Abade v. Nardone, 2017 ONSC 7120

CITATION: Abade v. Nardone, 2017 ONSC 7120

COURT FILE NO.: DC-13-523

DATE: 20171129

ONTARIO

SUPERIOR COURT OF JUSTICE

(DIVISIONAL COURT)

BETWEEN:

VICTOR ABADE

Appellant

– and –

TONY NARDONE and ANTONETTE NARDONE

Respondents

Carol Shirtliff-Hinds, Counsel for the Appellant

Mathew H. Hilbing, counsel for the Respondents

HEARD: October 20, 2017

RULING ON APPEAL

BOSWELL J.

Overview

[1] The appellant operates a contracting company known as Avalanche Contracting Inc. Avalanche was retained by the respondents in 2007 to install an in-ground pool and landscape their property in Maple, Ontario. The total contract price was approximately $81,000.

[2] A dispute arose between the parties regarding the progress of the job, the level of performance of the contractor and payment. Avalanche eventually stopped work on the project on August 8, 2008.

[3] The respondents had provided a cheque to Avalanche on August 1, 2008 for $25,000. They understood the cheque would be used to purchase pool-related equipment and to finish the project. Mr. Abade, on the other hand, testified that he understood the cheque was to cover work and materials already supplied.

[4] The respondents sued the appellant and Avalanche in Small Claims Court for $25,000, representing the cost to complete the project and to remedy deficiencies. They alleged that the $25,000 cheque had been paid to Avalanche in trust to complete the project and they sought judgment against both Avalanche and the appellant for breach of trust.

[5] In the course of brief, oral reasons, the trial judge found in favour of the respondents and granted them a judgment of $25,000 against both the appellant and Avalanche, jointly and severally.

[6] The appellant appeals the trial judgment asserting that the judgment against him personally should be set aside.

[7] Although a dozen, mostly specious, grounds of appeal are listed in the Notice of Appeal, the appellant pressed only two when it came time to argue the appeal:

(i) The reasons of the trial judge are insufficient to permit appellate review. They fail to articulate the basis upon which judgment was awarded against the appellant personally; and,

(ii) The trial judge erred in awarding damages against the appellant personally where there was no privity of contract between the parties and where the trial judge made no findings that there had been a breach of trust, or any fraudulent misrepresentation made by the appellant to the respondents.

[8] The grounds are inextricably intertwined, so I intend to address them together. Before doing so, I will briefly set out the trial judge’s findings of fact, which are not in dispute. I will also outline the testimony provided by the parties with respect to the $25,000 cheque. I will then describe the operative parts of the trial judge’s ruling.

The Basic Facts

[9] The trial judge found, and it is not disputed that:

(i) The original value of the contract between the respondents and Avalanche was $70,322.63. Extras worth $10,977.67 were agreed to, bringing the total value of the contract to $81,300.30;

(ii) The respondents paid a total of $77,500 on the contract, leaving an unpaid balance of $3,800;

(iii) There were deficiencies that had to be remedied. He fixed the value of the deficiencies at $22,600, inclusive of value added taxes;

(iv) There was equipment yet to be provided, including a heater, which he valued in total at $8,023; and,

(v) The total owing to the respondents was determined to be $30,623. From that he deducted the $3,800 that was unpaid on the contract and determined that damages exceeded $27,000, which he reduced to the Small Claims Court limit of $25,000.

[10] Each side gave evidence about the $25,000 cheque provided by the respondents to the contractor on August 1, 2008.

[11] Antonette Nardone said that she had a discussion with Mr. Abade in late July 2008 about extras to the contract and a certain figure was agreed to. She said that on August 1, 2008, Mr. Abade attended her residence and brought a revised extras list and he asked for a cheque for $25,000. He said, according to her, that he was going to bring the remaining pool equipment within a few days and he would finish whatever was left on the contract, including the installation of the pool equipment and the paving of the driveway.

[12] She said she had some reservations about giving Mr. Abade such a big cheque but her husband encouraged her to do so. Her expectation was clearly that the $25,000 cheque was going to cover future work. On August 8, 2008, however, Mr. Abade’s brother asked her for her credit card so they could go and purchase pool equipment. She refused. The relationship broke down and Avalanche ceased work on the project.

