CITATION: Paulsen v. Wolfson Law Professional Corporation, 2015 ONSC 5714

DIVISIONAL COURT FILE NO.: 276/14

DATE: 20150827

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

DUANE PAULSEN and PURRFECT PAGES INC.

Defendants/Appellants

– and –

WOLFSON LAW PROFESSIONAL CORPORATION

Plaintiff/Respondent

Joseph Markin, for the Appellants

Jonathan Charland, for the Respondent

HEARD at Toronto: April 28, 2015

AMENDED REASONS FOR JUDGMENT

Then J.

1The appellants, Duane Paulsen (Paulsen) and Purrfect Pages Inc. (Purrfect Pages), appeal the judgment of Deputy Judge M. Mungovan of the Small Claims Court dated May 8, 2014 whereby he awarded $10,475.98 in damages representing legal fees which he held were owed jointly and severally by the appellants to the respondent Wolfson Law Professional Corporation (Wolfson). He also awarded costs in the amount of $1,894.60 to the respondent Wolfson.

2As I discern no palpable or overriding error with respect to his findings of fact and indeed as I am in substantial agreement with the reasons of D.J. Mungovan at trial, I would dismiss the appeal for the reasons that follow.

3The background to the litigation is set out in the decision of Mungovan, D.J. at para. 4 – 7 as follows:

4. Wolfson Corporation is a law firm. Mr. Kenneth Wolfson and Mr. Rex McCafferty were members of that firm that dealt with Mr. Duane Paulsen. Mr. Paulsen is the sole shareholder and sole director of Purrfect Pages Inc. Purrfect Pages Inc. operated a website that contained advertisements from businesses in Barrie and the surrounding area.

5. Mr. Paulsen either on his own behalf or on behalf of his company, Purrfect Pages Inc. sought legal assistance from Mr. Wolfson with respect to litigation involving a Mr. Johnston. Mr. Johnston was a salesman or independent contractor employed by Purrfect Pages Inc. Evidently, these parties, Mr. Johnston on the one hand and Mr. Paulsen representing Purrfect Pages Inc. on the other hand, entered into a contract wherein Mr. Johnston agreed to buy the assets, including accounts receivable, of Purrfect Pages Inc. Mr. Johnston, however, received these assets before he had paid their purchase price. As I understand it, Purrfect Pages Inc., sued Mr. Johnston for the purchase price. Mr. Wolfson acting for Purrfect Pages Inc., succeeded in this action. However, Mr. Jonston refused to pay damages, awarded by the court to Purrfect Pages Inc. Hence Mr. Paulsen turned to Mr. Wolfson for assistance in enforcing this judgment. The kind of enforcement chosen by Mr. Wolfson was garnishment of Mr. Johnston’s bank account.

6. Purrfect Pages Inc. was incorporated on December 10th, 2007. During these proceedings Mr. Wolfson, through searching Corporations Canada “on-line”, became aware of a Certificate of Dissolution dated October 8, 2013. The reason for the issuance of this Certificate was probably the status of annual filings, viz., the annual filings for 2012 and 2013 were “overdue”. However, that problem was corrected on March 3rd, 2014 with a Certificate of Revival. In any event, even without the Certificate of Revival, “a civil … action … commenced … against the body corporate before its dissolution may be continued as if the body corporate had not been dissolved.

7. Mr. Wolfson also dealt with corporate matters for Purrfect Pages Inc. He reviewed the company’s minutes book to see what was required. As a result of that review, he drafted a number of corporate documents: for instance, directors’ resolution allotting common shares of Purrfect Pages Inc. to Duane Paulsen (90), Jose A. Luna (5) and Juan Moises Pimentel (5) dated March 1, 2009; directors’ resolution approving financial statements, dated November 9, 2011, and appointing officers, dated November 9, 2011; resolution of shareholders approving financial statements, appointing accountant, electing directors, confirming acts or directors and officers, dated November 9, 2011, Mr. Paulsen was supposed to sign these documents and return them to Mr. Wolfson. However, none of them was returned, and none of them was even signed.

[Footnotes omitted.]

the issues

4On appeal, the issues raised are substantially similar to those raised at trial and may be stated as follows:

1. Did the trial judge err in finding that the appellant, Paulsen, was personally liable for the legal fees owing to the respondent:

(i) in the absence of evidence that the appellant had personally retained the respondent?

