University of Manitoba Business Law Legal Issues Essay

File named mini assignment 1 has instructions.

Powerpoint slides have been attached to help answer the questions.

Book has been attached too to help answer the questions (chapters 1 to 6)

LEGAL
GUIDE
FOR THE
ONTARIO
ENTREPREN
EUR
Figure 1: Scales of Justice [1]
Introduction
This booklet has been designed for the introductory business law course taught at Carleton
University’s Sprott School of Business, but it can be a helpful tool for any business person
operating an enterprise in Canada, and Ontario in particular. It is intended to be practical rather
than academic. It is also intended to be a concise statement of the law, which may be welcome
to those lacking the time or patience to read the often verbose decisions of judges or wording of
statutes. Key sections in relevant statutes are occasionally quoted verbatim in this text when
relevant and with the objective of familiarizing the student with legislative drafting.
While this is intended as a practical introduction to business law, the first section does
admittedly have an academic flavour because understanding a legal system requires an
appreciation of the context and history within which it operates and evolved. Furthermore,
because Canadian businesses often conduct business internationally, and since Canada itself is
multicultural, it is useful to compare some of the cultural differences between Canada and the
other nations of the world, given that these differences may find expression in their respective
legal systems.
Chapter 1 Foundations of Law
Culture, Philosophy and The
Law
A society’s legal system is driven by its culture. An article in the November 28, 2011 edition of
Forbes Magazine noted that many cultures place less importance on formal written contracts
than Canada in particular, and Western Society in general. In such cultures, greater importance
is placed on personal bonds and informal agreements rather than the written word in a contract.
Business relationships are governed more by norms and expectations that build the relationship
and much is left unspecified in the contract itself. Nonverbal cues, and between-the-lines
interpretation of what is actually said, assume greater significance in such cultures.
The Forbes article identified Mediterranean, Slav, Central European, Latin American, African,
Arab, Asian, and American-Indian cultures as those that place more importance on the
unwritten word over formal contracts – in short, just about every society other than those of
Western Europe, Canada and the United States.
This can have implications in the negotiation of international contracts. A business in Canada
may be surprised by what it perceives to be the absence of attention to detail in the formal
wording of a proposed contract being negotiated with a business located in Asia. Or the courts
located in some countries may be more willing to entertain evidence outside the wording of a
contract in resolving a contract dispute.
This is one reason why selecting the appropriate jurisdiction clause in an international contract
may be important. If a Canadian company agrees that the courts of South Korea, for example,
will have jurisdiction over a dispute, it may be less able to predict how a South Korean court
may resolve a dispute because of these cultural differences. Cultural differences may cause the
courts of another country to adopt a different approach to the interpretation of a contract.
This is quite apart from the governing law clause in a contract which dictates what laws apply to
the interpretation of the contract. It is quite possible, for example, that a contract between a
Canadian business and a South Korean business might specify that the courts of South Korea
will have exclusive jurisdiction over a dispute, but that the governing law of the contract, for
example, is the United Nations Convention on the Sale of Goods.
Although the parties may have chosen a “neutral” governing law clause, cultural difference
might lead a South Korean court to a decision different from that of a Canadian court to resolve
the dispute. This may occur even if the governing laws clause provides that the laws of Canada
apply to the contract with jurisdiction over the dispute given to the courts of South Korea. In this
scenario the courts of Korea would have to hear expert opinion evidence from a Canadian
expert on the laws of Canada, but cultural differences could result a different result from the
application of Canadian law than would obtain had the courts of Ontario been govern jurisdiction
over the matter. Interpretation of a contract in a business dispute can have unpredictable results
for the very reason that the dispute has arisen from circumstance never anticipated by the
contract, and the cultural lens through which a contract is interpreted may have an impact on
the judge’s decision.
For in Canada, as in the USA and Western Europe, the meticulous wording of legal documents
is viewed as paramount. We in the West place considerable emphasis on sending and
receiving accurate messages directly, and by being precise with spoken or written words. That
may not be the case in other cultures. A non-Western judge may take into greater account
non-verbal cues or past behaviour in the relationship as a means to resolving the dispute.
Differences in communication styles between businesses with different cultural backgrounds
can also create confusion during contract negotiations, so Canadian businesses should try to
understand the cultural norms of other businesses with which they wish to engage.
These cultural differences may impact how laws are enforced in different jurisdictions.
Businesses operating in non-Western societies must appreciate how radically the enforcement
of laws in another country may differ from the way in which laws are enforced in Canada.
The two examples below suggest how cultural norms may confuse contract negotiations in the
conduct of international business.
Imagine suggesting a contract clause which elicits a hand response. The hand signal for a
Greek person that means “perfect” and would signal his or her acceptance of the clause, means
“what do you mean?” when used by an Italian. The Italian would be asking for greater clarity
and would definitely not be accepting the clause . An Egyptian understands the same hand
gesture to mean “be patient”. The Egyptian would be signalling that moving to this phase of the
negotiations is premature.
Even the initial meeting between representatives from businesses with different cultural
backgrounds may cause confusion. Initial business contract in some cultures commences with
a bow and the exchange of business cards, rather than handshaking, which can create an
awkward beginning to a business meeting.
The demands of international business suggest that a Canadian business should learn
something about the culture of a foreign business before engaging that business in contract
negotiations. In a globalized economy, the negotiation and drafting of legal contracts must take
account of cultural differences as well as differences in the way ideas are communicated.
Yet, it is even possibly more important for Canadians to understand the cultural context of
Canada’s own legal system. Its genesis is the product of two 18th century colonial powers.
Canada’s legal system is the product of English and French legal traditions, so the expectation
is the careful wording of legal documents and formal rules that are clearly expressed. Canada
falls squarely within the Western model of formal contracts as the basis for governing the
relationship between parties.
A society’s culture influences its philosophical framework. Philosophy derives from Greek and
means “love of wisdom?” It asks fundamental questions about how we should live our lives.
How we live our lives is greatly influenced by the laws imposed upon us by the society in which
we live. It should come as no surprise that a culture, philosophy and a legal system are deeply
intertwined.
Figure 2: The Thinker by Auguste Rodin [2]
Most of us rarely think about philosophy consciously, if at all, but we often view the world
through the prism of our philosophies without being fully aware that we are doing so.
To understand our society’s view of life and how it impacts our legal system, we must first
understand our history. We now turn briefly to that subject.
Cultural and Philosophical
Roots of the Canadian Legal
System
Canada came into existence through the conquest of land from its indigenous peoples at the
hands of two colonial powers, Britain and France. We continue to see resulting social tensions.
Quite apart from the social tensions and inequalities spawned by Canada’s conquest of its
territories from its indigenous populations, the impact of this historical legacy on the operation of
business in Canada has been profound.
In fact, Canada’s recently developed strategy of building a new pipeline to transport oil from
Alberta to British Columbia for export to markets in Asia was recently thwarted by this historical
legacy. In August of 2018, the Federal Court of Canada quashed the decision of the federal
government to build this pipeline in the case of Tsleil-Waututh Nation et al v. Attorney General of
Canada et al, 2018 FCA 153. It did so on the grounds that indigenous peoples had not been
sufficiently consulted and that their constitutionally protected treaty rights had therefore not been
sufficiently honoured.
This caused the private business conglomerate building the pipeline to withdraw from the
project. The Government of Canada bought and took over the project at a cost of some $4.5
billion dollars. The consultation process was resumed, but some doubt that the project will ever
be completed, depending on the results of the next federal election in October 2019.
This is but one example of how historical legacies and cultural factors may impact the laws of a
country that govern the conduct of business.
There are other cultural and philosophical factors important to the decision. As a democracy
committed to the rule of law, an independent judiciary had the power to stymie the wishes of the
federal government on a matter of national importance. It did so based on an interpretation of
the Canadian constitution. Canada’s commitment to the rule of law stems from its English and
French heritage. As we shall soon see, the rule of law – which essentially means that no
person is above the law – is a profoundly important principle for democracy.
While Canada is becoming increasingly multicultural, the legal system remains true to its
Anglo/Franco roots. Indeed, the legal system, and is underlying values, commonly expressed as
“Charter Values” as laid out in the Charter of Rights and Freedoms”, is now a fundamental
feature of Canada and most of us expect all people to accept its values in order to unify
Canada’s otherwise diverse and multicultural society. While these values continue to face
challenges and evolve, they have largely withstood the test of time since the Charter’s adoption
in 1982.
These Charter values had their roots in philosophical concepts that had developed hundreds of
years earlier. In fact, one cannot discount the influence of ancient Greek philosophy on our legal
system in Canada today.
The ancient Greek philosopher, Aristotle, posited that societies should be governed by the rule
of law. In other words, even the ruler of a state should be subject to its laws. Aristotle favoured
democracy and the City State of Athens was a functioning democracy during the 5th century
BC, albeit an imperfect one by today’s standards – women and slaves did not have the right to
vote.
While the thoughts of Aristotle infused the thinking of more modern philosophers who ultimately
shaped the legal systems of Western Society, there was a countervailing school of thought that
dismissed democracy as “the rule of the mob”. Plato, another Greek philosopher, rejected
democracy and believed that a society was best led by a philosopher king who would rule wisely
and with benevolence.
We see in this ancient debate a precursor to the current global competition between those who
favour democracy and those who believe that authoritarian rule is the preferred model. There is
no place for the rule of law for those who prefer the authoritarian model. They may believe in
rule by law, which means laws set by the dictator who has the power to change such laws
whenever it pleases him or her, and therefore not be bound by such laws; that is a far different
model than the rule of law which entails the adoption of laws by elected representatives and
enforced by independent courts equally against all members of society regardless of rank or
wealth.
