2023 ONSC 2866
Court File and Parties
Court File No.: CV-21-655525-00CL Date: 2023-05-12 Superior Court of Justice - Ontario
Re: JDM GROUP LTD. and JASON MIDDLETON, Applicants And: DIRECT BROADCAST SATELLITE COMMUNICATIONS CORP., PRODUCERS PLANNING GROUP LTD., THE BENEFITS GROUP INC., THORNBRIDGE CAPITAL INC. and MARK BER, Respondents
Before: Kimmel J.
Counsel: Stephen Barbier / Ben Tustain, for the Applicants Kevin MacDonald / Jamie Sanderson, for the Respondents Harvey Chaiton, for Sales Officer
Heard: April 18, 2023
Endorsement
The Motion
1The applicants, JDM Group Inc. (“JDM”) and Jason Middleton (“Jason”) bring this motion. They seek urgent and interim relief from the alleged misappropriation of corporate assets by the respondent, Mark Ber (“Mark”), in respect of another respondent, Producers Planning Group Ltd. (“PPG”).
Procedural Context and The Alleged Misappropriations
Procedural Context
2The procedural context is important to the determination of this motion. The respondents (on this motion and the underlying application) maintain that the court does not have jurisdiction to grant the relief sought by the applicants. They say this application has already been dismissed and that the interim injunctive relief now sought has merged in the final order that was settled, issued and entered on March 28, 2023, approximately three weeks prior to the hearing of this motion.
3On June 27, 2022, Cavanagh J. heard the following three applications (the “Applications”):
a. An application by Doug Middleton against Direct Broadcast Satellite Communications Corp. (“DBS”), The Benefits Group Inc. (“TBG”), and Mark (the principal and a shareholder of DBS) commenced by a Notice of Application issued on October 22, 2020 (“Doug’s Application”). Doug’s Application sought a winding-up and dissolution of TBG under s. 207 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) or, alternatively, that Mark buy his shares. (CV-20-640907-00CL).
b. An application by Jason and JDM against DBS, PPG, TBG, Thornbridge Capital Group Inc. (“Thornbridge”) and Mark commenced by a Notice of Application issued on January 25, 2021 (the “JDM Application”). The JDM Application sought a winding-up and dissolution of PPG and TBG under s. 207 of the OBCA, or a s. 248 OBCA oppression remedy buy-out requiring Mark and DBS to buy out Jason’s interests in PPG and TBG, and ancillary relief involving orders for reimbursement and accounting by Mark and his companies (CV-21-655525-00CL).
c. An application by DBS, The Producers Group Ltd. (“PG”), and Mark against Jason, JDM, PPG, TBG, Thornbridge, and Doug Middleton commenced by a Notice of Application issued on March 23, 2021 (the “DBS Application”). The DBS Application primarily sought a s. 248 OBCA buy-out (by Jason in PPG and by Jason and/or Doug in TBG) and an accounting of commissions and earned income by Jason and Doug (CV-21-659278-00CO).
4The Applications concern claims for shareholder remedies and related relief in connection with three closely held corporations: PPG, TBG, and Thornbridge. PPG (owned equally by Mark and Jason) and TBG (owned equally by Mark, Jason and Doug) are licenced insurance brokers. Thornbridge is an investment holding company owned equally by Mark and Jason. [1]
The Cavanagh J. Decision and Order
5No finding of oppression was made in any of the Applications in the court’s decision (see Middleton v. Direct Broadcast Satellite Communications Corp., 2022 ONSC 7345) released on December 30, 2022. In this decision (the “Cavanagh Decision”), the court declined to grant any of the claims for declaratory relief or to find that the respondents to any of the Applications acted oppressively. As such, the court declined to grant any of the requested remedial orders to rectify the matters complained of.
6Cavanagh J. found that:
15The shareholders of PPG, Mark (through his holding company, DBS) and Jason (through a family holding company, JDM) and the shareholders of TBG (Mark, Jason and Doug) are hopelessly deadlocked and unable to continue to carry on the businesses of PPG and TBG with each other as shareholders on an ongoing basis.
16I am satisfied that it is just and equitable that PPG and TBG should be wound up and that an independent person be appointed to sell the businesses of PPG and TBG.
7Accordingly, the Cavanagh Decision ordered the winding-up of PPG and TBG (the “Companies”) pursuant to s. 207(1)(b)(iv) of the OBCA and that the businesses be sold with a professional, arm’s length and independent person to be appointed as an officer of the court as a sales process administrator (the “Sales Officer”). The Sales Officer is to provide advice and recommendations and an overall plan to the court (the “Sales Plan”) with respect to the sales process (the “Sales Process”) for the sale of the shares and/or the business and assets of the Companies (collectively, the “Property”) and for the completion of the sale.