[13] Tony Nardone testified that Mr. Abade came to their home with his brother. They wanted a $25,000 cheque which Mr. Nardone said was supposed to be for completing all work on the property: installing the pool equipment and paving the driveway. After that, on completion, there would be a final payment owing of about $6,000. Mr. Abade expressly told him, “With this cheque now I am going out to purchase your pool equipment.”

[14] Mr. Nardone denied the suggestion, made to him in cross-examination, that the $25,000 cheque was for work already performed. He said that Mr. Abade told him and his wife the $25,000 would pay for the pool equipment and to get the asphalt onto the driveway.

[15] Victor Abade testified quite the opposite. When asked in direct examination, he said the $25,000 was paying him for work that was already done. It was payment for all the stone work and all the other work that was already put into their property. He said the outstanding pool equipment was about $4,000 and bore no relationship to the $25,000. He expressly denied that it was money held in trust. He said it was his money, as payment for work he did.

The Trial Judge’s Ruling

[16] The trial judge did not make specific findings in relation to the $25,000 cheque or what it had been provided for. He did not make any credibility findings in relation to the testimony of any of the witnesses. He did not expressly find that the $25,000 cheque was impressed with a trust, nor did he make any finding that the appellant had engaged in any conduct that would justify the piercing of the corporate veil and the imposition of personal liability.

[17] Instead he said as follows:

The claim as pleaded asks for a declaration. Let me say to you now, and I’m sure you’ve been told before in this court, we cannot make declaratory orders. What we can do is provide judgments that result in money judgments but not declarations.

However, that having been said, the issue of trust which has been raised through the course of this hearing, not necessarily because of a declaratory order but because it is a construction-related matter, we deal with issues of trust all the time and we are entitled to so do, but not for making the declaratory order. So I want to be just hopefully clear, although tired, I want to be clear about that. So that’s not the focus of my thoughts.

My thoughts go to the contract, the terms of the contract, obviously the prices and so forth, the expectations of the parties and my thoughts and considerations go to whether the contract has been fulfilled, and if not are there any damages that flow therefrom, so that my decision will deal with issues of damages flowing from the contractual arrangements but will also incorporate thoughts relating to the issue you have raised and you have covered very well in terms of the production and disclosure to get to the trust issue and that to me will lead me to a consideration of liability if I find that there is a shortfall in the fulfillment of the contract, but it will lead me to a liability for both the corporate as well as the personal defendant.

[18] The trial judge went on to consider an order for production made by another deputy judge on December 10, 2010 that required Avalanche to disclose by January 10, 2011 all back up documentation for work and materials supplied and proof of payment for work and materials supplied. The order was not complied with. The trial judge said he drew an adverse inference from the failure of Avalanche to produce the documents as required. He did not elaborate on what that adverse inference was. Presumably, the inference was that the content of the documents to be disclosed would not be helpful to the case of Avalanche, but in what way is not clear.

[19] Next the trial judge went through the basics of the contract and made the findings of fact that I set out above, at para. 9. He then said the following:

Given the inferences that I have drawn and given the findings in respect of remedial and the necessity to remedy there will be judgment for $25,000 as against both defendants jointly and severally.

[20] The respondents’ counsel, Mr. Hilbing, asked the trial judge if he was making any statement about whether there had been fraudulent misrepresentation or negligent misrepresentation and the trial judge said he had not made such findings.

The Parties’ Positions

Appellant’s Position

[21] The appellant submits that the trial judge failed to resolve the central issue about whether the $25,000 cheque was for past or future performance.

[22] The trial judge’s reasons are, in the appellant’s submission, wholly inadequate to enable one to piece together how he got from the facts of the case to the decision on personal liability. He did not make a finding that there was a trust, nor make any other findings about the conduct of the appellant that might justify the imposition of personal liability against him.

[23] The appellant asks that the trial judgment be set aside.

Respondents’ Position

[24] The respondents assert that the trial judge’s reasons are implicit in his factual findings. In particular, the trial judge found that the contract price was $81,300.30. He further found that the respondents had paid a total of $77,500 on the contract, leaving an unpaid balance of just $3,800. Implicit in these findings is that the $25,000 was for future work.

[25] It is further implicit, they contend, that if the $25,000 was for future work, then it was impressed with a trust. Clearly Mr. Abade misappropriated the trust funds. He refused to provide the ordered disclosure to demonstrate where the $25,000 went. The trial judge drew a negative inference against him, to the effect that the records would have shown misappropriation.

