Remo Valente Real Estate v. Portofino Riverside Tower et al., 2010 ONSC 280

CITATION: Remo Valente Real Estate v. Portofino Riverside Tower et al., 2010 ONSC 280

DIVISIONAL COURT FILE NO.: 1661/1707

DATE: 2010-02-03

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

P. B. Hambly, J.C. Murray and T.D. Ray J.J.

B E T W E E N:

Remo Valente Real Estate (1990) Limited Plaintiff (Respondent)

Gina Morga for the Plaintiff (Respondent)

• and -

Portofino Riverside Tower Inc., Westview Park Gardens (2004) Inc. Portofino Corporation and Dante J. Capaldi

William V. Sasso and Jacqueline A. Horvat, for the Defendants (Appellants)

Defendants (Appellants)

HEARD: November 24, 2009

Hambly & Ray JJ.

[1] This is an appeal from judgments of Justice Brockenshire dated August 31, 2007 and May 13, 2008.

Background

[2] Remo Valente Real Estate (1990) Ltd. (Valente) is owned and controlled by Remo Valente. In 1999 Valente acquired vacant land (the land) on Riverside Drive in Windsor, Ontario facing the Detroit River. Valente and holding companies owned and controlled by Frank Mancini, Melvin Muroff and Dante Capaldi (the partners) incorporated a numbered company, which became Portofino Riverside Tower Inc. (Portofino 1), for the purpose of constructing a condominium apartment building on the vacant land owned by Valente (the project). They planned to construct a building with about 123 units. In consideration of Portofino 1 entering into a listing agreement with Valente, dated November 22, 2002, for the sale of condominium apartment units in a building to be constructed on the vacant land owned by Portofino 1, Valente conveyed the land to Portofino 1. That agreement is attached hereto as schedule A. Important terms are the following:

GRANT OF EXCLUSIVE AUTHORITY TO PROMOTE AND SELL

THE BUILDER HEREBY GRANTS VALENTE THE EXCLUSIVE AUTHORITY TO PROMOTE AND SELL the above listed condominium units constructed or to be constructed thereon or the lands if condominiums units are not built until DECEMBER 30, 2006 and unless terminated by written notice THIRTY (30) days prior to the expiration of said term, shall be renewed for a further period of (1) year.

COMMISSION

The Builder agrees to pay Valente a commission of Four PER CENT (4%) of the sale price if sold by sales representatives assigned to the project and FIVE PER CENT (5%) if sold by other “Valente” salespeople or other salespeople registered with outside real estate brokers, of each condominium unit or lands sold under an Agreement of Purchase and Sale entered into during the currency of this agreement, plus any applicable Goods and Services Tax or other service taxes that may be in effect from time to time, which commission together with applicable taxes shall be due and payable 50% of each commission 45 days from the day in which the necessary pre-sales have been achieved to satisfy the condition in the Project Financing commitment provided that said sales are unconditional and the remaining 50% payable upon the completion of each sale. Provided that if a sale occurs after said time that the minimum pre-sales have been attained the 50% of the commission shall become due and payable within 30 days of the offer becoming unconditional, and the remaining 50% payable upon the completion of each sale.

[3] The agreement was amended by an agreement signed by all of the partners, dated October 29, 2004. The essential terms are as follows:

1. The Owner agrees to pay to the Broker a commission of Five per cent (5%) of the sale price of the property or project or any interest therein during the currency of the aforesaid agreement, plus any applicable Goods and Services tax or other service taxes that may be in effect from time to time, which commission together with any applicable taxes shall be due and payable upon completion of any such sale.

2. The undersigned being all of the Shareholders of the Owner, hereby agree that the Broker shall be paid a commission if in the event of a sale of part or all of the shares to the owner to any third party, at the same rate and on the same basis as if the as if the Owner had sold the said property to project or any interest therein, each Shareholder being responsible for the portion of such commission attributable to such Shareholder’s shares in the Owner being so sold.

[4] The partners entered into a shareholders’ agreement which contained a shotgun clause that permitted each to make an offer to the other to purchase his shares in Portofino 1, which would entitle the offeree to purchase the offeror’s shares at the price that was offered to the offeree.

[5] In December, 2004 Valente and Mancini offered to purchase Capaldi’s shares. Capaldi exercised his right under the shotgun clause to purchase the shares of Valente and Mancini. In January 2005 Capaldi purchased Muroff’s shares, which left Capaldi as the sole owner of Portofino 1.

[6] Gary and Rosemary Lunau are husband and wife, who were real estate agents employed by Valente. Remo Valente assigned them to sell units in the project. They worked out of a sales office on the land from June, 2003. By January 2005 they had presold about 71 units. The prospective purchasers pursuant to the agreements that they signed, made deposits of $2,500. There was a clause in the agreements which permitted Portofino 1 to cancel the agreement if it did not think that the project was economically viable. In a notice to the prospective purchasers dated January 11, 2005 Capaldi waived this clause. The agreements required that upon the vendor waving this clause the purchaser was required to make a further deposit at $17,500. The Lunaus continued to work on the project. They obtained the further deposits from about 67 purchasers.

[7] The Bank of Montréal made a proposal to finance the project in a letter to Portofino 1 dated November 12, 2004. The appellants in their factum at paragraph 37 summarize the conditions of the proposal as follows:

37. The trial judge did not examine the BMO Proposal or make any findings in the Reasons on the pre-sales requirements in the BMO Proposal. Those pre-sale requirements include the following:

(a) no sales commissions—treated as Deferred Costs—are payable before closing;

(b) pre-sales must be at arm’s length and at pro forma prices;

(c) pre-sales must generate aggregate estimated cash on closing for repayment of 90% of the authorized non-revolver loan amount of $26,500,000 (90% of $26,500,000=23,850,000);

(d) deposits of a minimum of $20,000 or 10% of the purchase price of the units and 100% of upgrades are required;

(e) non-Canadian (offshore) investors are required to provide a 25% deposit and are limited to 10 units in total; and

(f) it is anticipated by BMO that the pre-sale requirement would be satisfied upon the firm (unconditional) sale of 86 units.

[8] The bank of Montréal renewed its proposal in a letter to Portofino dated July 8, 2005. The conditions were similar. Neither Portofino 1 or Portofino 2 obtained financing from the Bank of Montréal. After Capaldi obtained control, the project did go ahead. He obtained financing from private lenders.

[9] Capaldi reorganized the corporate structure of Portofino 1. He was the owner of a corporation named Westview Park Gardens (2004) Inc. He created a partnership consisting of 1 Capaldi General Partner Corporation (The General Partner) and Portofino 1, which he named Portofino (2005) Limited Partnership (The Limited Partnership). In due course he renamed Westview Park Gardens (2004) Inc. Portofino Corporation (Portofino 2). He caused Portofino 1 to convey the legal title in the land to Portofino 2 and the beneficial interest in the land to The Limited Partnership. In return Portofino 1 acquired partnership units in The Limited Partnership and an interest in the capital account of The Limited Partnership of $2 million. Capaldi, on behalf of Portofino 2, signed a declaration of trust which stated that at the request of Portofino 1 it would convey the beneficial interest in the land to Portofino 1. These transactions were put in place by documents dated May 3, 2005. On May 9, 2005 Capaldi locked the Lunaus out of the sales office located on the land. Capaldi's lawyer, Jerry Goldberg, sent Valente a letter dated July 13, 2005 in which he stated that Westview (Portofino 2) had listed the project with another realtor. The letter stated the following:

Attention: Remo Valente

Re: File No. 122303.00007

Portofino Riverside Tower Inc.

Dear Sir:

We are the solicitor’s for Westview Park Garden, (2004) Inc. You are the Listing Broker shown on a multiple listing of property identifying Portofino Riverside Tower Inc. as the Vendor. Portofino Riverside Tower Inc. no longer owns the property. We are given to understand that under the specific terms of your firm’s Agreement with Portofino Riverside Tower Inc., unlike the conventional form of listing agreement, your firm was not entitled to participate in any transaction that was either a lease or an exchange. The property was acquired through an exchange.

In the meantime, Westview Park Gardens (2004) Inc. listed the property with another realtor.

Please ensure that your listing of the property is promptly removed from the multiple listing agreement.

Yours truly,

MILLER, CANFIELD, PADDOCK AND STONE, LLP

Jerry L. Goldberg

[10] Capaldi signed a declaration dated January 17, 2006, which is described as an "agreement" on behalf of The General Partner and Portofino 2, in which the limited partnership agrees to keep Portofino 1 indemnified against all amounts that it may be legally obligated to pay Valente pursuant to the exclusive listing agreement dated November 22, 2002. It stated the following:

AGREEMENT

FROM: Portofino Riverside Tower Inc.

