Parfenov v. Antonio’s Chicken and Ribs Inc, 2013 ONSC 6057

CITATION: Parfenov v. Antonio’s Chicken and Ribs Inc, 2013 ONSC 6057

DIVISIONAL COURT FILE NO.: 519/12

DATE: 2013-09-27

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: Andrei Parfenov

• v. -

Antonio’s Chicken and Ribs Inc and Antonio Xavier

BEFORE: Mr. Justice H.J. Wilton-Siegel

COUNSEL: Cameron Grant, for the Appellant Antonio Xavier

Andrei Parfenov, Self-Represented

HEARD: September 10, 2013

ENDORSEMENT

[1] The appellant Antonio Xavier (the “appellant”) appeals an order dated October 4, 2012 of Deputy Judge Kay (the “Order”) insofar as he held the appellant to be jointly and severally liable to Andrei Parfenov (the “respondent”) in the amount of $3,248.25 plus costs and disbursements.

[2] The Deputy Judge found that the amount of $3,248.25 was owing by the other defendant Antonio’s Chicken and Ribs Inc. (“ACR”) to the respondent for electrical contracting services provided to it. The respondent asserted that the appellant was also liable as a guarantor pursuant to the terms of a letter dated August 5, 2010 signed by the appellant (the “Assurance Letter”). However, in his reasons dated October 4, 2012, the Deputy Judge found the respondent to be liable on the basis that he “benefitted, one way or another, directly or indirectly, from the sale of the business” of ACR in or about early January 2011. At the closing of that transaction, the respondent provided a certificate under the Bulk Sales Act, R.S.O. 1990, c. B.14 (the “Act”) that incorrectly stated that ACR had no unsecured creditors. The Deputy Judge concluded that “it would be totally unjust for Mr. Xavier to escape personal liability for this false statement from which he benefitted”, and on this basis found the respondent jointly and severally liable with ACR.

[3] The standard of review on an appeal from an order of a deputy judge of the Small Claims Court is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 8, 10, 19, 25, 27 and 28. On this standard, a decision will be interfered with only if the deputy judge made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error. In the present case, the principal issue is the finding of the Deputy Judge that the appellant was personally liable based on the benefit that the Deputy Judge concluded flowed to the appellant from the incorrect certificate under the Act delivered at the closing of the sale of the business of ACR. Whether an incorrect certificate under the Act can give rise to personal liability in this way is a question of mixed fact and law.

[4] The Assurance Letter was written on stationary with a letterhead naming “Antonios”, the address and telephone number of ACR, as well as the words “Churrasqueria”, “Portuguese Chicken and Ribs”, “Delivery” and “Takeout”. The text of the Assurance Letter was as follows:

This letter is to confirm on the sale of Antonios or once the funds are available or no later than December 23, 2010, full payment of $3 248.25 according to invoice number 1202 dated Dec. 23 2009 will be made to Andrei Parfenov for electrical service made at Antonios.

[5] It is significant that the Deputy Judge did not make any finding regarding the respondent’s principal submission that the Assurance Letter constituted a personal guarantee of the appellant. It is clear, however, that the Deputy Judge was alert to this issue. At page 3 of the transcript, he defined the issue for the respondent as whether the appellant was personally liable for the contract between the respondent and ACR. This reflected the fact that the respondent himself acknowledges that his contract was with ACR, not the appellant, notwithstanding the fact that his amended pleadings could be construed to suggest the latter. It is also clear from the second paragraph of his oral reasons. There the Deputy Judge commenced his analysis of the issue in this action by stating that, “[u]nder ordinary circumstances, without clear evidence of personal liability, the officers, directors and employees of the corporate Defendant would not be personally liable”. In the circumstances, and particularly given the respondent’s evidence regarding his view of the legal effect of the Assurance Letter, I think the Court must conclude that the Deputy Judge did not consider that “clear evidence of personal liability” existed. Had he done so, it would not have been necessary to address the imposition of liability based on the incorrect certificate under the Act delivered at the closing of the sale of the business of ACR.

[6] I would add that, if it were necessary to reach a conclusion on this issue, I would also conclude that the evidence does not support a conclusion of personal liability. Whatever the respondent may have believed, or wished to believe, regarding the legal effect of the Assurance Letter, there is no evidence that would support a conclusion from the perspective of a reasonable third party that both parties treated the Assurance Letter as a personal guarantee of the appellant. In this regard, it is important to note that the issue is not what the respondent intended or believed, but what the mutual intention of the parties was regarding the legal effect of the Assurance Letter. It is also important to note that the onus rested on the respondent to establish such liability. The test is ultimately an objective test, based on the wording of the Letter and the actions of the parties.

