Contract Disputes

Loan agreements are contracts whereby a lender (which can be an individual, a company, a bank, or any other entity) advances money to a borrower, with or without interest payable. These contracts are often in writing but can also be verbal – both of which may be equally enforceable. Loan agreements are sometimes in the form of a promissory note.

Loan agreements are common in cases of debt financing, bridge loans, construction loans, mortgage financing, or simply a lending of money between friends or family members for any purpose.  

Basic clauses typically found in loan agreements include: the principal amount of the loan; interest payable; and the term of the loan. More sophisticated loan agreements will usually contain a variety of other clauses including: events that give rise to a default; the jurisdiction and method of dispute resolution; notice provisions; and whether the loan is secured or unsecured. 

Outside of what the lender and borrower have agreed to verbally or in writing, their actions can also add to or alter the terms of the loan agreement. For instance, if a lender has established a trend of forgiving late payments under a loan agreement, the lender may not be entitled to take legal action against late payments in the future. 

There are several reasons why litigation may arise as it pertains to loan agreements. Common examples include:

• Whether the money advanced was a gift or a loan
• The legality and calculation of the rate of interest  
• Enforcement steps available to a lender
• Illegally securing loans against the borrower’s property 
• Unconscionable or voidable agreements
• Whether the money advanced was an investment or a loan
• Timing of payment
• Personal liability of individuals for a loan taken out by a company

Despite the terms contained in a loan Agreement, a lender may be entitled to urgent relief through the courts in order to protect its interests, including freezing the borrower’s bank accounts or an injunction.

In Ontario, contracts for the purchase and sale of real estate are most commonly in the form of the Ontario Real Estate Association’s (OREA) standard form 100, entitled Agreement of Purchase and Sale. 

The Agreement of Purchase and Sale contains several clauses pertaining to matters that are important to the closing of a real estate transaction, including the inclusion of chattels and fixtures, the title search date, inspection, the closing date, and the deposit. 

Typical breaches of the Agreement of Purchase and Sale include:

• The failure by either the buyer or the seller to close on the completion date;
• The failure by the buyer to provide a deposit;
• The failure by the seller to provide clear title (meaning title free and clear of encumbrances such as mortgages and liens);
• The failure by the seller to leave all chattels and fixtures at the property that were to be included; and 
• A misrepresentation or omission made by the seller pertaining to the condition of the subject property.

In the case of a buyer’s failure to close, the seller may be entitled to keep the deposit and to sue the buyer for damages, such as the difference between the purchase price set out in the contract and the price at which the property was ultimately sold. Other damages that a seller may claim include mortgage interest payments, home insurance costs, moving costs, and any other expenses that the seller would not have otherwise incurred.

In the case of a seller’s failure to close, the buyer may be entitled to damages such as the difference between the purchase price set out in the contract and the price at which a similar property was ultimately acquired, moving costs, storage costs, and any other expenses that the seller would not have otherwise incurred.

Instead of a claim for damages, an innocent party may seek a remedy known as specific performance, meaning a court order requiring that the defaulting party close on the transaction. However, an order for specific performance is only available in circumstances where the property is unique, such that damages would not be an appropriate alternative remedy. The question of uniqueness is a determination specific to the particular facts of each case but will include consideration of specific characteristics of the property, i.e., its location, its size and its general physical nature. 

Disputes involving shareholders can have serious ramifications for not only the shareholders but also for the corporation. Consequences of shareholder disputes often include an inability or obstruction in carrying on business, a loss of revenues, damage to reputation, and a loss of confidence in the managing minds of the business.

Litigation involving shareholders can arise from a multitude of circumstances. Common examples include:

• Breach of fiduciary duty
• Asset sale or purchase transactions 
• Illegal removal of company funds
• Removal of a director or officer
• Personal liability of directors or officers
• Fraudulent misrepresentation or deceit
• Misrepresentations of the company’s finances 
• Disagreements regarding corporate management
• Unfair treatment 
• Breach of non-competition or non-solicitation clauses
• Dissolution, liquidation or winding-up of a company
• Application of a shotgun or buy-sell clauses
• Share valuation
• Sale of a company
• Oppression of minority or majority shareholders

Outside of shareholder agreements, shareholders also have rights and remedies under legislation such as the Canada Business Corporations Act and Ontario’s Business Corporations Act. Examples of such rights include:

• An accounting of the business and its affairs
• An investigation in the company
• Compelling a person to attend a hearing 
• Setting the compensation for an inspector or replacing an inspector
• Production of documents to an inspector
• Giving directions to an inspector on any matter arising in an investigation

From the perspective of individuals who retain contractors to perform repairs or renovations, litigation involving construction agreements typically stem from disputes regarding quality of work, overcharged work, unauthorized work, deficiencies and failure to complete work in a timely manner.  