8Given the importance to the parties of having a formal order providing for the Sales Process and the terms for a sale, the parties were directed to meet and confer and provide an approved form of order to give effect to what was ordered in the Cavanagh Decision. It took several months, but the form of order styled in all three Applications was finally settled, issued and entered on March 28, 2023 (the “Cavanagh Order”).
9The Cavanagh Order provides, inter alia:
a. For the dismissal of all claims made in each of the Applications except to the extent that relief is awarded therein.
b. For the appointment of a Sales Officer.
c. For the authorization and empowerment of the Sales Officer to, among other things, develop a Sales Plan, carry out the Sales Process and sell the Property, and to prepare a plan for the winding-up of the Companies at a time to be directed by further court order.
d. For the Sales Officer to have access to the Companies and their books and records and to take any steps reasonably incidental to the exercise of its powers.
e. Requiring the Companies and their current and former directors, officers, employees, agents and the like to co-operate with the Sales Officer.
f. For the authorization of the Sales Officer to prosecute or settle the outstanding litigation between PPG and Richardson Wealth Insurance Services Ltd., formerly Richardson GMP Insurance Services Limited (“Richardson”), bearing Court File No. CV-22-00000513-000 (the “Richardson Action”).
g. That the Companies shall be entitled to pay all expenses incurred by them in carrying on their business in the ordinary course; but, effective March 15, 2023, they shall not make any payments outside of the ordinary course of business without the prior written approval of the parties and the Sales Officer or further order of this court.
h. For the continuation of the provision of contractual goods and services to the Companies in the normal course, and payment by the Companies for same, after the date of the Cavanagh Order.
i. Prohibiting any payments after March 15, 2023 to the shareholders of TBG or PPG or related persons or entities, including Mark, Jason and Doug and their companies, without a court order or consent.
j. Requiring that all proceeds generated by the Sales Process carried out pursuant to the Sales Plan be held by the Sales Officer in trust and shall not be distributed to any party to the proceedings pending further court order.
k. Permitting any interested party to apply to the court for an order winding-up the Companies after the Sales Process is completed.
10The mechanics of the Cavanagh Order for the appointment of a Sales Officer to develop a Sales Plan and carry out the Sales Process were in service of the eventual winding-up of the Companies provided for in the Cavanagh Decision. The parties’ reasonable expectations from that point forward would be informed by that anticipated eventuality.
The Alleged Agreement to Keep the Status Quo
11The moving parties allege that, prior to the hearing of the Applications, an oral agreement was reached between counsel (including Mark’s former counsel) following the commencement of the Applications to preserve the status quo of the Companies pending the outcome of the litigation (the “Status Quo Agreement”).
12Although this Status Quo Agreement was not memorialized in writing, the moving parties contend that it is reflected in a jointly prepared endorsement following a case conference before Hainey J. (before he passed away) that purports to reflect Hainey J.’s advice and direction to the parties about the importance of operating the Companies in a “balanced and even-handed manner.”
13The moving parties also suggest that the order of Koehnen J. made following an injunction motion he heard on November 3, 2021 further corroborates that there was a Status Quo Agreement. That order required Mark to repay money he had taken from PPG to finance his legal costs in these proceedings. The moving parties contend that is consistent with their position that, throughout the pendency of the Applications, expenses paid out of the PPG bank account should only have been ordinary course corporate expenses with a view to maintaining the status quo, and that Mark was not permitted to use PPG’s bank account to pay for the now Challenged Expenses (as hereinafter defined in paragraph 27) that appear to have been for litigation or other purposes to benefit himself or companies or persons affiliated with him.
14The respondents deny that there was any such binding Status Quo Agreement, although they maintain that the Challenged Expenses were expenses incurred and paid by PPG in the ordinary course of its business.
15The court orders or directions relied upon by the moving parties do not refer to and are not predicated upon the existence of any such agreement. In the absence of any written agreement or contemporaneous corroboration of such agreement between the parties or their counsel, I am not persuaded on a balance of probabilities that there was a binding and enforceable agreement to maintain the status quo entered into between counsel for the moving parties and former counsel for the responding parties.
The January 20, 2022 Motion
16On November 3, 2021, Koehnen J. made the following three orders (the “Koehnen Order”):
a. Mark was ordered to reimburse the Companies for any amounts paid by those corporations for Mark’s legal expenses in the Applications;
b. On consent, Mark and the respondents were to preserve the metadata associated with any electronic records of the respondents; and
c. The balance of the motion was dismissed without prejudice to the Applicants’ ability to bring a properly scheduled motion for the relief Koehnen J. was dismissing.
