Archive for April, 2008

Deceptive Marketing

Wednesday, April 30th, 2008

The Canadian Competition Bureau announced yesterday that it had obtained a criminal conviction against an Ontario man yesterday for deceptive telemarketing.  The man and his company called small and medium businesses over the past decade and convinced them that they had already ordered a listing in the company’s business directory which needed to be updated, when, in fact, no such order had ever been placed.  This deception caused the companies to, then, put listings in the directory.

This case involved telemarketing which is covered by Section 52.1 of the Competition Act.  While many of you will not be engaged in telemarketing activities, it is important to know that there is a similar provision for non-telemarketing activities.  Thus, Section 52 of the Act makes it an offence to “knowingly or recklessly” make representations to the public that are materially wrong in order to make a sale or secure a contract.  It is also important to note that the Competition Bureau does not have to prove that the customer or potential customer was actually misled.  However, the key here is that you either knew that there was a misrepresentation or that you were reckless (ie. took no steps to check its accuracy).

As such, care should be taken in your promotional materials for your business.  Misrepresentations could lead not only to lawsuits but in a serious enough case could warrant the involvement of the Competition Bureau with possible criminal law implications.


Beyond the Contract

Monday, April 28th, 2008

For those of you who do not live in Toronto, you may be unaware that the Toronto Transit Commission (the “TTC” – which stands not so much for Toronto Transit Commission as it does for Take The Car) went on strike over the weekend.  A bit of very quick history for those who are unaware of the situation.  The TTC’s collective agreement ended with its bus drivers, mechanics, etc. and they were in a strike position as of the beginning of April.  Collective bargaining continued and the union head promised that the union would not strike while progress continued to be made and in any event would give the public two days warning of any strike.  When talks seemed to stall the union head gave warning that if a deal was not reached by a certain deadline, there would be a strike.  Just after the deadline, a deal was reached that required the approval of the union membership.  While there appeared to be grumblings by the non-bus and train drivers, it appeared to be a very good deal for the bus and train drivers who had enough votes to approve the deal.  The vote took place this past Friday and the votes were counted and known at about 10:00 p.m.  As it turned out, 65% of the voters rejected the deal.  Then, without warning, the union went on strike as at 12:01 a.m. on Saturday morning (barely two hours later), stranding all sorts of commuters, shift workers, etc.  Over the weekend, the legislature sat in an emergency session and passed back-to-work legislation so that the commute to work for Monday morning wasn’t a total nightmare.

I was listening to the radio news this morning and a TTC driver called in and started to chastise the public.  His position was that, as of April 1 (or whichever date it was), the union was in a legal strike position and that it had every right to strike and the public should appreciate this position.  The problem, though, is that the union had promised to give at least 48 hours notice so that people could arrange their lives.  It was not so much a problem with the union going on strike as it was the fact that they did it so quickly with no warning at all – notwithstanding the promise.

So, this gets me to today’s post and the concept of “promissory estoppel”.  A contract is the document and the terms and conditions set out on the document and that’s it right?  Not always.  Promissory estoppel, also known as detrimental reliance, exists when one party agrees to take a position (which is usually at odds with, or at least a variation of, the terms of the contract) that causes the other party to alter his/her/its position with respect to the contract and that the second party has relied on the first party’s position to make the change in the second party’s position.  So, for example, suppose that you have an agreement that gives the other side an option to do something, but the option must be exercised before the agreement otherwise terminates.  Then suppose that just before the agreement terminates (for example a lease expiring) the other side says to you “that’s fine, go ahead and take another 60 days to decide whether you want to exercise the option.”  If you exercise the option 30 days later, the other side cannot say “too late, you should have exercised before the agreement was terminated.”  Because, if you hadn’t relied on the promise to give you another 60 days, you would have (and could have) exercised your option before the agreement was terminated.

In the end, then, as you are dealing with your contracts, you must ensure that you make no statements or take no actions which are inconsistent with any subsequent intent to rely on strict compliance with the contractual terms.  Otherwise, you could face an argument that you are “estopped” from holding the other side to the strict terms.  Just like with the public’s complaint today – it is not that the union did not have the right to exercise its ability to strike, but that its prior promise made that right conditional upon two days’ notice and by failing to give that notice, the union is now in a very bad light in the court of public opinion.


