Court File and Parties

COURT FILE NO.: CV-16-552531 Motion heard: March 1, 2017 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NIKON OPTICAL CANADA INC., Plaintiff AND THEODORUS HEEREMANS also known as DAN HEEREMANS also known as DANIEL HEEREMANS, Defendant

BEFORE: Master Lou Ann M. Pope

COUNSEL: Counsel for plaintiff: Matthew P. Maurer, Minden Gross LLP Fax: 416-864-9223 Counsel for defendant: David J. McGhee Fax: 416-362-9435

Reasons for Endorsement

[1] The plaintiff seeks an order for leave to amend its statement of claim to, inter alia, add the defendant’s wife as a party defendant and to assert allegations against her, including an allegation that the defendant, Daniel Heeremans (“Heeremans”), improperly transferred the assets of his business to his wife. The defendant opposes the proposed amendments for lack of sufficient particulars to permit a proper defence.

[2] The defendant brought a cross motion to strike all or part of the statement of claim for lack of particulars, or in the alternative, an order requiring the plaintiff to deliver necessary particulars.

[3] Both motions were scheduled for the same day, March 1, 2017, which was a regular motions date. Due to the fact that counsel scheduled insufficient time for the hearing of both motions combined with the fact that the defendant’s confirmation form indicated that the defendant’s motion was both consented to and opposed, the defendant’s motion was adjourned sine die returnable on 14 days’ notice.

[4] Therefore, only the plaintiff’s motion proceeded.

Background

[5] The plaintiff, Nikon Optical Canada Inc., carries on business manufacturing and selling optical lenses.

[6] The defendant, Heeremans, at all material times was the principal of First Street Optical Inc. (“First Street”). First Street carried on business as a retailer of, among other things, optical lenses and frames, from 98 First Street, Unit 2A, Orangeville, Ontario (“the Premises”).

[7] The plaintiff supplied lenses to First Street for which it was not paid. In December 2014, the plaintiff commenced two actions against First Street in respect of these unpaid goods. In March 2015, the plaintiff obtained default judgment in both actions (“First Street Judgments”). As at April 1, 2016, the total amount outstanding on the First Street Judgments was $67,456.80, inclusive of post-judgment interest.

[8] The plaintiff conducted an examination in aid of execution of Heeremans on September 14, 2015 in respect of the First Street Judgments. The plaintiff’s uncontroverted evidence is that Heeremans gave evidence that, among other things:

(a) he is the sole shareholder, officer and director of First Street and that First Street was essentially a “one man operation”; (b) First Street formerly operated from the Premises; (c) First Street was no longer operating and had not operated since December 2014 or January 2015; (d) First Street had sold all lenses supplied to it by the plaintiff and did not have any significant accounts receivable; (e) The revenues from the sales of the plaintiff’s products were likely used to pay off other creditors; (f) Heeremans had not paid himself a salary since 2012; (g) Heeremans was currently unemployed; and (h) Heeremans had never, at any time, transferred assets of the business to his wife or children.

[9] As Heeremans did not answer the undertakings he gave at the examination, the plaintiff obtained an order compelling him to do so within 30 days. Upon serving the order on Heeremans at the Premises, the process server found that Heeremans was operating a retail store selling optical lenses and frames despite his testimony at the examination in aid of execution that First Street had not operated since December 2014.

[10] Subsequently, in answer to some of his undertakings, Heeremans produced First Street’s bank records. It is alleged that the bank records demonstrate that Heeremans continued to pay himself a salary at least to the end of September 2013, contrary to his testimony on examination. Further, it is alleged that Heeremans paid himself a salary while failing to pay First Street’s debts to the plaintiff.