Defective workmanship can arise from items such as improper installation of materials, failure to abide by applicable building codes or the installation of materials that are not fit for their intended purpose. Claims against contractors or subcontractors for deficiencies are typically framed in negligence. Regardless of whether the contract between the parties is verbal or in writing, a lawsuit for deficient work can be framed in negligence and the failure of a contractor to perform its work in a workmanlike manner can entitle a claimant to damages. Claims for damages arising out of a contractor’s deficient work can include, but is not limited to, the cost to repair the work, a return of funds paid under the contract and a loss of opportunity to rent the property.

Overcharged work is another common dispute with contractors and arises in situations where the amount charged for work is excessive and unreasonable. Unless the parties have specifically agreed to the cost of the work to be performed, costs for renovations and repairs ought to be reasonable. Claims for damages arising out of overcharged work can include the return of funds above and beyond the reasonable cost of the work.

Litigation pertaining to unauthorized work arises when contractors perform work that the customer did not consent to or approve of. These situations are not always clear cut. If the work was not authorized in writing, courts may look at the surrounding circumstances and facts surrounding the relationship between the parties to determine if the work was by the client’s conduct or actions. Claims for damages arising out of unauthorized work can include the return of funds above and beyond the reasonable cost of the work and the cost to repair or remove the unauthorized work.

The failure to complete work in a timely manner is another common dispute with contractors. Construction agreements typically contain a date of completion for the repairs and/or renovations and a clause that time shall be of the essence. However, construction agreements that are verbal or that do not contain a completion date are also quite common. In such circumstances, a contractor is generally obligated to complete the work within a reasonable timeframe. The determination of a reasonable timeframe depends on the facts of each case, but some factors include the nature of work to be completed, the amount of labour and materials required, and delaying circumstances outside of the parties’ control (such as the COVID-19 pandemic). The failure to complete work in a timely manner may permit a claim for damages or a termination of the construction agreement. 

From a contractor’s perspective, disputes may arise regarding a client’s non-payment or termination of the contract prior to its completion. 

A client’s non-payment often arises due to disputes regarding the quality of work, amount charged or timeliness of completion. A common contractor’s remedy in such instances is to register a construction lien on the subject property, which has the powerful effect of preventing property owners from selling, mortgaging, or otherwise dealing with the property. Another remedy is an action for damages, whereby the contract would see the amount of monies due and owing under the contract along with interest. 

A client’s termination of the contract prior to its completion is another common dispute between contractors and their customers. A determination of whether the contract was legally terminated depends on an analysis of the contract wording along with the specific factual circumstances of the case. If a contract was terminated prematurely by the client, a contractor may be entitled to an order for specific performance (compelling the client to proceed with the contract) or for damages arising from the improper termination.

From the perspective of individuals who retain contractors to perform repairs or renovations, litigation involving construction agreements typically stem from disputes regarding quality of work, overcharged work, unauthorized work, deficiencies and failure to complete work in a timely manner.  

Defective workmanship can arise from items such as improper installation of materials, failure to abide by applicable building codes or the installation of materials that are not fit for their intended purpose. Claims against contractors or subcontractors for deficiencies are typically framed in negligence. Regardless of whether the contract between the parties is verbal or in writing, a lawsuit for deficient work can be framed in negligence and the failure of a contractor to perform its work in a workmanlike manner can entitle a claimant to damages. Claims for damages arising out of a contractor’s deficient work can include, but is not limited to, the cost to repair the work, a return of funds paid under the contract and a loss of opportunity to rent the property.

Overcharged work is another common dispute with contractors and arises in situations where the amount charged for work is excessive and unreasonable. Unless the parties have specifically agreed to the cost of the work to be performed, costs for renovations and repairs ought to be reasonable. Claims for damages arising out of overcharged work can include the return of funds above and beyond the reasonable cost of the work.

Litigation pertaining to unauthorized work arises when contractors perform work that the customer did not consent to or approve of. These situations are not always clear cut. If the work was not authorized in writing, courts may look at the surrounding circumstances and facts surrounding the relationship between the parties to determine if the work was by the client’s conduct or actions. Claims for damages arising out of unauthorized work can include the return of funds above and beyond the reasonable cost of the work and the cost to repair or remove the unauthorized work.

The failure to complete work in a timely manner is another common dispute with contractors. Construction agreements typically contain a date of completion for the repairs and/or renovations and a clause that time shall be of the essence. However, construction agreements that are verbal or that do not contain a completion date are also quite common. In such circumstances, a contractor is generally obligated to complete the work within a reasonable timeframe. The determination of a reasonable timeframe depends on the facts of each case, but some factors include the nature of work to be completed, the amount of labour and materials required, and delaying circumstances outside of the parties’ control (such as the COVID-19 pandemic). The failure to complete work in a timely manner may permit a claim for damages or a termination of the construction agreement. 

