Animal House Investments Inc. v. Lisgar Development Limited, 2010 ONCA 322

CITATION: Animal House Investments Inc. v. Lisgar Development Limited, 2010 ONCA 322

DATE: 20100504

DOCKET: C50588

COURT OF APPEAL FOR ONTARIO

Doherty, Simmons and Epstein JJ.A.

BETWEEN:

Animal House Investments Inc.

Respondent/ Appellant by cross-appeal (Plaintiff)

And

Lisgar Development Limited

Appellant/ Respondent by cross-appeal (Defendant)

M. Philip Tunley and Brennagh Smith for the appellant

Stephen M. Turk for the respondent

Heard: April 28, 2010

On appeal from the judgment of Justice Frank Marrocco of the Superior Court of Justice dated May 13, 2009.

By the Court:

[1] The trial judge's central finding is set out at para. 39 of his reasons. He said:

I find as a fact based on all of the evidence that the debt obligation created by the directors of Lisgar was payable within a reasonable period of time after a demand for payment was made.

[2] The trial judge went on to hold that an unequivocal demand for payment was made on November 14, 2007 and that a reasonable period of time had therefore elapsed. He ordered repayment of the shareholder's loan together with pre-judgment interest from May 14, 2008.

[3] We reject the appellant's submission that the trial judge made errors of fact and law in making the finding set out at para. 39.

[4] In particular, we are not satisfied that the trial judge's conclusion is either unreasonable or inconsistent with the statement at para. 30 of his reasons that the directors intended to pay out all the shareholders’ accounts at an unspecified time in the future when they thought it was financially prudent to do so.

[5] The directors' intentions are not determinative of the terms of the loan. In our view, the trial judge's finding that the loan was payable within a reasonable period of time following a demand is rooted in his assessment of a number of factors.

[6] Those factors include the expressed intentions of the directors over the period of years prior to the falling out in 2006. However, significantly, they also include the acknowledgement signed by Mr. Zenker and the financial statements issued soon after the transactions were finalized, both of which indicated there were no repayment terms attached to the loan; the hybrid character of the loan in the sense that it had features resembling both an investment and a debt; and the history of periodic repayment by the corporation of similar loans in the past. The trial judge was satisfied that all of the directors expected that the financial statements would be presented to and relied upon by third parties. Notably, neither the acknowledgment nor the financial statements set out any restrictions on the obligation to make repayments.

[7] In our view, the finding made by the trial judge at para. 39 of his reasons is a finding of fact that was available on the evidence that was before him. We see no basis for holding that it was inconsistent with his finding at para 30.

[8] At para. 40 of his reasons, the trial judge said that his finding of fact concerning the terms of the loan was “also consistent with jurisprudence which holds that a loan with no fixed term is payable within a reasonable time after a demand is made.”

[9] We do not read the decisions the trial judge referred to as holding that, in the absence of specific terms of repayment, a term must necessarily be implied that a loan is payable within a reasonable time following a demand.

[10] Nor do we read the reasons of Blair J. in Naneff v. Concrete Holdings Inc., [1993] O.J. No. 1756, at paras. 135-6 and 139, varied on other grounds 1995 ONCA 959, [1995] O.J. 1377 (C.A.), as holding that, when an estate freeze is involved, a shareholder’s loan to a corporation from a non-controlling shareholder must, in the absence of specific terms of repayment, be interpreted as being payable when the directors consider repayment financially prudent.

[11] Rather, the question of what are the applicable terms for repayment of the loan is a matter to be determined having regard to the other terms of the loan and the overall factual context in which the loan was made.

[12] Here, the trial judge took the relevant circumstances into consideration. Although he may have overstated the effect of the decisions he referred to at para. 40 of his reasons, that does not undermine his finding of fact.

[13] We did not call on the respondent to address the appellant's submission concerning res judicata, issue estoppel or abuse of process. The issues before Wilton-Siegel J. related to whether the appellant corporation should be entitled to continue or be wound up. As such, they were of a fundamentally different character than the claim advanced in this case. Moreover, to the extent that the facts related to the loans in issue in this case played any role in the earlier proceeding, that role can only be characterized as miniscule.

[14] The appeal is dismissed.

[15] Concerning the cross-appeal, the trial judge found that an unequivocal demand for payment of the loans in issue was made on November 14, 2007. The appellant by cross-appeal has not demonstrated any error in that finding. The question of the date from which pre-judgment interest runs is a matter within the discretion of the trial judge. We see no basis to interfere in this case.

[16] The cross-appeal is dismissed.

[17] Costs of the appeal are to the respondent on a partial indemnity scale fixed at $22,000 inclusive of disbursements and G.S.T. as agreed upon by the parties. There will be no order as to costs of the cross-appeal.

Signed: “Doherty J.A.”

“Janet Simmons J.A.”

“Gloria Epstein J.A.”

RELEASED: “DH” MAY 4, 2010