This Action

[11] The plaintiff commenced this action on May 11, 2016 by statement of claim against Heeremans personally. The causes of action asserted against Heeremans are:

(a) fraudulent conveyance and fraudulent preference – the plaintiff alleges that Heeremans paid himself a salary and money to other creditors, that these payments were made with the intent to defeat, hinder, delay or prejudice the plaintiff’s claim in respect of its unpaid invoices, that the payments were made with the intent to unjustly prefer Heeremans’ own interest and the interests of First Street’s other creditors; (b) fraudulent misrepresentation – the plaintiff alleges that Heeremans represented to the plaintiff that First Street was an operating company with assets, that the plaintiff sold optical lenses on credit to First Street based on his representation, and that contrary to said representation, Heeremans did not operate the business through First Street, but rather operated the business as a sole proprietorship or another legal entity that was not First Street; and (c) alter ego liability – the plaintiff alleges that at all material times First Street was simply the alter ego of Heeremans and that the corporation was used as a vehicle to defeat, hinder or delay the plaintiff’s claims.

[12] As a result of these wrongs, the plaintiff pleads that Heeremans is personally liable to it for the sum of $80,694.03, being $67,456.80 owing on the First Street Judgments plus $13,237.23 representing costs that the plaintiff incurred in attempting to enforce the First Street Judgments.

[13] On June 16, 2016, Heeremans served a statement of defence and counterclaim in which he asserts, among other things, that:

(a) First Street became insolvent and ceased operations, and at the time that it ceased operation it had little by way of assets, stock or inventory; and (b) Heeremans subsequently became employed by a business located at the Premises; however, said business is not operated or controlled by him, nor has that business received, used or employed any assets belonging to First Street.

[14] On June 17, 2016, the plaintiff served a demand for particulars of, among other things, the business located in the Premises including the legal name of the business and the names of the individuals who own, operate and control said business.

[15] On July 4, 2016, Heeremans served a response to the demand for particulars. He stated, among other things, that the business located at the Premises was commenced in February 2015, it was owned by a “Rachelle Reinsma” and the legal name of the business was “First Optical”.

[16] The plaintiff’s searches revealed that Rachelle Reinsma is Heereman’s wife and that she registered the business name “First Rate Optical Supplies” on January 21, 2015.

Plaintiff’s Motion

[17] In light of the above information, the plaintiff now seeks to amend its statement of claim to include, among other things, allegations that Heeremans improperly transferred the assets of Frist Street to his wife.

[18] The proposed amendments are contained in the plaintiff’s proposed Fresh As Amended Statement of Claim.

[19] A close review of the proposed amendments reveals the following:

(a) numerous minor amendments in wording and layout, including new subheadings; (b) pleading of new facts discovered after this action was commenced as pled in the statement of defence and counterclaim and by way of Heeremans’ responses to the plaintiff’s demand for particulars; (c) the addition of Rachelle Reinsma-Heeremans (“Rachelle”) as a defendant; (d) new facts and allegations against Heeremans that he fraudulently misrepresented that First Street was an operating company with assets; (e) in paragraphs 30 to 32, news facts and allegations against Heeremans and Rachelle that (1) they acted in violation of the [Bulk Sales Act, R.S.O. 1990, c. B.14], and (2) they are personally liable to the plaintiff for the amount owing on the First Street Judgments, and (3) a claim to entitlement to have the transfer of assets to Heeremans and/or Rachelle undone such and the assets are placed back in the possession of Heeremans and/or First Street for the purpose of the plaintiff realizing on the First Street Judgments; (f) in paragraphs 33 to 36, new facts and allegations of fraudulent conveyance arising out of the transfer of the assets from First Street to Heeremans, Rachelle or any other legal entity, the transfer being a sham designed to defeat, delay or hinder the creditors of First Street, and a claim to entitlement to undo the said fraudulent conveyance; (g) in paragraphs 37 to 44; (h) new facts and allegations that:

• Heeremans purports to be an employee of the new business;
• First Street’s bank records indicate that Heeremans continued to pay himself a salary while failing to pay First Street’s debts to the plaintiff;
• Heeremans routinely used First Street’s credit cards and bank accounts to make personal purchases for his own benefit;
• Heeremans used any other legal entity that holds the Assets of the business as a vehicle to defeat, hinder or delay the claims of the plaintiff;
• the transfer of the assets from First Street to any other entity is a sham designed to defeat, delay or hinder the creditors of First Street and Heeremans was and continues to be the principal and guiding mind of the business;
• a new claim that the corporate veil be pierced and that Heeremans be held personally liable for any other damages incurred by the plaintiff in attempting to enforce the judgments; (i) new claim for punitive damages based on new allegations of the defendants’ conduct being malicious and high handed.