17Jason and JDM served a motion for contempt that was resolved before it was to be scheduled at a December 17, 2021 scheduling appointment. Jason and JDM then scheduled another motion seeking access to PPG’s records, income and costs of the contempt motion that raised further allegations against Mark of misappropriation of PPG’s assets. That motion was scheduled to return on January 20, 2022. It was partially argued. According to Jason, it was adjourned sine die pending the final decision on the Applications. The moving parties contend that the issues raised on that January 20, 2022 motion were never resolved nor addressed in the Cavanagh Decision.
18According to Mark, Jason and JDM’s motion seeking access to PPG’s records, income and costs of the contempt motion was abandoned and withdrawn. The responding parties maintain that if the issues raised were not abandoned or withdrawn, they were finally disposed of by the dismissal of the Applications in the Cavanagh Order. Aside from a pattern of conduct that the moving parties seek to demonstrate (of Mark diverting corporate funds for the benefit of himself and his affiliates) the status of the issues raised on the January 20, 2022 motion is not particularly relevant to the issues to be decided on this motion.
Concerns About Depletion of PPG’s Cash
19The moving parties refer to the history of alleged misappropriations by Mark for context or “colour”. They contend that the alleged misappropriations by Mark that are the subject of the present motion (the Challenged Expenses) took place after the hearing of the Applications. Therefore, they are new and different than the previous complaints raised, although part of a pattern of conduct that has depleted the cash in the Companies that have now been ordered to be wound up.
20The immediate issue from the perspective of the moving parties is that PPG’s cash in the bank has been significantly reduced since the litigation began in 2021. The account balance has gone from approximately $750,000 as at February 28, 2022 to a low of approximately $165,000 as at the end of March 2023 (this current number is according to the most recent information available to counsel from the Sales Officer). The moving parties are concerned that the Challenged Expenses paid while the Cavanagh Decision was pending and then those paid after it was released and before the Cavanagh Order was settled have improperly depleted the available cash for distribution upon the eventual winding-up and that Mark will end up with a disproportionate share.
21The responding parties maintain that the cash depletions are the result of ordinary course business expenses, relying upon the fact that the monthly expenses of PPG have exceeded its income during the pendency of this litigation because the company has essentially been in a holding pattern. Mark acknowledges the depletion of the company’s cash resources. He says that PPG’s bank account had an account balance of just over $894,000 as at September 2021 and a balance of $228,745.67 as at January 31, 2023. He attributes the depletion to the monthly shortfall between expenses and policy renewal income.
22The parties appear to agree that PPG has recurring monthly expenses of approximately $60,000. Jason contends that the monthly expenses are roughly equivalent to PPG’s average monthly policy renewal income, leaving a monthly shortfall of $1,500 or less. However, according to Mark, the monthly shortfall between expenses and policy renewal income is much greater, closer to $35,000 per month.
23The submissions of the parties on this motion were not sufficiently granular or focused to allow the court to make a fully informed ruling on what PPG’s actual ordinary course monthly shortfall is. It is what it is and the Sales Officer should be able to ascertain this based on the access to records and co-operation that the Cavanagh Order provides for.
The Richardson Action
24The recovery of outstanding commissions through the Richardson Action could help to replenish some of PPG’s liquid assets. PPG has a claim against Richardson (Jason’s current employer) for outstanding commissions and renewal fees since the termination of the Richardson contract with PPG. Jason values this claim at approximately $500,000-$800,000. There is ongoing litigation between PPG and Richardson to determine the amount owing. The Sales Officer has been authorized to take over that litigation.
This Motion: The Alleged Misappropriations at Issue
25This motion seeks an order requiring Mark to repay amounts that the moving parties allege he caused PPG to pay to related parties and/or out of the normal course of business. This motion deals with activities that Mark (and his affiliates) allegedly engaged in after the Applications were heard on June 27, 2022 and prior to March 28, 2023 when the Cavanagh Order was settled.
26This motion was served in November 2022 and was scheduled and timetabled after the Cavanagh Decision was released on December 30, 2022, but before the Cavanagh Order was finally settled on March 28, 2023. Jason’s discovery of the disputed payments made by PPG in September and October 2022 (before the Cavanagh Decision was rendered) is what led to this motion being served in November 2022. Further Challenged Expenses were paid in January 2023 to PG (Mark’s company) and Delmar Consulting (Mark’s girlfriend’s company). Those expenses were subsequently discovered and included in the motion.
