Monthly Archives: May 2013

Contractual provisions triggered by a party's insolvency

Insolvent

In a fairly recent decision of the Ontario Court of Appeal, Aircell Communications Inc. v. Bell Mobility Cellular Inc 2013 ONCA 95, the court broadened the traditional doctrine to deprive a contracting party of its agreed-upon rights.

The traditional common-law doctrine recognizes that a contractual provision which is explicitly and directly triggered by a party’s insolvency may be unenforceable due to the public policy ramifications.

In this case, there was a dealer agreement between a dealer and distributor. The contract allowed the distributor to terminate the agreement in circumstances where the dealer had failed to make up for a default in payment within 30 days. Upon this termination, any outstanding commissions owed by the distributor to the dealer were to become unenforceable.

The dealer had not made payments to the distributor, and the distributor then gave the dealer the require 30 days to either pay according to its requirement, or have the agreement terminated.

Without telling the distributor, the dealer had already gone ahead and filed a notice of intention make a proposal under the Bankruptcy and Insolvency Act. As a result, before the 30 days could expire, the dealer was deemed insolvent and the contract could not be terminated.

The court had to decide whether the distributor was permitted to end the contract in accordance with its terms, based on the non-payment. The additional right being that it would be relieved of its obligation to pay any leftover commissions to the dealer/trustee.

The Court of Appeal decided that because the termination of the agreement was caused by the dealer’s failure to meet its payment commitment, and because this failure was incidentally caused by the dealer’s insolvency, the aforementioned termination itself should be deemed to have been caused by the insolvency. Therefore, the traditional common-law rule would apply.

The distributor was therefore denied its explicit contractual rights. Therefore, parties to a commercial contract should be careful to protect their rights. There will now be an area of insolvency which may be able to intervene. 

2 Very Common Situations Which Are IMPORTANT to know about

Sorry I haven’t posted in a while, been very busy, but I’m going to make a quick post here now and I will post again later:

2 Very Common Situations which come up often and are important to know about:

1.) You are married for a very long time, and then you get divorced and sign a separation agreement. A couple of months or a year later, your ex declares bankruptcy. What effect does that have on you? You have a joint account from when you got married, and you jointly owned a house.

The joint account is jointly owned by you and your wife. Which means that the trustee who your wife will hire, will have a claim to it. The trustee will move to realize the equity on the house; if you left it joint when you divorced and didn’t sever it, then you can have a very big problem. Separation agreement will not effect this. Any joint assets and liabilities are just that, joint. So the assets the trustee will seek to sell, and the liabilities you will owe from. See a lawyer as soon as possible, but it may be too late. When separating… always seek out a commercial lawyer for anticipation of this type of problem.

 

2.) You and your dad co-sign a credit card because you’re underage, or have bad credit. You or your dad rack up bills, and can’t pay them. What to do:

The first thing that comes to mind is to go see a licensed trustee in bankruptcy, as they can help you with your debts. But the problem that I am looking at is if you or your dad go bankrupt, the credit card company will still come after the other one. Co-signing a card essentially means that there is a contract between both of you and the bank. The bank doesn’t care how the other one gets out of it. If this happens to you, see a lawyer.

Thinking about representing yourself in Court?…. read about it, and the perils of doing so!

There was a recent poll conducted by the Law Foundations of Ontario, Alberta, British Columbia and the British Columbia Legal Service society of 259 self represented persons over an eighteen(18) month period.
Many of the cases were in family court, and the rest involved various civil actions. The study noted that many get frustrated, and create many problems for court staff, judges, and others.

Often it is difficult for court staff to help as they do not want to give legal advice. Judges are not there to give legal advice, and shouldn’t be perceived to be bias or acting as a lawyer.
There are rules of evidence, the concept of stare decisis, and various other applications and processes that are difficult to navigate through. Even in Small Claims Court, or Tribunals (LTA etc.) there are complexities which a lawyer can help with.
I am not writing this blog post to promote lawyers, but rather to explain to anyone thinking of going at it alone the complexities of doing so. Ask yourself, if I mess this up on my own, is it really worth it…
Also, while people may get sick of paying fees for lawyers, there are other, more affordable lawyers out there.
The study specifically addressed people who might be thinking of reading up on the internet, and found that this didn`t really help.

If you’d like some advice on a matter, please do not hesitate to contact Matthew Harris. For family matters, I’ll be happy to send you to any number of lawyers I know.

For more information on the study read about it in the Canadian Press

Fraudulent Preferences Acts…how they may effect you?

 

Fraudulent Preference Acts may have more of an effect on the average person or corporation than you may think. If you go bankrupt, your creditors…whether they are your creditors now or creditors in the future, may have a claim to your assets. In Abakhan & Associates Inc. v. Braydon Investments Ltd., the Court of Appeal in British Columbia upheld a decision that said that a corporation, transferring assets to another jointly held corporation, for tax protection, would still qualify as fraudulent preferences and therefore could be void. The BC court got held up on the dishonest intent, but that is not an issue in the Ontario statute. The creditors of the company were not creditors at the time of the transfer, but they still qualified to challenge the transfers. This particular item is not new law in Ontario (see Stone v Stone (2001)…future creditors, including spouses, are creditors.

In another context, the case of Mawdsley v Meshen was a family court case in which a common-law wife transferred her assets, which she acquired before her common-law marriage,  to a trust. After her death, her husband challenged it as a preference. The court ruled that there was no intention to prejudice creditors, and therefore couldn’t be invalid.

Ontario case-law has recognized both sides of the argument. In  Duca Financial Services Credit Union Ltd. v. Bozzo, 2010 ONSC 3104, the court ruled that a transfer was not void, and that the law allows a person to rearrange their affair to protect against future creditors. But that the law already mentioned in Braydon may have an effect.

The Bankruptcy and Insolvency Act recognizes that non-arms length preferences which take place during a five-year period, are challenge-able and void.

So…the short and long of it are to always be wary when tax planning, but also that there may be some protection at law.

If this sounds like it applies to you, contact Matthew R. Harris through the contact links on this blog or website.

 

(See CA Magazine April 2013, Insolvency for more details on this)

 

E-Justice… Imagine the Possibilities!

"Scales of Justice" key on keyboard © treenabeena, fotolia

 

Right now in Ontario, Small Claims Court requires that many documents be filed by hand, or by mail. The only time that anything else is permitted, is when service is between the parties. 

In late February 2013, the British Columbia Ministry of Justice released part II of their White Paper on Justice Reform. In it, they suggested Canada’s first ‘online’ tribunal, the Civil Resolution Tribunal. This tribunal will allow citizens to file disputes and have meetings and hearings online through video, telephone, email, and other means. It will act to modernize the justice system and have continuous improvements through user-feedback.

BC is going to appoint a Civil Resolution Tribunal chair in 2013, and invest in technology. They want to launch the service by March 2014.
Note that this is a tribunal. In Ontario, we have Small Claims Courts with judges. Other jurisdiction, such as Queensland, Australia (QCAT) , have Tribunals to deal with small matters. It will be interesting to see if Ontario and other provinces follow suit adapting to electronic means. Any thoughts?