canada Grace's security interest in the pledged shares?

Despite not being argued before the application judge, the Court requested the parties' submissions on s. 17.1 of the PPSA, which allows a secured party that has control over investment property to sell, transfer, use or otherwise deal with the collateral, subject only to the terms of the security agreement. The Court's analysis on whether s. 17.1 applied to the pledged shares hinged on the interpretation of the term "control".

Under the PPSA, "control" is determined with reference to the Securities Transfer Act, 2006 (the "STA"). Specifically, s. 24(1)(b) of the STA applies with respect to uncertificated securities, which was the case with the pledged shares. Per s. 24(1)(b), control is established if the issuer has agreed to comply with instructions prescribed by the secured party, without the further consent of the registered owner. Such circumstances are commonly known as a "control agreement".

The Court found that the Security Agreement doubled as a control agreement by virtue of the aforementioned terms granting an irrevocable power of attorney to Canada Grace's principal. Importantly, the Security Agreement was executed by all the necessary parties to constitute a proper control agreement as contemplated by s. 24(1)(b) of the STA: the issuer of the shares (Atlas), the registered owner of the shares (Romlex), the debtor (Atlas Brampton), and the secured party (Canada Grace). Aside from this important requirement, the Court noted that control agreements need not take on any particular form, and may be interpreted functionally rather than formalistically. Accordingly, the Court concluded that Canada Grace's security interest in the pledged shares fell within the scope of s. 17.1 of the PPSA.

2. Does s. 17.1(2) of the PPSA permit Canada Grace to foreclose on the pledged shares?

No. Section 17.1(2) of the PPSA gives the secured party the right to "sell, transfer, use or otherwise deal with the collateral in the manner and to the extent provided in the security agreement". Accordingly, the respondents submitted that they were entitled to foreclose on the pledged shares without providing any notice to the appellants, given that the Security Agreement did not require any such notice.

The Court disagreed with this argument, with the analysis once again turning on the interpretation of certain terms, this time being the phrase "sell, transfer, use or otherwise deal". The Court found that according to the principles of statutory interpretation, this phrase cannot be said to include actions relating to foreclosure. This required interpreting the words in their entire context and ordinary sense, harmoniously with the scheme of the Act and the intention of Parliament (Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27). The Court's conclusion on this issue was broken down into four reasons.

First, because s. 17.1(2) creates an exception to the general enforcement scheme of Part V of the PPSA, and the effect of that exception is to reduce statutory protections for debtors in the name of contractual freedom, such exception must be construed narrowly.

Second, the principle of implied exclusion, as set out in University Health Network v. Ontario (Minister of Finance) (2001), 208 D.L.R. (4^th) 459, was applied on a plain reading of the words. Given specific attention afforded to actions of foreclosure elsewhere in the PPSA, its absence from s. 17.1(2) implies that it was intentionally excluded.

Third, the fact that foreclosure entails different legal and practical consequences than a sale, transfer or use meant that its inclusion would not assimilate well with the elaborate debtor-protective statutory scheme that is characteristic of Part V of the PPSA. Again, related to this point was the fact that Part V expressly imposes certain requirements on a foreclosing secured party.

Last, the Court noted that an interpretation permitting foreclosure under s. 17.1(2) would not make sense given the primary reason for which s. 17.1(2) was enacted in the first place - namely, to facilitate capital markets transactions. In this respect, a foreclosing creditor cannot be said to be in a similar position to a broker or securities intermediary, who must act quickly to liquidate rapidly depreciating accounts.

3. If s. 17.1(2) of the PPSA does not permit foreclosure, did Canada Grace foreclose on the pledged shares in accordance with the requirements of Part V of the PPSA?

Yes. Notwithstanding the rejection of the respondents' argument that they were not required to give notice at all as a result of s. 17.1(2), the Court subsequently found that Canada Grace did in fact provide the requisite notice under Part V of the PPSA. This was established by the correspondence submitted as evidence.

The Court noted that the applicable notice provisions in Part V mandate a list of necessary recipients of the notice, but do not set out required contents of the notice. As a result, the evaluation of the adequacy of notice's contents falls to the courts. The Court commented that adequate notice of an intention to foreclose on collateral should: (i) cite the PPSA; (ii) include the amount of the secured obligation; (iii) include a description of the collateral; (iv) express a clear intention to retain the collateral in satisfaction of the debt (and not as continuing security); and (v) indicate that the recipients have 15 days to object.

Related to the fourth point, the Court endorsed the law as described in Casse v. Credifinance Securities Ltd. (1999), 14 P.P.S.A.C. (2d) 352, where it was held that "the court must be able to conclude on all the evidence that the debtor knew that the purpose of the secured party in retaining the collateral was to satisfy the obligation". In this respect, the Court considered the cumulative effect of the numerous messages exchanged between the parties leading up to the foreclosure, and concluded that all requirements were met. Similarly, the Court also found that the appellants were provided with an opportunity to redeem the pledged shares, but provided no evidence that such redemption was ever a realistic possibility.

SHORT CIVIL DECISIONS

Ritchie v. Castlepoint Greybrook Sterling Inc., 2021 ONCA 214

[Doherty, Rouleau and Miller JJ.A.]

Counsel:

G. D. E. Adair, for the appellants

S. J. Tenai and B. Chung, for the respondents

Keywords: Contracts, Real Property, Agreements of Purchase and Sale of Land, Exclusion of Liability Clauses, Allocation of Risk

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be ought about your specific circumstances.

Canada: Court Of Appeal Summaries (April 5 – April 9, 2021) Blaney's Appeals

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Canada: Court Of Appeal Summaries (April 5 – April 9, 2021)
Blaney's Appeals