(ii) by holding that the corporate appellant, Purrfect Pages was not entitled to the privilege of the separate entity attributed to the corporation?

(iii) by holding that there was sufficient evidence to establish that the respondent Wolfson was a creditor of the appellant, Purrfect Pages, was Wolfson entitled to an oppression remedy under s. 241 of the Business Corporations Act, R.S.O. 1990, c. B.16, against the appellant Paulsen?

2. What fees and disbursements do the appellants, Purrfect Pages and Paulsen owe the respondent?

Analysis

1) Who retained the respondent?

5In his reasons for decision, the Deputy Judge found as a fact that invoices for legal services which were addressed to both appellants were some evidence that Paulsen and Purrfect Pages were both clients. However, he also found as a fact that there was neither a written retainer nor any discussion into who would be responsible for legal fees and disbursements. The Deputy Judge held that while the respondent was not aware of the near insolvency of Purrfect Pages initially, it was nevertheless patently unreasonable for Paulsen, who did know of the financial situation of Purrfect Pages, to think that his corporation should or would be responsible for legal fees given its state of insolvency. Accordingly, the Deputy Judge held both appellants, Paulsen and Purrfect Pages jointly and severally liable for legal fees owing to the respondent from September 2009 to April of 2012 as indicated by the invoices.

6While I agree with the Deputy Judge that Paulsen is jointly and severally liable along with Purrfect Pages for the legal fees of the respondent, in my view, actual discussion pertaining to retainer is unnecessary in the absence of a written retainer as a retainer may be inferred from the conduct of the parties.

7This point is made in Halsbury’s Laws of Canada on the Legal Profession Canada: LexisNexis, 2007), Jakub Adamski, at p. 304 where the author states:

No formal requirements. The retainer may be oral or, preferably, written. It may also be inferred from the parties' conduct. Thus, for example, in a case where the solicitor denied he was acting on behalf of the plaintiff mortgagee but only for the development company on the other side of the transaction, the plaintiff proved the existence of the retainer by producing a letter from the solicitor pertaining to the mortgage transaction, another letter to the plaintiff about a separate transaction and representations made by the development company in the solicitor's presence that the lawyer was acting on the plaintiffs behalf.

[Footnote omitted.]

(See: Laiman v. Orzech (1993), 44 A.C.W.S. (3d) 607)

8In this case the onus was on Wolfson to point to conduct from which it could be inferred that the parties agreed Paulsen was individually a client. The evidence relied upon by the Deputy Judge included the fact that Paulsen was aware of the poor financial state of Purrfect Pages, but agreed that Wolfson’s legal fees would be paid somehow. This knowledge along with the invoices for legal fees and other communications that took place between the parties were relied on by the Deputy Judge to prove Paulsen was personally liable for the legal services.

9By “other communications” I refer to the instructions given by Paulsen to Wolfson at the initial meeting whereby Wolfson would send a letter to Johnston “to demand Johnston pay me my $25,000 for something bad would happen.”

10With respect to the significance of the instructions given by Paulsen in Halsbury’s Laws of Canada on the Legal Profession, Jakub Adamski states at pp. 453-4:

Who retained the lawyer? The test for determining who is liable for lawyers' charges is probably one of common sense. Thus, lawyers should be able to look for payment to any person who has provided instructions, whether the instructions could, when carried out, benefit the instructing "client" or not.

(See: Meredith & Co. v. Poloway, [1989] 40 B.C.L.R. (2d) 281 at 286 (B.C.C.A.)

11Finally, although some allowance must be made for the fact that Paulsen was not legally trained, albeit no stranger to litigation, his evidence at trial tends also to demonstrate that he personally retained Wolfson. For example:

(1) “But shouldn’t I have been warned of my risks?” (Transcript, vol. 1, p. 58).

(2) “When I engaged Wolfson I had $10,000 credit in my account in my barter account. (Transcript, vol. 1, p. 90)

(3) “I looked at the invoices and as you know, I paid – Purrfect Pages paid some of them” (Transcript, vol. 2, p. 40)

(4) “It’s my understanding and I am not a legal expert, that why I hired you.” (Transcript, vol. 2, p. 94)

12In my view, there is sufficient evidence to support the conclusion of the Deputy Judge that Wolfson was retained by Paulsen personally.