Some philosophers accepted Aristotle’s notion that a ruler should be subject to certain laws, but
only laws that were inspired by religion, which constituted” natural law” to which every ruler
should be subject since no man or woman could be above God.
Sir Thomas Aquinas, a Catholic philosopher of the 13th century, posited that a human can intuit
natural law and that Catholicism is relevant to this intuition. Abu Rayhan al-Biruni, an 11th
century philosopher, took a similar approach but suggested that Islam could inform this intuition
Both were influenced by the Greek Aristotle, but he saw natural laws as being unrelated to
religion and more governed by intuitive notions of justice.
Another view, closely related to the philosophy of Aristotle, is that the law must stand above all
people, even the ruler, based on notions of equality which, in turn, are based on the notion of a
social contract among all groups or people within a given society.
Moreover, the social contract – because these thinkers noted historic religious conflicts or the
religious backing of autocratic leaders – should be based on secular and not religious values.
Social contract theory, and the view that religion had no role to play in the governing of the state,
arose during the Age of Enlightenment or the Age of Reason. Centered in Europe, the related
philosophical schools of thought shared a view that reason rather than religious belief was the
source of true knowledge. Logic and the scientific method were the centerpiece of this thinking
rather than religiously inspired understandings of the universe.
These beliefs in the power of the mind and objective methodologies over faith-based perception
opened the door to both the advancement of science and new approaches to the organization of
society and the laws that should govern it. This thinking supported the notion that government
should be based on secular values instead of religious ones, which gave rise to the notions of
equality and a renewed belief in the rule of law. Much of this thinking helped to inspire the
French revolution of 1789, which overthrew the monarchy.
Because Canada was a British colony a good deal of its history, the British thinking of this time
is especially relevant to Canada’s legal system.
One of the first relevant British thinkers was Thomas Hobbes who stated in the 17th century that
man’s life in a state of nature is “nasty, short and brutish”. Humans therefore form social
contracts among themselves which find expression in their laws. But Hobbes was no democrat.
He believed that an absolute ruler with absolute power was required to control the people. But
such a Ruler had to be fair, failing which the social contract would dissolve and revolution would
ensue.
At roughly the same time, John Locke was, like Hobbes, propounding a social contract theory.
However, Locke had more faith in the people and saw no need for an absolute ruler. In fact, he
took the position that a government exists to protect the liberty of the people. He believed that
all humans could discern good from evil and did not require an absolute monarch. They required
liberty and democracy. In some ways, Locke wanted to move Europe to the philosophy of
Aristotle.
Yet another influential British philosopher was John Stuart Mill who took the thoughts of John
Locke even further. Writing in the mid 19th century, he wrote that the only purpose for which a
government should exercise power over any member of a civilized society is to prevent harm to
others. By this logic, victimless crimes should be decriminalized.
For example, if the consumption of cannabis does no harm to others in and of itself, what right
does the State have to criminalize its use?
The philosophy of Mill was an expression of classic liberalism which reflected his philosophy
well into the late 20th century. One can see strains of this thought in a famous statement of
Prime Minister Pierre Elliott Trudeau in 1967. During a television interview the Prime Minister
famously stated:
“There is no place for the State in the bedrooms of the nation”.
This statement grew out of the sexual revolution of the 1960s and was a general condemnation
of religiously inspired laws that attempted to control sexual activity through the legal system. But
it was more a specific condemnation of provisions in the Criminal Code that effectively made
homosexuality a crime. It seems inconceivable, given the reality of today, that just over 50
years ago, one could be arrested for homosexual behaviour. Trudeau’s interview was given
before he and his government decriminalized homosexuality by amending the Criminal Code.
We can see in this legal reform a link to John Stuart Mill. After all, what harm to others is caused
by two consenting adults undertaking whatever sexual activity they prefer? Why should the
religious views of a majority be reflected in laws that govern all in the absence of harm to
others?
The protection of individual human rights was a central tenet of classical liberalism until the turn
of the last century when the focus began to shift to minority groups who had suffered systemic
discrimination of various kinds. Liberalism began to conceive of individual rights as being
insufficient to eliminate these systemic problems and began to shift its attention from individual
rights to collective rights. This has had an impact on the legal system and some of the laws that
regulate business in Canada.
In this introductory chapter, the objective has been to demonstrate the impact of culture and
philosophy on the legal system and on the conduct of business. The next chapter will
demonstrate this further as we direct our attention the Canada’s legal framework. Before moving
on, please consider two more questions.
Chapter 2 – From Philosophy to
the Canadian Legal Framework
Philosophical Roots of
English Common Law and
Quebec Civil Law
The first chapter identified how one of Canada’s major historical legacies – the conquest of
Canada from its indigenous peoples by the French and the British-colonial powers – continues to
find expression in Canada’s legal system. It also described how some of the philosophies born
during the Age of Reason came to be reflected in the legal systems that evolved out of Western
culture.
This chapter begins with an examination of certain differences between the main thrusts of
French and British philosophical thought and then moves to demonstrate how these differences
played a role in the distinctive approaches to the law adopted by the French and the British
respectively. Some knowledge of these philosophical differences will help lay bare the distinct
approaches developed under the Civil Law system that operates in predominantly French
Quebec and the Common Law system that operates in the remainder of Canada.
The Seven Years War was a global struggle involving European powers and their colonies. It
ended in 1763 and resulted in the conquest of North America by the British, thus creating British
North America. But the significant French population, primarily located in what is now Quebec,
required that the British accommodate the French population, especially when the French
threatened to join the burgeoning American Revolution. In response to that threat, Quebec was
appeased by the British with the passage of the 1774 Quebec Act. The Act allowed French
Quebec to maintain their system of Civil Law and also permitted it to remain predominantly
Catholic. These elements of the bargain found their way into the British North America Act of
1867, which established the Dominion of Canada.
While French and British thinking had much in common, the British philosophical movement
primarily adopted Empiricism as its intellectual lynchpin, while the French were fundamentally
Continental Rationalists in their approach to thinking.
Very briefly, Empiricists take the position that the source of all knowledge is experience. In their
view, humans are not born with innate knowledge. Rather, they come into the world with a
blank mind and only their experiences inform their thinking. This philosophy supports the
scientific method which requires the use of experiments in the real world to validate theories.
Truth can only spring from controlled experiments in the real world and other experiences in
reality. Empiricists do not ascribe any value to intuition.
Empiricists believe that all knowledge comes from our senses and our experience in the real
word. Inductive reasoning is used to extrapolate from our experience to build complex ideas
and theories; there are no valid “innate ideas”.
Rationalists, on the other hand, believe that reason is the source of all knowledge, and that
humans can and do possess innate knowledge. Intuition has value. The great French
Philosopher, Rene Descartes, epitomized this way of thought when he posited, “I think therefore
I am” and from that intuitive and self-evident truth, attempted to construct through pure logic an
explanation of reality and even the existence of God.
We can, according to Rationalists, know some truths directly without the medium of the senses.
Our rational mind can intuit some truths through logic, and we can deduce further truths from
that base.
This philosophy emphasizes deductive reasoning.
While the philosophy of Empiricism lies at the heart of the scientific method and applied science,
mathematics, based as it is on innately understood calculations, is strongly aligned with
Rationalism.
The two different intellectual approaches reflect themselves in the legal systems of the two
cultures.
If the mind can know truth without the senses, as a French rationalist believes, it can craft a
legal code of general application from innate concepts of fairness and justice. On this basis,
Napoleon the First had four famous jurists draft the Napoleonic Civil Code in 1804.
In fact, the codification of laws had a long history, with much of the world following a similar
route at some time. The Napoleonic Code, for example, had its roots in the Emperor Justinian’s
sixth century codification of Roman law.
Another notable codification of the law included the Code of Hammurabi, which was a
Babylonian Code of law of ancient Mesopotamia dating back to 1754 BC.
It is not the content of these laws that makes them comparable (although there may be some
common features), but the underlying philosophy that generated them – the drafting of laws of
general application which employed the deductive reasoning of rationalism to mete out justice.
What they have in common is the production of general laws, derived from intuitive notions of
justice, to specific situations.
Unlike any other legal system, the British common law system builds legal concepts of general
application “from the ground up”. In short, it employs the inductive reasoning of British
empiricism to generate laws of general application.
How does it work? This is best explained with a hypothetical example.
Legal Reasoning in a
Common Law System
Imagine that Mary signs a contract with John the farmer in which she agrees to buy 1,000 eggs
from John for $100.00 Mary changes her mind, refuses to buy the eggs, and the eggs rot, even
though John tries hard to find another buyer. John loses the $100.00 he would have made had
Mary honoured the contract. The judge accepts that the evidence proves these facts so the
judge awards Mary $100.00 in damages. The legal principle here established is that a person
who breaches a contract, and reneges on her promise, must pay damages to the other party
equal to the money needed to make good the loss and compensate the other party for the loss
caused by the breach of contract
This then becomes the ratio decidendi of the judge’s decision and operates as a general
principle of law. Under the common law system, it becomes the principle of law that is to be
applied to like cases in the future. It is binding on lower courts and persuasive for courts on the
same level. This is why the decisions of appeal courts can be very important in a common law
system. Their decisions are binding on lower courts.
A body of general legal principles is built up from these cases, based on the ratio decidendi of
individual decisions.
Here in our example, the rule becomes that breach of contract entitles the “victim” to recover the
profits he or she would have made had the contract been honoured. Lower courts are bound to
follow the decision under the principle of stare decisis.
