Licence Tribunal

Appeal d'appel en Tribunal matière de permis

DATE: 2015-03-27

FILE: 9157/CVOR

CASE NAME: 9157 v. Registrar of Motor Vehicles

Appeal under Section 50(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8, from an Order of the Registrar of Motor Vehicles Pursuant to Section 47(1) to Refuse a Commercial Vehicle Operators Registration Certificate

182008 Ontario Inc. o/a Call Service Appellant

-and-

Registrar of Motor Vehicles Respondent

REASONS FOR DECISION AND ORDER

ADJUDICATOR: D. Gregory Flude, Vice-Chair

APPEARANCES:

For the Appellant 1820108 Ontario Inc.: Robert Gill, Paralegal

For the Respondent: Patrick S. Moore, Counsel

Heard in Toronto: February 25 & 26, 2015

DECISION AND ORDER

OVERVIEW

1The Appellant appeals the decision of the Registrar to refuse to issue it a Commercial Vehicle Operators Registration (CVOR). The basis for the Registrar’s refusal is the allegation that the Appellant is related to two companies that are of concern to the Registrar. One company has a poor safety record, has recently been subject to a suspension and currently has a “Conditional Safety Rating.” The second company also has a poor safety record and failed a CVOR audit May 2014.

2The appeal engages the Tribunal in a review of the anti-avoidance provisions of the legislation. As a result of that review, the Tribunal finds that the Appellant is related to the other corporations in question and upholds the Registrar’s decision to deny the Appellant a CVOR.

EVIDENCE

3The three corporations in question all carry on business operating tow trucks and hauling heavy equipment. The shareholders of each of the corporations are related by blood or marriage. The Appellant is owned by Dinis Falcao and operates out of premises located in Barrie. It has a fleet of five or six vehicles that are currently registered to 1105729 Ontario Inc., a company owned by Dinis Falcao’s brother, Luis Paul Falcao. L.P. Falcao uses the name Paul Falcao. The Appellant applied for a CVOR certificate in late January or early February 2012 and was denied by the Registrar. It did not appeal that decision.

41105729 Ontario Inc. operates from premises in Toronto under the name, Classic Towing. It is a large operator with approximately 30 to 40 vehicles. Its tow trucks range in size from smaller vehicles for dealing with cars to large towing vehicles capable of towing trucks and busses, flatbed trucks and floats. Dinis Falcao was the founder of Classic Towing about 20 years ago, but testified that he had sold it to his brother after a couple of years and had had no involvement in its operation since. He had been involved in the construction industry with occasional short-term forays into the trucking industry around 2003.

5Dinis Falcao’s wife, Deby Falcao and his sister-in-law, Sandi Falcao, operate 728306 Ontario Inc. from premises located in Hamilton. They operate under the name of A-1 Towing. Due to concerns about a deteriorating safety record, the Registrar conducted a facility audit of the A1 Towing operation in 2014. It failed the audit.

The CVOR System

6The CVOR system is designed to track the on-road performance of Ontario based carriers and identify those carriers that may present a safety risk. It has similarities to the points system applicable to every driver in the Province. Unlike the system for drivers which tracks only convictions, the CVOR system tracks three parameters that have been found to be indicia of safe operation, collisions, convictions and inspections by officer of the Ministry of Transportation (MTO). A CVOR holder notifies the MTO on registration and thereafter, at least, annually of its fleet size and kilometric travel in Ontario. Based on these two factors, it is assigned a maximum number of points, referred to as its Violation Rate (VR), which it can amass in a two year period before the Registrar will impose sanctions. It then is assigned points for each at-fault collision, conviction or inspection where out-of-service defects were found on its trucks. Any given incident may lead to points being assessed in two categories – charges arising out of a collision or out-of-service defects may also result in points for convictions.

7The Registrar tracks each CVOR holder’s performance by measuring its actual points against the assigned maximum and expressing it as a percentage of the VR. To determine a carrier’s VR, each parameter is tracked separately and then weighted to give an overall number. The tracking system contemplates intervention by the Registrar at certain predetermined levels. At 35% VR, a carrier receives a warning letter advising it that its record is deteriorating and advising it to make adjustments to improve. At 50% VR, the Registrar may initiate a facility audit. A carrier may be called for an interview at 80% and the Registrar will consider sanctions when a carrier reaches 100%. Sanctions may range from suspension to revocation. 95% of carriers operate under 35% VR, only 0.1% are over 80% at any given time and 0.2% exceed 100%. In other words, about 100 carriers in Ontario out of 50,000 exceed 100%.