(i) Is Purrfect Pages entitled to the privilege of separate entity attributed to the corporation?

13The Deputy Judge held that if Purrfect Pages was not entitled to the privilege of separate entity then shareholders, officers, and directors of the corporation may become personally liable for what otherwise would be corporate responsibilities. Based upon the financial statements, the Deputy Judge concluded that in the years 2008 - 2010 the corporation was insolvent and otherwise severely undercapitalized. He held that Mr. Paulsen had not injected into his company “adequate capital for its prospective liabilities” and that Paulsen lost the privilege of separate entity, becoming personally liable as the sole shareholder and director of Purrfect Pages.

14The Deputy Judge relied on the California case, Automotrize etc. De California v. Resnick, 47 Cal. 2d 792, which held that a factor to be considered when deciding whether to pierce the corporate veil was whether there had been an attempt to provide adequate capitalization for the corporation or if the corporation had been undercapitalized. At para. 7, Gibson C.J. of the Supreme Court of California quotes from Ballantine on Corporations:

If a corporation is organized and carries on business without substantial capital in such a way that the corporation is likely to have no sufficient assets available to meet its debts, it is inequitable that shareholders should set up such a flimsy organization to escape personal liability.

15Although Automotriz has not been cited in another Canadian case, the concept of undercapitalization, also sometimes referred to as inadequate or “thin” capitalization, has been used as a factor to disregard the corporate personality.

16In De Salaberry Realties Ltd v. Canada (Minister of National Revenue – M.N.R.) (1974), 1974 1259 (FC), 46 D.L.R. (3d) 100 (Fed. Ct.), Decary J. dismissed the Appellant's appeal of income tax assessments and held that the corporate veil should be pierced for evidentiary purposes because the organization was a thinly capitalized subsidiary company that acted only as an instrument in carrying on business of its parent company, and was created solely for tax purposes.

17Decary J. thought it would be useful to examine the case law which had developed from the United States regarding the doctrine of separate legal entity. At paragraphs 47 to 49 he quoted from Fletcher's Cyclopedia of the Law of Private Corporations, which refers to the same quote that was cited in Automotriz, supra. It states the following about inadequate capitalization:

If a corporation is organized and carries on a business without substantial capital in, such a way that the corporation is likely to have no sufficient assets available to meet its debts, it is inequitable that the stockholders should set up such a flimsy organization to escape personal liability. The attempt to do corporate business without any sufficient basis of financial responsibilities to creditors is an abuse of the separate entity and will be ineffectual to exempt the stockholders from corporate debts. It is coming to be recognized as the policy of the law that stockholders should in good faith put at the risk of the business unencumbered capital reasonably adequate for its prospective liabilities. If the capital is illusory or trifling compared with the business to be done and the risks of loss, this is ground for denying the separate entity privilege (para. 48).

18Although De Salaberry is factually very different from the case at bar, it is clear that the principle articulated by Gibson C.J. of the Supreme Court of California, has been accepted in Canadian jurisprudence. In my view, the Deputy Judge did not err in holding that Purrfect Pages lost the privilege of separate entity and that accordingly Paulsen was personally liable to Wolfson for legal fees provided to the corporation.

(ii) Is Wolfson as a creditor of Purrfect Pages entitled under the Canada Business Corporations Act to an “oppression remedy” against Paulsen?

19Paulsen submits that there is insufficient evidence to support an oppression remedy in the circumstances of this case. I disagree.

20Creditors can seek relief by way of the oppression remedy. Halsbury' s Laws of Canada on Business Corporations, Lexi Nexus (2013) by Kevin McGuinness, states the following:

[T]he oppression remedy may be suitable in cases where recovery from the corporation itself is impossible or impractical. In such a case the complainant may pursue an order from the court imposing personal liability upon directors (or shareholders) for the manner in which they have conducted the affairs of the corporation concerned. The jurisdiction to make such an order appears to supplement the power of the courts to lift the corporate veil.

For the final statement, Halsbury's author relies on the same case that the Deputy Judge referred to, Sidaplex-Plastic Suppliers, Inc. v. Elta Group Inc. (1995), 1995 7419 (ON SC), 131 D.L.R. (4th) 399

21With respect to the “oppression remedy” section 241 of the Canada Business Corporations Act states:

241. (1) A complainant may apply to a court for an order under this section.

