CITATION: Registrar, Motor Vehicle Dealers Act, 2002 v. 926749 Ontario Limited, 2012 ONSC 7056
DIVISIONAL COURT FILE NO.: 599/11
DATE: 20121221
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, SWINTON and LEDERER JJ.
B E T W E E N:
REGISTRAR, MOTOR VEHICLE DEALERS ACT, 2002
Appellant
- and -
926749 ONTARIO LIMITED o/a CLONSILLA AUTO SALES AND LEASING, GERALD SHAPIRO and HUGH WADDELL
Respondents
Bernard LeBlanc, for the Appellant
David S. Steinberg and Andrea Bolieiro, for the Respondents
HEARD at TORONTO: November 29, 2012
Swinton J.:
Overview
[1] The Registrar, Motor Vehicle Dealers Act, 2002, appeals the decision of the Licence Appeal Tribunal ("the Tribunal") dated November 14, 2011, in which the Registrar was directed not to carry out a Notice of Proposal to suspend the registration of 926749 Ontario Limited o/a as Clonsilla Auto Sales and Leasing ("Clonsilla" or the "dealership") and Hugh Waddell as a motor vehicle salesperson. The Tribunal also directed the Registrar to register Gerald Shapiro as a salesperson.
[2] The Registrar argues that the Tribunal made an unreasonable decision by taking no licensing action despite fundamental and systemic breaches of the respondents' statutory obligations.
[3] In my view, the Tribunal considered the applicable legal principles and reached a reasonable decision based on the record before it. Accordingly, I would dismiss the appeal.
Legal Framework
[4] Pursuant to s. 6(1) of the Motor Vehicle Dealers Act, 2002, S.O. 2002, c. 30, Schedule B ("the Act"), an applicant for registration is entitled to be registered unless the applicant fails to meet the prescribed requirements. At issue in this appeal are the requirements related to the financial position and the past conduct of an applicant found in ss. 6(1)(a)(i) and (ii) for an applicant who is not a corporation and in s. 6(1)(d)(i), (ii) and (iii) if the applicant is a corporation.
[5] If the Registrar proposes to refuse, suspend or revoke a registration, the Registrar must notify the applicant in writing and set out the reasons for the proposed action (s. 9(1) and (2) of the Act). The applicant may then seek a hearing before the Tribunal.
[6] The hearing proceeds by way of a trial de novo, with the onus on the Registrar to satisfy the Tribunal that the Notice of Proposal should be carried out. The Tribunal may direct the Registrar to carry out the proposal or substitute its opinion for that of the Registrar and may attach conditions to the order or to a registration (s. 9(5) of the Act).
Factual Background
[7] Clonsilla is registered as a motor vehicle dealer, carrying on a small business selling and leasing cars in Peterborough, Ontario. It is wholly owned by Nancy Waddell. Her husband, the respondent Hugh Waddell, is a registered motor vehicle salesperson. Because of a criminal conviction for fraud in 1995, Mr. Waddell's registration is subject to conditions, including the condition that he not act as a directing mind of the dealership, and that he not be in direct or indirect control of the dealership. The respondent Gerald Shapiro was at all material times Clonsilla's general manager.
[8] Investigators working for the Registrar made a routine inspection of Clonsilla in July 2007. They found Mr. Waddell in day to day control with Mr. Shapiro. In a follow up inspection in October 2007, the investigators found that the dealership records were not of the type one would normally find. A request for ledgers was made in November 2007. However, the dealership did not keep ledgers.
[9] The investigators made requests for detailed information beginning in March 2008. The Registrar was not satisfied with the information provided. Ultimately, on January 21, 2010, the Registrar decided to issue a Notice of Proposal to suspend indefinitely the registrations of Clonsilla, Mr. Shapiro and Mr. Waddell because of concerns about their past conduct and financial position. The Registrar issued a further Notice in August 2010 to refuse to renew the registration for Mr. Shapiro, whose registration had expired and who had been denied renewal.