Sometimes a judge makes a point in a written decision that is particularly astute but not key to
the decision. Again, this is best explained with a hypothetical illustration. Building on the
previous example, further assume that the person who breached the contract, Mary, was not
financially strapped. One could argue that, in a sense, that person is morally more culpable
than somebody who had no choice but to breach the contract due to an unforeseen lack of
money. If the judge says something about this – that damages must be awarded against a
person who breaches a contract regardless of whether that person is in financial trouble or not that comment is not necessary to the decision – so it is not binding on lower courts. This is
because only the primary deciding factors in a judge’s decision constitute the ratio decidendi
and only the ratio is binding. Although not the ratio, the comment is an interesting one that may
be cited as persuasive for another judge in a future case. These relevant but not decisive
points are referred to as obiter dicta and may be adopted by a lower court judge in a future
case.
A lower court may not be bound by the ratio decidendi of an upper court decision if there is a
feature of the case in front of the judge in the new case that distinguishes it from the precedent.
Again, the concept is best illustrated with an example.
Suppose, unlike our breach of contract precedent involving Mary and John above, the breach
of contract in the new case now before the lower court was committed by somebody who was
15 years old when he or she signed the contract. The lower court may distinguish the
precedent and not award damages. If the matter is appealed and the higher court agrees, a
new ratio is created that modifies the general principles to say that a contract is not binding on a
minor (under 18 years of age). The case involving John and Mary has been distinguished from
the present case because there was a key feature in this case that was lacking in the case of
John and Mary, namely, that the person breaching the contract was under 18 years of age.
Much legal argument involves one lawyer citing a precedent in the client’s favour with the
opposing counsel arguing that the first lawyer has misidentified the ratio or that the precedent
should be distinguished.
The common law evolves incrementally with new court decisions whereby the resolution of
individual real-life disputes informs the rules of general applicability, through inductive
reasoning. This contrasts with codified systems (civil law) whereby the law evolves by
amendments to the governing Civil Code which then flow to the courts for further interpretation
through deductive reasoning.
As a practical matter, the British common law system, which has taken root in most, if not all,
former colonies of the past British Empire, has evolved into a hybrid where a great deal of law is
codified by statutes enacted by elected legislatures. This is especially so in Canada and The
United States where the French influence has been felt the most, owing, on the one hand, to the
presence within Canada of Quebec and, on the other hand, because of France’s material and
philosophical support of the American Revolution.
What this means is that common law systems are highly dynamic. Broad policies and rules are
enacted by statute. These statutes sometimes codify existing common law decisions, or
sometimes reverse them. Judges then interpret these statutes, when disputes arise before the
courts, and develop a body of common law that applies the statues to differing circumstances. If
a statute remains on the books without amendment for long periods of time, it may fall behind
the evolution of societal norms or technological change, in which case judges in a common law
system may interpret the existing statute in ways that drag the statute into the present. This
practice is referred to as judicial activism.
The Constitution of Canada
The most important codified body of law in any legal system is its constitution. It sits at the apex
of legal documents and is the document with which all other laws must comply. In a democracy
where the rule of law prevails, judges independently assess whether statutes and regulations or
government actions of all kinds are constitutionally compliant when challenged. Moreover, the
manner in which a constitution can be amended is generally formulated in a way that requires a
broad consensus across the country, unlike a simple statute which can be amended by a
majority of the elected members of the legislature with jurisdiction over the subject matter of the
statute.
Canada’s Constitution is a good example.
Section 52 (1) of The Constitution Act 1982 provides as follows:
“The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with
the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect”.
The amending formula for the bulk of changes to the Constitution is dictated by section 38 (1).
It requires adoption by majority vote in both the federal Parliament and Senate as well as
passage by majority vote by the legislative assemblies of “at least two-thirds of the provinces
that have, in the aggregate, according to the then latest general census, at least fifty percent of
the population of all the provinces”.
These provisions clearly establish that all laws must respect the Constitution and that amending
the Constitution generally requires a broad consensus across Canada.
For the purposes of this course, the relevant sections of the Constitution are those that relate to
the division of powers allocated to the federal government and provincial legislatures
respectively, certain provisions of the Charter of Rights and Freedoms, and the role of the rule of
law in Canada. The remainder of this chapter will focus on these subjects.
The Division of Powers
Canada’s original Constitution was actually a statute of the Parliament of the United Kingdom
enacted on July 1, 1867. It was patriated to Canada in 1982, and the Charter of Rights and
Freedoms was added to it as Part 1. Other additions and amendments to it were made and
what emerged was the Constitution Act of 1982.
However, the division of powers laid out in the original British North America Act of 1867 was
preserved. Sections 91 and 92 of the British North America Act, renamed and made part of the
Constitution Act, 1982, were and remain essentially comprised of two lists. The first list in
section 91 describes the jurisdiction of the federal government while section 92 is the second list
that describes the areas of jurisdiction of the provincial governments.
Section 91 of the Constitution Act provides that the federal House of Commons together with
the Senate, shall make laws for the “peace, order and good government of Canada” over all
subjects not within the power of the provinces.
This part of section 91 gives the federal government broad powers over any area of law not
assigned to the provinces.
In addition, section 91 then lists 29 additional specific subject matters over which the federal
government has jurisdiction. Some of the more notable subjects include jurisdiction over trade
and commerce, banking, patent law, and criminal law.
This explains, for example, why the Criminal Code is a federal statute that applies across
Canada.
The provinces draw their law making or legislative powers from section 92 of the Constitution
Act. It provides that in each province the legislature may exclusively make laws in relation to 16
listed items. Some of the more significant subjects include the management of hospitals, the
administration of justice, property and civil rights in the province and all matters of a local and
private nature.
The power over hospitals and property and civil rights makes the provinces responsible for laws
related to healthcare, for example, while the power over the administration of justice gives each
province the power to pass laws creating its own court system.
The laws adopted by a province only apply within the geographic borders of that province.
The division of power allocates powers between the primary federal legislative body called the
House of Commons, on the one hand, and the provincial legislatures, on the other.
The legislative body or branch of government is composed of elected representatives who
enact laws by majority vote. These laws are referred to as statutes.
During the federal election of 2015, several political parties competed to win seats in the federal
House of Commons. Seats are allocated across the country based on a number of factors
including population and geographic spread. There are currently 338 seats in the House of
Commons. The Liberal Party of Canada won a majority of the votes in 184 of these seats in
2015, and the other parties won the remaining 154 seats. The Liberals thus formed a majority
government that enabled them to pass laws as promised during the election. The leader of the
Liberal Party, Justin Trudeau, thereby became Prime Minister. The second-place party, the
Conservatives, won 99 seats, and are referred to as “the Opposition” and sometimes “her
Majesty’s loyal opposition” to reflect Canada’s historic links to the British Monarchy. Those
elected locally to fill the seats are referred to as Members of Parliament, or MPs. There were
therefore 184 Liberals and 99 Conservatives elected as MPs to the House of Commons in 2015,
along with 44 New Democrats, 10 members of the Bloc Quebecois and 1 member of the Green
Party, for a total of 338 MPs.
One of the changes promised by the Liberals during the 2015 election campaign was the
legalization of marijuana for recreational use in Canada and this serves as a good example of
the law-making process. Determined to fulfill this election promise, the Liberals introduced a
draft new statute, called the Cannabis Act, for debate in the House of Commons. A proposed
statute is referred to as a Bill and this proposal was introduced to the House of Commons as Bill
45. After debate in the House of Commons, it was passed by the House in late November of
2017. Federal bills must also be adopted by the Senate, composed of unelected appointees, but
constitutional convention requires them to bend to the will of the elected House, though often,
the House will adopt good suggestions to a bill proposed by the Senate. The Senate thus
functions as the provider of “sober second thought “to proposed laws.
In the case of the Cannabis Act, this in fact happened. The Senate debated the Bill and
suggested some changes, which the House adopted by a vote of 205-82 in June 2018; the law
came into effect a short time later.
The Cannabis Act was an Act to amend or change the Criminal Code to decriminalize the
recreational use of marijuana. It was clearly within the jurisdiction of the federal government,
since section 91 of the Constitution Act allocates jurisdiction over criminal law to it.
Canada again pays ceremonial homage to the historic role of the British Queen in Canada, and
to her representative, the Governor General, by requiring Royal Assent to any Bill.
Constitutional convention dictates that the Queen’s representative will never deny Parliament’s
decisions since Canada is a functioning democracy. So Royal Assent was given to the
Cannabis Act to make it law.
The annual Speech from the Throne, which describes the governing party’s legislative agenda
for the upcoming year, is drafted by the democratically elected government and only read by
the Governor General. This too pays ceremonial homage to the Queen, while real power is held
by Canada’s elected representatives.
Statutes are adopted in similar fashion at the provincial level, by provincial legislatures, but
there is no Senate and the Lieutenant Governor is the Governor General’s counterpart for the
purpose of passing laws within a province’s constitutional power.
The Prime Minister selects around 20 MPs from his party to form the Cabinet. Each cabinet
minister is given a portfolio – global affairs or trade and commerce as two examples – and the
role of the cabinet is to implement or execute the laws adopted by the House. Hence this is the
executive branch of government. This sometimes involves making decision within discretionary
powers provided for in some statutes, but much more often entails adopting regulations to
provide more details or fine tune the requirements of a statute. These regulations are drafted by
the bureaucracy, composed of salaried professionals (the civil service), and adopted by the
Prime Minister and his Cabinet. These rules are sometimes referred to as “Orders in Council”
and are said to be adopted by the “Governor in Council”, again providing lip service to the
traditional but now only ceremonial role of the Governor General.
These regulations are sometimes referred to as “subordinate legislation” meaning that they
must be consistent with the statute under which they have been adopted, and not go beyond it,
failing which they can be successfully challenged in court.