TO: Remo Valente Real Estate (1990) Limited

Portofino (2005) Limited Partnership agrees to keep Portofino Riverside Tower Inc. fully protected, defended and indemnified against all amounts that Portofino Riverside Tower Inc. may be legally obligated to pay Remo Valente Real Estate (1990) limited, if any, in respect of real estate commissions payable pursuant to the Exclusive Agreement at issue.

Portofino (2005) Limited partnership further agrees to irrevocably direct its trustee, Portofino Corporation, to pay such amounts from the proceeds of the sale of the condominium units at issue in priority to any payment to Portofino (2005) Limited Partnership.

DATED at Windsor, Ontario this 17 day of January, 2006.

PORTOFINO (2005) LIMITED PARNERSHIP

Per:

J. CAPALDI GENERAL PARTNER CORPORATION

Dante J. Capaldi, President

I have authority to bind the Corporation

ACKNOWLEDGMENT

PORTOFINO CORPORATION hereby acknowledges the foregoing irrevocable direction.

PORTOFINO CORPORATION

Per:

Dante J. Capaldi, President

I have authority to bind the Corporation

[11] On November 15, 2005 Valente commenced an action against Portofino 1, Portofino 2 and Capaldi. It sought, amongst other relief, reversal of the corporate reorganization, damages for breach of contract in relation to the listing agreement and in the amendment to the statement of claim given at the outset of the trial a remedy pursuant to section 248 of the Ontario Business Corporations Act (OBCA).

Judgment

[12] The trial took place between May 7 and 22, 2007 in Windsor. In a judgment dated August 31, 2007 (2007 36072 (ON SC), 86 O.R. (3d) 667) the trial judge granted the plaintiff a remedy under section 248 of the OBCA. He did not deal with the other claims. He awarded a judgment to the plaintiff against all the defendants of $1 million and ordered that they provide security of $2 million against their assets for further damages and directed that an accounting be held. A further hearing took place between January 28 and January 31, 2008. The trial judge in a judgment dated May 13, 2008 (2008 22150 (ON SC), 2008 O.J. No.1887) awarded the plaintiff, inclusive of the previous judgment and of prejudgment interest, $2,508,628.61. He awarded the plaintiff commissions on the selling price of 49 closed condominium sales made by the plaintiff, extras on those sales, on the sale price of 13 sales which Valente did not make, on the sale price of 13 transactions expected to close and one half of the commissions on the sale price of 19 transactions not expected to close, the present value of commission on unsold units and commissions on ancillary sales which were projected sales of homes of purchasers of condominium units and resales of condominium units of purchasers and on leased condominium units.

[13] Neither Portofino 1 nor Portofino 2 obtained financing from the Bank of Montréal. It seems that Capaldi was able to arrange private financing. The trial judge seems to have found, by a combination of the Bank of Montréal's proposal for financing, the program going ahead with private financing and Capaldi waving the term on January 11, 2005 in the agreements of purchase and sale which permitted Portofino 1 to cancel the agreements that the defendants owed Valente 50% of the commissions on the pre-sales from January 11, 2005. This gave Valente the status of creditor and made it a potential complainant under section 248 of the Ontario Business Corporations Act. The trial judge stated the following:

[14] In the judgment dated August 31, 2007:

74 I agree with the point raised by Mr. Ball, that the exclusive listing agreement clearly provides that 50% of each commission, plus taxes, shall be due and payable 45 days from the day "in (sic.) which the necessary pre-sales have been achieved to satisfy the condition in the project financing commitment". I accept that when Capaldi waived the right of the developer to back out of the sales, there was no formal project financing commitment in place. However, the evidence was that financing arrangements had been worked out in principle with the Bank of Montreal and had simply not been formalized. As I understand it, Capaldi waived the condition as a sign of good faith in the project, as an encouragement to existing and prospective buyers that in fact the project was going ahead, and incidentally as a means of triggering the obligation of prospective buyers to substantially increase their deposits. No doubt, with $20,000 instead of $2,500 on hand from each prospective buyer in a trust account, the needed financing would be easier to obtain. In any event, financing clearly did issue and the project in fact is substantially completed. Therefore, the argument would relate only to the date of commencement of prejudgment interest.

75 I find on all of the evidence, including of course, the listing agreement signed by the four individual investors, together with the amendment thereto signed by the corporations of the four investors, that the plaintiff realtor, is a creditor of Portofino I and thus an appropriate complainant under s. 248 of the Ontario Business Corporations Act.

[15] In the judgment dated May 13, 2008:

25 In my view, the essence of the condition in the exclusive listing agreement re payment of 50% of commissions on pre-sales was that the project was in fact going ahead. The best evidence of that, in my view, is the formal notice of removal of conditions by Portofino Riverside Tower Inc. dated January 11, 2005 and signed by Capaldi as president. That was backed up by letters sent out by Capaldi on January 11, 2005 to Gary Lunau, Rosemary Lunau, (Tabs 33 and 34 of the plaintiff's document book) and to presumably all other pre-sale purchasers, such as the Colavitas, (Tab 35) in each case advising that construction of Portofino would commence in the spring of 2005 or earlier, enclosing the formal notice of removal of conditions, requesting an additional $17,500 deposit and inviting the recipient to a reception for all of the purchasers to be held January 20, when the construction timetable would be provided. At that time, Valente Real Estate certainly felt the condition had been met because on January 25 they sent out an invoice detailing all of the 50% of commissions, saying they were due and payable by February 25, 2005. The total, including GST was $466,733.86.

[16] Although the trial judge does not say so in clear terms implicit in the trial judges reasoning, is a finding that the corporate reorganization constituted oppression by rendering Portofino 1 judgment proof from the claims of Valente. He stated the following:

70 … I conclude, the real reason for the very odd process of dividing the legal and equitable interest held by Portofino I, putting the legal interest in a bare trust, and exchanging the equitable interests for units in a limited partnership, with Capaldi's personal corporation as the general partner, so that those interests, including the power to reconstitute Portofino I, could not be reached by execution creditors without the aid of very special and unusual court orders.

71 What to my mind speaks the loudest is point #1 in Mr. Goldberg's notes of his discussions with Capaldi about restructuring, the goal was simply stated to be, "to get rid of commissions". (judgment August 31,2007)

[17] He also seems to have held that the reasonable expectations of Valente as a victim of oppression under section 248 included the following:

82 It was clear from the beginning that the plaintiff's claim was essentially for three things:

1. Commissions payable and to become payable on the sale of the 75 or so units sold through the Lunaus before they were locked out of the premises and Capaldi unilaterally declared the exclusive listing agreement with the plaintiff was no longer in effect;

2. The future commissions expected to be earned on the sale of the remaining 50-odd units if the exclusive listing agreement had remained in effect; and

3. Ancillary commissions anticipated to have been earned, if the exclusive listing agreement had continued in effect, by the Lunaus being retained by at least some of the purchasers of units, to sell their existing homes on moving into Portofino. (judgment August 31, 2007)

Discussion

[18] The relevant sections of the Ontario Business Corporations Act are the following:

Definitions

245. In the Part,

"action" means an action under this Act; ("action")

"complainant" means,

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

Oppression remedy

248. (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

Court order

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver- manager;

(c) an order to regulate a corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or 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;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue.

(o) any other person who, in the discretion of the court, is a proper person to make an application under this Part. ("plaignant")

[19] Before a creditor can be granted a remedy for oppression under section 248 it must be

found to be a proper person to be a complainant under section 245. In Royal trust Corp. V. Hordo (1993), 10 B.L.R. (2d) 86, Justice Farley stated the following:

Who May Be A Complainant Under The Oppression Provision Of The CBCA

10 Section 241(1) CBCA states that "a complainant" may apply to a court for an order under the oppression section. The definition of "complainant" for the purpose of both an oppression proceeding under s. 241 and a derivative proceeding under s. 239 is set out as follows in s. 238:

11 "Complainant" means

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or any of its affiliates,

(c) the Director, or

(d) any other person who, in the discretion of a court, is a proper person to make an application under this Part.

The person who qualifies as a "complainant" must be in that capacity at the time of the acts complained of: see Trillium Computer Resources Inc. v. Taiwan Connection Inc. (1992), 1992 7610 (ON SC), 10 O.R. (3d) 249 (Gen.Div.) at p. 253; First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 1988 168 (AB KB), 40 B.L.R. 28 (Alta.Q.b.) at 60, rev'd on other grounds (1989), 1989 222 (AB CA), 45 B.L.R. 110 (Alta.C.A.).