Slowdowns at the Superior Court

Monday, April 28th, 2008

Ah, I’d like to say you heard it here first, but I cannot say that definitively.  In any event, you may recall my April 15 post which advised that a new case management system was being rolled out today at the Toronto Superior Court.

As coincidence would have it, I was in Court today for a simple motion and after I obtained the Court’s Order, I went up to the registrar’s office to have it formally recorded in the system.  Once I got there I saw only a few people waiting around (as compared to the usual 10 people if I’m super-lucky, 15 or so on a typical day and 25+ if it’s a bad day).  I asked someone and was told “the system has broken down”.  Yup, approximately 2 hours into the first day of the new system and it’s not working.

I hope you sued or did whatever you had to do in time.  I’m sure the system will be up and running like a charm sometime in the next week (or two).


Small Claims Court

Thursday, April 24th, 2008

From time to time I attend at Small Claims Court.  Almost always I am there defending a client.  I am there for a plaintiff client only very rarely.  Why is that?  Because it doesn’t make sense for me to be there in most instances.  It doesn’t make sense in a couple of ways.

The first way is economics.  The current maximum dollar limit for the Ontario Small Claims Court is $10,000.  By far, most claims are worth much less than $10,000.  Even if the plaintiff asks for $10,000, the amount ultimately awarded is less than that.  However, if one assumes that the amount at stake is $10,000, it can cost half of that for a lawyer to attend.  I recently defended a bank in a small claims matter and the other side hired another lawyer to only attend the trial.  The other lawyer was literally retained the night before the trial and showed up and learned the basic information from the client that morning.  As I later learned in discussions with the other side (who had since fired the lawyer), that lawyer charged the client $5,000 for the one-day trial.  I’m not going to get into the question of whether the other lawyer’s fee (which came to approximately $425 per hour) was reasonable for a small claims trial because if the client did not think it reasonable, the client would not have agreed to pay that fee.  But the amount at stake was $10,000.  The lawyer’s fee for the trial alone (it would have been more if the lawyer had been involved from the very beginning) counted for half of the value of the claim.  Say you are a defendant facing a $10,000 claim.  If you are going to have to pay $5,000 or more to your lawyer and the chances that you will get back more than $1,000 of that (if you win!) are slim, doesn’t it make better economic sense to offer the other side $4,000 (which you would have been spending anyways) and see if a settlement can be reached?  Either way, the economic reality of these claims is that it is often not worthwhile engaging a lawyer to represent you all the way through the matter.  I often agree to draft the claim or defence for the client for a fixed fee, leave them to deal with the lawsuit and try to settle it at the settlement conference on their own, and then if they really need me for the trial either they can retain me to provide consulting or advice on how to do the trial or else I will represent them at the trial.

The second reason why it often makes little sense for me to be there is a question of tactical advantage.  More realistically, tactical disadvantage.  I am a member of the bar.  I am also an officer of the court.  As such, I am held to certain professional and ethical levels for which non-lawyers are not similarly held.  What does this mean?  Well, there are rules for the Small Claims Court.  All parties are required to follow these rules.  However, if I do not follow the rules the court will call me (and thus my client) onto the carpet.  I cannot plead ignorance of the rules and ask for a special dispensation.  Individuals who are representing themselves in Small Claims Court, however, do this all the time and get away with it.  Am I bitter about this?  A bit, but it’s just the reality of the situation.  Sometimes, then, it may make more tactical sense to not have a lawyer.  When is that?  Well, for example, where the dispute is more about who should be believed, or if the judge’s sympathies might come into play (they are human too, after all), as opposed to a dispute over the proper interpretation of a contractual term.

So, the next time you have a fight with a customer and want to sue and the amount at issue is $10,000 or less, you should give some serious consideration to whether it is worth your while proceeding with a lawyer.  I’m sure my accountant and banker aren’t happy if they are reading this post, but I’d rather have a client come to me after having considered the pros and cons of retaining my services than have a client come and say “go get ‘em” and then question why my fees ate up a significant chunk of the winnings.


Being a Landlord

Thursday, April 17th, 2008

I received in the mail yesterday my real estate broker’s regular newsletter.  In it there is an article entitled “Becoming a Landlord – Do Your Homework”.  The first sentence of the article is “Ontario may just have the strictest legal requirements for landlords in North America.”