[10] At the hearing before the Tribunal, the Registrar relied on four grounds: the failure to provide adequate documentation when requested, the failure to maintain proper books and records, Mr. Waddell's violation of conditions of his registration and Mr. Shapiro's failure to adequately supervise him, and Mr. Shapiro's provision of false and misleading information on Clonsilla's registration renewal application.
[11] The Tribunal held a seven day hearing, in which it heard evidence from the individual respondents and witnesses for the Registrar and then gave detailed reasons in which it rejected the proposal.
The Issues on Appeal
[12] The Registrar agrees with the respondents that the standard of review in respect of the issues raised on this appeal is reasonableness.
[13] The Registrar argues that the decision of the Tribunal was unreasonable and its reasons were inadequate in a number of ways: the failure to take action against the respondents because of the refusal to produce financial information to the Registrar; its findings respecting the financial position and financial responsibility of the dealership; its reliance on the evidence of the respondents' accounting expert; its failure to consider past conduct appropriately, including the failure to take action against Mr. Waddell for the breach of the conditions on his registration and its mischaracterization of the proposal to suspend as a proposal to revoke; and its findings that are inconsistent with the evidence.
Analysis
Production of Financial Information
[14] The Registrar argued that Clonsilla persistently refused to provide financial information to which the Registrar was entitled to have access during investigations. While the information was ultimately provided, this occurred only at the eleventh hour. The Tribunal is said to have unreasonably failed to provide some sanction, because the conduct goes to Clonsilla's lack of governability.
[15] Section 15(2)(a) of the Act provides that an investigator, acting for the Registrar, is entitled to free access to documents and records that are relevant to an inspection. However, the Act and regulations do not set out accounting requirements.
[16] The Tribunal rejected the Registrar's allegations that Clonsilla had not been cooperative in providing information and that this had prevented the Registrar from determining Clonsilla's financial position. The vice-chair noted that the investigators had been invited to take records or documents at the time of their on-site investigations. As well, further information had been provided to the Registrar after requests "although not at the pace and in the forms satisfactory to the Registrar" (Reasons, pp. 15-16).
[17] There was evidence in the record upon which the Tribunal was entitled to rely in reaching this conclusion, and its decision on production was reasonable. Therefore, I would not give effect to this ground of appeal.
Financial Position and Financial Responsibility
[18] The Tribunal then went on to consider the Registrar's concern about the form of the records kept. The Registrar argued that the financial position of the dealership could not be assessed, given the lack of adequate records.
[19] The Act requires the Registrar and the Tribunal to consider the applicant's financial position or that of an interested person and to find the applicant is not entitled to be registered if "the applicant cannot reasonably be expected to be financially responsible in the conduct of business" (s. 6(1)(a)(i) and (d)(i)). There is no definition of "financially responsible" in the Act or regulations.
[20] When one reads the provisions as a whole, it is clear that the "financial position" of the applicant or a person interested qualifies the words in the second part of the provisions dealing with financial responsibility. The Tribunal adopted this interpretation, looking first at the financial position of the dealership and the two individual respondents. The Tribunal then asked itself whether the financial position would lead it to believe that the dealership could not reasonably be expected to carry on business in a financially responsible manner.
[21] The Registrar raised no concerns about the financial position of Mr. Waddell or Mr. Shapiro. Essentially, the Registrar took the position that after extensive requests for production of accounting and other financial records, it was unable to determine Clonsilla's financial position and thus whether Clonsilla could reasonably be expected to conduct business in a financially responsible manner.
[22] The Tribunal disagreed, noting that the Registrar is not entitled to ask for audited statements under the Act. The Tribunal then stated,
Given that there is no authority in the Act to require registrants to provide audited statements, it seems a reasonable argument that the financial position of a registrant can be determined without having to substantiate the legitimacy of every business expense. (Reasons, p. 17)
[23] The Tribunal also found that formal accounting records were not required under the Act (which the appellant's witness conceded in cross-examination). I note that there are some provisions in the regulations that pertain to record keeping: for example, s. 53 of O. Reg. 333/08 requires a dealer to maintain records of trades, while s. 54 sets out the business records that a registered motor vehicle dealer is required to maintain, including information about employees, a list of persons associated with the business, records of any financing of the business and records for each account required under s. 59. Section 59 requires the dealer to have at least one non-trust account. There is no suggestion that the respondents failed to comply with these provisions.
