BANKRUPTCY
& INSOLVENCY LAW
CREDITORS AND CLAIMS –
Claims – Postponement of – Review-
able transactions.
Appeal by the defendant Stopler, the
owner of the defendant corporation, from
the summary judgment finding her personally liable to the respondent bank, and
application by the bank for leave to cross-appeal the costs award. Stopler was the
daughter of the owner and the wife of the
CEO of a construction company. She was
also the sole owner of the defendant corporation. In 2007, the construction company renovated the defendant corporation’s rental premises. It issued credits to
the defendant corporation in the amount
of $163,982 in relation to the renovations.
Although Stopler maintained that she and
the defendant corporation had an oral
agreement with the construction company
to provide consulting and marketing advice
in exchange for the renovations, the construction company invoiced the defendant
corporation for $162,982. After the construction company made an assignment
into bankruptcy, the bank, which was one
of its creditors, obtained an order authorizing it to commence an action against the
defendants. The bank sought a declaration
that the credits issued by the construction
company were void, and it sought judgment in the amount of $163,982. The
motion judge found there was no agreement between the defendant corporation
and the construction company for the provision of marketing and consulting services
in exchange for the renovations, that the
construction company provided renovation services to the defendants and the
defendants had not done any consulting
work for the construction company. He
concluded that the defendant corporation
and the construction company engaged in
a non-arm’s length transaction for less than
fair market value, which made the defendant corporation liable to the construction
company’s creditor after it went bankrupt.
The motion judge also found Stopler personally liable as privy to the transaction.
He awarded the bank judgment of $157,735,
the value of the renovations, and costs of
$13,131. Stopler sought to appeal the judgment on the basis that the motion judge
erred in finding her privy.
HELD: Appeal and application for leave
to cross-appeal dismissed. The trial judge
made no error in finding Stopler personally
liable. The transactions were reviewable
transactions. The corporations were related
and the transactions were not arm’s length.
Furthermore, the transactions occurred
within 12 months of the construction company’s bankruptcy and the corporate
defendant did not pay for the renovations.
Finally, Stopler was privy to the transactions, as she knew her company received
renovations that were not paid for. There
was no basis to interfere with the motion
judge’s conclusion that this was a proper
case to hold Stopler personally liable. There
was no merit to the cross-appeal.
Bank of Montreal v. EL04 Inc. (c.o.b.
Just Between Us), [2012] O.J. No. 493,
Ontario Court of Appeal, J.I. Laskin,
R.J. Sharpe and R.G. Juriansz JJ.A.,
February 7, 2012.
CONTRACTS
NATURE OF CONTRACT – Cer-
tainty of terms – Agreements to agree –
Intention to create legal obligations.
Appeal by the plaintiffs, Trouton and
Hoban Construction, from the dismissal of
their action against the defendant, Alexander, for damages for breach of contract. The
parties were principals in a mill that subsequently encountered financial difficulties.
The mill was owned through their company, Microline. Microline ran out of money
and entered negotiations with New Forest.
The parties executed an amended version
of a unanimous shareholders’ agreement
(“USA”) that, among other things, governed
the transfer of their shares. Microline
entered into a Memorandum of Understanding (“MOU”) with New Forest which
contemplated formation of a new company,
Eagle River. Under the MOU, Microline
transferred its assets to Eagle River and
New Forest loaned $1,000,000 to Microline. The mill recommenced operation, but
differences arose over management. New
Forest did not obtain additional financing.
The plaintiffs gave notice to the defendant
that they sought to sell their shares. They
executed a handwritten agreement in a
gravel pit contemplating the intended purchase of the shares by the defendant, who
believed that New Forest would fund the
purchase. The agreement was subsequently
reduced to a one-page typewritten agreement and executed. The defendant subsequently informed the plaintiffs that he
would not complete the purchase. The
plaintiffs sold their shares to a third party at
a lower price and sued the defendant for
the difference. The trial judge dismissed the
claims on the basis that neither agreement
was enforceable, as they did not comply
with the terms of the USA, nor trigger the
shotgun clause therein. The trial judge
found no meeting of the minds with respect
to their references to the USA. Alternatively, the trial judge found that the parties’
agreements were not sufficiently certain so
as to be binding.
HELD: Appeal allowed. The trial judge
incorrectly framed the pertinent legal
issues and did not consider or apply the
relevant principles of contract formation.
Those errors in law led her to incorrectly
conclude that the contracts at issue were
unenforceable. A reasonable third party
would have inferred from the documents,
the surrounding circumstances, the cir-
cumstances of execution, and the parties’
subsequent conduct, that the parties con-
sidered themselves bound by the agree-
ments. The documents identified the par-
ties, the subject matter, the purchase price
and the effective date of the agreements.