In my opinion, the article ought to be re-titled “Becoming a Landlord – Have Your Head Examined.”  I don’t know if it’s fair to say that Ontario has the strictest landlord laws, but I think it is very fair to say that the Landlord and Tenant Act is extremely tenant-friendly.  My criticism is NOT with the existence of the LTA’s terms, rather it is with the inflexibility of the system.  I will be the first to recognize that the legislation was put in place in response to actual examples of what slum-lords have done to tenants.  I will also be the first to recognized that even with this legislation in place there are still slum-lords operating in Toronto and throughout the province (thankfully, none of them are my clients).  I should also say that in the past I have represented both landlords and tenants in various matters and I do not have a bias in favour of one or the other.  The difficulty is that the legislation which was enacted to avoid the abuses by landlords years ago swung the pendulum way over to the other side and now permits abuses by tenants.  There is no fair balance.  Some will say, “yes, that’s true, but it’s a policy decision made by the legislature that it is entitled to make.”  I agree.  But that doesn’t make it right and it is ultimately, then, a choice between two evils.

I should also point out that I am dealing with residential tenancies here, not commercial tenancies.  So, this will affect small businesses, for example, where they purchase a building that has a main floor store front or office space and then an apartment or apartments in the floor(s) above.

The Ontario legislature’s desire to protect tenants from slum-lords the legislation has turned into a nightmare for decent landlords to get rid of problem tenants.  Let’s give a few examples.  The first area is rent.  If the tenant fails to pay rent on January 1, the landlord must give a notice, if the notice is ignored, the landlord can bring an application to the Landlord and Tenant Board to have the tenancy terminated for non-payment of rent.  The Board hearing might not be scheduled until April 1.  At any point up until the start of the hearing, the tenant can pay the rent – and remember, we are only talking about January’s rent.  If the tenant has failed to pay February and March rent by that time, a new application (or applications) must be filed.  So, if a tenant wanted to be perpetually late, the landlord has to bring a series of applications and if the tenant pays at the last second, the landlord is precluded from kicking the tenant out.  The legislation was put in place to avoid slum-lords from using the slightest delay in rental payment as an excuse to kick out a rent-controlled tenant and replace him or her with a higher paying tenant.  The problem is that it is now open to abuse by tenants.

Another example, I have a client who is a superintendant at an apartment building.  The client has a dispute with one of the tenants.  One day, my client alleges and I personally believe him but it has never been fully decided at the LTB or in court, the tenant decided to throw a 4 litre bottle of oil off the tenant’s balcony and narrowly missed my client working many stories below.  This type of conduct is completely reprehensible and ought to be a justification for immediate eviction of the tenant.  An application for this relief was brought to the tribunal.  The application was dismissed.  Why?  Because it was not a “continuing” event.  The provision in the legislation was clearly aimed at situations such as tenants who play their music loudly or have parties all the time.  The result is that the tenant would have to keep doing acts which endangered my client’s health or amounted to a nuisance for an uninterrupted period of seven days before the tenant could be evicted.  Perversely enough, if the tenant does whatever the problem is for six days in a row, then takes a day off, and then goes another six days, then takes another day off, etc., etc. there is little that a landlord can do.  Again, a provision in the legislation that is open for abuse by tenants.

A third example, in the most recent round of legislative reform landlords were precluded from being able to request that tenants permit the landlords to directly debit the tenants’ bank accounts for the rental payments.  This is joined with the existing provision that landlords cannot ask for post-dated cheques.  The only guaranteed obligation of a tenant, regardless of the nature of the tenancy, is that the tenant pays rent.  Direct debits permit the landlord to more cost-effectively get paid.  The argument against direct debits is that sometimes the tenant doesn’t have the money on the first.  If that’s the case then (a) the tenant is in breach of the lease and that’s the tenant’s problem; and (b) if the tenant writes a cheque on January 1 hoping that it will be deposited on January 2 at the landlord’s bank and that by the time it makes it over to the tenant’s bank on January 3 there will be money to cover the cheque, the tenant is engaged in “cheque kiting” which is illegal – and something the law should not be encouraging.

I could go on.  Suffice it to say, over the years I have had opportunities with friends and otherwise to invest in real estate which would make me a landlord, either directly or indirectly.  In light of Ontario’s legislation, I have steadfastly refused.  Those who are landlords are either braver souls than I, or maybe they should have their heads examined.