[20] Heeremans opposes the motion on the basis that the proposed amendments lack sufficient particulars of the alleged fraudulent conduct to permit the defendant to defend the action or justify lifting the corporate veil. Heeremans submits that because oral discovery is limited under simplified procedure, it is essential the claim be pleaded with a high degree of particularity. Further, he submits that some of the impugned acts are statute-barred. Lastly, he submits that unless full particulars are provided, the allegations are harmful, embarrassing, scandalous and potentially defamatory.

Law

[21] Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg.194 (“Rules”) is mandatory in nature which provides that an amendment shall be allowed unless it would cause prejudice that cannot be compensated for by costs or an adjournment.

[22] The onus is on the responding party to demonstrate prejudice on a balance of probabilities.

[23] In Marks v. Ottawa (City), 2011 ONCA 248, the Ontario Court of Appeal held that as a general rule amendments are presumptively approved; however, there is no absolute right to amend pleadings and the court has a residual right to deny amendments where appropriate. The Court of Appeal went on to state that the proper factors to be considered are as follows:

(a) an amendment should be allowed unless it would cause an injustice not compensable in costs; (b) the proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious; (c) no amendment should be allowed which, if originally pleaded, would have been struck; (d) the proposed amendment must contain sufficient particulars.

[24] Rule 5.04(2) deals specifically with the addition of a party.

5.04(2) At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[25] Thus, a motion to add a party under rule 5.04(2) is discretionary as the issue of prejudice must be considered before adding a party.

[26] The Ontario Court of Appeal in Pepper v. Zeller’s Inc. (2006), 83 O.R. (3d), [2006] O.J. 5042, at para. 14, held that a rule 5.04(2) motion to a add party after the expiry of a limitation period is discretionary. The Court of Appeal stated:

Contrary to the appellants’ argument the motion was not akin to a rule 26.01 motion to amend a pleading, which “shall” be granted absent compensable prejudice. Rather, a rule 5.04(2) motion to add parties and, in this case, to add parties after the apparent expiration of a limitation period, is discretionary.

[27] In considering whether to grant leave to add a party to an existing proceeding, the court will consider the limitation period and the discoverability principle as the passing of the limitation period will give rise to a presumption of prejudice. (Frohlick v. Pinkerton Canada Ltd., [2008] O.J. No. 17, 2008 ONCA 3, at paras. 17-18)

[28] The following are the applicable provisions of the Limitations Act, 2002, R.S.O. 1990, c. L.15 (“Limitations Act”):

Basic limitation period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

5(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

Adding party

21(1) If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding.

[29] Section 5(2) contains a presumption that a person with a claim is presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. It follows that the onus of proof is on the plaintiff to prove why he was unable to comply with the relevant limitation period.

[30] Lastly, section 21 of the Limitations Act, prohibits the addition of a new party to an existing action after the limitation period has expired.

[31] Heeremans relies on the following rules of pleading:

25.06(1) Every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved.

25.06(8) Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it may be inferred.

25.06(9) Where a pleading contains a claim for relief, the nature of the relief claimed shall be specified and, where damages are claimed,

(a) the amount claimed for each claimant in respect of each claim shall be stated.

