COURT FILE NO.: Divisional Court 28/05

DATE: 20050404

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Fand Investments Inc., Applicant (Appellant) -and- Energy Innovations Corporation, Respondent in Appeal

HEARD: March 17, 2005

BEFORE: Lane J.

COUNSEL: Chris Reed, for the Applicant, moving party Tara Morrish, for the Respondent

ENDORSEMENT

[1] Fand Investments Inc. (“Fand”) moves for leave to appeal to the Divisional Court from the order of Cameron J. dated December 23, 2004, wherein the learned motion judge stayed Fand’s proceedings to realize on security granted by Energy Innovations Corporation (“EIC”).

[2] The background is that EIC (as to 58%) and Energy Smart Inc. (“ESI”) (as to 42%) entered a joint venture agreement in April 2001 to manage a contract (“contract 91”) to deliver lighting equipment to the City of St. Petersburg in Russia of the value of $18 million. The City paid a deposit of US$2.7 million to ESI. Goods were shipped of a value of about $3 million for which no receivable or evidence of receipt exists in the books of the joint venture. Disputes arose between the joint venturers and litigation ensued in Buffalo, New York. In September, 2003, the court in Buffalo struck out the claims of ESI and appointed a Receiver over the joint venture.

[3] As a result of the lack of records in ESI, the receiver has been unable to trace the contract 91 funds. The director and sole shareholder of ESI, David Wiegand, has been found in contempt by the Buffalo court on October 21, 2004. Mr. Wiegand admitted upon cross-examination that he controlled both ESI and Fand, and that the purpose of incorporating Fand was to purchase the debt of EIC to a company called Itrade.

[4] Fand is now attempting to enforce the General Security Agreement which EIC had given to Itrade as security for a loan. Itrade brought a petition under the BIA and Fand bought the debt and became petitioning creditor. The petition was dismissed by Hoy J. Fand then began proceedings to foreclose EIC’s interest in the joint venture.

[5] The position of EIC in the litigation is that, as a result of the misappropriation of joint venture funds by Mr. Wiegand and Fand, EIC’s obligation to Fand under the GSA purchased from Itrade has been met in full and that, on a proper accounting, there will be a balance owing to EIC. It also takes the position that ESI, Fand and Mr. Wiegand are one and the same. He is the controlling mind and sole shareholder of both corporations. There is also some evidence to support the allegation that Mr. Wiegand and ESI acquired their interest in the Itrade GSA with funds stolen from the joint venture.

[6] On the motion before Cameron J. from which leave to appeal is sought, EIC submitted that the Ontario proceedings should be stayed, pending the outcome of the Buffalo proceedings. The contracts in issue were dealt with in the United States, the joint venture agreement provides for the jurisdiction of the New York court and the proceedings under way there are essentially the same subject matter. EIC asserted that Mr. Wiegand’s fraud justified the piercing of the corporate veils and a finding of personal liability against him. The failure of ESI to account for the joint venture funds is actually Mr. Wiegand’s personal doing.

[7] Cameron J. found, for the purposes of the motion, that essentially all of the above allegations were true or at least had an air of some reality. To allow the foreclosure proceedings to continue prior to the completion of the proceedings in Buffalo would be unfair to the creditors and shareholders of EIC because the ownership by Mr. Wiegand of 100% of the joint venture would mean that there would not be any inquiry in the Buffalo proceedings into the whereabouts of the funds missing from the joint venture.

[8] Leave to appeal is governed by Rule 62.02(4) which requires a showing of cases which conflict with the decision, or good reason to doubt the correctness of the order, plus a showing that it is desirable to allow an appeal to go forward or that there is an element of importance to the matter beyond the interests of the parties alone.

[9] Since the decision under consideration was a discretionary one, the existence of cases exercising the discretion in a different manner under different circumstances, does not meet the test of a conflicting decision. There must be a difference in the principle upon which the court acted.

