Location Citernes Experts Inc. v. G&S Transport, 2007 CanLII 44349 (ON SCDC)

COURT FILE NO.: DC-06-0024-00

DATE: 20071205

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LOCATION CITERNES EXPERTS INC. v. G&S TRANSPORT and OLYMPIC WHOLESALE LTD. et al

BEFORE: DALEY J.

COUNSEL: Charlie Chang, for the Appellant G&S Transport

Kristine Holder, for the Appellant Olympic Wholesale Ltd.

Todd Storms, for the Respondent Location Citernes Experts Inc.

A M E N D E D E N D O R S E M E N T

[On appeal from the judgment of Deputy Judge B.W. King dated February 8, 2006 at Ontario Superior Court of Justice Small Claims Court Burlington]

Introduction

1Defendants 67057 Ontario Inc. c.o.b. “G&S Transport” (“G&S”) and Olympic Wholesale Ltd. (“Olympic”) appeal from the judgment of the Deputy Judge of the Small Claims Court, wherein the respondent Location Citernes Experts Inc. (“Location”) was awarded damages in the sum of $9,543.22 plus pre-judgment interest from July 1, 2003 along with costs in the form of a counsel fee fixed at $1,000.00.

2G&S and Olympic separately appeal from the judgment and both appeals were argued together.

3The claim in this proceeding is in respect of monies alleged to be owing to Location under the terms of a lease of a transport trailer owned by the plaintiff.

Factual Background

4The respondent Location is a Quebec corporation and carried on business as a transport trailer leasing company.

5The defendant Bulk Transfer Station Inc. (“Bulk”) carried on business as a wholesale vendor of flour. Olympic, also carried on business as a wholesale flour vendor.

6The defendant Daniel Peroff is a principle of both Bulk and Olympic.

7Many of the facts relating to this matter are not in dispute.

8In February of 2002 Peroff, on behalf of Bulk, entered into an oral agreement with Location whereby it would lease a commercial transport trailer on a month to month basis to be used to transport flour.

9Though there was a discussion between Peroff on behalf of Bulk and Brown on behalf of Location that Olympic would be a party to the lease of the transport trailer, ultimately it was decided to have Bulk identified as the contracting party.

10G&S entered into a separate unwritten agreement with either Olympic or Bulk to provide a vehicle to haul and unload flour contained in the trailer leased from Location.

11Approximately a year following the initial unwritten contract between Location and Bulk providing for the lease of the transport trailer, Location prepared a draft lease identifying the plaintiff as lessor and G&S and Bulk as lessees.

12The lease was never signed by any party other than the plaintiff’s representative. It is the undisputed evidence that G&S did not receive a copy of this draft lease.

13G&S was never billed for any payments pursuant to the lease between Bulk and the plaintiff, nor did it make any payments towards that lease in respect of the transport trailer.

14The evidence at trial disclosed that of the payments made to Location with respect to the monthly rental on the transport trailer, two payments were made by Olympic, with the balance paid by Bulk. There was no evidence nor explanation at trial as to why Olympic made two payments in respect of the lease with the plaintiff Location.

15The evidence at trial also disclosed that Olympic made 11 payments to G&S with respect to fees for hauling the transport trailer.

16It was the evidence of Peroff that Bulk was incorporated to do one specific job, namely to carry on flour sales in Ontario representing a Winnipeg Manitoba company. Peroff testified that Olympic was not involved in the sale of flour.

17The plaintiff’s action was brought on the basis that there had been a default in payment under its lease from May to November of 2002 leaving an outstanding balance owing of $9,543.22.

18At the time this matter reached trial, it was found by the trial judge that Bulk was either “totally out of business” or “at least has no assets that could be seized”. The court further concluded that there would be no liability on the part of the defendant Peroff in his personal capacity and as such the action was dismissed against him.