8Carriers are assigned one of five safety ratings:

Excellent – 15% VR or less over a 2 year period with collisions of less than 10%

Satisfactory – 70% or less VR over the previous six months but has passed an audit

Satisfactory unaudited – same as Satisfactory but has not been audited

Conditional – any one of more than 70% VR, failed audit, expiry of a suspension or seizure, a related or affiliated company has a Conditional rating.

Unsatisfactory – carrier is currently suspended.

728306 Ontario Inc. – A-1 Towing

9A-1 Towing was issued CVOR # 091-524-582 in 1990. It appears that it was acquired by Deby Falcao and Sandi Falcao in the spring of 2013. In the spring of 2014, its VR rate exceeded 50%, triggering a facility audit. The auditor, MTO officer Isabel Jennings, called the number of record for A-1 Towing in Hamilton but was referred to a 416 area code number. When she checked, she discovered that the number she was given was the number of Classic Towing, Paul Falcao’s company. She was ultimately referred to the Operations Manager and given his cell phone number. Her call to that number was answered on behalf of Classic Towing.

10She arranged to meet the Operations Manager in Hamilton on the morning of April 28, 2014. When she arrived, she met not only the Operations Manager but Paul Falcao. Mr. Falcao represented that he was just a friend and a helper and had no connection to A-1 Towing. From Officer Jennings notes, it is clear that Mr. Falcao answered numerous detailed questions about the company’s operations.

11A facility auditor reviews the documentation relating to three areas of a carrier’s operations: vehicle maintenance and inspections, driver qualifications, records and reporting of collisions and convictions, and hours of service. The pass mark is 50% in each section and a pass is required in all three sections to successfully pass the audit. A-1 Towing performed well on the driver records and qualifications section, passed the vehicle section with 54% but scored only 20% on the hours of service section so it failed the audit. This resulted in a Carrier Safety Rating of “Conditional.”

12In addition to the facts noted above, Officer Jennings noted a number of factors which, in her mind, suggested that A-1 Towing was a related or affiliated company to Classic Towing. She noted common telephone numbers, shared addresses for corporate officers, drivers working for both companies and using Classic forms or noting Classic as the carrier on logs. She noted a heavy tow truck in the yard that had both A-1 Towing and Classic Towing written on its side as well as the name of a third company recently absorbed by Classic, Peninsula Towing. Indeed, the Operations Manager attended the audit wearing a Classic Towing logo on his sweater.

1105729 Ontario Inc. – Classic Towing

13Classic Towing was granted a CVOR in 1995. At that time, it was incorporated by Dinis Falcao but was transferred to Paul Falcao in November 1996. MTO was not notified of a change in corporate officers until 2013 so its records continued to reflect Dinis Falcao as President until that time. It was the evidence of both Paul and Dinis Falcao that Dinis Falcao had no further involvement in running Classic Towing after that date. They both stated that he went to work in construction.

14Classic’s safety slide appears to have begun in 2008 with a failed facility audit. It was invited to an interview in December 2010. By January 2012, Classic’s VR had risen to an abysmal 138.84%. The Registrar issued a Notice of Suspension and Seizure and invited representatives of Classic to a Show Cause Meeting. Following that meeting in April 2012, the Registrar issued a Suspension and Seizure Order proposing a 21 day suspension. The Appellant appealed to this Tribunal and the Tribunal ordered a seven day suspension and seizure. In the period from mid-2012 following the Show Cause Meeting until mid-2014, Classic had managed to lower its VR rate to 82%, a big improvement but still placing it in the worst 150 carriers in the Province. Paul Falcao testified that with the help of Mr. Gill, it is now around 33% although the Tribunal was not shown a recent CVOR abstract to support this position. Mr. Falcao testified to a change in attitude that has brought about the drop in VR.

