Following are our summaries of last week’s civil decisions of the Court of Appeal for Ontario. Not surprisingly, it was a light week.
The most notable decision is Hutchingame Growth Capital Corporation v. Independent Electricity System Operator. The Court in that decision discusses the “anti-deprivation” rule of bankruptcy law that prevents the enforcement of contractual provisions that have the effect of removing assets from a bankrupt estate that would amount to a “fraud on the bankruptcy law”. The Court determined that in this case, a clause in a contract that provided for the termination of the contract upon bankruptcy of one of the contracting parties did not run afoul of the anti-deprivation rule.
Other topics covered included anti-SLAPP, breach of contract/fraud and security for costs.
Blaney McMurtry LLP
[Lauwers, Hourigan and Thorburn JJ.A.]
Michael S. Hebert and Cheryl Gerhardt McLuckie, for the appellant
Thomas G. Conway and Benjamin Grant, for the respondent
Keywords: Contracts, Interpretation, Assignments, Duty of Good Faith in Contractual Performance, Bankruptcy and Insolvency, Fraud on the Bankruptcy Law Principle, Anti-Deprivation Rule, Statutory Interpretation, Torts, Negligence Misrepresentation, Civil Procedure, Standard of Review, Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 69.3, Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. , 2016 SCC 37, MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842, leave to appeal refused,  S.C.C.A. No. 39, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, Housen v. Nikolaisen, 2002 SCC 33, Aircell Communications Inc. (Trustee of) v. Bell Mobility Cellular Inc. , 2013 ONCA 95, Canadian Imperial Bank of Commerce v. Bramalea Inc. (1995), 33 O.R. (3d) 692 (C.J.), Capital Steel Inc. v. Chandos Construction Ltd. , 2019 ABCA 32, leave to appeal granted,  S.C.C.A. No. 109, Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc. , 2019 ONCA 508, Bhasin v. Hrynew, 2014 SCC 71, Bhasin v. Hrynew, 2014 SCC 71, Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law Inc., 2015)
In 2007, Greenview Power entered into a Renewable Energy Standard Offer Program Contract (“RESOP Contract”) to build a biomass renewable energy facility to generate and supply electricity to the Ontario Power Authority. The respondent, the Independent Electricity System Operator (“IESO”), is the Authority’s successor.
Greenview Power’s obligations under the RESOP Contract were to build a renewable energy facility and supply electricity for a period of 20 years beginning in 2010. Greenview Power could not meet this completion deadline, nor subsequent extensions of the deadline.
To save the project, in the fall of 2012, HGC, led by its principal EH, purchased some of Greenview Power’s secured debt and assumed its effective control.
In 2013, HGC entered into the Waiver and Amending Agreement with Greenview Power, the IESO, and Greenview Power’s other secured creditors. The Agreement waived specified events of default under the RESOP Contract and amended various targets under it, setting November 8, 2015 as the new Commercial Operation Date. However, Greenview Power went bankrupt on February 24, 2014 and the RESOP Contract terminated.
HGC could have revived the RESOP Contract under s. 9.2(3), a provision in the Contract that permitted it, as a secured creditor, to step into the bankrupt’s shoes. Instead of invoking this provision, HGC tried to assign its rights under the RESOP Contract to Truestar Investments Ltd., including the RESOP Contract, using s. 9.2(2). The trustee obtained a vesting order from the bankruptcy court that approved Truestar’s purchase of Greenview Power’s assets.
The trial judge found that the RESOP Contract clearly stated that it would terminate on bankruptcy, that HGC’s efforts to assign the Contract to Truestar failed, and that HGC had failed to prove that it was entitled to damages for breach of contract or negligence. He dismissed HGC’s action. HGC appealed.
- Did the RESOP Contract terminate automatically when Greenview Power made an assignment in bankruptcy?
- Was the vesting order effective in vesting the RESOP Contract in Truestar?
- Did the IESO breach its contractual obligations?
- Did the IESO owe HGC a duty of care in negligence?
- Was HGC entitled to damages?
The standard of review for the interpretation of the Bankruptcy and Insolvency Act (“BIA”) and the applicable common law are questions of law subject to the correctness standard of review. This standard also applies to the interpretation of the RESOP Contract as a standard form contract, standing alone. The Waiver and Amending Agreement was a negotiated contract that amended the RESOP Contract. Accordingly, the interpretation of both contracts together with the remaining issues engage questions of mixed fact and law and are subject to the standard of palpable and overriding error, except for any extricable errors of law, which are subject to the correctness standard.
a. The Waiver and Amendment Agreement did not supersede the termination provisions in the RESOP Contract that provided for termination upon bankruptcy.
b. The termination provision in the RESOP Contract was not invalid under the automatic stay of proceedings provision in s. 69.3 of the BIA. The automatic stay only prevents creditors from pursuing claims against the insolvent person. The automatic stay of proceedings in bankruptcy has never been interpreted as preventing the exercise of the right of a contracting party to terminate an agreement between it and the debtor. The presence of express provisions having that effect in proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 and in the restructuring provisions of the BIA supports the view that the automatic stay of proceedings was not intended to extend to the termination of executory contracts, since those provisions would not be needed otherwise.
c. The termination provision in the RESOP Contract did not violate the common law “anti-deprivation rule”.