27Specifically, the moving parties allege that funds totaling over $620,000.00 (the “Challenged Expenses”) were improperly paid out of PPG’s bank accounts (over which Mark had de facto control) for:
a. Litigation related expenses paid to a forensic expert, TEK Forensic, and to Delmar Consulting, Mark’s girlfriend’s consulting firm, alleged to be for litigation related work and support (paid in October 2022 and January and February 2023);
b. Reimbursement for a leadership conference and trip alleged to be taken outside the ordinary course of business (paid in September 2022 and January 2023);
c. “Backfill” for work performed by PG employees said to be for the benefit of PPG after Mark dismissed Doug from PPG in 2020 (paid to PG on July 26, 2022 for $54,123.08, October 18, 2022 for $39,916.01 and January 10, 2023 for $56,162.73);
d. PG’s alleged entitlements under the PPG unanimous shareholders’ agreement “(USA”) for insurance renewal income (paid to PG on October 4, 2022 for $103,920.49 and January 10, 2023 for $56,162.73) and for policies alleged to have been written through PPG in trust for PG (paid in January 2023 in two installments of $242,972.73 and $5,880.53).
28The last category of these PPG expenditures is the largest, including over $159,000 paid to Mark’s company PG on account of the alleged USA entitlements and over $248,000 for the alleged policies held in trust for PG.
29In his February 24, 2023 affidavit sworn in response to this motion, Mark provided the following explanations for these expenses. The below explanations are supplemented with commentary from the moving parties in respect of same:
a. That PPG hired his company, PG, to provide group benefits services after Doug was terminated in 2020, despite having never previously indicated in this litigation that he, Mitch and Angie (the remaining PPG salaried employees with capabilities and responsibilities for group benefits services for PPG) were unable to handle this work and required assistance from PG and despite having never recorded this retainer of PG or amounts owing to PG in either PG’s or PPG’s books and records.
b. That his girlfriend’s company, Delmar Consulting, had a pre-existing consulting agreement for technology support and other services, some of which had been provided but not invoiced or paid prior to the litigation. The nature of the services alleged to have been provided by Delmar Consulting is not disclosed. Publicly available court filings in the assessment of the accounts of the former counsel for the responding parties indicate that Mark’s girlfriend played an active role in the litigation. For the work she was unable to do, according to Mark’s affidavit, TEK Forensic was engaged to provide analytical support and eventually to produce a report relied upon in the litigation, also consistent with the inference that Delmar Consulting was primarily providing litigation support.
c. That the insurance proceeds (claimed USA entitlements based on an allegation that there had been a repudiation of the USA that Cavanagh J. did not accept, and claimed amounts for policies alleged to have been written in trust by PPG for PG without any trust agreement) were PG’s property, despite these amounts never having been recorded in previous years’ financial statements for either PPG or PG or having been disclosed to the expert who prepared the valuation report that Mark relied upon in connection with the Applications for the buy-out that he was asking be ordered.
30None of these alleged pre-existing liabilities of PPG that are the subject of the Challenged Expenses were mentioned in the evidence filed on the Applications, including Mark’s expert valuation evidence; nor are they disclosed in the company’s accounting records that were produced. While the financial and accounting records previously produced were for time periods earlier than September 2022 to January 2023, the explanations for many of these Challenged Expenses suggest that they would have been incurred in prior years as well so the fact that they were paid in later financial reporting periods is not a satisfactory explanation for the lack of disclosure about these expenses in the corporate financial and accounting records.
Issues on this Motion
31The issues on this motion are:
a. Whether the court has jurisdiction to hear this motion?
b. If so, what is the nature of the relief sought and does it require satisfaction of the test for an interim mandatory injunction order?
c. If so have the moving parties met the test for an interim mandatory injunction order?
i. Is there a strong prima facie case that the Challenged Expenses incurred by PPG and paid (by Mark) outside of the ordinary course of PPG’s business?
ii. Will the moving parties suffer irreparable harm?
iii. Does the balance of convenience favour such an order?
d. Should any relief be granted under the court’s broad remedial powers pursuant to s. 207 of the OBCA?
e. Can the relief sought be granted against non-parties?
Analysis
The Court’s Jurisdiction Over the Issues Raised: Merger in the Cavanagh Order
32The question of whether the court has jurisdiction to hear this motion is grounded in the doctrine of merger by judgment that is part of the doctrine of res judicata.
The merger by judgment means that the cause of action has been extinguished. It is transformed into and replaced by a judgment which creates an obligation of a higher nature. The inferior remedy of the cause of action is merged in the higher remedy of the judgment. The judgment is all that is left to rely upon after the trial.
See Donald Lange, The Doctrine of Res Judicata in Canada, 3rd ed. (Toronto:; LexisNexis, 2010) at 135. See also Canada (Attorney General) v. Hislop, 2007 SCC 10, [2007] 1 S.C.R. 429, at para. 75.
33The responding parties contend that the Cavanagh Order appointing a Sales Officer, allowing for a further application by either party for a winding-up order and otherwise dismissing the balance of the Applications is a final order disposing of all issues raised in the Applications on their merits. That would include the allegations of self-dealing and misappropriation of the Companies’ assets against Mark that were asserted in the Applications. They contend that this raises a jurisdictional problem for the court because there is no remaining pleaded cause of action in the JDM Application upon which to predicate this motion
34This is essentially a procedural problem. It is a function of this motion having been brought within the JDM Application, even though it seeks to address conduct (alleged misappropriations) of the responding parties that could not have been the subject of the court’s determination of that application because they occurred after the application was heard and the evidence had closed.