12 A creditor is not specifically defined as a "complainant" under the CBCA and therefore creditors generally are not "complainants" as of right. The court may use its discretion to grant or deny a creditor status as a complainant under s. 238(d). It does not seem to me that debt actions should be routinely turned into oppression actions: see R. v. Sands Motor Hotel Ltd. (1984), 1984 2361 (SK QB), 28 B.L.R. 122 (Sask.Q.B.); Canadian Opera Co. v. 670800 Ontario Inc. (1989), 1989 4307 (ON SC), 69 O.R. (2d) 532 at 536 (H.C.J.) aff'd (1990), 1990 6695 (ON SC), 75 O.R. (2d) 720 (Div.Ct.); Jacobs Farms Ltd. v. Jacobs, [1992] O.J. No. 813 (Gen.Div.); First Edmonton, supra. I do not think that the court's discretion should be used to give a "complainant" status to a creditor where the creditor's interest in the affairs of a corporation is too remote or where the complainants of a creditor have nothing to do with the circumstances giving rise to the debt or if the creditor is not proceeding in good faith. Status as a complainant should also be refused where the creditor is not in a position analogous to that of the minority shareholder and has "no particular legitimate interest in the manner in which the affairs of the company are managed": Jacobs, supra, at pp. 12-14. See also Lee v. International Consort Industries Inc. (1992), 1992 1076 (BC CA), 63 B.C.L.R. (2d) 119 (C.A.) at pp. 127-9 and Canadian Opera, supra, at p. 536 (H.C.J.).

13 As well it is clear that a person who may have a contingent interest in an uncertain claim for unliquidated damages is not a creditor. That person really holds a speculative claim to become a creditor in the future which will materialize only if the legal action is successful and judgment is obtained: see Quebec Steel Products (Industries) Ltd. v. James United Steel Ltd. 1969 530 (ON SC), [1969] 2 O.R. 349 at pp. 351-5 and 358; First Edmonton, supra, at pp. 111-2; Mohan v. Philmar Lumber (Markham) ltd. (1991), 50 C.P.C. (2d) 164 (Ont.Gen.Div.) at pp. 165-6.

[20] Cases in which a creditor has been given status as a complainant against a corporation, found to be oppressed within the meaning of section 248 and given a remedy by way of piercing the corporate veil in the form of a judgment against those in control of the corporation have been cases where those in control of the corporation have stripped the corporation of assets or dissipated assets rendering it immune from a judgment in favour of the creditor. (See Gignac, Sutts, and Woodall Construction Co v Harris 1997 12437 (ON SC), [1997] O.J. No. 3084 (Gen. Div.); S.C.I. Systems inc. v Gornitzki Thompson & Little Co. Ltd. (1997), 1997 12436 (ON SC), 147 D.L.R. (4th) 300 (Gen. Div.) var’d on other grounds (1998), 1998 17741 (ON SCDC), 110 O.A.C. 160 (Div. Ct.); Downtown Eatery (1993) Ltd. v Ontario (2001), 2001 8538 (ON CA), 54 O.R. (3d) 161 (C.A.) Sidaplex-Plastic Suppliers Inc. v Elta Group Inc. (1998), 1998 5847 (ON CA), 40 O.R. (3d) 563, [1998] (C.A.).

[21] Here the trial judge ignored the declaration made by the limited partnership, dated January 17, 2006, in which it agreed to indemnify Portofino 1 against all amounts that Portofino 1 may be legally obligated to pay to Valente in respect of real estate commissions payable pursuant to the exclusive listing agreement.

[22] Also the trial judge disregarded the clear wording of the listing agreement that 50% of commissions owing on presales were only owing to Valente by Portofino 1 when sufficient presales have been made "to satisfy the condition in the Project Financing commitment". The only project financing proposal that was introduced into evidence was the Bank of Montréal proposal. The conditions in this proposal were never satisfied. On the evidence, neither Portofino 1 or Portofino 2 were creditors when the action was commenced or when it was tried.

[23] In J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd. 2008 ONCA 183, [2008] O.J. No. 958 the landlord sued a tenant for rent arrears. There have been a number of assignments of the lease by the original tenant to related companies. The trial judge granted the landlord an oppression remedy under section 248. The Court of Appeal in the judgment of Justice Doherty held that he erred in so doing and should have filed the tenant in breach of a contract that existed between it and the landlord notwithstanding the assignments of the lease and assessed the damages for breach of contract. The result was the same. Justice Doherty stated the following:

60 The oppression remedy is not, however, a means by which commercial agreements negotiated at arms length by sophisticated parties can be rewritten to accord with a court's after-the-fact assessment of what is "just and equitable" in the circumstances. It is not the function of the court to rewrite contracts or to relieve a party to a contract of the consequences of an improvident agreement. See Jedfro Investments (U.S.A.) Ltd. v. Jacyk, 2007 SCC 55, [2007] S.C.J. No. 55 at para. 34.

61 J.S.M. and the Brick enterprise entered into a business arrangement in 1986 when they negotiated the head lease. There is no suggestion of any relationship between them other than commercial landlord and commercial tenant. Nor is it contended that there was any imbalance of power between the two such that it might be said that the terms of the lease were not the product of legitimate arms length negotiation. Subsequent agreements between J.S.M. and the various Brick companies were negotiated in the same way.

62 The reasonable expectations of parties to commercial agreements negotiated at arms length must be those reasonable expectations that find expression in the agreements negotiated by the parties. For example, when J.S.M. initially negotiated the head lease, it did not negotiate any provision in that lease that would allow it to look to any party other than the tenant, Brick Ltd., for payment of the rent upon a breach of the lease. Having negotiated a detailed lease which did not bind any other entity, J.S.M. could not be heard to argue that it reasonably expected that some other corporate entity would be liable if Brick Ltd. breached the original lease. The fact that Brick Ltd. had no assets certainly suggests that J.S.M. may have acted improvidently in agreeing to look only to Brick Ltd. for recovery. A bad bargain cannot, however, alter J.S.M.'s reasonable expectations or render the breach of the lease oppressive conduct.

63 Similarly, if, contrary to my holding on the contract claim, the "Consent and Acknowledgement" did not give J.S.M. recourse against Brick Corp. for unpaid rent, then J.S.M. could not argue that it reasonably expected to have rights it had not negotiated in its agreement.

64 If, again, contrary to my holding above, J.S.M. had negotiated to recover unpaid rent as against only Brick Windsor and Brick Ltd., the two shell companies, J.S.M.'s subsequent inability to make any real recovery when the lease was breached would have nothing to do with the Brick enterprise's subsequent unilateral and devious rewriting of the sublease. If J.S.M. did not have a contractual claim against Brick Corp., it would not have been the terms of the new sublease that frustrated J.S.M.'s ability to make any real recovery. J.S.M.'s inability to reach a corporate entity with assets, had I come to a different conclusion on the contractual claim, would have been the product of J.S.M.'s own failure to adequately protect its position in its negotiations with the Brick enterprise, and not the product of any oppressive conduct on the part of any corporate entity within the Brick enterprise.

65 I would adopt, as applicable to the facts of this case, the observations of Kevin P. McGuiness, The Law and Practice of Canadian Business Corporations (Toronto: Buttersworth, 1999) at para. 9.247:

In most cases it would seem reasonable to hold the creditors of the corporation are limited to the normal remedies for a breach of contract (including any available security or personal guarantee) should the corporation default in performance, for it cannot have been intended that the oppression remedy would be available where a creditor failed to protect himself or herself adequately against the inherent risks of doing business with a corporation. While acts of oppression may entail a breach of contract, or the commission of some tortious or similar wrong, against the complainant, it is doubtful that the oppression remedy was intended to be a substitute for an ordinary right of action in contract - or tort for that matter. Where the sole complaint is that of a breach of contract, then a contract action should be pursued. Insofar as the contract deals with a specific matter, it seems only natural to conclude that it sets out exhaustively the underlying intentions, understandings and expectations of the parties. While many - perhaps all - breaches of a contract can be characterized as oppressive to the injured party, and while many - perhaps all - forms of tortious injury may be said to be unfairly prejudicial, the legislature clearly cannot have intended for the oppression provisions to serve as a panacea for all manner of legal wrongs, or to make the remedies created under the statute for genuine cases of oppression or unfair prejudice a substitute for the normal legal and equitable remedies that are available to aggrieved parties. Where a simple breach of contract, or comparable legal wrong has occurred, it is not appropriate for the court to invoke the oppression provisions of the Act merely because the party in breach is a corporation. [Emphasis added.]

