In the Trenches

Just got back from a brief vacation.

As many of you can appreciate, no matter where you go, the office is never far away.

The simple reality in our business is problems and emergencies don’t stop just because we have left the office to gaze upon some picturesque lake.  Our so-called “smart phones” make sure of that.

We do our best to schedule time off in advance so we know not to schedule any court dates.

Unfortunately the Judges are not always aware of our plans.  Prior to leaving the Judge ( in the “Swimming with Sharks” story) scheduled a further attendance in Toronto right in the middle of my vacation.  It was not going to be a long matter and dealt with mere formalities.

In an effort to stay married, I requested the Court’s indulgence in allowing me to attend via telephone.  Fortunately for me, the Judge accommodated my request.  So I was able to make my submissions on the phone wearing shorts and sandals while enjoying the view of Sparrow Lake.

…..and I am still married…..

As you will recall, we were awaiting the Court’s decision on my client’s fate.

The bad news came around 7pm Friday evening.  The Court granted the requested receivership order, but has yet to provide its reasons.

It is sort of like being immediately executed, with the explanation as to why to come after your head has been lopped off.

It is noon Friday, and still no decision from the Judge.  As you can appreciate, the client, its employees and owners remain in limbo, and the stress is building.

For reasons unknown, the bank lender who held the operating line, has frozen the account.  This effectively shuts down operations.

Maybe the bank is not confident that the Judge will appoint a court appointed receiver?

In the meantime, the monitor, who has a limited scope to simply babysit the secured assets, is acting as if its appointment by the Court as a receiver is a foregone conclusion by talking to my client’s employee’s sorting out who will stay and who will be out of a job.

The monitor, who has been in place since May 19 claims its fees to date are in excess of $50,000.00.

Expensive babysitter.

And people say lawyers are the sharks…………

It has been awhile since I have written.  I have been completely subsumed in my attempts to keep the sharks from harvesting my client.

Negotiations were hard and complex.  Ultimately the client could not live with the demands for additional security from the lender.  A hard decision needed to be made.  Give them the additional security, and if things go south, they lose all their equity that they built up over a lifetime of hard work.  Or run the risk that the court will impose a court appointed receiver, effectively shutting down the business, but leaving the lender with only the level of security over assets they originally held.

The client decided not to risk their nest egg and let the judge decide whether or not to shut them down in circumstances where the business was up to date on all payments, and any past default was rectified.

We argued the matter on Monday in Toronto Commercial Court (the usual pool for the Bay Street sharks).  The judge said he would release his decision Wednesday morning.  As I write this, it is 2:10pm on Wednesday, and no decision. 

In the meantime, we sit and wait to see if the axe is going to fall.

As you may recall, I have been anxiously awaiting a decision from the Judge on my motion to summarily dismiss an action commenced by a criminal defence lawyer against his adult client’s mother.  He claimed that the mother verbally guaranteed the payment of his fees.

The decision came in.

Success!

The judge agreed with my argument.  He concludes his 5 page decision as follows:

“….the fact remains that the formality requirements of section 4 of the Statute of Frauds have not been met, nor are any of the forms of relief against the section available on these facts.  There is a valid rational for the statutory provision that such promises be in writing. ….. Moreover, the plaintiff, who is a lawyer, should have known of the necessity of obtaining the promise in writing.  As the oral promise in question falls squarely within the operation of section 4 of the Statute of Frauds, no action may be brought on it.”

Claim dismissed……..

I left off last time on how the lender was making additional demands while we await the next court appearance on whether a receiver should be appointed to control my client’s boat dealership.

Were we going to draw the line in the sand?

After I had left court to make the horrendous trip out of Toronto to get back to true civilization, I received an email from the other lawyer.  As traffic on the 400 was on a standstill, I had a quick moment to glance at the contents.  It was a “clarification” of the terms agreed to.

For both legal and safety reasons, I pulled over at the next available location in order to reply. 

It is oftentimes critical to immediately correct “the record”.  People will, if extended a hand, try to take the whole arm.  I had to put a quick end to this.

The other side has since backed off…….for now…

When the money men start to jerk your chain, you either come to heel, or bite back.

The last two days of my life have been consumed by an “urgent” application by a lender to install a receiver of a boat dealer. 

As is always the case, these applications are brought on short notice, with very little time for the debtor to respond.  This is often with good reason.  Usually payments have not been made, stock is leaving out the back door, and the lender needs to act quick.