35A simple procedural work-around to this problem would have been for the moving parties to commence a new application to address the conduct complained of. However, that strikes me as inefficient and also fails to account for the fact that the issues raised may be relevant to the Sales Officer in carrying out its powers under the Cavanagh Order, which include:
a. Developing the Sales Plan and Carrying out the Sales Process for the sale of the Companies’ Property; and
b. preparing a plan for the winding-up of the Companies at a time to be directed by further court order,
in furtherance of which it was to have access to the Companies and their books and records, to receive the co-operation of the parties and to take any steps reasonably incidental to the exercise of its powers.
36To fulfill its duties and responsibilities, the Sales Officer must understand what has happened to PPG’s assets, including the cash in its bank account. That aspect of the Cavanagh Order is continuing. The court is not functus of its ability to ensure that the Cavanagh Order is carried out. To the contrary, the Cavanagh Order expressly contemplates that there may be further orders made and directions provided by the court. This motion is brought in the context of a court-supervised Sales Process that the moving parties claim is being frustrated.
37The Companies were authorized under the Cavanagh Order to pay expenses incurred in the ordinary course of business. They were expressly prohibited from making payments to any non-arm’s length parties after March 15, 2023. That does not mean that they were permitted to make payments to non-arm’s length parties out of the ordinary course of business prior to that date.
38This case is distinguishable from those relied upon by the responding parties, in which the prior proceedings at issue had been dismissed in their entirety: for example, Harris-Saunders v. Toronto, 2020 ONSC 4827, at para. 6 and Smith v. New Brunswick Human Rights Commission at paras. 1-3. Conversely, in this case, the Applications were only dismissed in part. The concerns raised now about the Challenged Expenses can be tethered to the parts of the Cavanagh Order that are to be implemented and are expected to involve ongoing court oversight and possibly further orders and directions from the court.
39It is not disputed that PPG’s net assets will, assuming PPG is wound-up, be distributed equally to PPG’s shareholders, Mark and Jason (or their respective holding companies): see OBCA s. 221 (1)(a). The winding-up of PPG is a step contemplated by the Cavanagh Order and open to any party to initiate once the Sales Process has concluded.
40In the meantime, the Sales Officer has been granted the authority to collect and liquidate PPG’s assets. The determination of the net assets of PPG will be impacted by the determination of whether the Challenged Expenses were incurred and paid in the ordinary course of PPG’s business: if they were, then they are properly included in the determination of the net assets for distribution to PPG’s shareholders; if they were not, then the shareholder responsible for effecting those payments out of PPG’s bank account (Mark) may have to account for those amounts and they may have to be deducted from any entitlements he might otherwise receive upon the winding-up of PPG.
41I find that the alleged misappropriations (Challenged Expenses) that are the subject of this motion have not merged in the Cavanagh Order and can be raised in the context of the court’s oversight over the fulfillment and implementation of that order. The doctrine of merger does not apply and the issues raised are not res judicata since the Challenged Expenses had not been incurred at the time the Applications were heard.
What is the Test to be Applied on this Motion?
42Much of the relief sought on this motion is in the nature of a mandatory order for the accounting and return or reimbursement of the alleged inappropriate non-ordinary course expenses that Mark caused PPG to pay after the hearing of the Applications and prior to the Cavanagh Order being settled (the Challenged Expenses). There are some aspects of the relief sought that seeks further restrictions to be placed on the signing authority and approval of any future payments by the Companies for anything other than non-recurring expenditures that will be discussed in a later section of this endorsement.
43The moving parties contend that the court can grant all of the relief they seek under s. 207 of the OBCA as part of the winding-up order already made. Section 207 gives the court broad remedial powers (all the same as under the s. 248 OBCA oppression remedy). They maintain that the court can order the return of property (by both parties and non-parties to the JDM Application) to the company being wound up if the court determines it to be just and equitable to do so. They maintain that this is an extension of the final order already made and that the test in such circumstances is not the injunction test from RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, but rather the test for a permanent injunction, as follows:
In order to obtain final injunctive relief, a party is required to establish its legal rights. The court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the granting of a final injunction, though some of the evidence that a court would use to evaluate those issues on an interlocutory injunction application might also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief.
See 1711811 Ontario Ltd. (AdLine) v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 371 D.L.R. (4th) 643, at paras. 74-80, citing Cambie Surgeries Corp. v. British Columbia (Medical Services Commission), 2010 BCCA 396, 323 D.L.R. (4th) 680, at paras. 27-28.