Canadian courts have recognized that a contractual provision that is designed to remove value from the reach of an insolvent person’s creditors is void on the basis that it violates the public policy of equitable and fair distribution on bankruptcy. This is referred to as the “fraud on the bankruptcy law principle.” The principle can be usefully broken down into two distinct components: the anti-deprivation rule and the pari passu rule. The anti-deprivation rule operates by invalidating provisions that withdraw an asset that would otherwise be available to satisfy the claims of creditors upon the insolvency of the party or the commencement of insolvency proceedings.
Clauses that operate to terminate executory agreements and therefore eliminate a debtor’s opportunity to perform a contract do not necessarily result in a deprivation of value that would prejudice creditors.
In this case, IESO received no financial benefit from the automatic termination of the RESOP Contract and removed no value from the reach of Greenview Power’s creditors to its benefit. The anti-deprivation rule therefore did not apply.
d. HGC could not assign its interest in the RESOP Contract to Truestar under s. 9.2(2) without curing the outstanding defaults and reviving the RESOP Contract under s. 9.2(3).
2. No. Since the RESOP Contract had already terminated upon Greenview Power’s bankruptcy, there was nothing left of the RESOP Contract to vest in Truestar.
3. No. While it was true that IESO did not give HGC notice of the automatic termination of the RESOP Contract, HGC’s argument that the IESO was required to give at least 30 days’ written notice of termination as the result of the Waiver and Amending Agreement, was properly rejected by the trial judge. The fact that IESO might have acted more transparently upon learning that Greenview had filed for bankruptcy, rather than waiting silently for the 90-day period to expire did not amount to a breach of IESO’s duty of good faith contractual performance and the common law duty to act honestly in the performance of contractual obligations. The automatic termination of the RESOP Contract should have been quite obvious to HGC from the clear language of the contract. The duty of honesty in contractual performance ‘does not impose a duty of loyalty or of disclosure or require a party to forgo advantages flowing from the contract.
4. No. HGC failed to prove that IESO made any statement that was untrue, inaccurate or misleading, or that HGC relied on such a statement to its detriment.
[Strathy C.J.O., Tulloch and Coroza JJ.A.]
Kevin J. Scullion, for the appellants
Ivanna Iwasykiw, for the respondent
Keywords: Torts, Defamation, Civil Procedure, Anti-SLAPP, Courts of Justice Act, R.S.O. 1990, c. C.43, s. 137.1, Libel and Slander Act, R.S.O. 1990, c L.12, 1704604 Ontario Ltd. v. Pointes Protection Association, 2018 ONCA 685, Grant v. Torstar Corp., 2009 SCC 61, Armstrong v. Corus Entertainment Inc., 2018 ONCA 689, Able Translations Ltd. v. Express International Translations Inc., 2018 ONCA 690, Labourers’ International Union of North America, Local 183 v. Castellano, 2020 ONCA 71, Platnick v. Bent, 2018 ONCA 687, Levant v. Day, 2019 ONCA 244
This is an appeal from an order made under s. 137.1 of the Courts of Justice Act (“CJA”), dismissing an “anti-SLAPP” motion brought by the appellants.
The action was for defamation, based on statements made by the appellants in the midst of the respondent’s unsuccessful campaign for election as president of the Toronto Local of the Canadian Union of Postal Workers (“CUPW”). The respondent alleged that during the election campaign, the appellants made defamatory statements about him in two invitation-only “WhatsApp” chat groups and in posters or flyers that were distributed to members of the local during the election. The statements included allegations that the respondent: was a racist, a bigot, a sexist, a bully and a thief; was corrupt; had “rigged” a union election; had stolen from membership and had abused his position of trust; had used union funds to buy votes; and had engaged in a criminal conspiracy.
The motion judge dismissed the appellants’ motion to dismiss the action, holding that they had not established that the statements at issue related to a “matter of public interest”, as required by s. 137.1(3). Although it was not necessary to consider whether the respondent’s claim met the requirements of s. 137.1(4), the motion judge undertook the public interest balancing assessment in s. 137.1(4)(b) and found that the public interest did not weigh in favour of the protection of the statements. He therefore dismissed the appellants’ motion to have the defamation action dismissed.