66 I stress Mr. McGuiness' observation that the oppression remedy is not intended to give a creditor after-the-fact protection against risks that the creditor assumed when he entered into an agreement with a corporation. The position of a creditor who can, but does not, protect itself against an eventuality from which he later seeks relief under the oppression remedy, is much different than the position of a creditor who finds his interest as a creditor compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself. In the latter case, there is much more room for relief under the oppression provisions than in the former case. See S.C.I. Systems, Inc. v. Gornitzki Thompson & Little Co. Ltd. (1997), 1997 12436 (ON SC), 147 D.L.R. (4th) 300 (Gen. Div.) var'd on other grounds (1998), 1998 17741 (ON SCDC), 110 O.A.C. 160 (Div. Ct.); see also M. Koehnen, Oppression and Related Remedies (Toronto: Carswell, 2006) at pp. 88-93.

Conclusion

[24] Valente entered into the shareholders agreement with his partners. He accepted the risk that his interest and that of Mancini and Muroff could be purchased by Capaldi. Valente's reasonable expectations were limited to Portofino 1 and its successors complying with the terms of the listing agreement. It was not a creditor and could not be a complainant under section 248 when the action was commenced nor when it was tried. Valente pursued only a remedy under section 248 at the trial. The trial judge made no finding of breach of contract. The appeal is allowed.

Costs

[25] The appellants are entitled to their cost below and on this appeal.

[26] The court will entertain written submissions with respect to scale and quantum. The appellants’ submissions shall be filed within 30 days of the release of this decision and the respondent shall have 30 days from receipt of the defendants cost submissions within which to file its written submissions in response.

P.B. Hambly J.

T. D. Ray J.

J.C. MURRAY J. (Concurring)

[27] I agree with the result reached by the majority of the panel to allow the appeal, to set aside the judgments of Justice Brockenshire and to grant judgment dismissing the action of the plaintiff, Remo Valente Real Estate (1990) Limited in its entirety.

[28] The following are my concurring reasons.

The Exclusive Listing Agreement

[29] On the 22nd day of November, 2002, the plaintiff Remo Valente Real Estate (1990) Limited (hereinafter referred to as “Valente”) entered into an exclusive listing agreement with 1318941 Ontario Limited (later renamed Portofino Riverside Tower Inc. and referred to in these proceedings as “Portofino 1”), a builder/owner which was intending to build a condominium project on Riverside Drive West in the City of Windsor, in the County of Essex. The listing agreement granted to the broker exclusive authority to promote and sell condominium units to be constructed.

[30] The term of the listing agreement was from the date of execution until December 30, 2006, subject to automatic renewal for a further period of one year unless terminated by written notice 30 days prior to December 30, 2006. The commission clause provided in part that:

… the builder agrees to pay Valente a commission of 4% of the sale price if sold by sales representatives assigned to the project and 5% if sold by other “Valente “salespeople or other salespeople registered with outside real estate brokers, of each condominium unit or lands sold under an Agreement of Purchase and Sale entered into during the currency of this Agreement … which commission shall be due and able 50% of each commission 45 days from the day in which the necessary pre-sales have been achieved to satisfy the condition in the Project Financing commitment provided that said sales are unconditional and the remaining 50% payable upon the completion of each sale.

[31] The listing agreement was amended by the parties by subsequent agreement dated September 29, 2004. By the amendment, the owner/builder and the broker agreed that should the property be sold during the currency of the listing agreement, the owner/builder would pay to the broker a commission of 5% of the sale price of the property on the completion of such sale.

The Re-Organization

[32] As of January 2005, Dante J. Capaldi owned Capaldi Investment Holdings Inc. and through that holding company was the sole shareholder of Portofino 1.

[33] After Capaldi became the sole shareholder of Portofino 1, Portofino 1 was re-organized. The re-organization involved the transfer by Portofino 1 of the legal title to the lands to a trustee while retaining beneficial ownership of the land. To achieve this, legal title of the lands was transferred to Westview Park Gardens (2004) Inc. on May 3, 2005. The legal title was transferred for nominal consideration with no change in beneficial ownership or value of Portofino 1’s assets. Westview Park Gardens (2004) was subsequently renamed Portofino Corporation.

[34] The second aspect of the re-organization involved the transfer by Portofino 1 of the beneficial ownership of the lands and all other Portofino 1 assets to the Portofino (2005) Limited Partnership in satisfaction of the capital contribution of a limited partner. The general partner was “I Capaldi General Partner Corporation” (owned by Dante Capaldi). The capital contribution was stated as the value of Portofino 1’s beneficial interest in the land and other assets, being $2 million. Therefore, the defendants submitted that the value of Portofino 1’s interest in the limited partnership was the same as the value of the property and other assets of Portofino 1 before the re-organization.

[35] Capaldi described the re-organization, as follows. The legal ownership of the land held by Portofino I was transferred to Westview Park Gardens (2004) Inc. to hold as a trustee, subject to a proviso that on request the legal title would be transferred back to Portofino I. Then the beneficial or equitable interest of Portofino I, which would include the right to recall the legal title, was transferred from Portofino I to 1 Capaldi General Partner Corporation in exchange for a credit to its capital account in the limited partnership known as the Portofino 2005 Limited Partnership, in the amount of $2,000,000.

[36] Capaldi stated that the re-organization was undertaken for a number of business purposes described by him in his evidence as follows:

1. To attract new investors to assist in financing the project;

2. To permit unequivocal interest to be provided to those investors without attracting obligation to pay commission to Valente pursuant to the Listing Agreement as amended in September, 2004;

3. To permit the retainer of real estate agents other than Valente;

4. To preserve the underlying value of Portofino 1 to meet its existing obligations to Valente; and

5. To avoid paying double commissions on future sales both to the real estate agents who sold the remaining condominium units and to Valente.

[37] One of the reasons for the re-organization orchestrated by Capaldi was to permit the engagement of real estate agents other than Remo Valente Real Estate (1990 ) Limited. Capaldi’s intention to cease using the plaintiff real estate agency was manifest immediately after the transfer of the legal title of the property by Portofino 1 to Westview Park Gardens (2004) Inc. as “trustee”. On May 3, 2005, Capaldi ordered the agents of the plaintiff to vacate the sales office located on the premises, to turn in all keys and remove any signage related to the plaintiff real estate broker. Valente was replaced as agent for the project when a formal listing agreement was entered into between Portofino Corporation and Bob Pedler Real Estate.

The Statement of Claim

[38] By statement of claim, dated and issued on November 15, 2005, Valente sued the corporate defendants Portofino Riverside Tower Inc. (previously named 1318941 Ontario Limited and referred to in these proceedings as “Portofino 1”), Westview Park Gardens (2004) Inc. and Portofino Corporation (Portofino Corporation is the successor corporation to Westview Park (2004) Gardens Inc.). The statement of claim also named as a defendant, Dante J. Capaldi, as an officer, director and the controlling mind of both corporate defendants.

[39] The plaintiff alleged that pursuant to the listing agreement, the plaintiff’s agents procured 75 offers to purchase condominium units which were accepted by the defendant Portofino 1. The claim alleges that pursuant to the terms of the Exclusive Listing Agreement, 50% of the commissions generated as a result of these sales were due and owing to the plaintiff 45 days after the date on which Portofino waived certain financing conditions which were set out in the said agreements of purchase and sale. The plaintiff alleged that the waiver of conditions occurred on January 5, 2005 and as a result, commissions in the amount of $510,000 became due and owing on the 25th day of February, 2005. No commissions were paid.

[40] The plaintiff real estate broker alleged that the sole purpose of the conveyance of the legal title of the property was to defeat the legitimate claims of the plaintiff as a creditor of Portofino and the plaintiff therefore sought relief pursuant to the provisions of the Ontario Business Corporations Act and the Fraudulent Conveyances Act seeking to set aside and/or reverse the transfer of the legal title of the property from Portofino 1 to Westview Park Gardens (2004) Inc., subsequently named Portofino Corporation and referred to in these proceedings as “Portofino 11”.

[41] The plaintiff also pleaded that as a result of the defendants preventing the plaintiff from continuing its efforts to sell condominium units and by listing the property with another real estate broker, the defendants were in breach of the listing agreement and deprived the plaintiff of the opportunity to earn commissions under the said agreements in an amount estimated to be $2,500,000.

[42] Lastly, the plaintiffs claimed that because the listing agreement was terminated, the plaintiff was deprived of the opportunity to obtain listing agreements to sell homes, residences or condominiums owned by the various purchasers at the time of their agreement to purchase a Portofino condominium unit. These lost commissions were estimated in the claim to be valued at $1,500,000.