Analysis

Limitation Period

[32] The allegations in the original statement of claim are primarily based on First Street’s bank records that were produced by Heeremans pursuant to his undertaking given at the examination for aid of execution held in September 2015. However, it is my view that all of the proposed amendments arise out of the facts disclosed by the Heeremans that he made in response to the plaintiff’s demand for particulars on July 4, 2016. Those include facts that the business located at the Premises was commenced in February 2015, that it was owned by a “Rachelle Reinsma” and the legal name of the business was “First Optical”. They also include facts that the plaintiff obtained through searches which revealed that Rachelle is Heereman’s wife and that she registered the business name “First Rate Optical Supplies” on January 21, 2015.

[33] The notice of motion herein was served on the defendant and Rachelle on October 31, 2016 and November 7, 2016 (effective date of service), respectively.

[34] For the above reasons, I find that the plaintiff discovered its proposed claims against Heeremans and Rachelle, at the earliest, on July 4, 2016 when Heeremans delivered his response to the plaintiff’s demand for particulars. They include all of the proposed amendments as set out above at paragraph 19. Therefore, I find that the plaintiff has met its onus under s. 5(1) of the Limitations Act of demonstrating the date upon which the plaintiff discovered its proposed claims against Heeremans and Rachelle, being July 4, 2016.

[35] Thus, the two-year limitation period commenced on July 4, 2016, and as the plaintiff served the defendant and Rachelle with the notice of motion herein within two years of July 4, 2016; namely October 31, 2016 and November 7, 2016, the limitation period had not expired when the plaintiff served the notice of motion.

[36] For the above reasons, I find that the proposed amendments are not barred by the Limitations Act.

Rules of Pleading

[37] In order to determine whether the proposed amendments of fraudulent conveyance are properly pled, the court must consider the elements of the tort of fraudulent conveyance. They are as follows: (1) the plaintiff is a creditor; i.e., a person to whom a debt is due; (2) the debtor is an insolvent person or unable to pay his or her debts in full; and (3) the debtor conveys his or her property to another person with intent to defeat, hinder, delay or prejudice creditors, or any one or more of them. (EnerWorks Inc. v. Glenbarra Energy Solutions Inc., 2012 ONSC 414, [2012] O.J. No. 2272, para. 51)

[38] Thus, to succeed with a claim of fraudulent conveyance, the plaintiff must prove fraudulent intent.

[39] The proposed pleading includes the following particulars, including allegations of intent:

(a) at the examination in aid of execution in September 2015, it was Heereman’s evidence that First Street had not been in operation since December 2014 or January 2015; (b) Heeremans sold all the lenses supplied by the plaintiff; (c) revenues from sales of the plaintiff’s products were used to pay other creditors; (d) Heeremans was not paid a salary since 2012; (e) Heeremans was unemployed at the time; (f) First Street’s bank records and financial records produced in March 2016 show that Heeremans continued to pay himself a salary to the end of September 2013, and show that he made personal purchases using First Street’s credit cards and/or bank accounts; (g) the statement of defence and counterclaim herein, delivered in June 2016, pled that Heeremans was employed by a business at the same location previously occupied by First Street, the business was not controlled by Heeremans, the business had not received, used or employed any assets that belonged to First Street, and that all of First Street’s belongings remained in storage and available to the plaintiff; (h) Heeremans advised that the business located in the premises formerly occupied by First Street operates under the name “First Optical” which commenced operations in February 2015, and is owned and operated by Rachelle; (i) Rachelle’s full name is Rachelle Reinsma-Heeremans and she is the spouse of Heeremans; (j) Rachelle registered the business name “First Rate Optical Supplies” (“First Rate”) on January 21, 2015; (k) Rachelle purportedly operated First Rate as a sole proprietorship carrying on business as a wholesaler of eyewear and optical supplies from Unit 2A, the same premises which was previously occupied by First Street; (l) Frist Rate is advertised as “First Street Optical” on signage outside the store and to the general public; (m) the telephone number that is registered and advertised in the Yellow Pages and on the internet under “First Street Optical” remains active and used by First Optical; (n) allegations that Heeremans never operated the business through First Street but rather operated it personally or through some other legal entity; he initially operated the business through First Street but subsequently, and wrongfully, transferred assets of First Street to himself or to another legal entity; or, he initially operated the business through First Street, another legal entity or himself personally but subsequently and wrongfully transferred assets of First Street to Rachelle; (o) as a fraudulent conveyance, the transfer of assets to Heeremans and Rachalle was “designed” to defeat, delay or hinder the creditors of First Street; (p) the plaintiff sold optical lenses on credit to First Street based on Heeremans’ representation to the plaintiff that First Street was an operating company with assets; Heeremans knew that this representation was false and/or reckless as to the truth of the representation; Heeremans operated and continues to operate First Street as a sole proprietorship or through another legal entity; as a result of his misrepresentation the plaintiff has incurred damages; (q) Heeremans and Rachelle acquired the assets of First Street and/or Heeremans failed to account for the liabilities of the business, all in violation of the Bulk Sales Act.