[24] The vice-chair observed that Clonsilla was in the process of implementing a computerized general ledger and now kept a cash receipt book. Therefore, she concluded that the two issues about the inadequacy of financial records had been addressed (Reasons, p. 16).
[25] The Tribunal also held that there was no evidence to support a finding that Clonsilla would not be expected to conduct business in a financially responsible way. The vice-chair considered the expert accounting evidence from both sides and concluded that "there is no evidence to support a finding that the Dealer can not be expected to carry on business in a financially responsible way" (Reasons, p. 18). Specifically, the Tribunal found (at pp. 18-19):
Neither expert provided any evidence that would give rise to concern about the Dealer's financial position, nor did either opine that the financial position of the Dealer could not be determined given the records being kept. To date the Dealer has been able to meet all its obligations. It clearly has a number of sources for funding. There are no outstanding debts or judgments. It has complied with GST and PST requirements and there are no consumer complaints. Records are being kept with respect to the business, and its transactions, which have allowed it to meet its reporting requirements and pursue any defaulting lessees, although these records have not been in the form the Registrar believes financially responsible. The Act does not specify the form of records which must be kept and the Tribunal is not prepared to find that the Dealer has failed to act financially responsibly simply on the basis that the records it kept were not typical.
[26] The Tribunal also rejected the Registrar's argument that the payment of personal expenses through the dealership raised questions about its financial position. The Tribunal noted that neither expert raised the payment of personal expenses as an issue affecting either the financial position of the dealership or its ability to carry out business in a financially responsible manner.
[27] The Tribunal concluded that the Registrar had failed to prove that Clonsilla could not be expected to act in a financially responsible manner, given its financial position. That conclusion was a reasonable one, based on the legislative provision and the evidence before the Tribunal.
[28] The Tribunal did not err in considering evidence produced by the respondents after the Registrar filed the Notice of Proposal. The Act does not require the Tribunal to consider only information that was before the Registrar. Significantly, the provisions in s. 6(1) regarding an applicant's financial position are forward-looking. The Tribunal can consider all information relevant to an applicant's ability to be financially responsible on a "go forward" basis.
The Expert Evidence
[29] The Tribunal heard extensive evidence, including that of two accounting experts, Cameron McCaw for the Registrar and Brad Huggins for the respondents. The evidence of Mr. Huggins, in particular, supported the Tribunal's conclusion that Clonsilla could reasonably be expected to carry on business in the future in a financially responsible manner.
[30] The Registrar takes issue with the Tribunal's reliance on the evidence of Mr. Huggins, arguing that this was unreasonable, because Mr. Huggins lacked the necessary independence to be an expert witness. Mr. Huggins, a chartered accountant, and two employees of his firm spent extensive time reviewing the dealership records and worked with the respondents in preparing his report. He also made a number of changes in earlier versions after receiving input from the individual respondents.
[31] The Tribunal considered the Registrar's argument that Mr. Huggins was an advocate and rejected the argument. The vice-chair found that the report of Mr. Huggins, like that of Mr. McCaw, was based on the facts and figures in the documentation provided. She also held that Mr. Huggins provided sensible explanations for any changes to the draft reports, concluding that his evidence was "thorough and reliable."
[32] The Tribunal was in the best position to consider the independence of the expert, having heard all the evidence and having observed him under cross-examination. The conclusion that Mr. Huggins was an independent witness is deserving of deference from this Court.
Consideration of Past Conduct
[33] The Registrar argues that the Tribunal asked itself the wrong question, because it failed to take past conduct into consideration - in particular, the fact that Mr. Waddell breached a condition that he not perform a management role.