The third branch of government is referred to as the judiciary or the judicial branch of
government and is composed of judges across the land appointed to independently interpret the
law and apply it when disputes arise. These are the judges who produce binding common law
decision under the doctrine of stare decisis.
It should now become apparent that the division of power in Canada is not only as between the
provinces and the federal government, a form of government referred to as federalism, but also
as between the legislative, executive and judicial branches of government.
The answer to this question serves to illustrate that there can sometimes be overlapping
jurisdiction between the federal and provincial legislatures. When this happens and when this
results in an operational conflict between a provincial law and a federal law, the federal law will
“trump” the provincial law under the “doctrine of paramountcy”. The federal “trumping power”
derives from section 91 of the Constitution Act which states that it shall be lawful for the House
of Commons… “to make laws for the peace order and good government of Canada in relation to
all matters not coming within the exclusive jurisdiction of the provinces”. This has sometimes
been referred to as the “POGG” power.
This chapter has also described the role of the Monarchy as ceremonial. This is not apparent
from a pure reading of section 91 of the Constitution Act which says that “It shall be lawful for
the Queen, by and with the advice and consent of the Senate and the House of Commons to
make laws”. These words suggest more than a ceremonial role for the Queen.
However, constitutional convention makes it clear that both the Queen and her Governor
General and Lieutenant Generals, and indeed the unelected Senate , must all take their cue
from the elected House of Commons and the Prime Minister and his or her cabinet. This
convention is not codified and has its roots in the common law rather than the civil law tradition.
Finally, it is important to note the hierarchical yet dynamic structure of Canada’s legal and
political system.
At the documentary apex of the systems sits the Constitution which includes the division of
power as between the federal and provincial legislatures as well as the Charter of Rights and
Freedoms. All other laws of the land must conform to this document. The Charter checks the
power of the state against the individual while sections 91 and 92 of the Constitution check the
powers of the federal and provincial governments against each other.
The legislatures may pass laws that respect these parameters and the executive branches may
promulgate regulations that provide the detailed direction necessary to execute or implement
the statutes. But the executive is constrained by the parameters of the governing statutes.
This means that, as statutes must conform to the Constitution, so too must regulations conform
to the statutes under which they have been adopted.
A stable of appointed judges interprets these laws and ensures that these boundaries are
respected. A host of laws and conventions protect the independence of these judges who are
required to apply and interpret the law objectively. They have the power to strike down laws that
offend the above described boundaries yet are, somewhat paradoxically, bound to apply the law.
They may interpret statutes in a way that creates new law, which becomes binding on lower
courts through the doctrine of stare decisis. Some judges are less literal than others and
sometimes innate notions of justice require the exercise of judicial activism. Legislative
assemblies may curtail the reach of judges by passing new statutes that negate older common
law decisions. These factors make for a highly dynamic system that also affords sufficient
predictability to create an environment that is conducive to investment and the conduct of
business.
And at the heart of the system- indeed the glue that holds it all together – is the concept of the
rule of law.
The Rule of Law Revisited
As we saw in Chapter 1, the idea of the rule of law is an ancient one, but one that found great
favour within the Western philosophies of the Age of Enlightenment and the thinking of the
British. Some see elements of the rule of law in the English Magna Carta of 1215, which
curtailed the powers of the monarchy.
One of the leading proponents of the rule of law was Albert Venn Dicey, a British jurist whose
writings in 1855 are now considered to form part of the uncodified British constitution. He
endorsed Aristotle who stated that it is more proper for the law to govern a society than for any
one of its citizens. to do so
Canada’s codified constitution of 1867, patriated to Canada in 1982, specifically states in the
first preamble that Canada’s constitution should be one “similar in principle to that of the United
Kingdom”. The notion of the rule of law was thereby imported into Canada.
The Supreme Court of Canada found occasion to apply the concept to a dispute that arose in
1959 between a Montreal restaurant owner and the powerful Premier of Quebec, Maurice
Duplessis.
This was indeed a David and Goliath scenario between the politically powerful leader of
Quebec, Maurice Duplessis, and a small business owner, Frank Roncarelli.
Duplessis and his political party, the Union Nationale, had first won power in Quebec during the
1936 election, lost in 1939, but was re-elected in 1948, 1952 and 1956. His was a highly
conservative government that had forged a strong connection with the predominant Catholic
Church and French Canada’s agrarian rural society. In 1936 he hung a crucifix in the province’s
legislative assembly, which was only taken down in July of 2019. It was his traditional image of
Quebec society that was largely displaced by Quebec’s subsequent “Quiet Revolution” during
the 1960s.
Frank Roncarelli was a Jehovah’s Witness, a religious group that drew the ire of the Quebec’s
Catholic Church during the 1940s because of its practice of handing out religious pamphlets
inconsistent with the tenets of Catholicism. Members of the group were periodically arrested for
failing to obtain a city permit to hand out their pamphlets under a City of Montreal bylaw.
Roncarelli would bail them out, as was his right, using the profits of his successful restaurant
business, and they would be back on the streets, handing out their pamphlets and magazines
again, in short order.
Duplessis reacted by directing the Quebec Liquor Commission in December of 1946 to cancel
Roncarelli’s license to sell alcohol at his restaurant, which could be damaging to the business of
a fine eating establishment. It seemed clear that the liquor license cancellation had nothing to
do with the operation of the restaurant and was purely motivated by the Premier’s wish to
damage Roncarelli financially to inhibit his ability to offer bail for arrested members of the
Jehovah Witnesses. So Roncarelli sued.
The matter was appealed all the way to the Supreme Court of Canada where the Court found
that Duplessis had exceeded his authority and Roncarelli was awarded damages.
The governing provision of the law regulating liquor licenses gave the Liquor Commission the
right to cancel a license at its “discretion”. The Government of Quebec was of the view that it
had the right to exercise this discretion as it saw fit.
The Court did not accept this reasoning. In the words of Mr. Justice Rand:
“To deny or revoke a permit because a citizen exercises an unchallengeable right totally
irrelevant to the sale of liquor in a restaurant is … beyond the scope of the discretion conferred.”
The court decided that even a discretionary power given to a government official can only be
exercised in a way that is directed towards achieving the objectives of the law under which the
discretion is granted. It cannot be exercised in an arbitrary and capricious manner. All
government officials – even the Premier of Quebec – are subject to the rule of law.
Roncarelli was awarded damages in excess of $33,000.
Figure 1: Premier Maurice Duplessis [1]
More recently, Ontario Premier Doug Ford’s Conservative government cancelled a subsidy
program for purchasers of electric vehicles but left it in place only for undelivered vehicles that
had already been ordered or purchased, excluding vehicles made and sold by Tesla. Even
undelivered Tesla vehicles no longer qualified for the subsidy. Feeling singled out, Tesla
challenged the Ford government in court.
The Ontario Superior Court decision of August 2018 (Tesla Motors Canada ULC v. Ontario
(Ministry of Transportation), [2018] O.J. No. 4394, 2018 ONSC 5062) concluded that Ontario’s
Minister of Transport had acted arbitrarily and for an irrelevant purpose by excluding Tesla
Motors from the subsidy extension. Mr. Ford had protested the subsidization of Tesla’s
“millionaire buddies” under the subsidy program and other members of his government had
been critical of Tesla. The court relied on the Roncarelli decision in concluding that the Minister
had exercised its discretion unlawfully and arbitrarily. The court extended the subsidy to Tesla
on the same terms and Tesla was awarded $125,000 in costs. The Government did not appeal.
At the federal level of government, Prime Minister Trudeau and his Liberal Government were
roundly criticized in 2019 by the Conflicts of Interest and Ethics Commissioner for having
interfered with the criminal prosecution of a major engineering firm, Quebec based SNC Lavalin.
Lavalin was charged with bribing foreign officials in Libya to obtain contracts from the Libyan
government. If proven, these actions would constitute offences under the Corruption of Foreign
Public Officials Act and result in a criminal conviction. Lavalin would not be permitted to bid on
federal contracts if convicted, so Lavalin lobbied hard to seek an out of court settlement of the
charges.
Trudeau was found by the Conflicts of Interest and Ethics Commissioner to have applied undue
pressure on the then Attorney General, Judy Wilson Raybould, to influence her to intervene in
the case and secure a deferred prosecution agreement with Lavalin, to spare them the criminal
record. She declined and resigned her position instead.
The Commissioner found that, regardless of whether or not Trudeau was motivated to save jobs
in Quebec, he had attempted to unduly benefit the private interests of a party and was in
breach of the conflict of interest rules.
While it is beyond the mandate of the Commissioner to consider rule of law issues, it is clear
that the rule of law underlies his decision since no private party should be permitted special
privileges in a criminal prosecution by reason of its connections to the corridors of political
power.
The case against Lavalin continues as of the writing of this chapter and will eventually go to
court.
It is clear from the examples covered in this chapter that the rule of law is not only a
philosophical topic of interest to academics, but is also of immense relevance to both the rights
of individuals and the conduct of business. The rule of law has operated, as we see in the above
examples, as a check against the excesses of government, to protect the interests of a
restaurant owner, a car manufacturer and engineering firms in competition with the SNC Lavalin
conglomerate.
The Charter of Rights and Freedoms
Another essential element of the Canadian constitution is the Charter of Rights and Freedoms
which was adopted in 1982 and which codified many of the rights and freedoms afforded to
Canadians under the common law.
Section 2 of the Charter outlines Canada’s fundamental freedoms: freedom of conscience and
religion; freedom of thought, belief, opinion and expression, including freedom of the press and
other media of communication; freedom of peaceful assembly; and freedom of association.
The Charter obligation to respect these freedoms lies with governments, not the private sector.