[40] After a careful review of the proposed pleading and for the reasons set out above, I find that the proposed pleading fails to set out the following requisite material facts given the allegations of fraud:

(a) at paragraph 13, particulars of the bank records, including dates and amounts, which demonstrate that Heeremans continued to pay himself a salary until the end of September 2013; (b) at paragraph 14, particulars of First Street’s financial records which show that Heeremans made personal purchases using the business’ credit cards and/or bank accounts, including account numbers, dates and amounts; (c) at paragraph 23, particulars of the allegation that the telephone number is “used by the business located at Unit 2A,” including the basis for the allegation; (d) at paragraph 26, particulars of the date of the alleged representation and Heeremans’ knowledge of the false representation; (e) at paragraph 28, particulars of the other legal entity; (f) at paragraphs 30 and 31, particulars of when and how Heeremans and Rachelle acquired various assets of First Street, particulars of the specific assets and how they subsequently acquired the inventory, lease, telephone number and goodwill; (g) at paragraph 33, particulars of the assets that were allegedly transferred and the “other legal entity”; (h) at paragraph 35, particulars of the identity of the “recipient of the Assets”; (i) at paragraphs 39 and 40, particulars of the bank records and credit cards; namely, bank name, account numbers, dates and amounts.

[41] In conclusion, for the above reasons, I find that the proposed pleading lacks sufficient particularity of material facts to support the numerous allegations of fraud.

[42] On another point, and although it does not appear to be in issue, the word “designed” was used in paragraph 33 and elsewhere in the proposed pleading when alleging that Heeremans’ and Rachelle’s actions were “designed to defeat, delay or hinder the creditors of First Street. In my view, the use of the word “designed” is a synonym of “intented” such that those words are interchangeable. Simply put, the use of the word “designed” rather than “intended” does not negate the allegation of intent to support the fraud allegations.

[43] I wish to make another minor point regarding the allegation at paragraph 25(a) of the proposed pleading which, in my view, must be followed by “or” to reflect that the allegations set out in the three subparagraphs are alternative claims.

[44] For the above reasons, I find that the numerous allegations of fraud, including fraudulent misrepresentation, fraudulent conveyance and alter ego, in the proposed pleading have not been properly pled in accordance with the rules of pleading.

[45] In conclusion, after a careful review of the proposed pleading, I am not satisfied that it contains full particulars of the allegations of fraud and intent on the part of the defendant and Rachelle. Although the proposed pleading contains some particulars that have been recognized by the courts as badges of fraud, such as, addresses, telephone numbers, and signage, it falls short of providing full particulars of all the allegations as set out in detail above.

[46] Therefore, given my finding that the proposed amendments are not barred by the Limitations Act, and the fact that it contains some but not all material facts to support the allegations, I am dismissing the plaintiff’s motion but granting leave to amend the statement of claim for the reasons as set out above.

Costs

[47] As the defendant succeeded in opposing this motion, he shall be entitled to his costs on a partial indemnity basis fixed in the amount of $5,000, inclusive of fees, taxes, and disbursements, payable within 30 days.

July 6, 2017 (original signed) Master Lou Ann M. Pope