The Ontario Superior Court of Justice has enacted measures during this coronavirus Pandemic that the public should be aware of.  Below is a link to all current Notices issued by the Superior Court of Justice. https://www.ontariocourts.ca/scj/ .  I have included a link to the relevant Notice listed below with associated links:

1. The Superior Court of Justice is suspended all regular operations effective March 17, 2020 until further notice.  All criminal, family, and civil matters scheduled to be heard on or after March 17, 20120 are adjourned:  https://www.ontariocourts.ca/scj/covid-19-suspension-fam/
   • Urgent matters will continue to be heard during the emergency.  The list of matters that the Superior Court of Justice has identified as urgent are as follows (taken from the notice): 
2. The following matters related to PUBLIC HEALTH AND SAFETY and COVID-19:
   1. applications by the Chief Medical Officer of Health for orders in relation to COVID-19;
      • applications to restrain the contravention or continued contravention of an order made under the Health Protection and Promotion Act;
      • applications to enforce orders requiring the seizure of premises, medications or supplies under the Health Protection and Promotion Act;
      • appeals under subsection 35(16) of the Health Protection and Promotion Act;
      • urgent requests for injunctions related to COVID-19; and
      • urgent Divisional Court appeals and requests for judicial review related to COVID-19.
      • The following FAMILY AND CHILD PROTECTION matters:

Only urgent family law events as determined by the presiding justice, or events that are required to be heard by statute will be heard during this emergency period, including:

• requests for urgent relief relating to the safety of a child or parent (e.g., a restraining order, other restrictions on contact between the parties or a party and a child, or exclusive possession of the home);
  1. urgent issues that must be determined relating to the well-being of a child including essential medical decisions or issues relating to the wrongful removal or retention of a child;
  2. dire issues regarding the parties’ financial circumstances including for example the need for a non-depletion order;
  3. in a child protection case, all urgent or statutorily mandated events including the initial hearing after a child has been brought to a place of safety, and any other urgent motions or hearings.

• The following CIVIL and COMMERCIAL LIST (Toronto) matters:
  1. urgent and time-sensitive motions and applications in civil and commercial list matters, where immediate and significant financial repercussions may result if there is no judicial hearing.
  2. Outstanding warrants issued in relation to a Small Claims Court or Superior Court civil proceeding.
• Any other matter that the Court deems necessary and appropriate to hear on an urgent basis. The Bar and the public are advised that these matters will be strictly limited.

The Court has discretion to decline to schedule for immediate hearing any particular matter described in the above list, if appropriate.

The Superior Court of Justice has also enacted a Regulation that has suspended:

1.      limitation periods for the duration of the emergency; and

2.      periods of time relating to steps in any proceeding in Ontario, subject to the discretion of the Court, tribunal, or other decision maker responsible for the proceeding, shall be suspended for the duration of the emergency.  as well as any period of time within which steps must be taken in any proceeding.

https://www.ontariocourts.ca/scj/files/EMCPA-Order-eng-fr.pdf

To summarize, while files are being dealt with by your respective legal counsel, only emergency matters are being scheduled and heard in court.  All time periods relating to your litigation and all limitation periods are suspended during this emergency. I am hopeful this helps any reader and please take care of yourself during this pandemic.

People have a business idea. They plan, organize, obtain funding, and decide to incorporate a company to pursue that business idea.  When the company is incorporated, it must have at least one director[1].  The person agreeing to act as a director, immediately assumes important responsibilities and duties whether they realize it or not.  Understanding what these duties are is important to protect the director from liability and for the proper functioning of the company[2]. 

Who can be a Director?

Under the Ontario Business Corporations Act all persons except for:

1. A person who is less than 18 years of age;
2. A person who has been found under the Substitute Decisions Act, 1992 or under the Mental Health Act to be incapable of managing property or who has been found to be incapable by a court in Canada or elsewhere;
3. A person who is not an individual[3]; and
4. A person who has the status of a bankrupt[4]. 

may become a director of a corporation. A director is not required to hold shares in the corporation.

What Does it Mean to be a Director of a Corporation?

Directors are the people who manage the company[5].  The directors’ management function (i.e. day to day management) may be delegated to the officers of the corporation[6].  However, even when the management powers are delegated, the directors must continue to oversee the corporation as well as the ongoing business affairs of the company. 