[26] The trial judge’s reasons, while not ideal, are sufficient. If the court concludes otherwise, the respondents ask that the court review the evidentiary record and substitute its own explanation for the result.

The Governing Principles

The Duty to Give Reasons

[27] It is well-settled that trial judges have an inherent duty to provide reasons for their decisions. It is an obligation owed to the parties and to the public at large. Reasons serve a number of important functions, including:

(i) They justify and explain the result and satisfy the public that justice has been done;

(ii) They explain to the losing party why he or she lost;

(iii) They provide for an informed consideration of any grounds of appeal; and,

(iv) They allow for effective appellate review.

R. v. Sheppard, 2002 SCC 26; R. v. Walker, 2008 SCC 34

[28] The duty to provide adequate reasons was developed in the criminal law context, but it applies to civil cases as well: see Dovbush v. Mouzitchka, 2016 ONCA 381; Longo v. McLaren Art Centre, 2014 ONCA 526; and Barbieri v. Mastronardi, 2014 ONCA 416.

[29] As Justice Binnie observed in R. v. Sheppard, as above at para. 21, the task of appellate courts is to determine those cases where deficiencies in a trial judge’s reasons are such that appellate intervention is required. It is not enough that an appellate court thinks a trial judge did a poor job explaining himself or herself. Moreover, a failure to give adequate reasons is not a free-standing ground of appeal: see F.H. v. McDougall, 2008 SCC 53.

[30] The threshold requirement to achieve adequacy has been expressed in a variety of ways by different courts. But it amounts to the same thing. Doherty J.A. described the obligation in R. v. Morrissey, (1995), 22 O.R. (3d) 514 (C.A.), as a requirement that the trial judge draw a connection between what s/he has decided and why. Rothstein J. described the obligation in R. v. Walker, as above, at para. 20, as the “need to be responsive to the case's live issues and the parties' key arguments.” He said, “their sufficiency should be measured not in the abstract, but as they respond to the substance of what was in issue.”

Piercing the Corporate Veil

[31] A fundamental principle in corporate law is that a corporation is a separate legal entity: Salomon v. Salomon & Co. Ltd., [1897] A.C. 22 (H.L.).

[32] Generally, only exceptional circumstances warrant looking beyond the corporate entity and imposing personal liability. In particular, circumstances where applying the principles from Salomon would be “flagrantly unjust”: 642947 Ontario Ltd. v. Fleischer, 2001 CarswellOnt 4296, [2001] O.J. No. 4771.

[33] In the case of a single shareholder corporation, like Avalanche, the appropriate test to be applied in connection with a claim to pierce the corporate veil, is whether (1) the shareholder controls the corporation; and (2) whether that control has been exercised for a fraudulent or improper purpose. See Terra Farm Ltd. v. Stud Farm Inc. 2010 ONCA 422 at para. 34. See also Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Ont. Gen. Div.), at 433-434, affirmed [1997] O.J. No. 3754 (Ont. C.A.), where Justice Sharpe held that "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."

The Existence of a Trust

[34] Whether the parties to the construction contract created an express trust is a factual determination which was central to the case against the appellant. For an express trust to be created, three certainties must exist:

(i) The language of the settlor must be imperative. In other words, intention must be certain;

(ii) The subject matter or trust property must be certain; and,

(iii) The objects (beneficiaries) of the trust must be certain;

D.W.M. Waters, Q.C., Waters' Law of Trusts in Canada, 4th ed. (Toronto: Thomson Reuters Canada Limited, 2012) at 140. See also Howitt v. Howden Group Canada Ltd. (1999), 170 D.L.R. (4th) 423, at para. 8.

[35] It was arguably open to the homeowners to assert that their $25,000 cheque was impressed with a remedial constructive trust, if they failed to establish that an express trust had been created. Remedial constructive trusts are generally imposed in one of two situations. Justice McLachlin, as she then was, described them in Soulos v. Korkontzil, [1997] 2 S.C.R. 217, at para. 43:

I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation. While cases often involve both a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful act but no unjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of a wrongful act, as in Becker v. Pettkus, [1980] 2 S.C.R. 834

[36] Justice McLachlin went on to discuss the particular requirements that must generally be found before a “good conscience” constructive trust could be imposed. It is unnecessary to review them here because clearly the trial judge in this case did not address them.