15As stated above, both Dinis and Paul Falcao testified that Dinis Falcao was not involved in running Classic after 2006. The MTO sends out pre-populated renewal forms to carriers each year showing to corporate information in its records. It asks carriers to correct any incorrect information. Despite the assertion that Dinis Falcao has not had any involvement in Classic since 1996, between 1996 and 2013, Classic took no direct steps to notify MTO its records were incorrect. At the December 2010 interview, both Dinis Falcao and Paul Falcao appeared on behalf of the company. The interview notes taken by the MTO employees indicate that the brothers represented themselves as joint presidents of Classic. Further, when Classic bid on a TTC contract, both brothers attended the information evening on behalf of Classic.

16Currently Dinis Falcao’s trucks are operated under the Classic CVOR, with the result that the trucks are registered to Classic. There is nothing improper in this arrangement. Heavy trucks must be operated under authority of a CVOR and it is not unusual for truck owners without a CVOR to contract with a carrier and operate under its CVOR. The CVOR holder in such an arrangement assumes responsibility for the maintenance of these trucks and training and oversight of the drivers. It must maintain the records and logbooks and levy discipline as necessary. Of concern to the Tribunal is the assertion by the Falcao brothers that the Appellant operates totally separately from Classic under the name Call Service and Paul Falcao is only notified if there are problems. If true, this represents a total abandonment of Classic’s obligations as a CVOR holder.

Dinis Falcao and the Appellant

17In addition to owning the Appellant, Dinis Falcao has had two previous CVORs. He has held one in his own name and one under a wholly owned corporation, 1575490 Ontario Limited, operating as AV Towing. Both CVORs were granted in 2003 and Dinis Falcao’s evidence was that he had operated AV Towing for a short period of time between 2003 and 2005. Thereafter, he closed down the operation. Notwithstanding that neither company was active in 2012 when Classic was sanctioned, they were included in the Suspension and Seizure Order. Not surprisingly, since they were inoperative, they did not appeal and the Registrar’s records indicate that they were sanctioned with a 21 day suspension because of their relationship to Classic.

18When Dinis Falcao applied for a CVOR in 2003, the issue of his relationship with Classic was raised by the Registrar. At that time, Classic did not have a safety record that was of concern to the Registrar. Dinis Falcao was shown on MTO records as President of Classic. Mr. Falcao forwarded documents to MTO showing the transfer of Classic to his brother, Paul, and supporting his position that he was no longer involved with Classic. MTO issued him a CVOR and he takes the position that, at least from 2003 onwards the Registrar was well aware that he had no further involvement with Classic.

19The Appellant was incorporated in 2010 and first applied for a CVOR in 2012. Two points are worthy of note with regard to this application. The application was made at a time when Classic’s safety record was in freefall and it would soon be sanctioned by the Registrar. The second is that the $250.00 fee for the application was paid by Paul Falcao. It was Dinis Falcao’s evidence that he must have forgotten his wallet at the time the application was made and his brother used his credit card by way of a loan. The 2012 application was denied and the denial was not appealed. Classic was suspended for seven days and in the intervening two years, the Appellant has been operating under Classic’s CVOR, albeit using the name Call Service and being run out of the Barrie area independently. It currently has five or six trucks in operation.

THE LAW

20The statutory authority for the actions of the Registrar and the jurisdiction of the Tribunal are set out in sections 17, and 50 of the Highway Traffic Act (the Act), as follows:

17 (3) The Registrar may refuse to issue a CVOR certificate to an applicant if the applicant is related to,

(a) a person whose CVOR certificate has been cancelled, is or has been under suspension or is or has been subject to a fleet limitation

(b) a person who the Registrar has reason to believe, having regard to the person’s safety record and any other information that the Registrar considers relevant, will not operate a commercial motor vehicle safely or in accordance with this Act, the regulations and other laws relating to highway safety.

(4) An applicant is related to a person for the purpose of subsection (3) if,

(a) the applicant and the person are related individuals;

(b) either the applicant or the person is a partner of the other or was a partner of the other or they have or have had partners in common;

(c) either the applicant or the person, directly or indirectly, controls or controlled or manages or managed the other; or

(d) the applicant and the person have or have had common officers or directors or they are or have been controlled, directly or indirectly, by the same shareholders.

50. (1) Every person aggrieved by a decision of the Minister made under subsection 32 (5) for which there is a right of appeal pursuant to a regulation made under clause 32 (14) (n) or a decision of the Registrar under section 17 or 47 may appeal the decision to the Tribunal.