[34] The Tribunal was applying s. 6(1)(a)(ii) of the Act. Its task was to determine whether the past conduct of Mr. Waddell "affords reasonable grounds for belief that the applicant will not carry on business in accordance with law and with integrity and honesty." It found that Mr. Waddell had breached the conditions on his registration on three discrete occasions: twice when he signed documents when Mr. Shapiro was on vacation and once when he held himself out as general manager.
[35] The Tribunal nevertheless concluded that Mr. Waddell was not deserving of further sanction. In particular, the vice-chair rejected the proposal of an indefinite suspension until compliance, since this would effectively amount to a revocation (Reasons, p. 22). The Tribunal determined that Mr. Waddell should be given a second chance.
[36] In my view, the Tribunal applied the correct legal principles, as it considered both past conduct and likely future conduct. While it found that the breaches were serious, it concluded that the incidents were isolated and caused no harm to consumers. Pursuant to s. 9(5), the Tribunal had a discretion as to the appropriate sanction to take, given the breach of the conditions. The Tribunal took into account both past conduct and the risk of future non-compliance, including the gravity of the breach of conditions. The decision to impose no sanction on Mr. Waddell was within the range of reasonable outcomes, given the evidence before the Tribunal.
[37] The Registrar had also refused to renew Mr. Shapiro's application for renewal of his registration because he was alleged to have provided false information on the renewal application for the dealership's registration and because he failed to adequately supervise Mr. Waddell.
[38] The Tribunal held that Mr. Shapiro's conduct in supervising Mr. Waddell did not disentitle him from registration, given the Tribunal's finding that Mr. Waddell's non-compliance with the conditions on his registration did not warrant a suspension, and given Mr. Shapiro's long history of compliance with the Act. That was a reasonable conclusion.
[39] The Registrar took the view that Mr. Shapiro deliberately provided misinformation about the signatories at the dealership's bank when he filled out the application for renewal of registration. However, the Tribunal accepted Mr. Shapiro's explanation that he made an honest mistake in filling out the renewal application for the dealership, given the way in which the form was designed. In addition, the Tribunal concluded that there was no ongoing concern about his ability to carry on business in accordance with law, integrity, and honesty given his long and unblemished record in the industry.
[40] Again, there was ample evidence to support these findings. It was reasonable for the Tribunal to conclude that Mr. Shapiro should not have been deprived of his registration.
Findings Inconsistent with the Evidence
[41] The Registrar argues that the Tribunal made two findings inconsistent with the evidence. The first arises from the statement that this was not a case "where records were not being kept or where access was denied." When that statement is read in context, it is clear that the Tribunal was distinguishing other cases where there was a failure to keep any records or to cooperate. It found that those cases were distinguishable. In my view, its conclusion was a sound one, given the finding it made about the production issue.
[42] The Registrar also argued that the Tribunal erred in stating that the payment of personal expenses was not an issue identified by the accounting experts as affecting the financial position of the dealership. I disagree. The Tribunal's finding was supported by the evidence.
Conclusion
[43] The Tribunal held a lengthy hearing at which it heard extensive evidence. It gave detailed reasons in which it applied the proper legal principles and reached a conclusion that was within the range of acceptable outcomes, given the record before it. Accordingly, the appeal is dismissed.
[44] The appellant shall pay costs to the respondents in the amount of $40,000, an amount agreed upon by the parties.
___________________________
Swinton J.
___________________________
Kiteley J.
___________________________
Lederer J.
Released: December 21, 2012
CITATION: Registrar, Motor Vehicle Dealers Act, 2002 v. 926749 Ontario Limited, 2012 ONSC 7056
DIVISIONAL COURT FILE NO.: 599/11
DATE: 20121221
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, SWINTON AND LEDERER
B E T W E E N:
REGISTRAR, MOTOR VEHICLE DEALERS ACT, 2002
Appellant
- and -
926749 ONTARIO LIMITED o/a CLONSILLA AUTO SALES AND LEASING, GERALD SHAPIRO and HUGH WADDELL
Respondents
REASONS FOR JUDGMENT
_________________________________________
Swinton J.
Released: December 21, 2012