Sometimes, and this appears to be one of those cases, the lender has jumped the gun.

Oddly, my client is not in default of payments.  It is current and up to date. 

What the lender is alleging is a technical default by suggesting that payments made by customers before title has passed to the purchaser ought to have been handed over to it. 

I won’t get into the technicalities, but much depends on the meaning of “sold”, a concept undefined in the loan agreement.  Does title to the boat have to pass to the purchaser before it is considered sold? 

What if, for any given circumstance, the transaction does not close?  The customer will want its money back.  If the dealer has already paid it over to the lender, how does the dealer get it back to refund the purchaser?  Are those deemed trust funds?  Would paying the money over to the lender put the retailer in a position of being in breach of trust?

All the legal niceties aside, the lender is exercising its considerable leverage, quite possibly prematurely.  The debtor in these cases has to try to co-operate, which my client is.  We have agreed to a short term measure, essentially allowing the lender to send in a “babysitter” so it can be satisfied its security isn’t going to disappear.  On that basis, the court application has been adjourned for a week.

But the lender keeps on pushing for more onerous terms.

We may be at the point where the sand is drawn in the line.

To be continued……………

Now to the motion.

And this is where it gets tricky.  The point of the motion is to have the Plaintiff’s claim summarily dismissed without a trial on the basis that it is clear he has no case and there is “no genuine issue requiring a trial”.

If the motion does not succeed it does not mean the Judge thinks the Plaintiff’s case will succeed, only that a trial is required.  And we, in effect, have the same battle all over again.

My sense of the argument before the Judge was that on the substantive issue he was more accepting of my arguments than that of the lawyer for the Plaintiff.  The hang up, I fear, is on whether there was enough to raise a genuine issue for trial (no matter how weak)

The way the motion was presented was to have the Judge accept the Plaintiff’s evidence at its highest and best (this way we avoid a credibility argument which always equals a genuine issue for trial) as to the terms of the alleged contract, and that the Plaintiff relied on it to continue to act for the son.  But that is all the Plaintiff had.  He could point to no actions on the part of my client after the entering of the alleged contract that could be considered as part of the “Part Performance” aspect of the test.  It was my submission that the Plaintiff cannot rely solely on his own conduct, but must also show conduct on the part of my client that was consistent with the existence of such an agreement.  There was none.

As I explained to the Judge, if the Plaintiff had at least written a letter to my client saying “I confirm our agreement” my client could have responded at that time, saying that there was no such agreement.  On the flip side, if such a letter was sent, and a person in the shoes of my client took no steps to deny or correct the issue, that silence could be seen as enough to allow the Plaintiff to succeed.

The conclusion to this saga is now in the hands of the Judge.

To continue with the story, and this part gets us into “the law”…. so grab a coffee…..

Firstly, a verbal agreement is still agreement.  It is valid.  The difficulty is the proof.  Invariably you end up with a “he said – she said” type argument.

Historically, way back in merry old England, it was realized that someone could cause a lot of grief by simply alleging a verbal agreement in an attempt to defraud someone.  So, over 300 years ago, England passed what is called the Statute of Frauds.  For all intents and purposes, this statute said that for certain types of agreements (either dealing with land, or a contract of guaranty) they must be in writing and signed, otherwise you are not permitted to sue on it. 

This does not invalidate the contract.  It simply acts as a bar from suing (effectively the same thing in many cases).  It is similar in concept to a limitation period.  It matters not if the complaint is true, there is a statutory bar from being able to pursue it in court.

Most (if not all) provinces in Canada has a Statute of Frauds.  Ontario is no exception.

As with all laws, there are exceptions to the rule.  With respect to this type of issue, and again going back 300 years, the courts recognized that in certain circumstances, instead of protecting people, the Statute could itself be used to defraud people, by entering into such a verbal contract (say, to sell land), take the money, but then defeat a claim by saying “aha, it is not in writing.”  So the doctrine of “Part Performance” was created.

Part Performance is essentially an examination of the conduct of the parties, to determine if they took any actions consistent with the alleged agreement.  Actions can include payment of money.  Of course, there are all sorts of reasons for the payment of money, so the doctrine goes on to require that the action be unequivocally referable to, if not the precise agreement alleged, at least the type of agreement alleged.

So, on that basis, and rather than wait for a trial, I recommended, and the client agreed, that we attempt to have the action summarily dismissed on a motion under our rules of procedure for “summary judgment”.

More to follow……..