The provinces extend protection against private sector discrimination in provincial statutes and
the federal government does the same for the private sector it regulates. These are statutory
protections and not constitutionally protected.
The Charter contains many other important rights such as
· the right to life, liberty and security of the person and the right not to be deprived thereof
except in accordance with the principles of fundamental justice
• the right to be secure against unreasonable search or seizure to the extent that there is an
expectation of privacy
• the right on arrest or detention to retain and instruct counsel without delay and to be informed
of that right.
These rights and freedoms can be important to the operation of business as they act as a check
on the ability of government to impinge upon the rights of individuals.
The Big Picture – A Dynamic Legal System
Canada’s legal system has many moving pieces that operate within broad boundaries. On the
one hand, the executive levels of government, both provincial and federal, formulate public
policy that takes the form of bills put to a vote in legislatures, which are composed of
democratically elected representatives. If adopted, these bills become statutes and thus
become the laws of the land. But they must respect the constitutional division of powers and
the Charter of Rights and Freedoms. If the substance of these laws arguably do not respect
these boundaries, private citizens can challenge them and such disputes are decided by the
courts composed of independent judges who interpret the law, but are limited by pre-existing
precedents under the doctrine of stare decisis.
Not only can the substance of these laws be challenged in the courts, but the application of
these laws in a manner inconsistent with the rule of law can also be challenged in court.
Statutes are broad expressions of public policy the details of which must generally be fleshed
out in regulations referred to as subordinate legislation. These regulations are equally subject
to challenge on constitutional grounds and, moreover, cannot go beyond the parameters
established by the statutes under which they are promulgated.
The Monarchy, represented by the Governor General federally and the Lieutenant Governors in
each province, plays a purely ceremonial role, with its power completely constrained by
constitutional convention.
Finally the independent judiciary is called upon to resolve disputes and referee the system. It
does so by interpreting statutes and subordinate legislation, applying previous judge made law
and distinguishing it where justified, all within the framework of constitutional principles, stare
decisis and the rule of law.
Chapter 3 – Dispute
Resolution
The Rule of Law and The
Resolution of Business
Disputes
Jurisdictions where the rule of law prevails tend to be more attractive to investors than
jurisdictions where the rule of law is lacking. Investors can count on the objective application of
laws to resolve businesses disputes in countries bound by the rule of law. Where the rule of law
is weak, or altogether absent, corruption, connections and political influence are much more
likely to play a role in resolving disputes, which makes for a more risky business environment.
Markets are able to allocate resources more efficiently in rule of law jurisdictions since the rule
of law restricts the ability of powerful and corrupt elites to interfere with the law of supply and
demand.
Business disputes are almost inevitable as a business grows. Two parties to a contract may
have an honest disagreement over how a contract should be interpreted in an unforeseen
situation. An employee may feel mistreated by other employees or a decision is made to fire
an employee. Accidents causing damage can occur and the parties may disagree over who
was at fault and how much compensation should be paid for the accident.
These are just a few examples of the types of business disputes that may emerge over time.
Resolving business disputes requires a set of rules or procedures to process such
disagreements in a fashion that provides both sides with a chance to be heard by an impartial
third party. The impartial third party can be a judge or arbitrator and his or her decision must be
enforceable against the party that loses the dispute. In other words, there must be a way to
force the losing party to comply with, or obey, the judge’s decision if the losing party does not do
so voluntarily.
In Ontario, the process that outlines the steps that the parties must take when a dispute arises
are described in the Ontario Rules of Civil Procedure. These rules come into play when
negotiations or other forms of alternative dispute resolution, such as mediation, have failed, and
when one party feels that there is no choice but to sue the other party in order to resolve the
dispute. A person who decides to sue another party has decided to litigate. The resulting
process is called litigation. We now turn to the rules that govern the litigation process. The
following discussion of the rules assumes that both parties to a dispute are located in Ontario,
unless otherwise indicated.
Jurisdiction of Courts
When a party decides to litigate, it must choose the correct court in which to start the litigation
process. If a dispute involves the Federal Government, such as a tax or immigration dispute, or
touches on certain areas of law within federal jurisdiction, such as patent law or maritime law,
the litigation sometimes must and sometimes can be initiated in Federal Court. For example, if
the dispute is with the federal government over, say, the amount of corporate tax owed, and if
the business has lost its initial claim in Tax Court, it must proceed to Federal Court.
Otherwise, it is generally quite safe to sue in an Ontario court, which has very broad
jurisdiction. Businesses in Ontario will normally sue each other in one two Ontario Courts Ontario Small Claims Court or Ontario Superior Court. The jurisdiction of Ontario Superior
Court overlaps with some of the matters over which Federal Court has authority. It is possible,
for example, to sue the federal government over a commercial dispute in either Federal Court or
Ontario Superior Court. Legal advice should be sought if there is any doubt as to which court is
the proper court for the subject matter of the dispute.
Once it has been determined that the litigation should not proceed in Federal Court, it is
important to choose the correct Ontario court.
There are many online resources that explain Ontario’s court system. The preceding link
includes one tab for Small Claims Court and a second called “Civil”. If the amount in dispute is
$25,000 or less, the proper court is generally Small Claims Court and clicking on this tab will
lead you to all of the applicable rules and forms. The Civil Tab will lead you to all of the rules and
forms for litigation involving claims greater than $25,000. Two of the other tabs – family and
criminal – are self explanatory and are not relevant to business disputes, although businesses
are, of course, subject to the criminal law and could be prosecuted in accordance with criminal
procedures if charged with a criminal offence. The fifth tab covers Divisional Court, which has
jurisdiction over matters such as the judicial review of appeals of administrative tribunal
decisions and businesses will only rarely have any dealings with this court.
It is important to note that effective January 1, 2020, the jurisdiction of small claims court
will be increasing to $35,000.
The system of Ontario courts is established under the Courts of Justice Act which is a statute
enacted by the Ontario legislature.
Small Claims Court was initially designed as a convenient and low cost forum for parties to
litigate their disputes. The monetary limit of this court was $400 during the early 1980s. As the
monetary jurisdiction has increased steadily over time, dramatically outpacing the rate of
inflation, lawyers have become much more involved. However, the rules of procedure have
been kept relatively simple, and it remains possible to represent oneself effectively in this court
provided sufficient time is invested in reading and understanding the rules of procedure as well
as the basic rules of evidence.
The next section has been designed to help the reader self represent in small claims court
litigation.
Small Claims Court
i) Jurisdiction
Section 23 of Courts of Justice Act sets out the jurisdiction of the Small Claims Court at a
maximum of $25,000, increasing to $35,000 on January 1, 2020. The procedural rules for small
claims court have been adopted by a regulation under this Act – Ontario Regulation 258/98.
Called ” the Rules of the Small Claims Court, this regulation is a step by step guide for
commencing and defending small claims court claims.
Rule 6, found in the link labelled Regulation 258/98, provides greater detail on jurisdiction and
guidance where, for example, one person in a business dispute lives in Ottawa while the second
lives in Toronto. Assume further in this scenario that there are 3 key witnesses who will have to
give evidence at the trial and that they all live in Ottawa as well. The final assumption is that the
person in Ottawa wants to sue the person in Toronto over a contract they signed for the sale
and delivery of goods from Toronto to Ottawa on the basis that some of the goods are defective.
ii) Starting the Claim
Once the correct territorial jurisdiction has been identified, the party wanting to litigate in small
claims court can now begin its claim. Rule 7 indicates that a claim is commenced using Form
7A at the small claims forms web site. This form is entitled Plaintiff’s Claim. Rule 7 identifies all
of the mandatory information that must be included in Form 7A. The party starting the litigation
is called the Plaintiff. The Plaintiff must be correctly identified in the spaces provided and the
Plaintiff must provide a narrative of the facts and some of the law explaining why the amount
claimed should be paid to the Plaintiff by the Defendant. The Plaintiff must also properly identify
the Defendant in the Plaintiff’s Claim and the contact information of both parties must be
inserted where indicated.
Unlike Superior Court, it is quite common and acceptable and even required that the Plaintiff
attach documentary evidence to the Claim and allude to evidence in the narrative. This is not
allowed in Superior Court where only facts are to be recited in the Statement of Claim. But
Small Claims Court is intended to be somewhat less formal and provide processes that are less
expensive than those in Superior Court given the lesser sums in dispute.
After finalizing the contents of the Claim, the Claimant, or Plaintiff, must attend at court to have
the completed Plaintiff’s Claim issued by the Small Claims Court , although electronic filing is
becoming more common across Ontario. Either way, the fee, $102 as of October 2019, must
be paid, upon which the Claim is given a court file number and the litigation has been initiated.
The Court also affixes its court seal to the front page of the Plaintiff’s Claim and the court desk
official signs it.
The Claim must then be given or served on the Defendant. Rule 8 governs the process and
personal service is usually required. The claim must be served within 6 months from the date it
was issued. However, if the Defendant is a corporation, service can be on a director, officer or
other authorized representative of the corporation or any adult person at the corporation’s place
of business. Alternatives to personal service, or substituted service, are possible where the
Defendant is evading or avoiding service. A careful reading of Rule 8 is required to do this
properly. An experienced process server is usually hired to serve the Claim.