[10] The moving party submits that the decision of the motion judge conflicts with Williams v. 963659 Ontario Ltd[^1]. In essence, Williams found that there was jurisdiction in an Ontario court to stay an action to avoid multiplicity of proceedings even though some of the proceedings were abroad and even where Ontario was a convenient forum. Section 138 of the CJA was not confined to Ontario proceedings. The court also discussed when it was appropriate to treat the parties to the various actions as the same. In the facts of that case, it appeared that the parties were not the same entities. Further, the court observed that it was necessary to consider whether there was unfairness in depriving one party of a juridical advantage in proceeding in Ontario. The moving party submits that Cameron J. erred in these latter respects in the present case.

[11] The moving party submits that there should not have been a stay because the parties to the foreign action are not the same as in the Ontario action.

[12] Rule 21.01(3)(c) gives a defendant the right to move for a stay where there is another action pending between the same parties over the same subject matter. On its face it is confined to actions where the same parties are impleaded. In Williams the motion judge held that a party not named in the foreign action ought to have been named and that this meant that, in effect, the parties were the same. The Divisional Court held that this was error. However, in Williams there was no finding that the same person was the directing mind of the various parties. In the present case, there is such a finding and that situation was not part of the analysis in Williams.

[13] But, in any event, sections 106 and 138 of the CJA are not so confined. Section 106 permits a stay where it is just to do so. Williams, at paragraph 28, establishes that this jurisdiction extends to cases where there is foreign litigation which makes it unjust for the domestic case to proceed:

28. Given the wording of ss. 106 and 138 of the CJA, a judge has the discretion to grant a stay of Ontario proceedings because of the existence of foreign proceedings where it is just to do so.

[14] The reasons of Cameron J. make it clear that he was alert to the issue of whether the parties were so closely related that it was fair to stay the Ontario action and his analysis shows that there is indeed a close relationship in that the same person is the controlling mind of the companies Fand and ESI. There is also, in the judge’s view, a close relationship between the issues. Mr. Wiegand controlled the compliance of ESI with its obligations under the joint venture agreement. It seemed likely to him that, by failing to account for the funds of the joint venture, Mr. Wiegand, as ESI, deprived EIC of the ability to pay the loan, which Mr. Wiegand, as Fand, now seeks to enforce by seizing the interest of EIC in the joint venture.

[15] Contrary to the submissions of Fand, the fact situation before Cameron J. was not on all fours with Williams. It is radically different and the exercise of discretion by the motion judge does not conflict with the different exercise of discretion in Williams.

[16] As to the juridical advantage of being able to sue an Ontario defendant in Ontario, the stay does not remove that advantage. The loan litigation may continue once the facts have been found in the New York courts as the joint venture agreement requires. It is the right claimed by Fand to foreclose on the collateral and so bring the foreign litigation to an end without completing the New York process that is lost. In the facts as presently understood, that result is the only fair result.

[17] Finally, it is asserted that the New York action may not resolve the issues raised by EIC as a defence to the Fand action. It is said that there is no evidence that the New York court will address these issues. But there is evidence in the affidavit of Mr. Sandham that the accounting which the New York court has ordered the receiver to prepare may demonstrate that Mr. Wiegand has benefited improperly from diversion of joint venture monies. That is the very allegation made in defence of the Fand action: that the security sought to be enforced was purchased with joint venture funds which are, as to 58%, the property of EIC.

[18] In my view, there is no conflict between the order in appeal and the principles set out in Williams. Nor is there good reason to doubt the correctness of the order of Cameron J.

[19] Finally, I see no element of public importance beyond the interests of the parties. This is a fact-driven exercise of discretion.

[20] Leave to appeal is refused. Costs to the responding party payable within 30 days. I propose that they be fixed at $3,000 all-inclusive. If either party wishes to do so, brief written submissions may be made, those of the objecting party within 7 days and a response in a further 5 days.

Lane, J.

DATE: April 4, 2005

[^1]: 2004 CarswellOnt 5010, Div. Ct.; leave to appeal refused 2004 CarswellOnt. 4892 (CA)