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The Corporate "Shotgun" Divorce

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One of the ugliest situations that arises in corporate law is where two 50/50 shareholders stop getting along.  Since 50/50 shareholders each notionally have equal say in how a corporation is run, a major dispute can stop a corporation in its tracks.  A common way of avoiding this is with a "shotgun" clause in a shareholders agreement (less colourfully called a "buy-sell clause").  As in the recent case of Sandiford v. 21045887 Ontario Inc., 2012 ONSC 5825, when a shotgun clause comes into play, the stakes immediately rise.

 

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On Murder (and Suicide) Houses

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Apparently a couple in Bowmanville are suing over the purchase of a house which turned out to be the location of a 1996 double homicide (the Toronto Star article is here).  And since nobody asked me, here are my comments about this type of lawsuit ... the legal side of things, at least.  Short answer ... I don't think it's not an impossible case for them to win, but it looks like a tough one.

 

How often do you forget your own name?  Not very often, hopefully.  Now, if you do business by way of a corporation, how often do you forget the name of your corporation? Unfortunately, this is surprisingly common. Which becomes a problem when you start dealing with construction liens, since the devil is in the details with a construction lien. Fortunately, not all name screwups are fatal, as we see in Juddav Designs Inc. v. Cosgriffe, 2012 ONSC 6493.

 

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Who Judges the Judges' Judges?

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When someone complains about a provincially appointed judge's conduct, the complaint is heard by the Ontairo Judicial Council (or it's equivalent in other provinces).  But what happens if someone isn't happy with the way the OJC deals with the complaint?  The case of Kipiniak v. The Ontario Judicial Council, 2012 ONSC 5866 answers that question.

 

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Teacher Wages and Freedom of Association

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As the Ontario teachers' dispute over salary and sick days continues, it becomes more likely that it will end up in court.  While we can't know for certain what the courts will say about the current dispute, particularly until we know exactly what the basis is for the teacher's challenge of the legislation, the most recent cases from the Ontario Court of Appeal dealing with similar issues do not look great for the teachers.

 

In some real estate transactions, the seller will complete a form called a "Seller Property Information Statement" (an "SPIS" for short) and provide it to the buyer.  This form is a questionairre type document, where the seller indicates whether there have been certain types of problems with the property, such as water problems or flooding.  As the seller in Costa v. Wimalasekera, 2012 ONSC 6056 found, an answer on the SPIS can result in being found liable for misrepresentation.  But is it the SPIS that is to blame?


The facts of the case are simple.  The seller checked the box on the SPIS saying that the property is not subject to flooding.  Once the buyer moved in, they found that the back yard would end up covered in a few inches of water whenever it rained, which would stick around for a few days.  The buyer sued the seller in Small Claims Court, and the trial judge awarded $25,000 for the misrepresentation.  The seller appealed, and the appeal ended up before Justice van Rensburg.

It appears that Justice van Rensburg had no problem throwing out the appeal.  In short, Justice van Rensburg confirmed that the SPIS could result in liability for any "latent" defects that are not otherwise obvious when inspecting the property:

[27] A “latent” defect is one that is not discoverable upon reasonable inspection. The SPIS specifically cautioned the buyers to conduct their own inspection. If an inspection would reasonably have disclosed the flooding problem, it would be a patent defect, in respect of which the buyers would have had only themselves to blame if they had not identified the problem.

 Since there had been no rain when the buyers visited the home, the problem was not apparent when the home was inspected.  This made it a latent defect, which the seller is liable for not disclosing.

The fact that the seller explicitly answered in the SPIS that the property was not subject to flooding makes this a pretty clear case.  Many people will therefore point to the SPIS, and say that buyers should avoid signing them if they want to avoid potential liability.  This is probably good advice (with the caveat that if the buyer asks for one, and the seller refuses, it will probably raise a big red flag for the buyer), although it is not always that easy.

Without the SPIS, many cases would likely be decided the same way.  That is because the law isn't quite as strict as "buyer beware" when it comes to house purchases.  Although oversimplified, the law generally looks at problems arising after home purchases as follows:

  • If the problem is a "patent" defect (something like a broken window, or even an obviously waterlogged basement), then it is buyer beware.
  • If the problem is a "latent" defect that the seller actively hid (covering up a cracked basement foundation with drywall, for example), then the seller will typically be on the hook.
  • If the problem is "latent", but the seller did not know anything about it, then the seller is usually ok, since the seller had no more knowledge about it than the buyer.

Obviously there are many grey areas in here: whether a defect is "patent" or "latent" will depend on the facts of each case, and will typically not change regardless of whether there is an SPIS.  Where the SPIS really changes things is in the middle ground: latent defects where the question is whether the defect was hidden by the seller.  If the seller discloses it in the SPIS, and the buyer still goes ahead with the transaction, the seller is protected from a claim that they hid the defect (at least in theory).  If the seller doesn't disclose it in the SPIS, then the buyer has a much easier time showing that it was hidden by the seller (since they misrepresented its existence in the SPIS).

So the bottom line is that the SPIS makes the transaction a litter fairer.  It forces the seller to be explicit about whether he or she knows of certain types of defects.  Although to be blunt, fairer is not usually going to be in the best interests of a seller, so a seller will likely want to avoid signing an SPIS, if they can.


A side point about this case: I sometimes feel like the most frequent misconception about the law is that it's all about winning cases on "technicalities".  While a case sometimes turns on a "technicality", like a limitation period or statutory notice requirement, the law is usually flexible enough that judges are encouraged to take a fairly pragmatic and realistic view.

One of the seller's arguments is a good example of a technical argument that the court disregarded for a more common sense position.  Here, the seller argued that technically the problem with the backyard was "ponding" rather than "flooding".  The seller even called a witness from the Credit Valley Conservation Authority to talk about the technical difference between the two words.  Both the trial judge and the appeal judge threw out this argument: it's not whether you can find some technical meaning of the word that helps your case, but what a layman would reasonably understand the SPIS to say.  And a few inches of water in your backyard would be seen by most people as "flooding".

 

 

 

 

%PM, %31 %857 %2012 %19:%Oct

The Abridged Law of Flooding

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As Hurricane Sandy is downgraded from Frankenstorm (or to be more accurate from a literary perspective, Frankenstorm's monster) to dreary landlocked storm, coastal cities start their cleanup, and the media moves on to speculating about the cleanup cost.1  Storm cleanup inevitably leads to swarms of insurance adjusters to deal with the various legitimate and less-legitimate insurance claims.  Which also inevitably leads to lawyers fighting about who is responsible for various costs. Last in the chain of inevitabilities are people like me, who feel the need to blog about the issues that might arise as the torrents of lawyers move in to deal with flood damage claims.  

 

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Another Anton Piller Order Bites the Dust

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Anton Piller orders (which is the non-criminal law equivalent of a search warrant authorization) are about the riskiest order you can get.  Judges abhor them, since they are so intrusive and often unnecessary.  As a result, I'm willing to bet that well over 50% of them get overturned by the court, in some way or another.  Justice Perrell, in the recent case of Bergmanis v. Diamond & Diamond, 2012 ONSC 5762, shows us another example where an Anton Piller goes horribly wrong.

 


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