Using Paralegals

Wednesday, April 16th, 2008

I was asked recently my thoughts on paralegals in Ontario and I will share those thoughts with you here.  Until recently, I was lukewarm to the issue of using paralegals for court appointments and some transactional work.  But many of my concerns have been addressed.  For example, paralegals must now carry malpractice insurance coverage.  There is an accreditation system in place.  Etc., etc.

I can say that there are incompetent paralegals that I have dealt with in the past and I can say that I have dealt with paralegals who I have found to be just as competent as lawyers – in some cases more so.  Similarly, I can say that I have dealt with very competent lawyers on the other side of matters and in some cases I have wondered about the other side’s competency.

In the end, it does not (and cannot) come down to an issue of lawyer vs. paralegal.  Rather, the questions are: “Does he/she have enough experience?”  “Am I comfortable with him/her representing me?”  “Does he/she respond to my legal needs to my satisfaction?”  “Does he/she seem to have a grasp on the facts and issues in my case or my transaction?”  If all of those have been answered “yes”, then you can look at issues like how much are you going to be charged – because even if the person is going to work for free, if you answer “no” to any of those questions then you are probably wasting your time and money.

Most importantly, though, is to consider your level of communication.  Did you get sufficient information at the outset to decide how to proceed.  Do you understand the differences in share structures and options for an incorporation?  Do you understand why you are taking a certain position in small claims court litigation?  Then, on an ongoing basis, is your paralegal or lawyer keeping you “in the loop” and letting you know what is going on.  If you have sufficient communication, then you should be fine.  The problems tend to arise when communication break-downs occur.  And this will happen whether it is a paralegal or a lawyer.  However, you should also remember that communication requires two parties talking.  It would be preferable if your paralegal or lawyer is constantly keeping you in the loop, but we’re all human and if we cannot get to things all the time, then it helps if you send an e-mail or give a phone call.  The easiest way to bring your matter from #20 on the to-do list to #1 is to make a call and get your paralegal or lawyer on the phone and he/she will immediately tell you what is going on (or if he/she doesn’t, then you know you’ve got a problem).


Delays in Suing in Ontario

Tuesday, April 15th, 2008

As a head’s up for my Ontario clients, the Ministry of the Attorney-General recently announced that a new case management computer system is to be implemented as of April 28, 2008.  This will mean two things: (a) minor delays while the court staff attend seminars to learn how to use the new system (and thus fewer people available to process claims on occasion); and (b) minor (I hope, but I’m not holding my breath) delays after the system is first implemented while the bugs get worked out and the system is tweaked to perform the most efficiently.  Or, if one looks at the situation sarcastically (some would say realistically, but I’ll take a wait and see approach myself) – brace yourself for major delays as the court staff come to realize that whomever designed the new software “didn’t know his ass from his elbow” (as my grandmother would say when she felt really rude) and that nothing works.

Either way, expect a few hiccups and hope for nothing more serious.  So, if you’ve been planning to sue someone or need to move fast with legal matters for some reason, sooner may be better than later.


Foreign Plaintiffs in New York Courts

Monday, April 14th, 2008

In one of my January 30 posts I addressed the New York Court of Appeal decision involving a claim by a New York plaintiff against a “foreign” (ie. out of state or out of country) defendant.  The issue in that case dealt with whether the New York courts would agree to assume jurisdiction to hear the claim against the defendant.  Last week, the Appellate Division of the Supreme Court of New York (2nd division) dealt with the flip-side: whether a “foreign” company can sue in the New York courts against a New York company.

In Highfill, Inc., the plaintiff was a Louisiana auction company that was hired to conduct a “going out of business” sale for a New York company.  When a dispute arose the Louisiana company commenced a lawsuit in New York.  The problem, though, was that the Louisiana company was not licensed to conduct business in New York, so the New York defendant sought to have the lawsuit dismissed because the lack of a license was fatal to the Louisiana company’s claim based on Section 312(a) of the New York Business Corporation Law.

The lower court and the Appellate Division agreed with the New York defendant.  The fact that the Louisiana company actively solicited business in New York meant that it was “doing business in New York” and therefore had to be properly licensed.