It may be necessary to prove at some point that the Defendant was served with the Plaintiff’s
Claim. This proof is acquired at the time of service. The process server will complete an
affidavit of service and sign it in front of a Commissioner of Oaths. Form 8A is the affidavit
of service template. An affidavit is a sworn statement, meaning that the person signing it
swears under oath as to the truth of the contents of the affidavit. As can be seen from Form 8A,
an affidavit of service is simply the process server’s sworn statement as to the time and place at
which a document – in this case the Plaintiff’s Claim – was given to the Defendant. All lawyers in
Ontario are Commissioners of Oaths, but other individuals can also fill that role provided they
have been designated for that purpose by the Province of Ontario. The Commissioner of Oaths
must witness the person signing the affidavit and then signs its as well in the space provided at
the end of Form 8A. The affidavit of service is then filed in Small Claims court along with a copy
of the Plaintiff’s Claim attached to it. This proves that the Claim has been given to the
Defendant and confirms where and the date on which the Plaintiff’s Claim was served on the
Defendant.
Rule 9.01 requires a Defendant who disputes the Plaintiff’s Claim to prepare and file a Defence
generally within twenty days from the date of service. This is the Defendant’s first opportunity to
explain its side of the story. Again, unlike Superior Court, evidence in the form of documents or
photographs can and should be attached to the Defence. The Defendant must use Form 9A and
insert all of the mandatory information referenced in the form and described in rule 9.02. It must
then be served on the Plaintiff in accordance with the rules. it is then filed with the court along
with the affidavit of service.
iii) Undefended Claims
If the Defendant fails to file the Defence within 20 days of service, the Plaintiff can apply for
default judgment. This is where the process server’s affidavit of service is especially important.
The first step that must be taken to secure default judgment is described in Rule 11. Rule
11.01(1) states that If a Defendant to a Plaintiff’s Claim fails to file a Defence to all or part of the
claim with the clerk within the prescribed time, the clerk may, when proof is filed that the claim
was served within the territorial division, note the defendant in default.
The “prescribed time” is 20 days if the Defendant was served in “the territorial division” The
territorial division is the area covered by the particular court in which the litigation has been
started. Rule 1.02 (1) has a definition of this term which lists the various territorial divisions and
which includes, for example, the City of Ottawa, Haldimand County, the City of Hamilton, and
many others, but can also include any unlisted county, district or regional municipality. The
affidavit of service will specify when and where service was effected, so the Plaintiff must file it
to prove that these conditions have been met, along with its Claim, after 20 days have passed
from the date of service. The Defendant will then be noted in default
The process is a little more complicated if “all of the defendants: have been served outside the
territorial division” in which case the Plaintiff has to prove that the claim was started in another
jurisdiction for good reasons, either with an affidavit for jurisdiction (Form 11A) or with oral
testimony before a judge.
A Plaintiff can seek default judgment after the Defendant has been noted in default, but the
procedure differs depending on whether the claim is for liquidated damages or not. Liquidated
damages refer to a sum of money that is easy to ascertain or calculate. For example, if a
cheque for $350 has not been honoured for insufficient funds, it is easy to tender the refused
cheque as evidence plus show the court evidence of the bank charge of say $60. It is quite
obvious that there are liquidated damages of $410 in this example. Or, if a contract requires a
payment of $2,000 and only $300 has been paid, the contract and evidence of the one payment
can be given to the court. It is then easy to ascertain that the damages total $1,700 in this
second example.
In such cases, the court clerk may sign default judgment in Form 11B, after reviewing the
Plaintiff’s Claim and the evidence attached to it, along with the affidavit of service. The default
judgment will be signed if everything is in order. It is up to the Plaintiff to complete Form 11B and
present it to the clerk. The Plaintiff will be in a position to enforce the judgment after it has
been signed and entered by the clerk into the court’s database of judgments. The enforcement
of judgments will be covered later in this chapter.
If the claim is composed of unliquidated damages in whole or in part, the process differs and is
somewhat more challenging. A good example of a claim for unliquidated damages is a claim for
pain and suffering caused by a slip and fall on a wet floor of a grocery store. In this scenario,
imagine an elderly customer who goes to an area of the store that has been recently mopped
but where no warning sign has been placed. He falls and breaks a wrist. The store has been
negligent and does not even bother to defend the claim. But it is not that easy to ascertain the
amount of money or damages that should be paid for the customer’s pain and suffering. These
damages are unliquidated, requiring the consideration of how much money judges in similar
cases have awarded in the past to other plaintiffs roughly the same age who broke a wrist.
It is for this reason that in the case of unliquidated damages, it is necessary for the Plaintiff to
take one of two steps.
The Plaintiff can file a notice of motion and supporting affidavit (Form 15A) requesting a
motion in writing for an assessment of damages, setting out the reasons why the motion should
be granted and attaching any relevant documents. Notices of Motion are explained in more
depth later in this chapter.
The second option is to file a request to clerk (Form 9B) requesting that an assessment hearing
be arranged. Whichever route is chosen, it is important to file documents that will help the judge
determine appropriate damages. In the slip and fall scenario above, for example, a doctor’s
report is necessary. It should describe the injury, treatment, length of disability and whether
there has been any permanent injury and/or the prognosis for a full or partial recovery.
Continuing with the same scenario, and whether or not the hearing is a motion or an
assessment of damages, the Plaintiff will give affidavit or oral evidence describing the nature of
the disability, and the pain, and also supply precedent case law to demonstrate how much
money has been awarded in the past to plaintiffs of roughly the same age and health before the
injury who suffered similar injuries. The doctor’s report will be of key importance.
The judge will decide on the appropriate damages, at which point the default judgment will be
signed. On a motion, all or most of the evidence will have been provided in an affidavit while the
evidence will be largely oral in an assessment hearing, and the documentary evidence will be
introduced through the witness.
Once the default judgment has been obtained, whether for liquidated or unliquidated damages,
or a combination of the two, it should be sent to the Defendant. The Defendant may be able
and willing to promptly pay the entire judgment, and that will end the matter. If the Defendant
cannot pay the entire judgment right away and offers a reasonable repayment schedule, the
Plaintiff should seriously consider it since enforcement proceedings require incurring further
costs and may push a Defendant into bankruptcy or the Defendant may attempt to hide its
assets, which may not produce the best outcome.
Sometimes a Defendant has a good reason for having failed to deliver its Defence on time, in
which case the Defendant can apply to have the noting in default or default judgment set aside.
Rule 11.06 covers the situation and reads as follows:
11.06 The court may set aside the noting in default or default judgment against a party and any
step that has been taken to enforce the judgment, on such terms as are just, if the party makes
a motion to set aside and the court is satisfied that,
(a) the party has a meritorious defence and a reasonable explanation for the default; and
(b) the motion is made as soon as is reasonably possible in all the circumstances. .
A Plaintiff should therefore not act too aggressively and note the Defendant in default on the
21st day after service of the Claim. If there is any question that the Defendants has an arguable
defence, the court will be very sympathetic to a Defendant who has been noted in default so
quickly and without further warnings.
iv) Defended Claims
If the Defendant has filed a Defence under Rule 9, it has the option of also filing a Defendant’s
Claim within 20 days of filing its Defence. This can be a Claim against the Plaintiff, or another
Defendant if the Plaintiff has sued more than one person, or somebody else not yet named in
the action.
For example, assume the owner of a house, Juanita, hires a contractor, Brady, to renovate her
home. Brady contracts the electrical work to an electrician, Ahmed. In turn, Ahmed buys some
components from Ace Electrical Supplies Inc. A fire breaks out later causing $27,000 damage
and the fire marshal tells Juanita that the source of the fire was the electrical box. Juanita still
owes Brady $25,000 under the contract and she is very upset because she had to stay in a
hotel for five days at a cost of $1,500 until the damage was fixed.
Brady insists the fire was not his fault so sues Juanita for $25,000. Brady prepares, serves and
files a Plaintiff’s Claim for $25,0000, naming Juanita as the Defendant. Juanita files a Defence,
but she believes Brady owes her money because her damage was $2,000 more than the
balance of owed on the contract and her stay in the hotel was caused by Brady’s alleged
negligence, so she feels she is owed another $1,500.
Juanita can file a Defendant’s Claim against Brady for $3,500. Brady will defend by filing a
Defence and can file a Defendant’s claim against Ahmed and Ace Electrical Supplies Inc. for
that sum by filing a Defendant’s Claim of his own. Ahmed, now also a Defendant, may also
issue a Defendant’s Claim for $3,500 against Ace Electrical Supplies Inc. because he thinks it
was defective supplies and not his poor workmanship that caused the fire. Ace will then have to
file a Defence to Ahmed’s Defendant’s Claim. Ace could also issue a Defendant’s Claim against
Ahmed to which Ahmed would have to file a Defence.
In Superior Court, these Defendant Claims would have different names. In that court, the claim
by Juanita against Brady is a counterclaim. and the claim made by Brady against Ahmed and
Ace Electrical is a third party claim. The claims between Ahmed and Ace would be cross claims
because they are Co-Defendant’s in the third party claim made by Brady.
After all of these documents have been filed and exchanged, the litigation may proceed to the
next stage, as laid out in the Small Claims Court Rules. These various documents which the
parties have prepared and filed in small claims court are called pleadings.
Sometimes one of the parties realizes that its pleading is deficient in some way and wishes to
change it. This is referred to as an amendment. Rule 12 describes how this can be done.
v) The Settlement Conference
The Court will send out a notice for the holding of a settlement conference under Rule 13
which the parties must attend. They will appear before a small claims court judge. The judge at
the settlement conference cannot later sit as the trial judge if the matter does not settle. This is
designed to encourage the parties to pursue settlement discussions candidly, secure in the
knowledge that another judge will hear the matter if negotiations are not successful. The
complete range of purposes for the settlement conference is described in Rule 13.03.
Obviously, one key purpose is to encourage the parties to settle or, at least, narrow the issues to
shorten the duration of the trial. The court can make recommendations and orders and penalize
a party who attends unprepared or does not attend at all. The penalty will generally be in the
form of an award of costs, but can even be more severe, such as an outright dismissal of a
claim or striking of a defence if the pleading is nonsensical or frivolous. Attending the settlement
conference and preparing for it will at least give a party a chance to amend its pleading if it has
been poorly drafted and makes little or no sense to the judge.
