Goldman, Sloan, Nash and Haber LLP

Belmont Concrete Finishing Co. v Marshall 2011 ONSC 1560: Is the Evidentiary Threshold in Breach of Trust Claims Attaining New Heights? by Jessica Caplan

eneumann — Tue, 14 Feb 2012 17:28:10 +0000

Ontario Bar Assocation (OBA) Nuts and Bolts – Volume 26, No. 2. February 2012 Construction Law Section

Background

Internorth Construction Company (“Internorth“) was a design build contractor and general contractor. From 2001 to 2004 the only directors of Internorth were Marvin Marshall (“Marshall“) and Dane Hooks (“Hooks“). During its height Internorth was a successful business involved in multiple construction projects that were all proceeding concurrently. However the company ran into financial difficulty and ultimately ceased operations in 2004. Two subcontractors, Belmont Concrete Finishing Co. Limited (“Belmont“) and Gage Metal Cladding Limited (“Gage“) were subcontractors who supplied concrete and metal on a number of Internorth construction projects in the period from 2001 to 2003. Internorth owed both plaintiffs substantial sums for unpaid invoices. The plaintiffs claimed that various directors of Internorth, including Marshall, were paid out of money impressed with a trust under the Construction Lien Act ( the “Act“) and that the individual defendants assented to or acquiesced in the payments. The trial proceeded only against Marshall as judgment was obtained against Internorth for breach of trust on an unopposed basis and the claims against all the other defendants, but for Marshall, were disposed of prior to trial.

The Trial Decision

The action succeeded against Marshall with $111,306.61 being awarded to Belmont and $143,105.97 being awarded to Gage as damages, plus pre-judgment and post-judgment interest. Punitive damages and the accounting and tracing remedies claimed were not awarded.

The trial judge set out three requirements necessary to impose liability under Section 13 of the Construction Lien Act:

1. A breach of trust by the corporation;

2. The individual must be a director or officer of the corporation or a person in effective control of the corporation; and

3. The individual must have assented to, or acquiesced in, conduct the person knew or reasonably ought to have known amounted to a breach of trust by the corporation. The trial judge noted that the burden of proof rests on the plaintiff in respect of each of these elements.

The trial judge determined that the first element was established by a judgment in 2007 which declared and quantified the corporation’s breach of trust. The second element was proven and was not seriously in dispute. In turning to the third element, the trial judge noted that the plaintiffs were required to demonstrate actual assent to, or acquiescence in, particular conduct amounting to a breach of trust. This conduct must be coupled with actual knowledge, or proof that a reasonable person would have known, that the conduct amounted to a breach of trust.

Although the trial judge did find that Marshall had become involved in the monitoring of receipts and disbursements to the extent that he knew or should have reasonably known that payments were being made by Internorth in breach of its obligations towards the plaintiff from the end of May 2002, he rejected the plaintiffs’ submission that Marshall had the requisite knowledge going back to January 1, 1999. Marshall argued, that in absence of evidence before the court as to when the plaintiffs worked on the relevant projects, when they submitted invoices for such work, and when the owners of the project paid Internorth for the work, the trial judge could not find that Marshall acquiesced in or assented to payments by Internorth in breach of its trust obligations towards the plaintiffs. This argument was rejected by the trial judge who concluded that Marshall personally benefitted from payments by Internorth to himself and his corporation in an amount in excess of $300,000 when he knew that Internorth had received and wrongfully paid out trust funds owed to the two plaintiffs. Marshall directed and oversaw those payments to his own benefit knowing that the plaintiffs’ trust claims remained unsatisfied. Marshall appealed the decision.

The Decision of the Divisional Court

On appeal, the Divisional Court overturned the trial decision and dismissed the claims against Marshall. Prior to delving into its analysis and conclusions, the Court set out several observations with the respect to sections 8 and 13 of the Act. Namely, the court identified the importance of the relationship between these two provisions:

“Section 8 imposes liability for the appropriation or conversion of any part of a project trust fund established thereunder to a contractor’s own use or to any use inconsistent with the trust until the subcontractors are paid. Although section 8 does not use the term breach of trust, any such appropriation or conversion constitutes a breach of trust in respect of the trust funds contemplated by section 8. Section 13 imposes liability on the individuals named therein for breach of trust to the extent that they assent to, or acquiesce in, conduct that such individuals know or reasonably ought to have known amounts to a breach of trust by a corporation”

The Court notes while section 13 does not refer to section 8 directly, it should be clear from the introductory clause that a breach of trust by the corporation as contemplated by section 13 is in fact the action of appropriation or conversion of project trust monies in section 8. The Court concludes that it was not the intention of the legislature for section 13 to impose liability on the individuals named therein for every breach of trust by a corporation. Therefore the breach of trust contemplated by section 8 is in fact the action of appropriation or conversion not the action of failing to remedy the breach of trust after an appropriation or conversion has occurred, i.e. by failing to repay the trust fund or by failing to pay the beneficiaries directly.