- Did the motion judge err in determining that the expression did not relate to the public interest under s. 137.1(3)?
- Did the motion judge err in opining on public interest balancing under s. 137.1(4)(b), as his determination under s. 137.1(3) was dispositive?
- Did the motion judge err in improperly determining the minimum threshold for protected political speech in his s. 137.1(4)(b) analysis, holding that political “attack ads” are never protected forms of speech?
The Court first reviewed the principles to be applied on an anti-SLAPP motion under s. 137.1 of the CJA, as set out in Pointes Protection, and throughout the decision kept referring back to Pointes Protection and its companion decisions. The Court then confirmed that the standard of review applicable to determinations made by a motion judge under the section is deference.
- Yes. In determining the threshold “public interest” requirement under s. 137.1(3), the motion judge erred in this case by focusing on the nature of the expressions and failing to consider their context, in defining the group interested in the expressions too narrowly, and in treating the “private” context as determinative. The Court was of the view that the allegations of racism, sexism, corruption, and misconduct in the context of the election of the President of a major local of an important public sector union is a matter of public interest. The appellants’ motion passed the public interest threshold. This required the Court to conduct the additional analysis under s. 137.1(4).
- No. The respondent’s claim survived the merits-based hurdle under s. 137.1(4)(a). The defamation claim was supported by the evidence adduced by the respondent and the appellants’ pleading, and the evidence did not reveal a defence to the respondent’s serious complaints. The motion judge’s conclusion to this effect did not “bind” the trial judge, who will consider the merits and defences on a full record.
- No. The motion judge commented that deliberate falsehoods, gratuitous personal attacks or vulgar and offensive language, as were alleged in this case, may reduce the public interest in protecting that speech, compared to cases where the message is delivered without the lies, vitriol, and obscenities. There was nothing inappropriate about these comments. The motion judge’s observations on this aspect of the issue were obiter, and were nothing more than an application of the particular facts of this case to the relevant legal test. Specifically, the motion judge was applying the guidance in Pointes Protection that, in conducting the balancing exercise under s. 137.1(4)(b), the quality of the expressions and the motivation of the speaker are relevant to the measure of public interest in protecting the expression.
This was hardly a classic SLAPP. None of the indicia identified in Pointes Protection were present. While the respondent sought damages of only $25,000, he adduced some evidence of an income loss related to the loss of the election for the office of President, and the damages claimed were realistic. The Court agreed with the motion judge’s conclusion on this issue. Having regard to the expressions at issue, the merits of the respondent’s case, and giving due regard to the public interest in public debate and expression in the context of a union election, the public interest in permitting the action to proceed must prevail.
[Gillese, Brown and Paciocco JJ.A.]
William R. Gilmour, for the moving party
BLS, acting in person
Keywords: Civil Procedure, Security for Costs, Rules of Civil Procedure, Rules 56.01(1)(c), 61.06(1)(b), York University v. Markicevic, 2017 ONCA 651, Yaiguaje v. Chevron Corporation, 2017 ONCA 827
The respondent’s claim was to enforce a mortgage that had gone into default. On a motion for summary judgment, the motion judge granted the respondent judgment for possession under the mortgage and dismissed the appellant mortgagor’s counterclaim. The mortgagor appealed and brought a motion to stay the judgment pending appeal. The stay motion was dismissed with costs, which were not paid.
The appellant then failed to show up to the hearing of the appeal in April 2019. She sought to have the appeal re-listed for hearing. The respondent moved to dismiss an appeal for failure to pay the costs and because the appeal was frivolous or, in the alternative, for security for costs of the appeal.
Should the appeal be dismissed or should security for costs be ordered?
The Court declined to dismiss the appeal, but ordered security for costs. There was an outstanding costs order and the appellant had indicated that she would defy the costs order. The appeal had not been prosecuted diligently and the merits of the appeal were weak. It was therefore just in the circumstances to require the appellant to post security for costs.
[Feldman, Fairburn and Nordheimer JJ.A.]
Charles M. Gibson and Ian Houle, for the appellants
G. James Thorlakson and David R. Ellliott, for the respondent
Keywords: Breach of Contract, Torts, Fraud, Corporations, Piercing Corporate Veil, Punitive Damages, Shoppers Drug Mart Inc. v 6470360 Canada Inc. (Energyshop Consulting Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85, 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.)
The personal appellant (“the appellant”) purchased a commercial development project in Gatineau, Quebec, referred to as the “Hull Project”, in trust for a company yet to be incorporated. 3966305 Canada Inc. (“396”) was incorporated for that purpose.