It is therefore very important that the parties prepare for the settlement conference in
accordance with Rule 13.03(2). The parties must serve on the other parties to the litigation all
documents relevant to the litigation and file them with the court at least 14 days before the
settlement conference. This is not required for documents that have already been appended to
a pleading. In addition, a list of the proposed witnesses must also be served and filed. The list
is completed on Form 13A. An affidavit of service must be filed too as evidence of service of
the documents and the completed Form 13A .
The litigation continues if the settlement conference does not produce a negotiated settlement.
It is helpful if the parties can estimate the length of the trial at the settlement conference if no
settlement results, so that the Court is made aware of this prior to scheduling of the trial. The
Judge attending the settlement conference can assist to at least narrow the issues.
vi) Offers to Settle
At this point it may be useful to serve an Offer to Settle on the other party, particularly if the
other party is not considering reasonable settlement proposals. Offers to Settle are governed
by Rule 14 which allows such offers to be made “at any time” (Rule 14.02(1)). The tactical
advantage derived from making a reasonable settlement offer through Rule 14 comes about as
a result of Rule 14.07. It permits the Court to award legal costs double what would have been
otherwise awarded provided the party making the offer does as well or better than the result
secured at the trial. Other conditions include making the offer at least 7 days before the trial and
not withdrawing it. A self represented party can receive a maximum of $500 for costs. It is
important to read the Rule in full before making an offer to ensure you have a complete
understanding of its mechanics.
One of the parties must ask the Clerk of the Court to fix a trial date after the settlement
conference (Rule 16). The Clerk advises the parties of the date by fax or mail.
Rule 17 deals with the possible consequences of not attending the trial and Rule 18 sets down
some of the court’s procedural rules in respect of evidence.
vii) The Trial and Basic Procedures and Rules of Evidence
Evidence is required to prove the facts relied upon by the parties. It is not enough to assert that
there was a contract between the parties, for example, unless the other side admits this.
Proving the contract usually involves calling up a witness who is shown the contract signed by
the parties and who, orally, and under oath, confirms that he saw the Plaintiff and the Defendant
sign the document. Rule 17 requires that the contract will have been served by the Plaintiff on
the Defendant at least 30 days before the trial and the witness will have been identified in the
proposed list of witnesses shared at the settlement conference. In fact. the contract in this
example will likely have been shared at the settlement conference as well. The Plaintiff can
certainly be a witness too and testify that the contract was signed by both him and the
Defendant. The procedures in Rule 17 apply to all documentary or demonstrative evidence to
be tendered at the trial
Apart from documents, demonstrative evidence such as audio and video recordings, and
photographs can be filed as evidence to prove the facts alleged provided that they have been
served at least 30 days before the trial. The person who made the video or audio recording or
who took the photograph, will have to testify to authenticate the evidence by confirming, under
oath, when and where the evidence was created and that it has not been edited, photo shopped
or otherwise altered.
The Plaintiff must prove the facts required to win its case on a “balance of probabilities”. This
standard is lower than the standard required in a criminal trial, which is “beyond all reasonable
doubt”. The Plaintiff must not only establish liability on a balance of probabilities; the same
standard applies to proving the damages it has been caused by the Defendant’s liability to it.
Evidence includes the oral testimony of what witnesses claim to have seen. A witness is only
allowed to testify as to facts and is not allowed to provide an opinion, with one exception. An
expert on a subject is allowed to give the court an opinion within that expert’s area of expertise.
That opinion has to be based on facts otherwise proven on a balance of probabilities with
evidence. For example, a doctor can express an opinion on how long it will take the Plaintiff to
recover from an injury based upon his or her review of the X-Rays and other evidence that
establishes the nature and extent of the injury.
Rule 18.02 (3) deals specifically with expert witnesses and requires that their written report
include their contact information and a summary of their qualifications. If the other party wishes
to challenge the expert opinion on the basis of the expert’s qualifications and/or conclusions,
that party can serve a summons on the author of the report so the expert can be cross
examined by the other party at the trial. A summons is an order to attend at the trial and is still
often referred to as a subpoena in small claims court.
The small claims court rules do not specify exactly how the trial is to be conducted, but the
pattern is the same as that in any other Canadian court. The common law and Ontario
Evidence Act apply and shape the rules of evidence.
Since the Plaintiff has the burden of proof, and must prove the facts necessary to win on a
balance of probabilities, the Plaintiff goes first. If the Plaintiff has more than one witness, the
Defendant should seek an order excluding witnesses and the Plaintiff should do likewise in
respect of the Defendant’s witnesses so that witnesses do not hear each other’s testimony.
Otherwise, the witnesses may influence each other during the trial. Only the Plaintiff and the
Defendant may remain in the court while the other witnesses testify one by one if such an order
has been obtained.
The Plaintiff calls his or her first witness and examines the witness. This is called an
examination in chief. It involves asking questions to elicit the necessary oral testimony and
confirm the accuracy of any documents or demonstrative evidence. A witness can only testify
as to what he or she has personally seen. Repeating what the witness has heard somebody
else say about what happened is generally inadmissible. This is called hearsay evidence. If the
Defendant sees that a Plaintiff is providing hearsay evidence, the Defendant should rise quickly
and politely object on the grounds that the evidence is hearsay. The judge will then make a
ruling as to whether the statement is admissible as evidence. Sometimes the judge will allow it
but only to prove that the statement was made, and not to prove what was in fact said.
The Plaintiff cannot ask his or her witness leading questions. A leading question is one that
suggests the answer. For example, asking “what is your occupation?” is not a leading question,
but asking “you are an engineer, aren’t you?” is a leading question. Again, the Defendant may
politely object if the Plaintiff is leading the witness, and the judge will decide whether the
objection is well founded. Many people without trial experience must practice to avoid asking
leading questions. It is not as simple as it seems! It is also important to rehearse with your
witnesses. There is nothing wrong with this provided everybody tries to tell the truth as best
they can. Purposefully lying under oath is a criminal offence.
After the Plaintiff’s first witness has answered all of the Plaintiff’s questions, the Defendant has
the right to cross examine the witness. In a cross examination, the party conducting it has the
right to ask leading questions. This is an important advantage and can be used effectively to
weaken a witness’s evidence when used skillfully. On the other hand, a bad cross examination
can actually strengthen the other side’s case. A general rule of thumb is that one should not ask
a question on cross examination to which the answer is unknown.
Following cross examination, the Plaintiff has a right of reexamination which should be
exercised sparingly and only to clarify an ambiguity that arose during the cross examination, or
something completely novel that arose.
The Plaintiff calls each of its witnesses in turn and the process is repeated until all of the
witnesses have been called.
It is possible at this stage that the Plaintiff has failed to discharge its obligation to initially prove
its case on a balance of probabilities. If so, the Defendant may request a non suit which
effectively means, if granted by the judge, that the Plaintiff has lost. This is quite rare and the
Defendant will generally call its own witnesses to counter the evidence offered by the Plaintiff’s
witnesses, or adduce additional evidence that casts the case in a new light. For example, Anna
may have sued Angela for the tort of assault because Angela broke her arm in a physical fight
that broke out between the two of them. Anna and her friend may have testified that Angela
clearly had martial arts skills and kicked Anna without provocation. But Angela and another
person who witnessed the fight may agree to that Angela kicked Anna but that she was
provoked because Anna pulled a knife on Angela and that Angela acted in self defence.
Just as the Plaintiff calls each witness one by one for examination in chief and cross
examination by the other party, so too does the Defendant. The same rules of evidence apply to
both parties, of course.
At the conclusion of the evidence, each party has an opportunity to make its closing arguments,
summarize why its evidence is more persuasive, and make legal arguments drawing on the
relevant cases and statutes and how the facts support its interpretation of the law. It is here that
legal arguments might be made that attempt to apply a ratio decidendi from a previous case, or
distinguish a previous case, as reviewed in the last chapter. The judge weights all of this and
decides the case. The decision is referred to as a judgment.
The Judge may decide that the Plaintiff has been entirely successful and award to the Plaintiff
all of the damages claimed, or award the Plaintiff only some of the damages claimed, or agree
with the Defendant that the Plaintiff should receive nothing. Some legal costs, including court
disbursements, are generally awarded to the winning party. The judgment is signed by the
judge, and entered in the court data base.
The losing party may appeal the decision if the claim exceeds $2,500 but this is rare in small
claims court since the cost of an appeal is prohibitive and should not be undertaken without
legal counsel.
More information on managing a small claims court claim can be found at
https://stepstojustice.ca/legal-topic/tribunals-and-courts/small-claims-court
vi) Enforcing A Judgment
A copy of the judgment should be provided to the losing party as soon as possible and a
request for payment of the judgment should be made. As in the case of default judgment, the
losing party may be able and willing to promptly pay the entire judgment. But If he or she
cannot pay the entire judgment right away and offers a reasonable repayment schedule, the
winning party should seriously consider it since enforcement proceedings cost money which
may not be recovered if the losing has no unencumbered assets or income and is on the verge
of insolvency.
There are three primary tools used to enforce a judgment:
(i) a writ of seizure and sale of personal property (Form 20C) under rule 20.06 can be
obtained and filed with the Sheriff;
(ii) a writ of seizure and sale of land (Form 20D) under rule 20.07, can be obtained and filed
with the Sheriff;
(iii) a garnishment order under rule 20.08 can be obtained.