The fact that the parties directed lawyers to
prepare a formal agreement did not invali-
date their informal agreement. There was
nothing in the document to suggest that
the agreement was dependent upon the
preparation of a formal agreement. Despite
the simplistic and defective drafting, the
essential terms of the agreements were not
vague, uncertain or incapable of interpret-
ation. A specific closing date was not an
essential term in a share purchase agree-
ment. The contracts were enforceable. The
trial judge’s decision was set aside and the
defendant was ordered to pay the agreed-
upon damages to the plaintiffs.
CREDITORS & DEBTORS LAW
GUARANTEES AND INDEMNI-
TIES – Guarantee – Defences.
Appeal by Hillsburgh Stables from the
dismissal of its application for an order
declaring a guarantee and collateral mortgage invalid and unenforceable. The appellant operated a racehorse training business.
Elliott was the appellant’s sole shareholder
and had a range of business interests
through companies collectively referred to
as the Elliott Group Companies (EGC). The
respondent law firm, Gardiner Roberts
provided corporate and commercial legal
advice to the appellant and the EGC. By
2009, the EGC owed the firm $800,000 in
unpaid accounts. Elliott proposed a security arrangement and executed, on behalf of
the appellant, a guarantee and collateral
mortgage over the appellant’s farm property. After the amount remained unpaid,
the firm issued a notice of sale pursuant to
the terms of the mortgage. The appellant
applied to have the guarantee and mortgage rescinded on the basis that Elliott did
not have authority to execute the documentation, or on the basis that the documents
were unconscionable for the firm’s failure to
recommend independent legal advice. The
application judge found that Elliott had
authority to execute the documents on the
basis of the indoor management rule. The
security was enforceable despite the firm’s
failure to recommend independent legal
advice, as Elliott was a sophisticated businessman familiar with guarantees and
mortgages who had proposed the arrangement. The arrangement was not unconscionable, as the security taken was less
valuable than the unpaid account.
HELD: Appeal dismissed. Although the
application judge erred in referring to the
appellant at various points instead of the
ECG, the error was of no import. The judge
was aware that the bulk of the outstanding
accounts had been incurred by companies
of the EGC. There was no error in finding
that the appellant derived a benefit from
providing the guarantee, as its owner and
directing mind, Elliott, suggested the
arrangement and had a strong proprietary
interest in all of the companies and bene-
fited from the ability to continue receiving
legal services from the firm despite the
substantial outstanding accounts. The
value of the additional services well
exceeded the security provided by the
appellant. There was no improper reversal
of onus regarding the fairness of the trans-
action. Although the firm breached its duty
to recommend independent legal advice,
there was no disadvantage resulting from
the lack of independent legal advice given
that the transaction was fair based on the
amount of the unpaid accounts, the amount
of security granted, the EGC’s need for con-
tinued legal representation, and Elliot’s
sophistication as a businessman and famili-
arity with the security documents.
CRIMINAL LAW
SENTENCING – Criminal Code
offences – Sexual offences, public morals,
disorderly conduct and nuisances – Child
pornography – Offences against person
and reputation – Sexual assault.
Sentencing of the offender, Allen, for
sexual assault and possession of child pornography for the purpose of distribution or
sale. The offences dated from September
2009 to May 2010. The offender shared an
extensive collection of child pornography
with an undercover officer using a peer-to-peer file sharing website. The collection
included 6,700 images portraying young
children, including infants, in sexual acts
with adult males. The collection included
videos of sexually explicit torture. Police
executed a search warrant and seized a collection of over 840,000 images from the
offender’s computer. An experienced detective characterized the images as the worst
he had seen. The offender blamed addiction
to crystal methamphetamine use for his
obsession. The victim of the sexual assault
was discovered after a forensic analysis of
the offender’s computer. The offender met
the victim, age 14, online. The victim
solicited group sex with the offender and a
friend. Both adults were HIV-positive. The
offender, age 53, was a former RCMP officer
with a law degree. He had significant health
issues. He was hospitalized for an overdose
when police arrived to execute the arrest
warrant. The Crown sought a custodial sentence of four to six years for the sexual
assault and a consecutive term of three to
four years for the child pornography offence,
less 100 days’ credit for 50 days already
served. The offender submitted that an
appropriate sentence was between two and
2. 5 years due to his early guilty plea, treatment for substance abuse, and lack of prior
convictions. The offender sought further
credit for six months spent under effective
house arrest on restrictive bail conditions.
HELD: The offender was sentenced to
3. 5 years’ imprisonment, less three months’
credit for time already served. A lifetime s.
161 prohibition order and a 20-year order
requiring compliance with Sex Offender
Information Registration Act were also
imposed. Aggravating factors included the
extreme seriousness of the offences, the
large and sadistic nature of the offender’s
pornography collection, the predatory sexual assault of an innocent child who lacked
the maturity to appreciate the consequences of his sexual activity, the use of the
internet to lure the child, the grooming of
the victim with drugs and pornography,
the HIV-positive status of the perpetrators, and the engagement in post-offence