19The trial judge concluded that there was a “three-way dealing” between G&S, Wholesale and Bulk for the purpose of selling flour and hauling it to customers of Olympic and Bulk. The trial judge stated:

In my opinion, the only reason for suggesting that Bulk Transfer Station name when it came to the contract was a deliberate attempt to avoid any liability to Olympic and put it onto what is probably a shell company.

20The trial judge concluded that Olympic and G&S were liable to the plaintiff on the oral lease contract with respect to Location’s transport trailer.

21The trial judge also concluded that G&S was liable to the plaintiff on the basis that it hauled the trailer and further on the basis that it obtained insurance with respect to its own tractor trailer unit and the plaintiff’s trailer.

22The trial judge also found Olympic liable on the lease contract on the basis that it made two payments on the lease to the plaintiff lessor.

Position of the Parties

23It is the position of the defendant, G&S that it entered into a separate contract for-hire with either Bulk or Olympic and that at no time had it entered into the lease contract with Location with respect to its transport trailer.

24It was submitted on behalf of G&S that the trial judge made the following procedural errors which, in its submission led to a wrong result and an unfair trial:

(a) G&S being a self-represented litigant, through its representative Wiley was precluded by the judge from filing in evidence documentation as exhibits.

(b) The trial judge allowed plaintiff’s counsel to cross-examine the defendant Wiley on two occasions.

(c) The trial judge prevented G&S’ representative, Wiley from completing his cross-examination of the defendant Peroff.

(d) The trial judge identified the commencement date for the payment of pre-judgment interest on an arbitrary basis.

(e) The trial judge improperly awarded a “counsel fee” fixed at $1,000.00 whereas the maximum allowable is $300.00.

25Counsel on behalf of G&S acknowledged that these so-called procedural errors individually may not form the basis for reversal of the trial judgment, however, cumulatively they indicate a failure on the part of the trial judge to assist the party G&S as a self-represented defendant in accordance with the decision of Griffin v. O’Brien, [2006] O.J. No. 88 (Court of Appeal).

26The appellant G&S also asserts the trial judge made substantive errors in findings that were unsupported by evidence as well as in law with respect to concluding that there was privity of contract between G&S and Location.

27The respondent Location, in respect of the appeal by G&S disputes that there was any procedural unfairness in the conduct of the trial. With respect to the G&S’ position that it had no contractual relationship with Location and as such there was no privity of contract between the parties which would result in a liability on the part of G&S, it is the respondent Location’s position that G&S obtained the necessary motor vehicle liability insurance to allow its tractor trailer unit to haul the plaintiff’s transport trailer which was necessary in order to implement the terms of the lease contract, and G&S thereby became a “necessary party” to the contract. Counsel acknowledged that he did not have any case or other authority to support his theory of G&S being a “necessary party” to the lease contract with Location.

28The appellant Olympic appeals on both procedural and substantive grounds.

29With respect to procedural errors, it was Olympic’s position that the trial judge improperly participated in the trial by conducting examinations and cross-examination of witnesses.

30With respect to the substantive arguments, Olympic took the position that it was not in a contractual relationship with the plaintiff. Further, there was no basis upon which the trial judge could properly pierce the corporate veil so as to conclude that the defendants Olympic and Bulk were in any way collectively working together with G&S in a “deliberate attempt to avoid any liability to Olympic and to put it onto what is probably a shell company”.

31Further, it was the position of Olympic that it was inappropriate for the court to in effect consider the “alter ego” theory and to pierce the corporate veil, when no such claim was asserted by the respondent Location in its Statement of Claim.

32It was further the submission on behalf of Olympic that there was no evidentiary foundation which allowed the court to conclude that there was “three-way dealing between G&S Transport, Bulk and Olympic” so as to allow for the piercing of the corporate veil in respect of Bulk and Olympic so that a finding of liability could be made against both of those companies with respect to the lease contract with Location.

Analysis

33It is not open to this court to re-try this case, but rather to determine if an error had been made by the trial judge which would warrant interference with the conclusions reached.