From a contractor’s perspective, disputes may arise regarding a client’s non-payment or termination of the contract prior to its completion. 

A client’s non-payment often arises due to disputes regarding the quality of work, amount charged or timeliness of completion. A common contractor’s remedy in such instances is to register a construction lien on the subject property, which has the powerful effect of preventing property owners from selling, mortgaging, or otherwise dealing with the property. Another remedy is an action for damages, whereby the contract would see the amount of monies due and owing under the contract along with interest. 

A client’s termination of the contract prior to its completion is another common dispute between contractors and their customers. A determination of whether the contract was legally terminated depends on an analysis of the contract wording along with the specific factual circumstances of the case. If a contract was terminated prematurely by the client, a contractor may be entitled to an order for specific performance (compelling the client to proceed with the contract) or for damages arising from the improper termination.

Non-competition agreements or clauses prevent an individual or entity from competing with another party within a defined geographic boundary for a particular amount of time. These agreements are often executed by former employees or former directors, officers and/or shareholders of a company and are meant to protect the company or employer from departing parties taking with them privileged information or clientele. 

There are strict legal principles that such contracts must adhere to in order to be enforceable in law. Although the determination of enforceability depends on a case-specific analysis, it can generally be said that such contracts must be reasonable and not contrary to the public interest. 

In the employment context, courts approach determining the enforceability of non-competition agreements by considering three key factors: 

1. whether the employer has a proprietary interest entitled to protection;
   
2. whether the temporal or spatial features of the non-solicitation clause or contract are too broad; and
   
3. whether the clause or contract is against competition generally rather than limited to non-solicitation of the employer’s customers.

In short, non-competition clauses cannot go beyond what is necessary to protect the legitimate business of an employer or company. 

A breach of a non-competition agreement or clause can result in significant damages suffered by the company or employer (both monetary and to reputation) which have several legal remedies available to them in such cases including an action and an injunction.

On the other hand, departing individuals who are purportedly bound by such agreements or clauses will require strong representation in arguing that the contract is unenforceable, thereby allowing the party to continue its business endeavors without obstruction. 

Non-solicitation agreements or clauses prevent an individual or entity from pursuing clientele or existing employees with the goal of persuading them to leave the company or employer.

A non-solicitation agreement or clause is typically in force for a defined duration of time after an individual has left their company or employer and for a defined geographic area. Such clauses are usually enforced by courts more often than non-competition agreements or clauses.

A breach of a non-solicitation agreement or clause can result in significant damages suffered by the company or employer (both monetary and to reputation) which have several legal remedies available to them in such cases including an action and an injunction.

On the other hand, departing individuals who are purportedly bound by such agreements or clauses will require strong representation in arguing that the contract is unenforceable, thereby allowing the party to continue its business endeavors without obstruction. 

The oppression remedy is a well-known legal remedy afforded to shareholders, officers, directors, creditors, and another complainants. The oppression remedy allows such individuals to apply to a court for a special order in the event that their interests have been unfairly disregarded or that they have faced unfair prejudice due to acts of the corporation, its directors, or other shareholders. The courts have found oppression in a variety of cases, including where:

• A shareholder is managing the corporation for his or her own personal advantage
• minority shareholders are deprived of the right to participate in company profits 
• serious departures from normal business practice
• lack of a valid corporate purpose for the transaction
• discrimination between shareholders
• lack of adequate and appropriate disclosure of material information to the minority shareholder
• plan or design to eliminate the minority shareholder
• Misappropriation of corporate funds
• Excessive salaries paid to friends and family 
• Unfair expulsion of a shareholder
• Excessive costs imposed of shareholders

If oppression has been found, a court may grant an order such as:

• restraining the conduct complained of
• appointing a receiver or receiver-manager
• regulating a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement
• directing an issue or exchange of securities
• appointing directors in place of or in addition to all or any of the directors then in office
• directing a corporation or any other person, to purchase securities of a security holder or shares
• setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract
• requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements or an accounting in such other form as the court may determine
• compensating an aggrieved person
• winding up the corporation 
• directing an investigation  

Aside from the right to sue on behalf of themselves, shareholders, directors, officers, and other complainants may also bring a lawsuit on behalf of the company – this is known as a Derivative Action, where the company brings a lawsuit to assert a wrong done to it. Examples of situations where a Derivative Action may arise include when:

• Directors, officers or shareholders leave the corporation and take clients 
• Confidential corporate information is divulged
• Harm is caused to a corporation by acts or omissions of shareholders, directors, or officers
• A contract with the corporation has been breached
• The corporation was victim to misrepresentation