44On this theory, the moving parties did not approach their argument on the basis that they are seeking an interlocutory injunction. However, I do not see how the relief they seek regarding the Challenged Expenses incurred to date can be viewed otherwise.
45I agree with the responding parties that much of what the moving parties are asking for is interim relief (pending the further winding-up order) in the form of a mandatory order for which they need to meet the three-part RJR-MacDonald test for the court to grant the relief sought. As noted by the British Columbia Court of Appeal in Cambie Surgeries, at para. 24: “[t]he [RJR-Macdonald] test is designed to address situations in which a court does not have the ability to finally determine the merits of the case, but must nevertheless decide whether an interim order should be made to protect the applicant’s interests.”
46This test requires the court to consider the following questions when determining whether to grant a mandatory (as opposed to restrictive) injunction order:
a. Have the moving parties demonstrated that there is a strong prima facie case that Mark caused the Challenged Expenses to be inappropriately paid out of the ordinary course of PPG’s business (or misappropriated from PPG) in the period after the Applications were heard and prior to the Cavanagh Order being issued?
b. Will the moving parties suffer irreparable harm if the interim relief is not granted pending a final determination of this issue?
c. Which party will suffer the greater harm from granting or refusing the interim relief pending a decision on the merits?
Have the Requirements for an Interim Mandatory Order Been Met?
Strong Prima Facie Case: Were the Challenged Expenses Incurred and Paid Outside of the Ordinary Course of PPG’s Business?
47The test for a mandatory interim injunction is whether the moving party has shown a strong prima facie case:
In my view, on an application for a mandatory interlocutory injunction, the appropriate criterion for assessing the strength of the applicant’s case at the first stage of the RJR-MacDonald test is not whether there is a serious issue to be tried, but rather whether the applicant has shown a strong prima facie case. A mandatory injunction directs the defendant to undertake a positive course of action, such as taking steps to restore the status quo, or to otherwise “put the situation back to what it should be”, which is often costly or burdensome for the defendant and which equity has long been reluctant to compel. [Emphasis in original.]
See R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at para. 15.
48Having regard to the evidentiary record, I am satisfied that there is a real dispute about whether the Challenged Expenses were incurred and paid outside the ordinary course of business. There is, in that sense, a serious issue to be tried.
49With respect to at least some of the Challenged Expenses (for example, the payments to Mark’s affiliated company PG for group benefits services after Doug left PPG in 2020, renewal income said to have accrued, but never previously been paid, under the USA and payments for policies allegedly written in trust for PG) I am satisfied that the record demonstrates a strong prima facie case that they were paid outside of the ordinary course of business, even though that will need to be further investigated.
50These amounts (that appear on the record to be referable to financial reporting periods that were at issue on the Applications) were never recorded in PPG’s financial statements or mentioned as part of the evidence supporting the valuations undertaken in the context of the Applications. Mark refused to attend to be cross-examined on his affidavit in response to this motion in which these explanations for the payments were proffered. This leads to a strong adverse inference that the explanations now provided will not withstand scrutiny and that the court should place little if any weight on them. Without those explanations, on their face, these amounts paid to PG appear to be one-off payments to a non-arm’s length party. That gives rise to a strong prima facie case that these payments were made outside of the ordinary course of PPG’s business.
51Even if not technically a breach of the Cavanagh Order, in the procedural context in which they arose, there is jurisdiction (and precedent) for the court to order non-arm’s length payments to be reimbursed or accounted for in the eventual winding-up of a company. The moving parties contend that this case is analogous to appellate authority in which a final order was made requiring a party that engaged in self-dealing with a corporation’s assets on the eve of a winding-up to return or repay the amounts. The moving parties seek to apply that authority to this case to require Mark to reimburse PPG for the Challenged Expenses: see Ernst & Young Inc. v. Acquino, 2021 ONSC 527, 88 C.B.R. (6th) 60, aff’d 2022 ONCA 202, 160 O.R. (3d) 284, leave to appeal to the SCC granted at [2022] S.C.C.A. No 131.
52I find that there is a strong prima facie case that at least some of the Challenged Expenses are open to attack as non-arm’s length payments outside of the ordinary course of PPG’s business. The legitimacy of these expenses will eventually need to be determined in the context of the Sales Process and subsequent winding-up of the Companies. Mark, or parties affiliated with him, may be ordered to repay or reimburse the PPG for some or all of the Challenged Expenses, or account for same in the eventual reconciliation and distributions to the shareholders.
53The moving parties also allege that the payment of the Challenged Expenses amounts to a breach of Mark’s fiduciary and other duties to PPG, as well as oppression under s. 248 of the OBCA. I do not need to consider these potential other reasons for requiring the reimbursement of the Challenged Expenses based on my findings thus far that a strong prima facie case for the need for an accounting and reconciliation of the Challenged Expenses has been demonstrated on other grounds.