The appellant found three investors to invest in the Hull Project (“the principals”). Based upon representations made in late February 2003 and an agreement reached, the principals decided to invest over $230,000 in the Hull Project. They incorporated 6071376 (“607”) for this purpose. The appellant’s brother – R – was named the sole director of 607 and was to act as the principals’ “eyes and ears on the ground” for all matters relating to the project.
The appellant sold the Hull Project in June 2006, but never disclosed that fact to the principals. The appellant did not provide the principals with a portion of the proceeds. Nor did he reimburse them for their original investment. Instead, the appellant apparently used the proceeds from the sale of the Hull Project to purchase other properties which provided him with good financial gain.
In 2012 two of the three principals attempted to discover what had happened to their money. The appellant obfuscated, claiming that he had lost relevant documents. Importantly, he never disclosed that the Hull Project had been sold in 2006. The appellant was later asked for a cost-revenue summary for 2008 to 2012. He said that he would forward the documents to the principals, even though that would have been impossible, given that the Hull Project had been sold two years prior to the start of the time period for which financial accountability had been requested.
The trial judge concluded that the parties had formed an agreement in February 2003. Among other things, in return for their investment, the agreement entitled the respondent to 40 percent participation in the Hull Project, including the net income and net sale proceeds upon disposition. He also concluded that the respondent was owed a fiduciary duty by both 396 and the appellant personally. He awarded damages, prejudgment interest and $200,000 in punitive damages.
- Did the trial judge err in failing to consider the factual matrix underlying the purported agreement?
- Did the trial judge err in failing to draw an adverse inference from the failure of the respondent to call a witness at trial?
- Did the trial judge err in failing to give adequate reasons for why he found the appellant not to be a credible witness?
- Did the trial judge err in finding the appellant personally liable?
- Did the trial judge err in awarding punitive damages?
- No. The trial judge determined that the existence of an unsigned co-tenancy agreement was not evidence that no agreement was reached. Rather, the trial judge found that the unsigned co-tenancy agreement did not undermine the fact that an earlier oral agreement had been reached and had been acted upon.
- No. The witness in question (R, the appellant’s brother) was equally available to the appellant and was not within the exclusive control of the respondent.
- No. It was open to the trial judge to reject the appellant’s evidence based on the factual record.
- No. The trial judge was aware of and applied the law correctly. The corporate veil can be pierced in exceptional circumstances like these, where an individual directs a wrongful act to be done and uses a corporation as nothing more than an “alter ego”. The trial judge made that finding of fact in this case, a finding that was entirely open to him to arrive upon. The appellant used 396 to direct and cause the misappropriation of the respondent’s funds for his own purposes.
- No. The findings of fact as to conduct that was particularly egregious led to the award of punitive damages. Those findings included that the appellant had lied to the principals for over eight years and only stopped lying once the principals ultimately got to the bottom of what had occurred. The trial judge was aware of the high threshold for determining whether to impose punitive damages and made no error in applying that standard.
SHORT CIVIL DECISIONS
[Lauwers, Hourigan and Fairburn JJ.A.]
M.E., acting in person Domenico Polla, for the respondent Her Majesty the Queen in Right of Ontario
Scott C. Hutchison, for the respondents Children’s Aid Society of Toronto, Giovanna Asaro and Ada Lee (contempt appeal)
Giovanna Asaro, for the respondent Children’s Aid Society of Toronto (summary judgment appeal)
Keywords: Costs Endorsement
[Feldman, Fairburn and Nordheimer JJ.A.]
Christopher Du Vernet and Carlin McGoogan, for the appellant
David M. Adams and Matthew E. Taft, for the respondent
Keywords: Torts, Intentional Infliction of Mental Distress, Negligence
[Rouleau, Hoy and Hourigan JJ.A.]
John B. Brennan and Jacob R. W. Damstra, for the appellant
Jack Masterman, for the respondent
Keywords: Contracts, Intention to Create Binding Legal Relations, Principle of Good Faith, Bawitko Investments Ltd. v. Kernels Popcorn Ltd., (1991) 79 D.L.R. (4th) 97 (Ont. C.A.), Bhasin v. Hrynew, 2014 SCC 71
[Pepall, Pardu and Paciocco JJ.A.]
Kris Hutton, for the moving party, 1746878 Ontario Inc.
Santiago H. Costa, for the responding party
Keywords: Costs Endorsement
The information contained in our summaries of the decisions is not intended to provide legal advice and does not necessarily cover every matter raised in a decision. For complete information or for specific advice, please read the decision or contact us.