The Indemnification of the Named Corporate Defendants

[43] By written statement, dated January 17, 2006, the Limited Partnership undertook that it would, from the proceeds of condominium unit sales, keep Portofino 1 fully indemnified against any amounts that Portofino 1 might be obligated to pay Valente. In addition, the legal successor in title, Portofino Corporation, provided Valente and the trial court (at the outset of litigation) with irrevocable directions to pay out of the proceeds of condominium unit sales commissions that Portofino 1 might be legally obligated to pay Valente.

The Trial

[44] The trial judge relied on the evidence of Jerry Goldberg, corporate solicitor for Portofino 1 and the Portofino Corporation, whose evidence he accepted without qualification. Justice Brockenshire found as a fact that the real reason for the re-organization was to avoid the payment of any commission to the plaintiff and to place assets beyond the reach of execution creditors.

[45] The trial Judge concluded that the plaintiff was a creditor entitled to the benefit of the oppression provisions of the O.B.C.A. The following excerpt from the August 31, 2007 judgment of Justice Brockenshire captures the essence of the reasons for finding liability against the defendants. He stated, in paragraphs 74-77, as follows:

I agree …that the exclusive listing agreement clearly provides that 50% of each commission, plus taxes, shall be due and payable 45 days from the day “in (sic.) which the necessary pre-sales have been achieved to satisfy the condition in the project financing commitment.” I accept that when Capaldi waived the right of the developer to back out of the sales, there was no formal project financing commitment in place. However, the evidence was that financing arrangements had been worked out in principle with the Bank of Montreal and had simply not been formalized. As I understand it, Capaldi waived the condition as a sign of good faith in the project, as an encouragement to existing and prospective buyers that in fact the project was going ahead, and incidentally as a means of triggering the obligation of prospective buyers to substantially increase their deposits. No doubt, with $20,000 instead of $2,500 on hand from each prospective buyer in a trust account, the needed financing would be easier to obtain. In any event, financing clearly did issue and the project in fact is substantially completed. Therefore, the argument would relate only to the date of commencement of prejudgment interest.

I find on all of the evidence, including of course, the listing agreement signed by the four individual investors, together with the amendment thereto signed by the corporations of the four investors, that the plaintiff realtor, is a creditor of Portofino I and thus an appropriate complainant under s. 248 of the Ontario Business Corporations Act.

I accept the evidence of Valente that when Capaldi bought out he, Mancini and Muroff, he reasonably expected that Capaldi would continue with the project of building and selling the units in Portofino Tower, and that the exclusive listing agreement would continue in full effect. I further accept his evidence that, on the other hand, he never expected that the property would be transferred so that he and the plaintiff realtor would be locked out of it. I conclude that these were reasonable expectations to hold in all of the circumstances, and that they were buttressed by the continuation of the Lunaus as the on-site realtors for months after the buyout, through the time of changeover and the time of meeting with and reassuring the prospective buyers and then further reassuring the buyers and collecting the substantial additional deposits required when Capaldi issued the developers waiver. The case law indicates that the expectations of the claimant form an important part of any claim for relief under s. 248, and I find the expectations of Valente were completely reasonable in the circumstances.

The case law indicates that it is not necessary to prove bad faith or lack of probity to be entitled to relief under s. 248. However, I find here, principally on the oral and documentary evidence provided by Capaldi, that the “corporate restructuring” took place in the way it did primarily in an effort to “get rid of the commissions” which not only disregarded the interest of the plaintiff, but quite apparently was intended to block any efforts by the plaintiff to collect commissions due, and future commissions that should have come due under the exclusive listing agreement. In Gestion Transtech Inc. v. Shipment Systems Strategies Ltd. [2001] O.J. No. 4710 C. Campbell J. said at para. 38:

In this case, at least one major purpose of the transfer of assets was to avoid exposure of those assets to judgment. In my view that is sufficient to attract oppression relief.

Analysis

[46] In Sidaplex-Plastic Suppliers, Inc. and The Elta Group Inc. et al. 1998 5847 (ON CA), 40 O.R. (3d) 563, [1998] O.J. No. 2910 (OCA), the Court of Appeal described the scope of review on appeal as follows:

As pointed out by Galligan J.A. in Naneff v. Con-Crete Holdings Ltd. (1995), 1995 959 (ON CA), 23 O.R. (3d) 481 at pp. 486-87, 23 B.L.R. (2d) 286 (C.A.), s. 248(3) empowers a court upon a finding of oppression to make any order "it thinks fit". This gives the court at first instance a broad discretion and the appellate court a limited power of review. The appellate court is entitled to interfere only where it is established that the court at first instance has erred in principle or its decision is otherwise unjust.

Was Valente a “creditor” entitled to assert an oppression remedy under the O.B.C.A.?

[47] Like my colleagues, I have concluded that Valente was not a creditor within the meaning of the oppression section of the O.B.C.A. and therefore not entitled to seek relief pursuant to the oppression provisions.

[48] A review of the transcript indicates that counsel for the defendants agreed before the trial judge that the plaintiff was a creditor within the meaning of the O.B.C.A. and therefore had standing to bring the oppression claim (See transcript of closing submissions p. 2).

[49] I am not satisfied that the stipulation by counsel for the defence that Valente was a creditor with standing to bring an oppression claim should have ended or did end the inquiry for the trial judge. The O.B.C.A., in s. 248(2), gives a creditor standing to complain. The jurisdiction to remedy oppression is found in the O.B.C.A. It does not exist at common law. A plaintiff who is not a creditor cannot access the remedial jurisdiction of the Court created by s. 248 of the O.B.C.A. No agreement by the parties can or should convey jurisdiction on the Court where none otherwise exists.

[50] However, the trial judge appears not to have relied on any concession made by defendants’ counsel but rather to have made an independent determination that the plaintiff was a creditor entitled to bring an oppression claim. This is evident from the excerpt from the judgment referred to above in which Justice Brockenshire states: “I find on all of the evidence, including of course, the listing agreement signed by the four individual investors, together with the amendment thereto signed by the corporations of the four investors, that the plaintiff realtor, is a creditor of Portofino I and thus an appropriate complainant under s. 248 of the Ontario Business Corporations Act.”

[51] In 1413910 Ontario Inc. (c.o.b. as Bulls Eye Steakhouse & Grill)v. McLennan, 2009 22544 (ON SCDC), [2009] O.J. No. 1828, 309 D.L.R. (4th) 756, a panel of the Divisional Court - Toronto, Ontario (K.E. Swinton, W. Low and A. Karakatsanis JJ.) gave the following interpretation to the term “creditor” as it is used in the O.B.C.A.. Justice Low, speaking on behalf of the Court said at paras. 34 -36:

The oppression remedy is designed to address, where oppression is found, the imbalance of power on the part of those in control with the vulnerability on the part of those having a genuine stake in the affairs of corporation but no control over its conduct. In my view, a person to whom the corporation owes an obligation affirmed by judgment but as yet unquantified by assessment of damages, is in no less vulnerable position vis à vis the corporation and has no less a legitimate stake or interest in the manner in which the affairs of the corporation are conducted than one to whom a liquidated sum is owed.

There is no case on point. Neither Royal Trust Corp. of Canada v. Hordo, [1993] O.J. No. 1560, nor Awad v. Dover Investments Inc., 2004 30248 (ON SC), [2004] O.J. No. 3847 (S.C.J.) referred to by the appellant are of assistance.

In my view, the application judge was correct in concluding that Bulls Eye became a creditor at the time of the liability determination in February 2004 and in informing his decision by reference to the broader and more fundamental construction of the term "creditor". It is that construction which harmonizes with the purpose and intent of the oppression remedy in the statute.

[52] The Bulls Eye Steakhouse and Grill case suggests that the term “creditor” should be given a broad enough meaning to include every one having a right to require the performance of any legal obligation, contract or guaranty, or a legal right to damages arising out of contract.

[53] The position of the defendant Portofino 1 throughout is that there was no breach of the exclusive listing agreement and that any commissions earned by Valente were payable after condominium unit sales closed and, since closings had not occurred, no commissions were payable.

[54] Indeed, even the position advanced by the plaintiff at trial seems premised on the fact that Valente had no claim based on breach of contract. The trial judge at para. 68 of the August 31, 2007 judgment comments on the position advanced by the plaintiff:

Mr. Morga’s reply to the argument of Mr. Ball was brief. He said that this was not a contract case; it was not a case in which the remedy was limited by Haldey v. Baxendale. It was an equity case under s. 248 of the O.B.C.A., seeking a fair remedy, not necessarily based on the strict interpretation of the listing agreement. The case was all about the expectations of the parties. Morga put it that Capaldi had the legal right to do what he did in the “re-organization” but not the equitable right.

[55] The trial judge noted the position of the defendants at para. 67 of his judgment, dated August 31, 2007:

The position taken by the defence, in its closing statement, is that Portofino Riverside Tower Inc. (Portofino I) remains legally obligated to see the plaintiff paid its proper commissions as sales closed under agreements it procured.