In turning to the merits of the case, the Divisional Court held that the trial judge accurately set out the three requirements necessary to impose liability under section 13 of the Act. The issue before the Divisional Court was limited to whether the third requirement had been established by the respondent.

To that end, the Court rejected the trial judgment on the following basis:

1. The trial judge failed to identify the particular conduct, i.e., the particular payments by Internorth that constituted the breach of trust towards the plaintiffs;

2. The trial judge committed an error in law in applying an incorrect interpretation of the concept of a “breach of trust” in arriving at his conclusion that Internorth committed breaches of trust in respect of the plaintiffs after the end of May 2002 because of the failure to rectify earlier breaches of trust. A breach of trust is a distinct occurrence and in this case was not identified and proven against Marshall. The failure to remedy pre-existing breaches of trust under section 8 does not create continuing breaches of trust under that provision. A breach of trust under section 8 of the Act is a discreet event that occurs at a point in time when monies in a trust fund are appropriated or converted;

3. The trial judge also erred in finding that Marshall personally benefitted from payments made to him by Internorth when he knew that Internorth had received and wrongful fully paid out trust funds owed to the plaintiffs. The Court held that these payments by themselves did not establish any breach of trust in the absence of evidence that the monies were actually paid out of trust funds in respect of which the plaintiffs were beneficiaries. The Court also noted that the action creates a breach of trust under section 8 when there is payment by Internorth not a receipt by Marshall as an officer, director or controlling person of the corporation. In order for Belmont and Gage to be successful in the action they would have had to demonstrate that the monies paid to Marshall were paid out of the particular trust funds in respect of which they were beneficiaries. The Court concluded that they had failed to do so. Furthermore the Court was not prepared to conclude that the insolvency of Internorth necessarily established a breach of trust because Marshall had possibly received payments from Internorth when it was insolvent.

With its decision in this case, the Divisional Court seems to be sending a strong message to construction litigators with respect to the establishment of personal liability for breach of trust under the Act. In order to successfully advance such a claim, precise evidence must be led as to the receipt and disbursement of funds on the specific projects which have given rise to a plaintiff’s claim for breach of trust.

Until such time as this decision is appealed (the plaintiffs are currently awaiting a decision with respect to their application for leave to appeal), counsel must be cognisant of the high threshold to be met when advancing breach of trust claims against individuals. No doubt the construction lien bar will be anxiously awaiting the outcome of the pending appeal proceedings…

Lydia Pilch Profiled in University of Toronto’s Innis College Alumni Network Newsletter

eneumann — Thu, 09 Feb 2012 18:49:29 +0000

Lydia Pilch is one of the up and coming young associates at Goldman Sloan Nash and Haber (GSNH) LLP, a well-respected corporate and commercial law firm in Toronto. Called to the Ontario Bar in 2006, Lydia’s practice focuses in the areas of corporate/commercial, real estate/leasing, information technology law, and she also acts as the firm’s Chief Privacy Officer.

Read the official Innis College Newsletter version of the article.

When the Innis Alumni Network caught up with Lydia in January, she was busy preparing to attend a conference held by the International Council of Shopping Centres (ICSC) in Whistler, British Columbia. The ICSC is composed of members of the international retail real estate industry and Lydia is an active participant in their events. Later this month, she will be a roundtable co-leader at the ICSC Law Conference in Toronto.

“I’m fortunate to be a member of a firm like GSNH. The opportunities for practice development for associates are fantastic and the mentorship I’ve received has been top notch,” Lydia says. “I’ve also held an integral role in the planning and hosting of our firm’s lawyers’ social events, which has been a great way to be involved and engage with colleagues.”