Directors owe a fiduciary duty to the corporation.  Generally, this means that a director has a duty of loyalty and must act in the best interests of the company.  This duty is owed to the corporation and not to the individual shareholder or other stakeholders in the company.  On occasion the interests of the corporation and certain shareholders conflict. There are also situations where there may be a conflict between the directors’ own personal interests and those of the corporation.  In these situations, the directors’ fiduciary duty continues to be owed to the corporation[7] and supersedes the both the personal interests as well as the shareholders’ interests.

In carrying out their duties, the directors must also exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances[8].  This is an objective standard meaning, whether a director believes that their actions were proper is not determinative of the issue.  The courts will consider whether the directors’ actions were objectively reasonable and/or prudent.  In fulfilling their duty of care, the director must make enough inquiries to inform themselves and consider all material information.  These steps and information gathering should be the basis for their ultimate decisions. 

Conflicts of Interest.

A director must avoid conflicts of interests with the corporation.  There are many potential conflicts of interests which may attract director liability, but we will deal with contract conflicts for the purposes of this brief post[9].  Section 132 of the Ontario Business Corporations Act deals with contracts/transactions between the director and the corporation.  In situations where the director is a party to a material contract with the corporation, or has a material interest in a company/person having a contract with the corporation, then the director must disclose the nature of the interest and may not attend in any meeting of directors where the contract is discussed.   The director may not vote on the transaction. 

Business Judgment Rule.

The business judgment rule protects directors from liability when their decisions were made on an informed, reasonable basis, honestly, prudently and in good faith.  This is a significant protection because courts will not view the decisions with the benefit of hindsight.  If the decision was made in a reasonable and informed manner, and especially if there were appropriate advisors providing their view on the decision, then a director’s actions should be protected. 

Conclusion.

Once a person agrees to act as a corporate director, there are many obligations that they assume, even unintentionally.  This means that directors must be diligent in informing themselves of the best way to carry out this critical function.  Liability may attach to director actions whether or not they are done in good faith, and whether or not the director subjectively though they were doing the “right” thing.  Learn and then do.

[1] Business Corporations Act, R.S.O. 1990, c. B.16, s. 118 (“OBCA”).

[2] The Corporation should obtain director and officers insurance in order to provide coverage for potential claims.

[3] A company can be deemed to be a person in law.

[4] OBCA, s. 118 (1).

[5] This is subject to a Unanimous Shareholders Agreement (see section 108 of the OBCA). OBCA s. 115.

[6] OBCA s. 133.

[7] A significant amount of litigation centers around whether directors have breached their fiduciary duties.  This brief blog post does not outline all the nuances and issues arising from these many scenarios. 

[8] OBCA s. 134(1)(b)

[9] As an example, directors may not take or appropriate for himself a corporate opportunity or an opportunity belonging to the corporation. 

Contract Negotiations

We focus our blog on everyday issues affecting our clients.  These are difficult times to say the least.  The Covid-19 pandemic is paramount on most peoples’ minds because it is affecting the health, safety, and economic success of small businesses and the population at large.   Companies must adapt in unprecedented fashion.  They must become both nimble and innovative by implementing work at home policies, safety policies, and reallocation of duties to key personnel.  Because of this, I have noticed both in my practice as well as in my clients’ ongoing business operations, that meetings are being conducted via video/telephone conferencing and that agreements are quickly negotiated and finalized during those video and/or telephone conferences.  As we all know, agreements, (or contracts) are at the heart of most business dealings.

Contract law is intricate and involved.  A brief blog post cannot itemize the different types of contracts, how one limits liability, or how one enforces obligations.  But a blog post such as this one, can help a reader with general and practical advice on making those quick agreements potentially enforceable. 

What is a Contract?

A contract is essentially an agreement between parties (people/businesses) that identifies their respective rights and duties, and which allows for those rights and duties to be enforced by the courts.  Consideration must flow between the parties[1][2].  The agreement cannot be subjective.  What we mean by “the agreement cannot be subjective”, is that there must be some objectively identifiable agreement outlining the specific rights and duties.   If you simply believe you have a contract/agreement with another person without the objective existence of such agreement, then no such agreement exists - in the eyes of the law.

How to make a contract enforceable.

In today’s environment, the parties negotiate an agreement over a video/telephone conference call.  Terms are discussed and agreed to; notes are made by both sides.  The call ends with each party thinking that they have an agreement, but do they?  Suppose one party delivers on the “contract” but in a manner that is different from what the other party understood the terms of the contract to be.  The notes that each party took during the conference call were slightly different.  Each party then argues over who was right.  Do they have an agreement?  Rather than determine that esoteric question in this blog post, let’s consider one small step that would go a long way towards avoiding this misunderstanding completely. 

