Wednesday, May 27, 2009

Limitation Act amended for Demand Promissory Notes

Many in the Ontario business community were surprised when the Ontario Court of Appeal held in 2006 that the limitation period for demand promissory notes began to run as soon as the note was issued and not following a default after a demand for payment. This meant that demand notes issued after January 1, 2004 (when the basic limitation period was changed from 6 years to 2 years) became statute-barred 2 years from the date they were issued unless the debtor paid interest or principal or acknowledged the debt in writing. In those cases, the clock on the limitation period restarted after that event.

However, there were many situations, where payments of interest or principal would not be made for many years. For example, in the case of Hare v. Hare, a mother was unable to sue her son on a demand note when her statement of claim was issued more than 6 years after her son's last payment, although it was only a few months after she had demanded payment.

As a result, lawyers were forced to revise their demand notes to draft around the Court's decision. But such creative drafting did not resolve the problem that existed with notes that were already outstanding. As a result of intensive lobbying by various groups, the Ministry of the Attorney General enacted amendments to the Limitations Act which took effect on November 27, 2008.

The amendments make 2 significant changes directed at the decision in Hare. First, for demand obligations, the 2 year limitation period starts to run on "the first day on which there is a failure to perform the obligation, once a demand for the performance is made".

Second, the amendments apply "in respect of every demand obligations created on or after January 1, 2004" thus giving the amendments retroactive effect to the date that the new Act came into force. Now, until there is a default following a demand for payment, the limitation period doesn't start to run.

Regards,

Blair

Tuesday, May 26, 2009

Freelance Writers Settle for Big Bucks

CTVglobemedia Inc., Thompson Reuters Canada and The Gale Group have recently agreed to pay an $11 million settlement in a class-action lawsuit commenced in 1996 by freelance writer Heather Robinson. The case originated with Robinson, who disputed the fact that the Globe & Mail newspaper had included articles she submitted to the Globe's print edition into electronic databases without paying her what she felt was paid proper compensation for doing so.

Robinson, a founding member of the Professional Writers Association of Canada, submitted articles to the Globe for the newspapers print edition that were then included in three electronic data bases: InfoGlobe Online; an electronic version of the Canadian Periodical Index; as well as in a CD ROM that contained a years' worth of several Canadian newspapers. Robertson filed the class action lawsuit over the unauthorized reproduction of her work as well as that of thousands of other freelance writers.

In 2006, the Supreme Court of Canada ruled that newspapers and magazines do not have the right to transfer articles from their print editions into electronic databases without the consent of the writers, ruling that the databases resulted in "a different product that infringes" the creator's copyright. However, the Court did make an allowance for CD ROMs that present articles in the same overall look of the printed newspapers or magazines.

The Supreme Court of Canada held, in a 5 - 4 decision, that newspaper publishers are not entitled to republish freelance articles acquired for publication in their newspapers in electronic databases without compensating the authors and obtaining their consent. Newspaper publishers have a copyright in their newspapers pursuant to the Copyright Act to "reproduce the work or any substantial part thereof in any material form whatever". The court held that a substantial part of a newspaper may consist only of the original selection so long as the "essence" of the newspaper is preserved. In online databases, the originality of the freelance articles is reproduced but the originality of the newspaper is not. The resulting collective work is of a different nature than the original newspaper.

By contrast, the Court held that CD ROMs, which were essentially a compendium of daily newspaper editions, remained faithful to the essence of the original work - (that line could be a direct quote from Colonel Jack Ripper in Dr. Strangelove).

Regards,

Blair

Thursday, May 7, 2009

Letters of Intent may be Binding Contracts

The Ontario Court of Appeal has awarded a spurned purchaser of a business damages equivalent to his loss of financial benefit for the first seven months in which he would have operated the business. In doing so, the Court increased the trial judge's award by four months.

In the case of Wallace v. Allen, the parties after some weeks of negotiation, entered into a "letter of intent" for the purchase by Mr. Wallace of four companies owned by Mr. Allen and his wife. During the next few months, Mr. Wallace began to attend at the business premises daily with a view to learning the business, getting to know the customers and staff of the business and doing everything necessary to provide a smooth transition of the ownership of the business from Mr. Allen.

The parties signed a letter of intent which read in part:

It is also agreed by the parties that there will be much legal work to be done upon acceptance by both sides and that the wording of this agreement may alter somewhat...

This letter of intent must be reduced into a binding agreement of purchase and sale by the parties within the next 40 days.

Within weeks of signing the letter of intent, Mr. and Mrs. Allen held a special employee meeting where Mr. Allen announced his retirement and the fact that he had sold his company and that the deal was "solid". Mr. Allen introduced Mr. Wallace to his employees, customers and business contacts as the "new owner" of the business. However, on the morning that the transaction was set to close, Mr. and Mrs. Allen refused to complete the transaction.

The trial judge fixed Mr. Wallace's damages at $240,000.00 representing his loss of financial benefit for the first three months of operation of the business. The trial judge found that Mr. Wallace had mitigated his damages by purchasing another business, although his evidence was that he had ample resources to fund both deals.

On appeal, the Ontario Court of Appeal increased Mr. Wallace's damage award to seven months. The Court found that the clauses referred to in the letter of intent contemplated and expressed an intention on the part of the parties to be bound by its terms which were to be incorporated into a more formal document.

The parties used the language of contract - they used terms such as "it is agreed" and "upon acceptance" and "this agreement" which indicated an intention to be bound upon the signing of the letter of intent.

In addition, the conduct of the parties after signing the letter of intent clearly demonstrated that they considered themselves legally bound to its terms . For several months, the parties conducted themselves as though they had a deal and the parties showed up at the lawyer's office prepared to sign the share purchase agreement.

The Court rejected Mr. Wallace's claim for specific performance of the share purchase agreement. It held that while the company itself may be unique in what it does (the argument can be made that every business is unique) Mr. Wall,ace's acquisition of the business was not - he acquired business for a living. In any event, it was nearly four years after the deal was scheduled to close and that delay in time made damages a more appropriate remedy.

In awarding seven months damages, the Court found that three months was simply not enough time for a business person to search out and find another opportunity, negotiate a new agreement of purchase and sale and close that transaction.

Regards,

Blair