(2) If, on 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 a result,

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

(c) the powers of the directors of the corporation or any of its affiliates are or have been 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, the court may make an order to rectify the matters complained of.

(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,

(j) an order compensating an aggrieved person;

22The Supreme Court of Canada established the test for the availability of an oppression remedy in BCE v. 1976 Debentureholders, 2008 SCC 69. In assessing a claim of oppression, a court must answer two questions· (1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? For the first question, useful factors from the case law in determining whether a reasonable expectation exists include: general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders. For the second question, a claimant must show that the failure to meet the reasonable expectation involved unfair conduct and prejudicial consequences.

23Regarding the first step of the oppression remedy test, in this case there is evidence that Mr. Wolfson had a reasonable expectation that he would be paid for his legal services. He wrote letters and invoices to both Duane Paulsen and Purrfect Pages because he perceived them both as his client (Transcript, vol. 1, p. 30). Mr. Wolfson stated that he was engaged by Mr. Paulsen and his companies and acted for him and his companies on a number of matters. He gave invoices to both Mr. Paulsen and Purrfect Pages and was paid a few times, but was not paid on other occasions (Transcript, vol. 1, p. 53). Although Mr. Wolfson could not produce evidence that a formal written retainer or an engagement letter was executed, he thought he did have a written retainer (Transcript, vo1. 1, p · 23). It is common ground that he and Paulsen agreed that he take on the initial project of recovering $25,000 from Johnston in terms of the lawsuit by means of barter dollars, however the disbursements would be paid in cash (Transcript, 'vol. 1, p. 41). Looking at the commercial practice (lawyers get paid for services), the relationship and past practice between the parties (Mr. Wolfson had been paid in the past by Mr. Paulsen and Purrfect Pages) it is clear that Mr. Wolfson had a reasonable expectation that he would be paid for his legal services.

24Regarding the second step of the oppression remedy test, in this case there is evidence that Mr. Paulsen failed to meet Mr. Wolfson's reasonable expectations to be paid and this conduct was unfairly prejudicial. In BCE Inc. the SCC stated at para. 94: "Unfair disregard" is viewed as the least serious of the three injuries, or wrongs, mentioned in s. 241. Examples include favouring a director by failing to properly prosecute claims, improperly reducing a shareholder's dividend, or failing to deliver property belonging to the claimant." In this case, the facts are similar to failing to deliver property belonging to a claimant. Mr. Paulsen decided that Mr. Wolfson had made a number of mistakes and that what Mr. Paulsen had already paid should be enough for the services rendered (Transcript, vol. 1, p. 21). Mr. Paulsen's actions amount to unfair conduct and prejudicial consequences. It is not necessary as Paulsen submits that the unfair conduct amount to fraud.

25In my view, the Deputy Judge did not err in holding that there was sufficient evidence to establish an oppression remedy on behalf of the respondent in the circumstances of this case.

2) What fees and disbursements do the appellants, Purrfect Pages and Paulsen owe the respondent?

26The Deputy Judge concluded that the indebtedness of Purrfect Pages and Paulsen to Wolfson with respect to legal fees was $10,475.98. He arrived at that figure by adding together with the aggregate costs of the invoices submitted to Purrfect Pages and Paulsen ($17,160.98) and subtracting from that figure the aggregate cost of the invoices already paid to Wolfson less Purrfect Pages and Paulsen ($6,685).

27However, it was Paulsen’s position at trial that he should not have to pay any further monies to Wolfson for several reasons which the Deputy Judge, in my view, did not err in rejecting.

28First, Paulsen submits that Wolfson never explained to him Wolfson’s method of charging clients. Wolfson admitted that he did not specifically itemize an hourly rate and times. Wolfson explained his billing practices at trial stating:

We present billings based upon the work and the success won. In most cases we find that we put in more time than we actually bill for. So that most of our clients would find that if we just take our time dockets and run those through we should be charging an amount higher than the amount that we would normally charge doing it this way.