(2) The Tribunal may confirm, modify or set aside the decision of the Minister or Registrar.

ANALYSIS

21The Tribunal must first determine if the Appellant is related to Classic and A-1 Towing. Should it find that they are, s. 17 (3) uses permissive language in giving the Registrar discretion to issue a CVOR to a related company or not. In opening submissions, the Registrar stated that he has a policy not to issue a CVOR to a company where the related company has a Conditional Safety Rating. That discretion now devolves on the Tribunal by virtue of s. 50 (2).

22The purpose of s. 17. (3) is anti-avoidance. It is designed to prevent unsafe operators from setting up or maintaining several companies and simply rotating the operating CVOR among the various entities. Without such provisions, carriers may hold several CVORs in several corporations. As the safety record of one corporation declines, operations could be transferred to a related company for a period of time to permit the VR of the unsafe corporation to decrease. The effect of the anti-avoidance provisions is that the Tribunal may pierce the corporate veil to determine actual corporate control as well as legal corporate control.

23The Falcao brothers urge the Tribunal to accept that they operate separate entities; that Dinis Falcao exercises no control over Classic; and Paul Falcao exercises no control over the Appellant. In a proceeding such as this, it is unlikely that either the corporate documents or the evidence of the interested parties will indicate any control by one entity over the other. The Tribunal must closely examine the relationship between the companies to see if there are indicia of control.

24The first and most obvious indication of control is the fact that the Appellant’s vehicles all operate under Classic’s CVOR. As a matter of law, this fact results in Classic being responsible to the Registrar for the operation of the Appellant. The evidence of each brother was that the Appellant operates independently and only reports problems to Classic. There was conflicting evidence about control of driver and maintenance records, with suggestions being made that they are kept at the Barrie premises owned by the Appellant and then further suggestions that they are maintained at the Toronto offices of Classic. Overall, it is clear that Classic has a supervisory role in the operations of the Appellant that provides an indication of control.

25There is evidence that A-1 Towing, Classic and the Appellant operate as a single extended entity. The presence of Classic’s Operation’s Manager and Paul Falcao at the A-1 Audit, coupled with Paul Falcao’s knowledge of the A-1 operation shows a high degree of control of A-1 Towing by Classic. The presence of both Dinis Falcao and Paul Falcao as representatives of Classic at the 2010 interview with MTO describing themselves as joint presidents and at the TTC information evening is indicative of ongoing involvement by Dinis Falcao in the operations of Classic. Payment by Paul Falcao of the Appellant’s CVOR application fee in 2012 reflects close ties between Classic and the Appellant. Finally, the description of A-1 Towing, Classic and the Appellant as an umbrella group by at least one witness for the Appellant indicates a level of operational integration which strongly supports a finding of common control. The Tribunal finds all three corporations are related corporations as that term is used in the Act.

26The finding that the corporations are related coupled with the fact Classic has been suspended triggers the discretion in s. 17 (3) (a). Should the Tribunal order the Registrar to issue a CVOR to the Appellant despite its relationship to two corporations with Conditional ratings? In the case of Classic, the recent change of attitude under the guidance of Mr. Gill is encouraging. No similar evidence was led with respect to A-1 Towing. In any event, both corporations will continue to have Conditional ratings until they pass a facility audit. There was no evidence that they were yet ready to face the auditors.

27Of concern to the Tribunal is the ease by which vehicles might be transferred between the three corporations to avoid the consequences of a poor safety rating at one of them. In 2012, when it was denied a CVOR, the Appellant simply registered its vehicles with Classic. The timing of the 2012 application raises the question of whether the Appellant applied because Classic had an abysmal safety rating and knew it was facing sanctions in the near future. The Tribunal is of the view that the current risk of the avoidance of sanctions outweighs the recent safety improvements at Classic, at least until Classic has demonstrated it has fully committed to a new mindset. At a minimum, both Classic and A-1 Towing would need to have passed an audit and have maintained a Satisfactory rating for some period of time before the conditions might be right for the exercise of the statutory discretion set out in s. 17 (3).

ORDER

28Pursuant to the authority set out in s. 50 (2) of the Act, the Tribunal orders the Registrar to carry out the provisions of the Refusal to Issue a Commercial Vehicle Operator’s Certificate dated September 3rd, 2014.