34The standard of appellate review on questions of law is that of correctness. The applicable standard of review with respect to judicial findings and inferences drawn from facts is that of a palpable and overriding error.

35If the question is of mixed fact and law and involves the application of the facts to an incorrectly characterized or applied legal standard, the failure to properly consider the requisite elements of a legal test or similar error of principle, the applicable standard of review is that of correctness, and as such the error may amount to an error in law.

36With respect to the appeal of G&S, in my view the trial judge improperly found and concluded that G&S was part of a three-way dealing and as a result that it had some contractual liability to the plaintiff Location. There was no evidence upon which the trial judge could make such a finding. G&S was not party to the lease contract with respect to the transport trailer. It made no payments on account of that lease. There was no basis upon which the court could conclude that it had any liability under the lease. There was no finding nor any evidence that there was privity of contract between G&S and the plaintiff. G&S had entered into a separate and distinct contract for hire with either Bulk or Olympic. There was no evidence upon which the trail judge could have concluded any contractual liability arose between G&S and the plaintiff.

37With respect to the procedural unfairness as asserted by G&S and Olympic, while the trial judge perhaps participated too fully in the conduct of the trial, in view of the fact that only one of the parties at trial was represented by counsel, it may have been necessary for the trial judge to take a more active role in the examining of witnesses and the review of documents than would otherwise occur if all the parties were represented. On the whole, I do not find any procedural unfairness to the self-represented litigants as a result of the trial judge’s involvement in the conduct of the trial.

38Thus, in my view the trial judge made rulings in law which were not supported by the evidence and as such, the judgment against G&S can not be supported.

39In the result, I set aside the judgment as against the defendant G&S.

40Further in my view there was no basis upon which the trial judge could impose liability upon Olympic as it was not a party to the lease with the plaintiff.

41While not pleaded by the plaintiff in its statement of claim and further while not specifically articulated by the trial judge, it appears that the Court concluded that Olympic was liable to the plaintiff under the terms of the lease, either as a result of piercing of the corporate veil or by application of the principle of “alter ego”.

42Although the defendant Peroff acknowledged that he was a principle of both Bulk and Olympic, there was no evidence as to what relationship existed, if any, between the corporations.

43In order for court to justify the lifting or piercing of the corporate veil it has been held that three issues must be considered:

(1) There must be control by the personal defendant;

(2) There must be exercise of the control to commit fraud, wrong or breach of duty;

(3) The misconduct must be the proximate cause of the plaintiff’s injury or loss. (W.D. Latimer Co. Ltd. v. Dijon Investments Ltd., 1992 7593 (ON SC), [1992] O.J. No. 2909).

44In my view, although the trial judge may have had some suspicion about the relationship between Bulk and Olympic based on the evidence that Mr. Peroff was a principle of both of these corporations, there was no evidence upon which the trial judge could properly conclude that there was a “three-way dealing” that would amount to a commission of a fraud, wrong or breach of duty.

45Further, although not expressed in the reasons for judgment nor pleaded by the plaintiff, the trial judge appears to have based his conclusions principle of “alter ego”.

46It has been held that a subsidiary, even a wholly owned subsidiary, will not be found to be the alter ego of its parent, unless the subsidiary is under the complete control of the parent and is nothing more than a conduit used by the parent to avoid liability. It has been further stated that the alter ego principle is to be applied to prevent conduct akin to fraud that would otherwise unjustly deprive claimants of their rights. (Gregorio v. Intrans-Corp. et. al., 1994 2241 (ON CA), [1994] O.J. No. 1063 (C.A.)).

47In my view, there was no evidence which would allow the trial judge to apply the alter ego principle, as he appears to have done.

48In the result I would allow the appeal of Olympic and set aside the judgment against it.

49In the event the parties are unable to resolve the matter of costs, counsel for the appellants G&S and Olympic shall file written submissions within 15 days followed by submissions from the respondent Location within 15 days thereafter. The submissions shall be limited to three pages, not including any Costs Outline submitted.