As an Innis College student, Lydia pursued an undergraduate degree in Semiotics and Literature. “I really enjoyed writing throughout my undergraduate years and knew I would choose a career that emphasized draftsmanship. The negotiation and preparation of legal agreements always appealed to me.” As the future would have it, Lydia would enter law school at U of T and find just such a role with GSNH. “I take great pleasure in helping to ensure the parties’ intentions are expressed clearly and in finding language to anticipate and avoid potential disputes.”

Looking back at her university experience, Lydia recalls her first year at U of T and moving to the big city. “I grew up in a relatively rural-suburban area in northern Brampton/Caledon, and while the transition was exciting, I can see why the first year away at a large school can be disorienting.” Lydia quickly found a home base and sense of community by joining a women’s fraternity on U of T campus. “Alpha Omicron Pi was an amazing experience that really enriched my university experience. I made friends for life and really found a great personal and professional network.”

Lydia’s advice to undergrads is to study hard and be as involved as possible. “As trite as that sounds, decision-makers on graduate school admissions boards certainly weigh extracurricular involvement heavily in the admissions process.”

Outside of her legal practice, Lydia enjoys distance running, equestrian sports, skiing, boating, playing the bass guitar and staying involved in the lives of her Alpha Omicron Pi sisters and former classmates. “I’m pleased to have found such a great law firm in a great city, close to the campus and friends that made my educational experience so memorable.”

You can contact Lydia Pilch at:

e: pilch@gsnh.com | t: 416-597-3390

Employers should stand their ground

eneumann — Wed, 01 Feb 2012 18:58:13 +0000

Howard Levitt, Financial Post · Jan. 25, 2012 | Jan. 25, 2012

Many small business owners find themselves cornered by union representatives, barely winning the representation vote, only to be presented with the same assault six months to a year later, depending on industry and province.

In recent months particularly, unions are aggressively targeting many small business owners in the construction industry. They have no chance of surviving under union pay structures and face being shut down once unionized. Unfortunately, in most provinces, construction companies are immediately swept into industry-wide collective agreements with unaffordable wages and benefits negotiated by the majors.

The law, outrageous in its impracticality, declares certification in the construction industry in most provinces based on a majority of those at work on a particular day. Recently, I was approached by a long-standing (but small) family-run business owner going through the useless song and dance at the Labour Board dealing with who was at work on the day the union applied for certification. The union in question took the invariable step of waiting to file its application for certification on a day when only five members were performing bargaining unit work. Most of those five were the union’s. Some had likely been planted by it. The union then went to the Labour Board to declare a majority.

This employer’s problems was compounded by unacceptable behaviour on the part of the union’s supporters. Blatant insubordination, time theft, misuse of company property and disregard for company policies were the tip of the iceberg. The employer wanted advice. Unfortunately, it had done nothing for fear of rocking the boat during the buildup to the union’s application and after. In short, it feared ending up before the board on an unfair labour complaint and being automatically certified even if the union didn’t have a majority.

My advice to employers in this situation: Don’t be bullied. Continue to adhere to strict progressive disciplinary procedures. The law is clear on this much: Every employee is entitled to join a trade union and participate in its lawful activities, and the Labour Relations Code prohibits any conduct that might interfere with this right. The problem is some union supporters behave as if they have a free pass. Many of my clients are mistakenly becoming increasingly fearful of saying anything to these employees for fear of ending up before the board.

Don’t interfere with the formation of the union but be alert and strictly compliant with your regular policies – run the show as usual. There should be no discipline moratorium. Don’t permit behaviour you would not otherwise tolerate. You could still find yourself before the board on a frivolous unfair labour practice complaint but strong documentation will demonstrate your decision was related to genuine workplace concerns. Oftentimes, employers forget the Labour Relations Act also recognizes the right to legitimately discipline.

It is sensible to obtain advice from an experienced labour lawyer before implementing discipline or firing employees during this period. But if you are being told to sit quietly – seek a second opinion.

Howard Levitt is senior partner of Levitt LLP, (levittllp. ca). He practises employment law in eight provinces and is author of The Law of Hiring in Canada.

Read online version of the article here.

GSNH’s Marketing Manager Appointed to LMA Toronto’s 2012 Programming Committee

eneumann — Fri, 20 Jan 2012 16:20:14 +0000

We are delighted to announce that GSNH’s Marketing Manager, Erin Neumann has been recently appointed to the Law Marketing Association’s (LMA Toronto) 2012 Programming Committee.

We wish her the best success and applaud her efforts in helping to add value to LMA Toronto’s 2012 programs for professionals in the law marketing industry.