54The moving parties further rely on the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 (“FCA”). This is said to add a further layer of support for the unwinding of the Challenged Expenses paid to non-arm’s length parties in haste before the Sales Officer was appointed allegedly to defeat, defraud and delay Jason’s interest in the residue of PPG.
55The responding parties challenge the ability of the moving parties to rely upon the FCA because that statute was never pleaded in the JDM Application. They argue that the court does not have jurisdiction to grant relief pursuant to the FCA on this motion because it was not pleaded. For this point, the responding parties rely upon settled authority to the effect that: “[a] court cannot decide an issue or cause of action that has not been pleaded.” See Gu v. Choi, 2014 ONSC 1028, 31 C.C.L.I. (5th) 217, at para. 10, citing Sutton, Mitchell & Simpson Ltd. v. Kelore Mines Ltd., [1956] O.W.N. 648 (C.A.); Bedford Construction Co. v. Gilbert, [1956] O.W.N. 293 (C.A.).
56This doctrine is sound, but it misses the point in part. The moving parties are not necessarily seeking relief pursuant to the FCA on this motion. Rather, they rely upon it to demonstrate that there is a legitimate concern that would provide a further authority for the court to order the repayment of funds said to have been fraudulently conveyed, if that is established. What the moving parties purport to be seeking at this time is to preserve the status quo pending any such determination.
57Reliance on the FCA may require formal notice, if it applies. However, that may arise in the context of the winding-up and, at the appropriate time, could be “pleaded” in a motion properly brought in that context, perhaps by the Sales Officer. I do not foreclose the possibility that there may be a future need to rely upon the FCA to recover monies found to have been improperly paid out in breach of that statute. I do not consider it to be fatal to this aspect of the moving parties’ assertions that it was pleaded in a motion brought in the context of a court ordered Sale Process and winding-up rather than in the original notice of application.
Irreparable Harm and the Balance of Convenience
58Based on the monthly expenses and policy renewal revenue that the moving parties have indicated, and having regard to the potential recoveries from the Richardson Action, the math is such that I am reasonably confident that there will be sufficient funds available to make the necessary distributions to the shareholders of PPG, even if in disproportionate amounts if it is later determined that some or all of the Challenged Expenses were improper, without requiring that monies be repaid or reimbursed now by Mark. This is especially so because Mark did not personally receive all of the funds and, as discussed later in this endorsement, I do not consider it to be appropriate at this time to make any order requiring any non-party, such as Delmar Consulting or PG, to reimburse amounts paid to them.
59The Sales Officer (or the court at the request of the Sales Officer or any interested party) may require an accounting and reconciliation from Mark and persons related to him regarding the Challenged Expenses. That may result in a disproportionately lower distribution to Mark upon the winding-up of the Companies if it is determined by the Sales Officer and/or that any of these expenses were not made in the ordinary course of business and/or were illegitimate for any other reason. In such event, Mark can be required to reimburse any improperly paid amounts or those amounts can be credited against his future entitlements and distributions.
60In these circumstances, no irreparable harm has been established resulting from the payment of the Challenged Expenses. Without irreparable harm, there is no need to consider the balance of convenience.
61The court’s determination on this motion that there is no established irreparable harm is predicated on the expectation that the legitimacy of the Challenged Expenses can and will be addressed in the context of the winding-up of PPG as part of the plan for the winding-up to be presented by the Sales Officer to the court as contemplated by the Cavanagh Order, that may include an accounting and reconciliation in respect of the Challenged Expenses. The powers of the Sales Officer, if not yet sufficiently broad to cover the investigation into the Challenged Expenses, can and should be expanded to allow for this to take place (Counsel for the Sales Officer indicated at the hearing of this motion it would be agreeable to this expansion of powers).
The Court’s Broad Remedial Powers Under s. 207 of the OBCA
62I would expect the Sales Officer to investigate and review all expenses paid by the Companies dating back to July 2022 (after the Applications were heard) to determine whether they were made in the ordinary course of business and to determine the available assets and property of the Companies for eventual distribution to the shareholders. The Challenged Expenses are a starting point for this. In furtherance of this investigation and review and as part of their required co-operation under the Cavanagh Order, Mark and his party-affiliates shall forthwith disclose to Jason and the Sales Officer any such other non-recurring payments that they have caused to be made to non-arm’s length third parties since January 31, 2023 until the date of this endorsement.
63It is conceivable that the Sales Officer may eventually bring a motion for directions from the court to have any remaining concerns about the Challenged Expenses adjudicated, or that one of the other parties may ask the court to review any determination made by the Sales Officer about the Challenged (or any other) Expenses. A motion for directions may include, without limitation and by way of example only, directions regarding any recommended reimbursement from Mark or credit recommended to be applied against distributions he might otherwise receive in respect of his 50 percent interest in PPG. These directions might also be sought with reference to the pursuit of claims under the FCA if determined to be advisable and properly supported with notice to the affected parties.