29The Deputy Judge concluded that it would, of course, have been preferable for Wolfson to have discussed with Paulsen his method of charging clients. However, after examining the invoices, the Deputy Judge concluded that Wolfson had not taken advantage of Paulsen in the circumstances. I discern no error on the part of the Deputy Judge in holding that the failure of Wolfson to present his billings in reference to his hourly rate and time spent on specific tasks did not constitute a sufficient reason for Paulsen to refuse to pay a reasonable and fair amount for appropriate legal services.

30Secondly, Paulsen also submits that it is unreasonable to pay for legal services in the amount of $17,160.98 in order to collect $25,000 in Small Claims Court and moreover, he should have been alerted to this possibility by Wolfson. The Deputy Judge appeared to be satisfied that Wolfson probably warned Paulsen about the costs of litigation as Wolfson testified because Wolfson normally spoke to clients about costs of litigation and the risk of losing although Wolfson testified that that he would not honestly remember speaking to Paulsen about the probability of the cost of legal services in the range of $17,000.

31In any event, I agree with the respondent that proportionality is a concept applicable to the award of costs and not to the scale of fees payable to counsel in an action. The authorities cited by Paulsen both refer to the fixing of costs after an action not to fees charged by one’s own counsel. (See Cimmaster Inc. v. Piccione (c.o.b. Manufacturing Technologies Co.), 2010 ONSC 846, [2010] O.J. No. 456, A & A Steelseal Waterproofing Inc. (c.o.b. A & A Sealtite Flatroof Specialists) v. Kalovski, [2010] O.J. No. 2167 (S.C.) at para. 13, 21 & 23).

32Thirdly, in my view, based on the record as a whole, the real reason why Paulsen, an experienced litigator did not wish to pay for legal services was not because the costs for those services were excessive, but rather because he felt he should not pay for the “missteps” of Wolfson in attempting to garnish Johnston’s bank accounts at various branches of the Royal Bank of Canada and for proceedings ancillary to the garnishment.

33The reasons of the Deputy Judge with respect to the so-called “missteps” are outlined in paragraphs 20, 23-36 of the decision under appeal. I accept the facts relied upon and the conclusions drawn by the Deputy Judge to the effect that the evidence does not support any “misstep” on the part of Mr. Wolfson for the reasons outlined by the Deputy Judge in the paragraphs referred to above.

34Finally, Paulsen submits that it is common ground that the parties agreed that legal services with respect to the proceedings against Johnston would be paid for by barter dollars whereas the disbursements would be paid for in Canadian dollars. Accordingly, Paulsen submits that the Deputy Judge erred in awarding Wolfson $10,475.98 in Canadian dollars as this was not what the parties agreed to nor was there admissible evidence that the value of a barter dollar was equivalent to a Canadian currency dollar.

35On the latter point, there is clear evidence on the record from Wolfson which was not contradicted by Paulsen that one barter dollar equals one dollar in Canadian currency (Transcript, vol. 1, p. 90). Moreover, all of the invoices submitted by Wolfson to Paulsen and Purrfect Pages were submitted in Canadian dollars. This further establishes the equivalency of barter dollars to Canadian dollars.

36In my view, notwithstanding that the parties agreed that the method of payment for legal services in the Johnston matter was to be by way of barter dollars given the evidence of equivalency between barter dollars and Canadian dollars the Deputy Judge did not err in awarding damages in Canadian dollars in the circumstances of this case.

37For all of these reasons, the appeal is dismissed with costs to the respondent.

38Counsel have submitted bills of costs which are remarkably similar. The appellants claim $8,404.95 for one half day on a partial indemnity basis including disbursements but exclusive of HST. The respondent claims $8,250 for one half day on a partial indemnity basis including disbursements but exclusive of HST. The total costs claimed on a partial indemnity basis by the respondent including disbursements and HST is $9,322.50. In my view, this amount is fair and reasonable in the circumstances of this case and accordingly costs are awarded to the respondent in the amount of $9,322.50 all-inclusive payable within 90 days.

___________________________ Then J.

Released: August 27, 2015

CORRECTION NOTICE

Corrected decision: the errors in the original reasons for judgment were corrected on September 14, 2015, and the description of the correction is appended:

paragraph 2, second line - “Mungrovan” was changed to “Mungovan”

paragraph 13, second last line - the words “of shield” were deleted

paragraph 16, first line - “Realities” was changed to “Realties”

paragraph 19, second line – “agree” was changed to “disagree”