Lawyers World Global Award Winner 2012

eneumann — Tue, 10 Jan 2012 18:46:05 +0000

GSNH Announces Our Firm as a Lawyers World Global Award Winner 2012

The world’s leading professional firms are called upon to assist with transactional matters throughout the deal process. Helping the corporate team on matters of vital importance in areas associated with the geographical location and the sector that a business may operate within. Regulatory, compliance, property, environmental, fund formation, technology and employment law amongst others all rank high on the agenda. The Lawyers World Global Awards 2012 recognize a select number of leading professional firms, across the globe, for their individual areas of specialization, within their geographical location. GSNH has been recognized by the Lawyers World Global Awards 2012 as a leader in our field of expertise.

Harvey Haber’s Helpful Commercial Leasing Arbitration and Mediation Tips (Dec/Jan)

eneumann — Tue, 10 Jan 2012 16:26:53 +0000

Do Not Accept Proof of Insurance By Fax

A Landlord should require that the Tenant send the Landlord the Tenant’s original insurance forms and endorsements, but if the Landlord must accept copies of insurance certificates, the Landlord should absolutely insist that the certificates be certified by the Insurer, and not accept photocopies, as they could be falsified.

Lease Documents

It is imperative that both Landlord and Tenant keep all the lease documentation together (including the Lease, and any addenda, riders, exhibits, amendments and related agreements, as well as any assignment/sublet consents, and any subsequent lease documentation).

Otherwise it could be detrimental (to say the least), if an opinion is asked on the lease and it turns out that an important document (such as an amending agreement that has modified the lease) is missing.

Change of Control

If a Landlord agrees in its Lease that it will not unreasonably withhold its consent to the Tenant assigning, subletting, parting with or sharing possession (collectively, a “transfer”) of the Premises, the Landlord should make sure that it also includes a “change of effective voting control” clause (if the Tenant is, or becomes, a corporation) in the Lease.

Why?

Because without a change of control clause, a tenant (who is a corporation) could avoid the transfer provisions in the lease by simply selling the shares of the Tenant corporation.

Employment Law – Lesson learned hard way by Howard Levitt

eneumann — Fri, 30 Dec 2011 18:29:02 +0000

Hell hath no fury, like a victim of discrimination, as Staubach Ontario Inc. learned recently following a seven-year human-rights nightmare.

A company that until recently was engaged in representing commercial tenants in real-estate transactions, Staubach had hired Katharine Farris as an agent. The only female in an otherwise all-male unit, Farris did not endear herself to her colleagues and support staff. Viewed as aggressive, even abrasive, she was seen as the cause of friction in the workplace. Derogatory and offensive gender slurs followed her and became commonplace.

Resentment of her comportment translated itself into baseless rumours of her having an affair with one of the principles of Staubach. Although the author of the rumour was disciplined, the speculation persisted unchecked. In addition, female support staff composed a petition complaining about Farris’s behaviour toward them.

In response, a psychologist was brought in to mediate. That did not resolve the matter. Deciding that it had had enough, management determined to terminate Farris without cause and offer her a severance package. The hope was that she would simply accept the proposal and move on.

But Farris did not go quietly. She pressed forward with a human rights complaint that her dismissal was the result of sex discrimination and that she was a victim of a poisoned work environment because of sex.

After 58 days of testimony and a process that lasted nearly seven years, adjudicator Kathleen Martin of the Human Rights Tribunal of Ontario sided with Farris. While it was true that the complainant was difficult, at times demanding and even cold, it was apparent that she worked in an exceedingly competitive environment in which agents vied for business opportunities. Assertive behaviour that was seen as the norm among male agents was treated as unacceptable in a female, which led to a climate allowing for gendered slurs and sexualized rumours. The employer having inadequately responded to any of these issues, the dismissal was simply a continuation of the discriminatory standard of behaviour expected of Farris, as a female. A hefty award of damages for injury to dignity, feelings and disrespect was imposed on Staubach.

This case puts to rest the prevailing myth of impunity that supposedly attaches to employers that terminate an employee without cause and that make an otherwise reasonable severance offer. Human-rights legislation can be effectively wielded as a weapon by a disgruntled employee, who can drag her employer through years of litigation. To blunt that potential weapon, employers can take the following prophylactic measures: 1. Institute a policy on acceptable communication. Gendered, sexist or biased comments – even in a humorous vein – should not be tolerated.

