In 1951 the Supreme Court of Canada restricted the reach of Ontario’s Real Estate and Business Brokers Act (REBBA) when it decided that REBBA does not apply to the sale of shares of a business. The Supreme Court found that the legislation was artificial and greatly extended. The lower courts have continued to restrict REBBA’s reach.
For example, a single transaction has been divided into two parts: one that was covered by REBBA (the real estate assets) and the other part was not (the non-real estate assets). The courts have also required clear and unqualified proof that REBBA applies to stay a proceeding.
Recently an Ontario court was asked to consider, for the first time ever, whether the sale of a licence is captured by REBBA. In other words, does someone need to be registered under REBBA to demand a commission for brokering the sale of a licence?
In Geofre v. Ki Kit Li, Li hired Geofre, his accountant, to find a buyer for his two licenses and agreed to pay Geofre a consulting fee on closing based on a selling price of $1.75 million. Geofre found a buyer for the licenses and that buyer paid for the licenses. The Ministry of Health transferred the licenses and started depositing the revenues from the licenses to the buyer’s bank account.
The licenses at issue are very valuable; they enjoy special OHIP (the provincial health care program) billing privileges because they are grandfathered designated physiotherapy clinics. This grandfathered status means that the physiotherapy services rendered are paid for by OHIP, not by the patients personally.
Geofre introduced the buyer to Li and Li’s lawyer confirmed that the deal was closed. Geofre’s obligations under the agreement were satisfied and he sought payment of the consulting fee. Despite repeated demands for payment, Li refused to pay, forcing Geofre to sue. Li sought to have the lawsuit thrown out of court on a technicality – Geofre is not registered under REBBA.
Li argued that because Geofre is not registered under REBBA, the consulting fee was illegal and the court should throw the lawsuit out of court.
The court disagreed with Li and held that the license fell outside the definition of real estate in REBBA. The court also found that this would hold true even if the rest of the business sold has little independent value from the licences.
The result was not surprising in the circumstances; a licence is not real estate. The real questions are: What are we going to see in the future? Will the court continue to cut back the reach of REBBA? How far will the courts cut back REBBA? These and other questions remain open.
Tom Arndt, founder of TWA Law, has been practicing law for over 20 years. He litigates complex matters at all levels of court while focusing on his clients’ goals and interests. Contact Tom at tom@twalaw.ca.
