DIVISIONAL COURT FILE NO.: 398/15
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
2289274 ONTARIO LIMITED o/a AVACOS CLEAN ENERGY Plaintiff
– and –
STEVEN COSTA, 2289899 ONTARIO LTD. o/a BRIGHT FORCE SUSTAINABLE ENERGY SOLUTIONS, GOLDSTREAM ECO ENERGY CAPITAL CORPORATION, JOHN DOE COMPANY, JOHN DOE Defendants
AND BETWEEN:
STEVEN COSTA Plaintiff by Counterclaim
James Zibarras and John Philpott, for the Plaintiff/Defendants by Counterclaim/Moving Party
John Longo and Patrick Copeland, for the Defendants/Plaintiff by Counterclaim/Responding Party
– and –
ALEXANDER COSTA also known as SANDRO COSTA, VITO GALLORO, ENZO MACRI, GRACIOUS LIVING CAPITAL CORPORATION, GRACIOUS LIVING CORPORATION, ONENERGY INC. and 2289274 ONTARIO LIMITED o/a AVACOS CLEAN ENERGY Defendants by Counterclaim
HEARD: in Writing
Wilton-Siegel J.
1The defendant by counterclaim ONEnergy Inc. (the “defendant” or “ONEnergy”) seeks leave to appeal the order dated July 20, 2014 of Corrick J. (the “Order”). The Order dismissed the defendant’s motion to strike the claims asserted against it by the plaintiff by counterclaim, Steven Costa (the “plaintiff” or “Costa”).
Background
2In his statement of defence and counterclaim, the plaintiff seeks an order under section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the "OBCA") against four other defendants by counterclaim (the “Oppressive Parties”), including an order that these parties are constructive trustees in favour of Costa in respect of assets transferred from 2289274 Ontario Limited o/a Avacos Clean Energy (“Avacos”) to the defendant.
3In paragraph 41 of the statement of defence and counterclaim, the plaintiff pleads that some or all of the assets of Avacos were sold to ONEnergy. In addition, the pleading alleges that consideration was exchanged between Avacos and ONEnergy and that Alexander Costa (“Alexander”), one of the four other defendants by counterclaim, is now employed by ONEnergy as a result of the transaction.
4Paragraph 43 of the statement of defence and counterclaim contained the following pleading pertaining to ONEnergy:
- Despite being advised of Steven Costa’s interest in the company, the Defendants Pleading state that ONEnergy and Avacos nevertheless completed the transaction. The Defendants Pleading state that ONEnergy knew, or ought to have known, of Steven Costa’s interest in Avacos, and was in knowing receipt of assets for which Steven Costa is a beneficial and/or legal owner.
5The plaintiff says that the essence of his claim is that he was tricked into transferring assets to Avacos by oppressive conduct on the part of the Oppressive Parties. The assets in question include the assets transferred by Avacos to ONEnergy. The plaintiff seeks a constructive trust over the assets of ONEnergy by way of a remedy to his action for oppression against the Oppressive Parties in respect of their treatment of him as a shareholder of Avacos. He alleges that ONEnergy was aware of such a claim for a constructive trust at the time that it received the assets from Avacos.
6The defendant brought a motion under Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194.
7The motion judge’s reasons for dismissing the motion are as follows:
ONEnergy submits that Mr. Costa has not alleged a cause of action against it. Rather, Mr. Costa seeks a remedy of a constructive trust without alleging that ONEnergy committed an equitable or legal wrong. I do not accept this submission. In paragraph 43 of the Statement of Defence and Counterclaim, Mr. Costa has pleaded that ONEnergy received assets from Avacos in the face of knowledge that Mr. Costa had a claim over them based on the oppression committed by the other parties. In other words, ONEnergy was in knowing receipt of the benefits of the oppression. This constitutes a valid cause of action against ONEnergy.
The Test for Leave to Appeal
8The test for granting leave to appeal under Rule 62.02(4) is well-settled. It is recognized that leave should not be easily granted and the test to be met is a very strict one. There are two possible branches upon which leave may be granted. Both branches involve a two-part test and, in each case, both aspects of the two-part test must be met before leave may be granted.