Analysis

[37] In Sheppard, Binnie J. noted that the requirement to give reasons is tied to the purpose for doing so and the purpose varies with context.

[38] This was a small claims court trial. The small claims court deals with a very large volume of cases. Those cases are dealt with in an expeditious and cost-effective manner. They are presided over by deputy judges who are not full-time judges, but who are lawyers who staff the courtrooms on an occasional basis. One cannot expect, or demand, that the reasons of a small claims court judge are going to approach the comprehensiveness of the reasons expected of a Superior Court judge.

[39] The small claims court is intended to provide a summary procedure, culminating in a summary decision. In my view, it will be a very rare case where an appellate court is justified in intervening on the basis of the inadequacy of a deputy judge’s reasons in a small claims court proceeding.

[40] Nevertheless, in order to fulfill the functions that reasons are intended to fulfill, and in particular to allow for meaningful appellant review, “the decision of the court must, at a minimum, provide some insight into how the legal conclusion was reached and what facts were relied upon in reaching that conclusion”: Barbieri v. Mastronardi, as above, at para. 22.

[41] In my view, this is regrettably one of those very rare cases where the reasons are simply inadequate to either explain the result to the parties or to allow for meaningful appellate review.

[42] In this case the substance of what was at issue between the appellant and the respondents was whether the appellant could be held personally liable for any part of the homeowners’ claim. The central issue for the trial judge – at least in terms of the case against the appellant – was whether there was some basis upon which to ground personal liability on the part of the appellant.

[43] The appellant was not a party to the contract. To succeed against him, the homeowners had to satisfy the trial judge either that there was a basis in law on which to pierce the corporate veil, or that the $25,000 cheque was impressed with a trust and that the appellant breached the trust.

[44] It was incumbent upon the trial judge to deal with the $25,000 cheque one way or the other. I do not agree with Mr. Hilbing that it is necessarily implicit in the decision that the trial judge concluded that the $25,000 was for future, rather than past, performance. The trial judge basically did the math in terms of what was paid, what was outstanding in the form of equipment and what remediation had to be done. I am not able to determine, on this record, whether, at the time the $25,000 was advanced, there was more or less than $25,000 in future work to be done, not including remediation work. It is entirely possible that the $25,000 was in part payment for past performance and in part payment for future performance.

[45] Even if the trial judge concluded that the $25,000 was entirely for future performance, which, as I say, was not clear, there is absolutely no explanation for why personal liability was found against the appellant. More than one route to liability was apparently available, depending on the findings of fact made by the trial judge. But ultimately those findings were not made. The trial judge did not conclude that there was a trust, or a breach of trust, or some other improper conduct on the part of the appellant that justified the imposition of personal liability.

[46] Absent some indication as to the basis for personal liability, I can only guess at what the trial judge’s reasoning process was. I have no idea what principles of law were applied and hence I am unable to determine if they were applied properly.

[47] In this case there is no linkage between the result and the reason(s) for the result. There was a failure to address the central issues in the case.

[48] I conclude that the reasons were inadequate and prevent effective appellate review.

[49] Pursuant to s. 134 of the Courts of Justice Act, R.S.O. 1990, c. C.43, I am empowered to do any of the following:

(a) Make any order or decision that ought to or could have been made by the court appealed from;

(b) Order a new trial; or,

(c) Make any other order considered just.

[50] In my view, this is a rare case where it is necessary to order a new trial on the issues of whether some or all of the $25,000 cheque dated August 1, 2008 was impressed with a trust and, if so, whether the appellant misappropriated some or all of the trust funds.

[51] The evidence of the parties was totally contradictory in terms of the purpose of the $25,000 cheque. I am not in a position to make findings of credibility on that central issue on the basis of the paper record before me. Moreover, there is some indication that a hybrid result is possible: that some of the $25,000 was for past work and some of it was for future work. The trial judge did not deal with that possibility and I am unable to determine it myself.

[52] In the result, a new trial is ordered on the narrow issues I have just identified in para. 50.

[53] In terms of the costs of the appeal, if the parties cannot agree on an appropriate disposition, they may make brief written submissions, not to exceed 2 pages in length (not including any Costs Outlines). The appellant’s submissions shall be served and filed by December 15, 2017 and the respondents’ by January 5, 2018. Submissions shall be delivered electronically to my assistant, Diane Massey by email to diane.massey@ontario.ca.

Boswell J.

Released: November 29, 2017