[7] In this case, the respondent cannot demonstrate on a balance of probabilities that both parties understood that the appellant assumed responsibility for ACR’s obligation pursuant to the Assurance Letter. The Letter does not contain language of a personal assumption of liability on the part of the appellant. It is written on stationary that has the appearance of a crude corporate letterhead, even if it does not use the full name of ACR. There is no action of the appellant that evidences an intention on his part to be bound, upon which the appellant can base his claim. The respondent’s assertion that the certificate delivered at closing failed to refer to his claim because the appellant considered it to be a personal liability remains speculative – it was never put to the appellant.

[8] Accordingly, the issue for the Court on this appeal is whether the Deputy Judge erred in finding liability on the basis of the false certificate. I conclude that he did and that such error constituted either an error of law or a “palpable and overriding error”.

[9] The evidence upon which the Deputy Judge relied is the reporting letter of ACR’s solicitor on the sale. The reporting letter indicates that all monies received on the sale were applied to pay the legal fees of such lawyer, outstanding rent, monies owing to the Canada Revenue Agency, and monies owed to secured creditors of ACR. In response to the appellant’s submission that he did not benefit from the sale, the Deputy Judge stated that he considered that Mr. Xavier benefitted “from not incurring further liability”.

[10] The Deputy Judge then imposed liability on the appellant on one or both of the following bases, neither of which is supportable.

[11] First, the Deputy Judge may have considered that the imposition of personal liability on the appellant was a sanction available to him as a result of the appellant’s undisputed non-compliance with the Act. However, the Act specifically addresses the consequences of non-compliance by providing a remedy in favour of an unsecured creditor in section 16(2) of the Act. That provision imposes personal liability on the buyer, rather than the seller or any officer, director or shareholder of the seller. It does not appear that the respondent has chosen to pursue this remedy. I see no provision in the Act, and I am not aware of any principle of law, that grants a court the authority to impose a different remedy in the form of personal liability of a party who swears an incorrect certificate under the Act on behalf of a corporate seller.

[12] Second, the Deputy Judge also appears to have imposed liability on the basis that the appellant was unjustly enriched by the sale of the business of ACR, which he considered to have been facilitated by the incorrect certificate under the Act. However, on the evidence before him, the requirements of any claim of unjust enrichment are not satisfied for two reasons.

[13] There is no evidence that the respondent received any benefit from the sale. Insofar as the Deputy Judge considered that he received a benefit in the form of “no further liability”, there is no evidence supporting such finding. In addition, and more significantly, there is no corresponding deprivation suffered by the appellant. Given that there were no monies remaining from the proceeds of sale to satisfy unsecured creditors, the respondent was no worse off as a result of the delivery of the incorrect certificate and the closing of the transaction than he would have been had the sale not occurred.

[14] I have also considered whether there is any evidence of fraudulent behaviour on the part of the appellant that would justify the decision of the Deputy Judge based on a piercing of the corporate veil. I conclude, however, that there is not. The appellant says the incorrect certificate resulted from an oversight on his part. While the Deputy Judge found that the certificate was false, even referring to it once as “blatantly false”, the Deputy Judge did not find that the appellant acted fraudulently. There is no evidence to the contrary. There is also no evidence of any “badges” of fraudulent behaviour, in particular, as discussed above, no evidence of any benefit to the appellant.

[15] Given the foregoing, the finding of the Deputy Judge must be set aside and the appeal granted. Given the evidence before the Deputy Judge, and his failure to accept the respondent’s submission of personal liability based on the Assurance Letter, I conclude that the Court should substitute its own determination that the respondent has failed to prove on a balance of probabilities that the appellant is personally liable for ACR’s debt owing to him.

[16] The appellant is therefore also entitled to an order setting aside the costs award of the Deputy Judge in favour of the respondent. In addition, he is entitled to his costs of this appeal. Considering the size of the claim, the nature of the issues involved and the amount of the respondent’s own legal costs, which serve as a proxy for his reasonable expectations, I find fair and reasonable costs to be $2,100 on an all-inclusive basis.

Wilton-Siegel J.

Date: September 27, 2013