Court Of Appeal Summaries (March 21-24, 2016)

Hello everyone.

Except for a brief addendum to an order made in a criminal matter, the Court of Appeal only released civil law decisions this week, which is rare. Topics covered included whether or not leave to appeal a vesting order made on a receivership sale under the Bankruptcy and Insolvency Act is required (it is), an ironic case in which a lawyer initially resisted a professional negligence claim for missing a limitation period by arguing the limitation period had been missed (nice try), insurance law and adjournments.

Wishing everyone a nice long weekend and everyone celebrating a Happy Easter.

Civil Decisions

DBDC Spadina Ltd. v. Walton, 2016 ONCA 220

[Laskin, Simmons and Huscroft JJ.A.]

Counsel:

Christopher Sparling, for Junior Academy Inc. and Dibri Inc.

Danielle Glatt, for 368230 Ontario Ltd.

Facts:

The property at issue in this appeal was originally purchased by the appellant, Dibri Inc., in 2005 (the "Property"). A school was later built on the Property and operated by the appellant, Junior Academy Inc. The appellants, Dibri and Junior Academy share common principals. In 2011, Dibri sold the Property to The Rose and Thistle Group Ltd. ("Rose"), in trust, for a company to be incorporated. As part of the agreement, Junior Academy would continue as a tenant of the Property.

Junior Academy, Dibri and Rose entered into a side agreement for $100,000 to be held back from the purchase price for an anticipated retroactive realty tax reassessment. Subsequently, the parties agreed that instead of the $100,000 holdback, Junior Academy would pay $25,000 to Academy Lands Ltd., the company incorporated by Rose to complete the sale agreement. Junior Academy leased the Property from Academy Lands for 10 years and Dibri guaranteed Junior Academy's obligations under the lease for five years. Under the lease, Junior Academy would pay $5,000 monthly to Academy Lands for the estimated property taxes and if the property taxes assessed were "less than the amount paid by the Tenant", the Landlord was required to credit the Tenant "the difference on account of the taxes due for the following year".

In 2014, the first mortgagee of the Property obtained an order to appoint Spergel Inc. as receiver of the assets of Academy Lands. In response, Junior Academy stopped paying amounts owing under its lease. In an order dated December 17, 2014, Junior Academy was ordered by a motions judge to pay $188,845 on account of rent and other arrears to Spergel.

By way of a January 2015 vesting order, Spergel transferred the Property to the purchaser, 368230 Ontario Ltd (the "Purchaser"). Before the receiver's sale, Dibri held a second mortgage on the Property. The vesting order transferred the Property to Purchaser, vested Junior Academy's lease in the Purchaser and extinguished Dibri's second mortgage and most other encumbrances.

An April 21, 2015 order directed that $188,845 be held back from the initial distribution of the net proceeds of sale (the "disputed balance") until it was determined whether amounts paid by Junior Academy to Academy Lands for property taxes under the lease were enforceable against the Purchaser and the entitlement of various parties to the disputed balance.

The motion judge held that the amounts paid by Junior Academy to Academy Lands for the property taxes under its lease are enforceable against the Purchaser but that the Purchaser should be paid the amount owing under the December 17, 2014 order regarding the rent arrears out of the disputed balance, less credit for the property tax overpayments. The motion judge declined to grant Junior Academy's request to enforce against the Purchaser the $25,000 payment made to Academy Lands under the side agreement.

Issues:

(1) Did the motion judge err in holding that the Purchaser is entitled to be paid the amount owing under the December 17, 2014 order?

(2) Did the motion judge err in failing to order that the entire disputed balance be paid to Dibri?

(3) Did the motion judge err in denying Junior Academy's claim for a $25,000 credit against the purchaser?

Holding: Appeal dismissed.

Reasoning:

(1) No. The Court rejected the appellant's argument that the arrears owed under the lease merged in the December 17, 2014 judgment and so remained the property of Academy Lands, through its receiver. The vesting order operates as an assignment of the lease to the Purchaser and thus vests all Academy Lands' interest in the Purchaser. The sale documents made it clear that all benefits and obligations under the lease, including rent, vested with the Purchaser.

The appellants cited the Supreme Court of Canada 2007 decision Hislop v. Canada (Attorney General) and its 1934 decision Lew v. Lee as the basis for the argument that a cause of action merges in a judgment so that an appeal can be prosecuted in relation to a judgment even after the holder of a personal action has passed away. The Court held that these cases did not establish that the December 17, 2014 order somehow excluded the rent arrears from the operation of the vesting order.

(2) No. Dibri's second mortgage does not give it priority over unsecured claims of the Purchaser against Junior Academy for rent arrears. The arrears effectively formed part of the sale and needed to be accounted for as part of the transaction. As well, Dibri and Junior Academy had common principals and Dibri guaranteed Junior Academy's obligations under the lease.

(3) No. The appellants argued that the $25,000 payment decreased Junior Academy's amount owing on account of assessed property taxes and increased the amount Junior Academy overpaid for property taxes under the lease. The Purchaser was not party to the side agreement and the vesting order did not transfer the benefits and obligations under the side agreement to the Purchaser. Junior Academy's rights against the Purchaser arise out of the lease and there was no evidence that Academy Lands had used the $25,000 to reduce the property taxes owing.

Clarke v. Faust, 2016 ONCA 223

[Feldman, Juriansz and Brown JJ.A.]

Counsel:

Edward Goldentuler, for the appellants

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