2. Create a complaint mechanism. If an employee feels that they have been subjected to harassment or discrimination, they should feel free to seek recourse in an internal grievance channel. When an employer demonstrates that it takes these matters seriously, it reduces the odds of a human-rights complaint and its success.

3. Be aware of unconscious gender sterotypes in evaluating complaints. Review the standards by which you assess appropriate workplace behaviours. Are females being dealt with more harshly than males in their interpersonal skills? Are females expected to be warm and nurturing?

4. Ask for details of unacceptable behaviour. A major issue in the Farris case was the failure of the employer to provide specifics to its defence that the complainant was demanding and cold. When details were forthcoming, they often pointed to simply assertive behaviour on Farris’s part.

5. Deal with issues promptly. If an employer becomes aware of sexualized rumours or gendered slurs, it should not await a complaint. Investigate immediately and deal with the matters. Do not allow the environment to become demeaning and thereby intolerable for the employee.

6. Educate staff. When employees understand the boundaries of acceptable conduct, they can be called to account more easily. It also diminishes the exposure of the employer in human-rights litigation.

Article by: Howard Levitt, Financial Post · Dec. 28, 2011 | Last Updated: Dec. 28, 2011 3:10 AM ET

Click here to view this article on The National Post’s website.

GSNH Wins Construction Law Firm of the Year Award

eneumann — Thu, 15 Dec 2011 20:06:22 +0000

GSNH is proud to announce that we have won the Construction Law Firm of the Year award from the … Read more

Employment Law – Cooling a heated episode by Howard Levitt

eneumann — Wed, 16 Nov 2011 18:44:13 +0000

Yellow Cab, an owner operated Vancouver based taxi company, hired Shawn Bowden as general manager of daily operations. Accountable to an annually elected board, Bowden had to navigate the fractious politics of the business with its various personal rivalries.

Summoned to a meeting of the board, he was warned by one director he would soon learn how things were done. Although the agenda was to allow him to explain the decisions he made that were under review, the session was punctuated by acrimonious and heated exchanges, culminating in repeated accusations Bowden was lying. Bowden was unceremoniously dismissed by the directors from the meeting without being given the opportunity to explain his answers.

Bowden attempted to to resume his duties, but was emotionally unable to do so and obtained support for medical leave. He also began treatment for Post Traumatic Stress Disorder (PTSD) flowing from his treatment at the meeting, but did not inform his employer. Instead he told a director he would not communicate with any board member until he was assured of a safe and respectful environment and was prepared to work from home in the interim.

The board rejected his request to work from home, explaining that the business required personal contact. It directed Bowden to appear at another meeting. When he failed to do so, it treated his employment as abandoned. Bowden responded with a human rights complaint accusing the company of discriminating against him on the grounds of mental disability.

The British Columbia Human Rights Tribunal dismissed the employers argument it had never been informed of the details of any medical condition, determining that it did not relieve Yellow Cab of its duty to inquire after his wellbeing. Once the employer was aware of a medical condition, it had reason to suspect it was the cause of his absence. Yellow Cab’s failure to inquire resulted in a finding of discrimination and a substantial damages award in Bowden’s favour.

As appealing as it is to save on severance and treat absent employees as having resigned, employers should pause and engage in the following analysis:

- Has there been any unusual behaviour on the part of the employee? In Bowden’s case, the employer testified it had observed what it perceived as erratic behaviour on the part of its general manager. That should have set off alarms.

- Has there been any conflct or incident that preceded the absence and may have precipitated a medical condition?

- Was there any medical information provided? Once an employee has supplied a medical note, the employer should defer any decision pending further details.

- Avoid playing doctor. Courts rely on medical assessments to determine disability. If you have evidence that refutes the medical evaluation, draw it to the immediate attention of the treating physician or conduct an independent medical examination. Do not delay in seeking an independent medical examination. In Bowden’s case, a contrary medical opinion was rejected in part because it was based on an examination done a year after the incident.

- Seek confirmation of abandonment. Has the employee communicated to other staff that they are not returning or quitting? What position do they take with you?

Article by: Howard Levitt, Financial Post · Nov. 16, 2011 | Last Updated: Nov. 16, 2011 4:09 AM ET

Click here to view this article on the National Post’s website.

Stanley Naftolin Named in International Who’s Who Legal

eneumann — Wed, 26 Oct 2011 14:50:44 +0000

Stanley Naftolin, Q.C., J.D., C.S. was named in the Who’s Who Legal – The International Who’s Who … Read more