9Under Rule 62.02(4)(a), the moving party must establish that there is a conflicting decision of another judge or court in Ontario or elsewhere (but not a lower level court) and that it is, in the opinion of the judge hearing the motion, “desirable that leave to appeal be granted.” A “conflicting decision” must be with respect to a matter of principle, not merely a situation in which a different result was reached in respect of particular facts: see Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 1992 7405 (ON SC), 7 O.R. (3d) 542 (Div. Ct.).
10Under Rule 62.02(4)(b), the moving party must establish that there is reason to doubt the correctness of the order in question and that the proposed appeal involves matters of such importance that leave to appeal should be granted. It is not necessary that the judge granting leave be satisfied that the decision in question was actually wrong – that aspect of the test is satisfied if the judge granting leave finds that the correctness of the order is open to “very serious debate”: see Nazari v. OTIP/RAEO Insurance Company Inc., 2003 40868 (ON SC), [2003] O.J. No. 3442 (S.C., per Then J.); Ash v. Lloyd’s Corp. (1992), 1992 7652 (ON SC), 8 O.R. (3d) 282 (Gen. Div., per Farley J.). In addition, the moving party must demonstrate matters of importance that go beyond the interests of the immediate parties and involve questions of general or public importance relevant to the development of the law and administration of justice: see Rankin v. McLeod, Young, Weir Ltd. et al. (1986), 1986 2749 (ON SC), 57 O.R. (2d) 569 (H.C.J., per Catzman J.); Greslik v. Ontario Legal Aid Plan (1988), 1988 4842 (ON SCDC), 65 O.R. (2d) 110 (Div. Ct.).
Analysis and Conclusions
11I will address each branch of the test in Rule 62.02(4) in turn.
The Test Under Rule 62.02(4)(a)
12The defendant argues that the decision in Maynes v. Allen-Vanguard Technologies Inc. (Med-Eng Systems Inc.), 2011 ONCA 125, 274 O.A.C. 125, conflicts with the Order. I do not agree for the following reasons.
13In Maynes, the claims against the original defendants had been struck as an abuse of process and the court held that the claims against the added defendants, who administered an escrow fund established in connection with an agreement of purchase and sale of a company, were found not to assert an actionable wrong. In those circumstances, there was no basis for a remedy in the form of a constructive trust. In addition, the assets over which the constructive trust was sought were held by parties who had no involvement in the alleged oppressive activity of the original defendants.
14In the present circumstances, the plaintiff’s claim of oppressive conduct against the Oppressive Parties is extant. Further, it cannot be said that ONEnergy is a third party that had no role in the oppressive conduct. Read liberally, the relevant pleadings in the statement of defence and counterclaim allege that the transfer of assets from Avacos to ONEnergy, even with consideration, was part of the scheme of the Oppressive Parties to defeat Costa’s reasonable expectations as a 10% shareholder of Avacos. Accordingly, the circumstances in Maynes differed in important respects from the circumstances in this case.
15In addition, I do not think there can be any real issue with the involvement of ONEnergy in the alleged oppression by virtue of the alleged relationship of Alexander with ONEnergy. Further, while the pleading in paragraph 41 does not explicitly state that the transfer was for inadequate consideration, at this stage in the litigation, the pleading should be read liberally to provide for that possibility. In any event, to the extent the assets of ONEnergy are revenue generating, income earned in ONEnergy that should have been earned in Avacos represents a deprivation to the plaintiff in his capacity as a shareholder.
16On the basis of the foregoing, I am not persuaded that Maynes is a conflicting authority. Rather, the defendant’s complaint is simply that, in its opinion, the motion judge failed to apply the principle in Maynes to the particular facts of this case. This is addressed below. I therefore conclude there is no basis for granting leave to appeal under Rule 62.04(4)(a) on the grounds that the defendant has failed to establish a conflicting authority.
The Test Under Rule 62.02(4)(b)
17With respect to the test for leave to appeal under Rule 62.04(4)(b), the defendant submits that, as mentioned, the judge failed to apply the principle in Maynes. The defendant argues that Costa has failed to plead a breach of an equitable obligation entitling him to the remedy of a constructive trust, which brings the principle in Maynes into play. I do not think this is correct.