The first remedy is used to authorize the seizure and sale of personal property such as a car,
boat or computer. The property can be seized and sold at an auction, with the proceeds of sale
first used to pay off any liens on the property and the sheriff’s costs, with the balance payable to
the winning party, now referred to as a judgment creditor or creditor, to a maximum of the
sum owed on the judgment.
The second remedy applies to land owned by the losing party, now referred to as the judgment
debtor or debtor. The process is similar.
Finally, garnishment involves serving a garnishment order on a party who owes the judgment
debtor money. These are commonly served on the debtor’s employer or a bank account held by
the debtor. The sums owed are paid to the sheriff who distributes the money to any parties who
hold a judgment against the debtor. It is important to note that, under the Ontario Wages Act the
maximum amount of salary that can be garnished is 20% of the gross amount owed per pay.
The detailed steps on how to take these steps are found in Rule 20.
If the creditor has little or no information on the debtor’s finances, Rule 20.10 permits the
creditor to examine the debtor who must disclose the information requested. Failure to attend or
comply is contempt of court and can result in imprisonment for a period not exceeding 5
days(Rule 20.11).
Ontario Superior Court
The framework of the rules that governs litigation in Superior Court is similar to the small claims
court framework, but much more detailed and involved given the greater complexity of the
litigation with which it must deal.
A claim starts with a Statement of Claim. much as in Small Claims Court, followed by a
Statement of Defence. Other possible pleadings include a Third party Claim, Cross Claim and
Counterclaim as described in the above summary of the small claims court process.
Unlike Small Claims Court, the second stage in Superior Court is called discovery. The parties
must disclose all relevant evidence and share it in a process known as document production.
An affidavit of documents is sworn wherein each party swears under oath that all relevant
documents have been produced. Legal counsel are given considerable latitude to schedule the
production process based on the complexity of the litigation and the volume of relevant
evidence. Technology is being increasingly harnessed to sift through the enormous amount of
potentially relevant data that often will include emails, texts, direct messaging, photos, videos
and audio recordings, and posts on social media. Much of this data will be in digital form, but
there still may be a good deal that takes the form of hard copies and paper. The Rules call for
counsel to develop a discovery plan for complex litigation.
Following the production of documents, oral examinations for discovery are almost always held.
Each party must nominate a representative to be examined by opposing counsel. This is
counsel’s opportunity to investigate the strength of the opposing side’s case and clarify any
questions raised by the evidence that has been produced.
It is unwise to proceed in Superior Court without legal representation because of the detailed
rules and complexity of litigation at this level. While the rules follow the broad outline of what
was described in the small claims court process, they are highly detailed and lengthy rules that
require the guidance of experienced litigation counsel.
A losing party in Superior Court generally has a right of appeal to the Court of Appeal, but this
right should only be exercised where a significant point of law is in question. A final appeal is
available from the Court of Appeal to the Supreme Court of Canada but only with leave or
permission of the Supreme Court which will only be given where a matter of national
importance hangs in the balance.
Alternative Dispute Resolution (ADR)
Litigation can be expensive and, for this reason, alternative forms of dispute resolution have
been developed.
Direct negotiations have always been a favoured form of dispute resolution and can be effective
where the parties are sophisticated and see the advantage of avoiding expensive litigation that
not only costs money, but can divert the attention of a business from its main pursuit and the
maximization of profit. There generally must be a willingness to compromise on the part of both
parties.
If a claim is insured, however, the insured party should simply report the matter to its insurance
company since any admissions made during negotiations could void the coverage. Absent such
considerations, negotiations are generally the best ADR option.
The parties may require some external assistance to help them settle a business dispute. There
are trained professionals who can provide this service and who can act as a neutral party to
bring those in a dispute to a mutual understanding of why a negotiated settlement would be
better for both parties than protracted litigation. These professionals are referred to as
mediators.
Mediation entails the facilitation of negotiations by the mediator who does not work for either
party. The mediator organizes the meeting, leads the discussion, clears up misunderstandings,
strives to reduce tension and helps the parties see the benefits of settlement. Mediation is often
successful. The mediator cannot impose a solution on the parties; they must agree to it.
Arbitration, on the other hand, is really not much more than a form of private litigation. The
parties choose one or more private judges called arbitrators. However, there are advantages.
Many forms of arbitration permit the parties to agree upon a process to manage the dispute that
is less cumbersome than court rules and that can be tailored to the specific requirements of the
dispute. This can reduce the costs of managing the dispute.
The dispute can also be kept private, generally unlike litigation in court.
Finally, as we will see in Chapter 5, international contracts with an arbitration clause may be
easier to enforce in foreign jurisdictions. The courts in some countries may be reluctant to
enforce a judgment rendered in a foreign court. But most of the world’s major countries have
agreed to the UN Convention on the Enforcement of Arbitral Awards. Pursuant to this
Convention, often referred to as the New York Convention, the signatories have committed their
courts to enforce the decisions of arbitrators. As such, it may be easier to internationally enforce
an arbitrator’s decision rendered in an arbitration conducted under the rules of, say, the
International Chamber of Commerce, than an Ontario Superior Court judgment rendered under
Ontario’s Rules of Civil Procedure.
Conclusion
This chapter has examined the processes by which business disputes in Ontario may be
resolved. For claims under $35,000 it is quite feasible for a business to represent itself in small
claims court if it has some staff who are prepared to invest the necessary time to study the rules
and manage the litigation. With this in mind, this chapter has been written to guide any business
or individual who wishes to self represent in small claims court.
The rules governing Superior Court were also briefly reviewed but the overriding suggestion
was to retain legal counsel to navigate the complexities of litigation in this court. This admonition
applies even more forcefully to any appeals contemplated to the Ontario Court of Appeal and
beyond.
Finally, the alternatives to litigation were also explored briefly and should always be seriously
considered when a business dispute arises.
Chapter 4 – Contract
Formation and
Drafting
Introduction
A contract is really nothing more than a legally enforceable exchange of promises. By
“enforceable” we mean that the legal process can be used to force the party who breaks a
contractual promise to either honour it or face the consequences of not doing so. The
consequences generally include a requirement to pay money as compensation for the broken
promise. A party who believes the other party to a contract is not honouring its contractual
obligations can invoke the litigation process covered in Chapter 3. The last chapter focused on
how the legal process is accessed to obtain legal redress, which, of course, includes the right to
sue for breach of contract.
This Chapter focuses on how a contract is formed, and how it is interpreted when the parties
disagree on its meaning in a given context. Honest disagreements can arise between two
parties to a contract because no contract can foresee every event that may arise as the contract
is performed. Disagreements can arise as the parties struggle to assess how the contract
should be applied to the unanticipated events. It is also possible for one party to willfully
disregard its contractual commitments or become unable to meet its commitments by reason of,
for example, financial circumstances. In any of such cases, the other party can choose to
attempt to secure compensation, or other redress, through the litigation process.
Contracts are an integral part of any business. A business enters a contract when it buys
supplies, hires employees, sells its goods or services or uses social media. There is no area of
law more fundamental to the operation of a business than contract law. Any individual working
in the world of business should have some knowledge of contract law.
Contract Formation
Under common law principles that have evolved over several hundred years, a binding legal
contract is formed when one party makes an offer and the other party communicates its
acceptance of the offer to the party making it. An offer is a promise to enter a contract under
certain terms if it is accepted. In short, a contract generally requires an offer and acceptance
to come into existence as a legally binding and enforceable arrangement.
Quite often there will be negotiations both before the offer is made and also after one of the
parties has made an offer. Acceptance of some terms coupled with a counteroffer on other
terms does not constitute an acceptance. This is often a component of the negotiations. An
offer must also be accepted in the manner specified in the offer. For example, if the offer states
that acceptance must be communicated by ordinary mail, that protocol must be followed in order
to create a binding contract.
An offer must be complete and certain to form a contract. By complete, we mean that there is
agreement on all of the terms essential to a contract. A contract for the purchase of a house
that lacked a closing date or the price would be incomplete and void for uncertainty.
An offer can be withdrawn or revoked before it has been accepted, but acceptance of an open
and alive offer creates a binding contract if all the other conditions of contract formation are
satisfied.
If an offer has a deadline for acceptance and that deadline passes without acceptance, the offer
is said to have lapsed. It cannot be accepted after it has lapsed.
An offer can sometimes be made that is conditional and, even if accepted, is not an
enforceable contract until the condition has been satisfied or waived. A good example typically
arises when a party wants to buy a house. The party wishing to buy will sign a standard real
estate purchase contract offering to buy the house for, say $650,000, and have his or her real
estate agent deliver the offer to the vendor’s agent. If the buyer needs a mortgage, a clause will
have been inserted in the offer specifying that the offer is conditional on the buyer obtaining,
within 10 days if acceptance, a mortgage of no less than, say, $475,000. If the vendor likes the
price, the vendor will sign and have the acceptance delivered. But even though there has been
an offer and acceptance, the contract will not be enforceable against the buyer until the buyer,
obtains the mortgage or waives the condition. The purpose of the condition is to protect the
buyer from being liable under the contract should he or she be unable to get the required
mortgage.
An offer and acceptance creates a binding legal contract only if the following requirements are
met:
1.
The promises in the contract, referred to as terms, must be complete in the sense that
all the essential elements of the contract are present. An essential element will generally
include the price. For example, the sale of a house or car will require the price. A sales
agreement lacking a price is not enforceable since an essential term is missing and the contract
is therefore not complete. There has been no “meeting of the minds” on just about the most
important element of the contract. However, a non-disclosure agreement which requires two
parties to keep confidential information secret does not require a price to be complete. Whether
a contract is complete will depend on the nature of the contract and it is conceivable that this
could become a point of disagreement between two parties if one does not believe a negotiation
has created a binding …