The upshot of this decision (which doesn’t create new law but restates existing law) is that if you wish to do business in New York but you do not take the proper measures to be licensed there, then (a) if you get stiffed on a bill you might be prevented from suing the other side; and (b) if a problem arises, you could still be pulled in as a defendant and will not be able to argue that the New York courts should not hear the case against you.  A double standard?  Well, yes.  However, if you want to play in somebody else’s sandbox, you’d better learn the rules because otherwise you play at your own peril.

I should mention that the requirement for obtaining a “local” license to do business in the State is not unique to New York.  A similar rule exists in Ontario in Section 20 of its Extra-Provincial Corporations Act that prevents non-Canadian corporations from suing on contracts in the Ontario courts where the plaintiff has not obtained the required license.


Employer Going into Bankruptcy or Receivership?

Thursday, April 10th, 2008

In the middle of last December, the Canadian federal government pushed through the Wage Earner Protection Program Act.  This legislation was originally an NDP private member’s bill that was picked up by the then-governing Liberals.  Perhaps sensing a backlash from business or else the lack of urgency at the time, the Liberal government took no steps to make the bill into law through Royal Assent.  Somewhat surprisingly, after three years of collecting dust, the current Conservative government did obtain Royal Assent for the bill in December. 

The legislation deals with the situation where an employer goes bankrupt or into receivership and there are unpaid wages owing to the employees.  Previously, the employees could make a claim in the bankruptcy, but they would only obtain a preference over other creditors for up to $2,000 owing for wages earned in the six months prior to bankruptcy.  For any excess amount, the employees were usually unsecured creditors and shared in what little was left over after the priorities and monies were paid out to secured creditors.  In the case of a receivership, the situation was just as complicated.

The new legislation provides for a compensation fund to be established.  Employees who meet the eligibility criteria will now be paid their wages in full and this could be paid either from the business (if a receivership is imposed and the company is continuing as a going-concern) or from the business assets (if there is a bankruptcy).  More importantly, if there is a shortfall for whatever reason, the compensation fund can come into play and pay out the unpaid wages.  Sounds good so far, right?  It is – if you are an employee.

The situation is not so nice if you are an employer.  This is because if the government’s fund makes the payment, the government can, in turn, look to the business or its assets for repayment.  However, and more importantly, in the case of a company, the government can look to compensation from directors of the company.

Now, there is nothing new about directors being on the hook for past wages.  Section 131 of the Ontario Business Corporations Act provides for such liability.  A similar provision is found in Section 81 of the Ontario Employment Standards Act.  However, the difference lies in the method of enforcement.  Under Section 131 of the Business Corporations Act an employee would have to sue the director.  The Employment Standards Act was a little bit more easy in that it permits a complaint to the Ministry which then could go after the director.  However, under the proposed system for the compensation fund the process will be even easier.  The employees will be paid from the business or by the government.  The government, for example, will be much more willing to ensure that it is repaid.  The result?  Directors of corporations can expect to see a rise in the number of claims brought against them for unpaid wages – especially once this legislation is declared to be in force and also if the economy slows down as is predicted.

As if all of the other liabilities for directors were not enough.  And my clients wonder why I am always hesitant to be a director of their companies ;-)


Do You Employ Teenagers?

Wednesday, April 9th, 2008

I received in the mail the other day the latest issue of the American Bar Association Journal (April 2008).  The nice thing about the U.S. for Canadians is that it is far more litigious than Canada.  The result is that what happens in the U.S. will start to be seen in Canada about 1 to 2 years later.

The ABA Journal has an interesting article on the rise of sexual harassment complaints involving teenage employees.  The U.S. Equal Employment Opportunity Commission saw an increase in cases from 2% of all cases in 2001 to 8% of all cases in 2004.

The difficulty is that, while adult employees are provided training on what to do and not to do on the job, most teenagers are not provided such training (or as much training) since they are part-time, and in some cases temporary, employees.  More difficult is the fact that in some industries, such as fast food restaurants, the managers are also teenagers or early 20-somethings and the managers may not have been given adequate training to spot and stop harassing behaviour.

While harassment may be the focus of the article, it begs the question of how much training are your employees receiving and are adult employees receiving more training than teenage employees?  If the answer is yes then it is not much of a surprise given the practical reality that an adult employee is likely to work for you longer than a teenage employee.  But you should also ask yourself whether by failing to provide that training also to the teenage employee you are increasing your risk of liability should that teenager fail to abide by the rules.  Something to think about since in a year or two it will likely be a more pressing issue for Canadian employers.