[56] A review of the transcript of closing submissions by counsel for the plaintiff makes it clear that the plaintiff was not alleging that its rights under the exclusive listing agreement had been breached by the re-organization. The plaintiff advanced the argument that the oppression resulting from the re-organization was that future commissions would be kept out of the plaintiff's reach. (See transcript of submissions at him pages 6-7 and 16). The plaintiff was not asserting that it had an existing contractual right to require the performance of any contract or any legal right to damages arising out of contract. Furthermore, it is clear from the evidence that there was no breach of contract and no commissions were payable to Valente at the time of the re-organization or at the time the action was commenced. The trial judge made no finding that Valente was entitled by virtue of breach of contract to any damages, quantified or unquantified.

[57] There was no factual or legal basis for a finding that Valente, at the time of the re-organization, was a creditor.

[58] As my colleagues have noted, the clear wording of the listing agreement provided for payment of 50% of commissions only when sufficient pre-sales had been made to satisfy the condition in the project financing agreement. In concluding that the plaintiff had standing, the trial judge seems to have equated actual financing with potential financing. At paragraph 74 of his August 31, 2007 judgment, he states as follows:

I agree with the point raised by Mr. Ball, that the exclusive listing agreement clearly provides that 50% of each commission, plus taxes, shall be due and payable 45 days from the day “in (sic.) which the necessary pre-sales have been achieved to satisfy the condition in the project financing commitment.” I accept that when Capaldi waived the right of the developer to back out of the sales, there was no formal project financing commitment in place. However, the evidence was that financing arrangements had been worked out in principle with the Bank of Montreal and had simply not been formalized. As I understand it, Capaldi waived the condition as a sign of good faith in the project, as an encouragement to existing and prospective buyers that in fact the project was going ahead, and incidentally as a means of triggering the obligation of prospective buyers to substantially increase their deposits. No doubt, with $20,000 instead of $2,500 on hand from each prospective buyer in a trust account, the needed financing would be easier to obtain. In any event, financing clearly did issue and the project in fact is substantially completed. Therefore, the argument would relate only to the date of commencement of prejudgment interest. [Emphasis added]

[59] Financing had not been finalized at the time of the re-organization. No financing commitment was in place. The only financing commitment being discussed was that being proposed by the Bank of Montréal. In the absence of a project financing commitment, when no sales of condominium units had closed, no real estate commissions were payable to Valente. As noted above, in my opinion, the trial judge conflated a proposed financing commitment with a formalized commitment.

[60] However, even if the trial judge properly considered the terms of the proposed BMO financing commitment, those terms prohibited payment of real estate commissions to Valente at the time of the re-organization. The pre-sales requirements contained in the proposed financing agreement required 86 conditional sales of condominium units to arms length purchasers prior to the payment of any commissions to Valente. It was common ground that this number of units had not been sold and therefore no commissions were payable and no commissions owed at the time of the re-organization. To use the terminology of Bulls Eye Steakhouse and Grill, there was no evidence on which the trial judge could find that the plaintiff was in a position to enforce any right to require the performance of any legal obligation, contract or guaranty, or a legal right to damages arising out of contract.

[61] As Justice Farley stated in Royal Trust Corp. v Hordo [1993] O.J. No. 1560:

The person who qualifies as a "complainant" must be in that capacity at the time of the acts complained of: see Trillium Computer Resources Inc. v. Taiwan Connection Inc. (1992), 1992 7610 (ON SC), 10 O.R. (3d) 249 (Gen.Div.) at p. 253; First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 1988 168 (AB KB), 40 B.L.R. 28 (Alta.Q.b.) at 60, rev'd on other grounds (1989), 1989 222 (AB CA), 45 B.L.R. 110 (Alta.C.A.).

[62] I agree with the majority of the Court that Valente was not a creditor when the re-organization occurred. The trial judge made a legal error in so finding.

Was there evidence of oppression within the meaning of s. 248 of the O.B.C.A.?

[63] Once a determination is made that Valente was not a creditor within the meaning of s. 248 of the O.B.C.A., then this Court has concluded that the plaintiff had no standing to complain that the re-organization caused a result that was unfairly prejudicial to, or that unfairly disregarded its interests within the meaning of the oppression provisions of the O.B.C.A.

[64] However, even if this Court is wrong in its conclusion that Valente was not a creditor, there was no oppression by the defendants.

[65] In Sidaplex-Plastics, Blair J. provided a detailed analysis of the principles governing the award of an oppression remedy that was accepted by the Court of Appeal. At p. 403-4 D.L.R., he stated, in the context of a creditor’s right to bring an application as a complainant pursuant to s. 245(c), that “while some degree of bad faith or lack of probity in the impugned conduct may be the norm in such cases, neither is essential to a finding of "oppression" in the sense of conduct that is unfairly prejudicial to or which unfairly disregards the interests of the complainant, under the O.B.C.A.. Blair J. at p. 404 D.L.R. continued as follows:

What the O.B.C.A. proscribes is "any act or omission" on the part of the corporation which "effects" a result that is "unfairly prejudicial to or that unfairly disregards the interests" of a creditor.

[66] At p. 404, Blair J., in considering whether an oppression remedy should be granted, agreed with McDonald J. in First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 1988 168 (AB KB), 40 B.L.R. 28, 60 Alta. L.R. (2d) 122 (Q.B.) at p. 57 B.L.R.:

More concretely, the test of unfair prejudice or unfair disregard should encompass the following considerations: the protection of the underlying expectation of a creditor in its arrangement with the corporation, the extent to which the acts complained of were unforeseeable or the creditor could reasonably have protected itself from such acts, and the detriment to the interests of the creditor. The elements of the formula and the list of considerations as I have stated them should not be regarded as exhaustive. Other elements and considerations may be relevant, based upon the facts of a particular case.

[67] The transfer/sale of the property on which the condominium project was located was foreseeable. Indeed, the plaintiff did endeavour to protect itself against a sale of the property which would create the possibility of being replaced, after the sale of the property, by a different real estate agent to sell unsold condominium units. As noted above, the original exclusive listing agreement was amended to provide for just such a contingency. In that amendment, the parties agreed that should the property be sold during the currency of the listing agreement, the owner/builder would pay to the broker a commission of 5% of the sale price of the property on the completion of such sale. In addition, Valente and Portofino 1 had agreed in the exclusive listing agreement that commissions on pre-sales would not be payable in the absence of a financing commitment and then only in accordance with the terms of the financing commitment. That no commissions based on condominium unit sales were due and payable at the time of the re-organization was in accordance with the agreement.

[68] The owner/builder was entitled to re-organize its affairs to avoid on-going contractual obligations to the plaintiff. Even if the re-organization was cynical and deliberate, the fact that it enabled Portofino to enter into an agreement with another real estate agent and enabled it to avoid future performance of its contractual obligations to Valente is not sufficient reason to depart from the normal basis on which damages are awarded.

[69] The fact that there may have been no damages for breach of contract is no reason to provide relief pursuant to the oppression provisions of the O.B.C.A. As the Ontario Court of Appeal stated in J.S.M. Corp (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., 2008 ONCA 183, [2008] O.J. No. 958, (at para. 60): “It is not the function of the court to rewrite contracts” and “the oppression remedy is not a means by which commercial agreements negotiated at arm’s length by sophisticated parties can be rewritten to accord with a trial judge’s concept of fairness and equity”.

The trial judge made findings of fact that are clearly wrong, unreasonable or unsupported by the evidence.

[70] An appellate court may substitute its own view of the evidence and draw its own inferences of fact where the trial judge is shown to have committed a palpable and overriding error or made findings of fact that are clearly wrong, unreasonable or unsupported by the evidence. See H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401.

[71] The trial judge relied on the evidence of Jerry Goldberg, corporate solicitor for Portofino 1 and the Portofino Corporation, whose evidence he accepted without qualification or caveat. Justice Brockenshire stated in his reasons, at para 55: “I have no difficulty at all in accepting what he told the court as being both credible and reliable.”

[72] Justice Brockenshire found, based on Goldberg's evidence that the real reason for the re-organization was to avoid the payment of any commission to the plaintiff and to place assets beyond the reach of execution creditors by making Portofino 1 an empty shell. These factual conclusions are wrong, unreasonable and unsupported by the evidence of Goldberg or by any other evidence.