18The defendant proceeds on the basis that paragraph 43 of the statement of defence and counterclaim pleads the tort of knowing receipt. The defendant says the motion judge erred in concluding implicitly that Costa had properly pleaded all the elements of the tort of knowing receipt when, in its view, the pleading fails to plead two necessary elements of the tort: (1) an enrichment or benefit; and (2) a failure to make inquiries.
19However, given the nature of the plaintiff’s case, I am in agreement with Costa that the pleading in paragraph 43 is not about the tort of knowing receipt. Instead, that pleading engages the broad remedial powers of a court under section 248 of the OBCA in the event that the court were to find that the Oppressive Parties engaged in oppressive conduct in which ONEnergy was a participant. I also agree that the reference of the motion judge to ONEnergy’s “knowing receipt of the benefits of the oppression” is not a reference to a tort claim of knowing receipt but to the allegation that ONEnergy allegedly participated in the oppressive conduct to the extent that it had knowledge of the plaintiff’s claim, including his constructive trust claim, at the time it received the assets from Avacos.
20The only significant issue raised by the defendant is the availability of a constructive trust remedy against the assets of ONEnergy in favour of the plaintiff, given that the plaintiff’s claim arises as a shareholder of Avacos. Despite language in his factum to the contrary, I do not read the plaintiff’s pleadings as an attempt to seek relief in the form of an unwinding of Avacos and a return to the plaintiff of any assets contributed to Avacos on its formation in return for his 10% interest in Avacos.
21Nevertheless, it is possible that a constructive trust over the ONEnergy assets in favour of the plaintiff could be imposed by a court after a finding of oppressive conduct, if such a remedy were the only means available to remedy oppressive conduct of the Oppressive Parties in respect of Costa as a shareholder of Avacos. I accept that it would take highly unusual circumstances for such a remedy to be imposed such as, for example, the insolvency of Avacos. The more usual remedy would be a constructive trust of such assets in favour of Avacos. Nevertheless, at this stage in the litigation, I do not think it is appropriate to rule out such a possibility.
22In any event, the proposed appeal does not involve a matter of such importance that the appeal should be granted. The matter does not raise any matter of importance that goes beyond the interests of the immediate parties. It does not involve any question of general or public importance relevant to the development of the law and administration of justice. Rather, the issue raised is limited to a question of the enforceability of any remedial order directed against ONEnergy based on a finding of oppressive conduct by the defendants on the counterclaim and the participation of Alexander or ONEnergy in such conduct. This issue is very fact specific. In addition, the plaintiff remains entitled to bring a summary judgment after the extent and nature of the factual basis for this pleading is more fully elaborated.
Conclusion
23Based on the foregoing, ONEnergy’s motion for leave to appeal is denied.
___________________________ Wilton-Siegel J.
Released: December 22, 2015
CITATION: 2289274 Ontario Limited v. Costa, 2015 ONSC 7359 DIVISIONAL COURT FILE NO.: 398/15 DATE: 20151222
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
BETWEEN:
2289274 ONTARIO LIMITED o/a AVACOS CLEAN ENERGY Plaintiff
– and –
STEVEN COSTA, 2289899 ONTARIO LTD. o/a BRIGHT FORCE SUSTAINABLE ENERGY SOLUTIONS, GOLDSTREAM ECO ENERGY CAPITAL CORPORATION, JOHN DOE COMPANY, JOHN DOE Defendants
AND BETWEEN:
STEVEN COSTA Plaintiff by Counterclaim
– and –
ALEXANDER COSTA also known as SANDRO COSTA, VITO GALLORO, ENZO MACRI, GRACIOUS LIVING CAPITAL CORPORATION, GRACIOUS LIVING CORPORATION, ONENERGY INC. and 2289274 ONTARIO LIMITED o/a AVACOS CLEAN ENERGY Defendants by Counterclaim
REASONS FOR DECISION
Wilton-Siegel J.
Released: December 22, 2015