Before you end the call, confirm the exact terms you just discussed.  Then, after the call is completed, send an email to confirm those exact terms to the other party.  Finally have the other party confirm in an email back to you that the terms are exactly what you agreed to without any additions or exceptions.  In short, write out the obligations and duties in an email and have that email confirmed.

Is this a perfect solution?  No.  A perfect solution would mean having your corporate lawyer draft a formal agreement including representations and warranties, waivers of liability, exceptions to performance, default provisions and the like.   Do you have time for that right now?  Probably not. 

In order to protect your interests, and frankly your business relationships, make the terms of the agreement clear and have the other party acknowledge those terms[3].  This lessens the risk of misunderstanding and makes the contract easier to implement. The respective expectations are clear which saves money and frankly headaches.  As a bonus, your email agreement can form the basic structure of a formal agreement to be drafted by your corporate lawyer when you have time to do so.   

[1] The traditional description for contract formation is offer, acceptance, and consideration.

[2] Consideration is a broad term which includes something of value (in legal terms), being exchanged from the person making a promise to the person receiving a promise.

[3] Do not forget to include payment terms in the acknowledgement email.

At NP Commercial Litigation, we prefer alternative fee arrangements rather than hourly billing. This includes contingency fee arrangements for business related litigation[1].  So, what is a contingency fee arrangement? 

Nature of a Contingency Fee Agreement.

Contingency fees are payments made to a lawyer that are calculated based on an agreed upon percentage of the ultimate recovery for a piece of litigation.  They are contingent on the lawyer recovering monies for the client.   For example, if the lawyer and client agree to a 33% contingency fee, then the lawyer and/or law firm would receive 33% of the amounts (or damages) awarded or negotiated and recovered in the claim.  If the lawyer successfully recovers $200,000 for the plaintiff/client, then the contingency fee would be $66,000.00[2].   Because the contingency fee is based on the actual recovery on behalf of a client, it usually applies to cases where the lawyer acts for a plaintiff pursing a claim[3].  If the litigation does not produce a damages award, then the lawyer does not receive payment for their services.

Disbursements

In pursing any piece of litigation, the law firm will incur disbursements.  These are expenditures made in on behalf of the client to pursue the claim.  It costs the law firm monies to file a claim, have a claim issued, pay for transcripts, retain experts, etc.  Usually, these disbursements are not included in the contingency fee amount.  Continuing with the example above, if the client and lawyer agree to a 40% contingency fee, and law firm incurred $6,000 as disbursements to pursue the claim the amount of the fee payable to the law firm would be $66,000.00 plus $6,000.00[4].  In most cases, because disbursements are actual expenses incurred by the law firm, they are paid by the client regardless of whether the litigation produces a damages award.

Costs

Generally, the successful party in any litigation is entitled to costs.  Costs represent the legal fees and disbursements incurred to pursue the case.  There are a variety of factors that affect: (1) whether costs should be awarded, and (2) the amount of costs that are in fact awarded. Ultimately, the court has discretion whether to award costs and the amount of those costs.  Where a court awards costs at the conclusion of the litigation and the client has a contingency fee arrangement with their lawyer, then those costs are owed to the client unless: (1) the retainer agreement specifies that those costs are payable to the lawyer, and (2) the retainer agreement receives judicial approval.  Succinctly, for the lawyer to receive costs awarded by a court, it must be specifically included in your retainer agreement and the court must approve that term.  

Why does NP Commercial Litigation accept Contingency Fee Retainers for Business Disputes?

We accept contingency fee cases where we believe the case is viable and where the defendant has the means to pay an eventual damages award.  We believe in our ability to achieve an award for our clients and prefer to share in that success. 

[1] NP Commercial Litigation works with most alternative fee arrangements including contingency fees and fixed fee retainers. 

[2] This does not include applicable taxes such as HST or disbursements which I will discuss below. 

[3] There are examples of reverse contingency fee agreements for defence files where the lawyer receives a percentage of the amount saved on the value of the plaintiff’s claim.  For example, if the plaintiff sues for $1,000,000 and is ultimately awarded $500,000, the defendant’s lawyer in a reverse contingency fee arrangement would receive a percentage of the savings, i.e. of the $500,000 as their fee. 

[4] Again, this amount does not include applicable taxes as HST.