[73] Mr. Goldberg's evidence was that one of the objectives of re-organization was to avoid paying future or additional commissions to the plaintiff. His evidence does not support a conclusion that one of the objectives was to avoid paying all commissions including any that might have been earned by Valente prior to the re-organization when Valente was replaced by another real estate agency. Mr. Goldberg’s testimony was that existing obligations to Valente were not intended to be adversely affected. Consider the following excerpt from a transcript of the evidence of Mr. Goldberg:

Q. So the implication that I get out of this, and correct me if I'm wrong, is he's trying to avoid commissions to Valente?

A. Well, not total commissions. He knew that Valente had brought in offers and were entitled, you know, to a payment of commissions for the services and the offers obtained.

Q … okay, future commissions to Pedler, the long and short is, what he's trying to do, one of his goals is to get out of paying commissions to Valente. Isn't that the logical implication from this?

A. Certain amounts of commissions. Once Valente is out of the picture, he didn't need two realtors.

Q. So rather than do that, rather than simply have Portofino sell the land, pay Valente $100,000 commission, we decide to go into this limited partnership agreement in an effort, in part, to evade all future commissions to Valente. Right?

A. As I said, there are several goals and objectives with the owner of the partnership.

Q. And one of them is to avoid paying commissions to Valente?

A. Future and additional commissions.

[74] As mentioned above, even the plaintiff’s counsel in his final submissions conceded that the objectionable purpose of the re-organization was to avoid paying future commissions.

[75] Neither does Goldberg’s testimony - taken on its own or together with the other evidence before the court - reasonably support an inference that the real reason for the re-organization was so that assets of Portofino 1 could not be reached by execution creditors without the help of “special and unusual” court orders. There are two principal reasons why this conclusion is unsupported by the evidence. First, the evidence before the trial judge was that the value of Portofino 1’s interest in the limited partnership was the same as the value of the property and other assets of Portofino 1 before the transfer, that is, $2,000,000. Secondly, this conclusion ignored the fact that the Limited Partnership had provided Portofino 1 with an indemnification for all amounts that Portofino 1 might owe Valente. In addition, the trial judge effectively ignored the evidence that the successor in title had provided both Valente and the Court with irrevocable directions to pay commissions that Portofino 1 might be legally obligated to pay Valente out of the proceeds of condominium unit sales. By virtue of the indemnification and the irrevocable directions, all assets and property that were once held by Portofino 1 were available to satisfy any claim that Valente might have. If Valente was not satisfied that the value of Portofino 1’s interest in the limited partnership was the same as the value of the property and assets it once held before the re-organization, any suggestion that the purpose of the diversion of those assets was to insulate them from being available to satisfy any commissions payable to Valente was completely answered by the indemnification and the irrevocable directions.

[76] In summary, the evidence at trial was that the value of Portofino 1 after the re-organization had not diminished. In any event, the indemnification and the irrevocable directions ensured that there would be no unfair prejudice or unfair disregard to the underlying expectations of Valente in its arrangements with Portofino 1.

[77] The re-organization did not render Portofino 1without assets and incapable of responding to a possible claim by Valente. There is no conduct by the defendants that was unfairly prejudicial to or that unfairly disregarded the interests of Valente within the meaning of the oppression provisions of the O.B.C.A.

Was Dante Capaldi properly found liable?

[78] The answer is no, for the reasons already given, that is, that Valente had no standing as creditor to bring a complaint and there was no conduct which amounted to oppression within the meaning of section 248 of the O.B.C.A.

[79] In addition, the trial judge did not appear to understand the circumstances in which courts have found a director to be liable where oppression has occurred. In s. 248(2)(c) of the O.B.C.A., the legislature has included the exercise of the powers of a company's directors in targeting the kinds of conduct encompassed by an oppression remedy. In Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1995), 1995 7419 (ON SC), 131 D.L.R. (4th) 399, 25 B.L.R. (2d) 179 (Ont. Gen. Div.), varied (1998), 1998 5847 (ON CA), 40 O.R. (3d) 563, 162 D.L.R. (4th) 367 (C.A.), Blair J. commented on directors’ liability under s. 248 of the O.B.C.A. In this regard, Blair J. stated at pp. 405-06 D.L.R.:

Courts have made orders against directors personally, in oppression remedy cases: see, for example, Canadian Opera Co. v. Euro-American Motor Cars, supra; Prime Computer of Canada Ltd. v. Jeffrey, supra; Tropxe Investments Inc. v. Ursus Securities Corp., [1993] O.J. No. 1736 (QL) (Gen. Div.) [summarized 41 A.C.W.S. (3d) 1140]. These cases, in particular, have involved small, closely held corporations, where the director whose conduct was attacked has been the sole controlling owner of the corporation and its sole and directing mind; and where the conduct in question has redounded directly to the benefit of that person.

[80] Brockenshire J. made no finding that Dante Capaldi, as director and controlling mind of Portofino 1, engaged in conduct of the sort that that would attract liability to him. Dante Capaldi was responsible for the re-organization but there was no finding that he directly benefitted from same and no basis upon which the trial judge could find Dante Capaldi liable for acts of oppression. He made an error in law by so finding.

The reasonable expectations of the Plaintiff.

[81] In the case of J.S.M. Corp (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., 2008 ONCA 183, [2008] O.J. No. 958, the Ontario Court of Appeal (at paras. 60 and 62) stated:

The oppression remedy is not, however, a means by which commercial agreements negotiated at arms length by sophisticated parties can be rewritten to accord with a court's after-the-fact assessment of what is "just and equitable" in the circumstances. It is not the function of the court to rewrite contracts or to relieve a party to a contract of the consequences of an improvident agreement. See Jedfro Investments (U.S.A.) Ltd. v. Jacyk, 2007 SCC 55, [2007] S.C.J. No. 55 at para. 34.

The reasonable expectations of parties to commercial agreements negotiated at arms length must be those reasonable expectations that find expression in the agreements negotiated by the parties. … A bad bargain cannot, however, alter J.S.M.'s reasonable expectations or render the breach of the lease oppressive conduct. (Emphasis added)

[82] In para 76 of the trial judgment of August 31, the trial judge stated:

I accept the evidence of Valente that when Capaldi bought out he, Mancini and Muroff, he reasonably expected that Capaldi would continue with the project of building and selling the units in Portofino Tower, and that the exclusive listing agreement would continue in full effect. I further accept his evidence that, on the other hand, he never expected that the property would be transferred so that he and the plaintiff realtor would be locked out of it. I conclude that these were reasonable expectations to hold in all of the circumstances, and that they were buttressed by the continuation of the Lunaus as the on-site realtors for months after the buyout, through the time of changeover and the time of meeting with and reassuring the prospective buyers and then further reassuring the buyers and collecting the substantial additional deposits required when Capaldi issued the developers waiver. The case law indicates that the expectations of the claimant form an important part of any claim for relief under s. 248, and I find the expectations of Valente were completely reasonable in the circumstances.

[83] It is clear that the trial judge did not follow the admonition of the O.C.A. in J.S.M. Corp (Ontario) Ltd.(supra) that the reasonable expectations of the parties to commercial contracts must find expression in the contracts that they have negotiated and not in the judge’s after the fact assessment of what is fair.

[84] Although there are numerous examples in this case of heads of damages not being tied to the commercial bargain struck between the parties in this case, one of the most striking, at least in my view, is a claim by the plaintiff for associated sales commissions unrelated to sales of condominium units in the project. Regarding this claim, the trial judge stated at paragraph 89 - 90:

The issue of associated sales commissions was raised by Mr. Lunau in his evidence. It appears to me to make good common sense that the realtors that have been present at the project from its inception, and in effect holding the hands of the prospective buyers, would quite likely be asked to represent those buyers in sales of their own homes. However, no percentage figure of the number of such buyers was suggested, nor was there any suggestion as to the value of the homes they might own.

I heard no evidence against the suggestion that if the Lunaus had continued with the project, they would have picked up sales from eventual buyers. I am, therefore, prepared to accept that liability has been made out under this heading. However the quantification of it is another matter. In Webb & Knapp (Can.) Ltd. v. Edmonton (City) 1970 173 (S.C.C.), [1970] S.C.R. 588, the court said that liability being established, it is up to the courts to make the best assessment it can to value the chance. I am prepared to make a finding on the basis of the slim evidence before me, of the number of such sales, bearing in mind that some condo purchasers may well not have a home to sell, and others, such as trades people, may be purchasing as an “investment” with no intention of giving up their existing homes.

[85] What can be seen from the above quote is that the trial judge did not consider the framework of the commercial contract as informing the parameters for remediation under the oppression sections of the O.B.C.A. Notwithstanding that there was no evidence to support a claim for associated sales commissions and no contractual basis for such a claim, the judge decided it was an appropriate head of damages based on the expectations of the plaintiff. The trial judge erred in so doing.

[86] I agree with the appellants that the trial judge made other additional awards of damages based on unrealized commissions which Portofino 1 would not have been obligated to pay pursuant to the exclusive listing agreement. I do not intend to deal with them in detail but they include damages for unrealized commissions on: a) units unsold during the term of the Exclusive Listing Agreement; b) upgrades and extras not sold by Valente; and, c) leases of unsold condominium units. I agree that such heads of damages could not be found to arise naturally from a contract breach (if a breach of contract had been found to occur) under the applicable legal principles for assessing damages for breach of contract.

The Judge Erroneously Split the Case into Two Trials

[87] Justice Brockenshire violated the basic right of the defendants to have all issues in the dispute resolved in one trial.

[88] At the conclusion of his first judgment dated August 31, 2007, the trial judge indicated that he was prepared to make a finding of damages on the basis of the evidence at trial but that a more exact quantum of damages could be ascertained in a further proceeding.

[89] The unfairness of the procedure imposed by the trial judge, in my respectful opinion, is obvious. However, one example may serve to underscore the point. As noted above, the plaintiff claimed and was awarded damages based on the loss of sales commissions unrelated to sales of condominium units in the project. Simply put, the theory of this loss was that the real estate agents in the course of selling condominium units would have had the opportunity to act as listing agents for individuals who were purchasing condominium units and had other real estate to sell before they moved in to the condominium unit being purchased.

[90] At paragraphs 89-90 of the trial judgment dated August 31, 2007, which have been reproduced above, the trial judge concluded with respect to this claim for damages that it made “good common sense” that the realtors that have been present at the project and dealing with prospective buyers would likely be asked to represent those buyers in sales of their own homes. The trial judge did state that there was no percentage figure of the number of such buyers who might provide additional business nor was there any evidence as to the value of any homes they might be selling. In addition, the trial judge said that he heard no evidence “against” the suggestion that if Valente's real estate agents had continued with the project, they would have picked up sales from eventual buyers. Nonetheless, the trial judge found the defendants liable for such damages. It seems there are multiple problems with this approach.

[91] Notwithstanding the complete lack of evidence, the trial judge was prepared to accept that liability had been made out under that heading because the defendants didn't call evidence to rebut “the suggestion” that if Valente's real estate agents had continued they would have picked up sales from eventual buyers. It is not the defendants’ burden to disprove damages in the event the plaintiff does not. On this basis alone, the finding of liability is legally flawed.

[92] Secondly, although the trial judge said that he was prepared to assess damages based on the slim evidence before him, the trial judge ordered an “assessment hearing” for which he gave numerous specific directions designed to augment the record with respect to various heads of damage in order to assist in their calculation. These specific directions included instructions related to the claim that ancillary sales were lost. The plaintiffs were directed by the trial judge to provide additional information not produced at trial including:

(h) The reasonable average sale price of contingent ancillary sales by condo purchasers of their own homes;

(i) The reasonable average future date (if applicable) of such future sales and the present value, if applicable, of commissions on such sales;

[93] I agree with the appellants that this bifurcated trial procedure provided nothing short of a second chance for the plaintiff to fix the problems of proof in the first trial. I agree with the appellants that this was a fundamental error and inconsistent with the Supreme Court of Canada decision in Webb & Knapp (Canada) Ltd. v Edmonton(City), 1970 173 (SCC), [1970] S.C.R. 588 which requires the trial judge to determine the value of the claim based on the evidence at trial.

[94] In effect, the trial judge completed the trial, determined that no evidence had been provided by the plaintiff either to support a claim for damages or to enable quantification of damages and then gave the plaintiff a second chance to prove not only that damages should be awarded but also in what quantum.

[95] According to the trial judge, section 248(3) of the O.B.C.A. which authorizes the court to make “any interim or final order it thinks fit” was authority to depart from the principle of law established in Webb & Knapp (Canada) Ltd. v Edmonton(City). The trial judge stated at para. 91:

However, in my view, a fairly exact quantum of damages can be easily ascertained, if necessary, in a further proceeding. In this connection I am pleased to note that s.248(3) of the O.B.C.A. authorizes the court to make “any interim or final order it thinks fit....”

[96] Section 248(3) of the O.B.C.A. is not authority to depart from the principle of law established in Webb & Knapp (Canada) Ltd. v Edmonton(City), 1970 173 (SCC), [1970] S.C.R. 588. The oppression remedy is designed to address the imbalance of power on the part of those in control with the vulnerability on the part of those having a genuine stake in the affairs of corporation but no control over its conduct. In my view, the purpose of Section 248(3) of the O.B.C.A. is to ensure that the court has authority to make orders which are responsive to the variety of circumstances that might present themselves in oppression cases. It provides authority to make a broad range of interim or final orders to protect persons found to be in a vulnerable position and to ensure, to the extent possible, that assets/property are not placed beyond the reach of bona fide claimants who have been adversely affected by oppressive conduct. Section 248(3) of the O.B.C.A. is not designed to permit, nor does it permit, the court to implement unfair procedures.

[97] The parties did not consent to such a procedure. As far as I can see, a review of the record shows that council did not have any notice of or any opportunity to comment on the procedure prior to the assessment trial being ordered. The second trial in which the plaintiff was allowed to make further proof of damages was not announced until the conclusion of the trial on liability.

[98] It is completely contrary to common sense and to notions of efficiency and fairness to have a trial judge determine, on the basis of the evidence put forward by both parties at trial, that since quantification of damages was difficult or since there was no evidence to support some claims, that a second trial would be conducted to allow the plaintiff to bolster the deficiencies of proof in the first trial.

[99] In Elcano Acceptance Ltd. et al. v. Richmond, Richmond, Stambler & Mills, 1986 2591 (ON CA), [1986] O.J. No. 578, 55 O.R. (2d) 56, Morden J.A. at paragraphs 10-12 stated:

The fact that the power to split a trial is not expressly conferred does not, of course, mean that it may not be part of the inherent jurisdiction of the court and we accept that it exists on this basis, to be exercised in the interest of justice. Resort to it has, in fact, been usefully made: see, e.g., Simpsons Ltd. v. Pigott Construction Co. Ltd. (1973), 1973 626 (ON CA), 1 O.R. (2d) 257, 40 D.L.R. (3d) 47, and Lake Ontario Cement Co. v. Golden Eagle Oil Co. Ltd. (1974), 1974 742 (ON SC), 3 O.R. (2d) 739, 46 D.L.R. (3d) 659. …

However, since it is a basic right of a litigant to have all issues in dispute resolved in one trial it must be regarded as a narrowly circumscribed power. This approach is supported by the familiar statutory admonition which is continued in s. 148 of the Courts of Justice Act, 1984 (Ont.), c. 11:

As far as possible, multiplicity of legal proceedings shall be avoided.

[100] I agree with the appellants that the trial judge should not have permitted the plaintiff to litigate in instalments and the judge was in error in so doing.

Conclusion

[101] The trial judge made errors of law and procedure and made unreasonable findings of fact unsupported by the evidence.

[102] The trial judge agreed with and applied the approach recommended by counsel for the plaintiff which was summarized by him as follows:

“… this was not a contract case; it was not a case in which the remedy was limited by Haldey v. Baxendale. It was an equity case under s. 248 of the O.B.C.A., seeking a fair remedy, not necessarily based on the strict interpretation of the listing agreement. The case was all about the expectations of the parties. … Capaldi had the legal right to do what he did in the “re-organization” but not the equitable right.”

[103] The trial judge substituted his assessment of what was just equitable in the circumstances and, in doing so effectively rewrote the commercial contract between the parties. This was not his function.

[104] I agree with the appellants that Valente's rights were to be determined exclusively by the contract between it and Portofino 1, that is, by the terms of the exclusive listing agreement. The trial judge substituted an oppression analysis for breach of contract analysis as if they were legally interchangeable and this fundamental error informed the entire judgment.

[105] Both the Judgment and the Accounting Judgment shall be set aside.

[106] A judgment shall issue dismissing the plaintiff's action in its entirety.

Costs

[107] I agree with the costs disposition in paragraphs 25 and 26 above.

MURRAY J.

Released: February 3, 2010

CITATION: Remo Valente Real Estate v. Portofino Riverside Tower et al., 2010 ONSC 280

DIVISIONAL COURT FILE NO.: 1661/1707

DATE: 2010-02-03

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Remo Valente Real Estate (1990) Limited

Plaintiff/Respondent

and –

Portofino Riverside Tower Inc., Westview Park Gardens (2004) Inc. Portofino Corporation and Dante J. Capaldi

Defendant/Appellants

REASONS FOR JUDGMENT

P. B. Hambly J.

J. C. Murphy J.

T. D. Ray J.

Released: February 3, 2010