64I prefer to leave it to the Sales Officer to determine this in the first instance, or seek further directions from the court, about these Challenged Expenses in the course of carrying out its responsibilities under the Cavanagh Order.
65The court has an interest in ensuring that the court appointed Sales Officer can present its Sales Plan and carry out the Sales Process in an orderly manner to enable the orderly winding-up of the Companies that the Cavanagh Decision provides for. What this motion has highlighted is that there is a lack of clarity about what should be considered expenses incurred by the Companies in carrying out their business in the ordinary course. This is reinforced by the concern that there continues to be a monthly shortfall in PPG and that the court has now concluded that at least some of the Challenged Expenses may not have been incurred or paid in the ordinary course of PPG’s business despite Mark’s protestations that they were.
66The Cavanagh Order permits the Companies to make such payments (with Mark remaining in de facto control of such) and only requires the prior written approval of the parties and the Sales Officer, or further order of the court, for payments outside of the ordinary course of business or for payments to the shareholders of TBG or PPG or related persons or entities, including Mark, Jason and Doug and their companies from and after March 15, 2023.
67To avoid future disputes and ensure that there is accountability going forward, as part of the remedial powers under s. 207 of the OBCA and by way of clarification of the orders already made, only recurring periodic expenses made pursuant to contractual or other existing arrangements shall be considered to be in the ordinary course of the Companies’ business. Therefore, the payment of any non-recurring expenses by either of the Companies shall now also require the express approval of both Mark, Jason and the Sales Officer or an order of the courts.
Can Relief be Granted Against Non-Parties?
68The mandatory orders sought, as stated in the Notice of Motion, would require non-parties such as Delmar Consulting and PG, to return funds received by them. The moving parties acknowledged during oral argument that it would be unusual for the court to grant a remedy in a motion brought in the JDM Application against persons not party to it: see Equustek Solutions Inc. v. Google Inc., 2015 BCCA 265, 75 B.C.L.R. (5th) 315, at paras. 62-63. I decline to make such an order.
69Although this may be less of a concern in relation to PG (Mark’s company that was a party to the other applications that were the subject of the Cavanagh Order) than Delmar Consulting, the moving parties proposed to resolve this concern by having the requested interim order made only against Mark and DBS. This would also have required them to account for and attempt to recover funds paid out of PPG, or to hold Mark responsible for repaying all of the amounts that he caused PPG to pay to the non-parties, PG and Delmar Consulting.
70Since no interim injunction order is being made at this time I need not address the proposal for dealing with relief sought against non-parties (to this, the JDM Application) now. If in the future an order for reimbursement is sought by the moving parties, the Sales Officer, or anyone else, against non-parties, they will need to be put on notice of such and given the opportunity to respond.
Costs
71The moving parties claimed $36,326.92 in partial indemnity costs (inclusive of all fees, disbursements and taxes) for this motion according to their costs outline. The responding parties claimed partial indemnity costs of $30,201.94 (inclusive of all fees, disbursements and taxes) for this motion according to their costs outline.
72By email dated April 24, 2023, counsel for the parties jointly advised the court that, as requested by the court at the conclusion of the hearing, counsel have agreed on a number for the costs of the motion on a partial indemnity basis, subject to any offers to settle. Specifically, the parties advised that :“all counsel agree on the costs of the motion on a partial indemnity basis being $25,000, all in, subject to any Offers to Settle.”
73I granted only a small part of the relief sought by the moving parties on this motion. However, they raised a sufficient basis for expanding and clarifying the restrictions on the payment of ongoing expenses by the Companies and a strong prima facie case on the merits of the Challenged Expenses that I have deferred (adjourned) those issues to be determined in the context of the Sales Process and winding-up of the Companies.
74Given the level of distrust between the parties and the lack of any prior disclosure about certain unrecorded historic expenses made pending the court’s decision and Cavanagh Order being settled, it was not unreasonable for the moving parties to bring this motion and to draw to the attention of the court and the Sales Officer the Challenged Expenses for further investigation. Mark may still be required to account for and reimburse or give credit for some or all of the Challenged Expenses. In that sense, there has been divided success so far, and issues that remain to be further investigated and may still come back before the court.
75Accordingly, in the exercise of my discretion s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and having regard to the relevant factors under r. 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I am not inclined to award any costs of this motion to either side. The moving and responding parties shall each bear their own costs of this motion to date, unless there is a settlement offer that would impact that determination. In that event, any party seeking to bring to the court’s attention a settlement offer and make a submission that the costs should be otherwise than as I have indicated on this preliminary basis, they may do so in a brief cost submission, not to exceed two pages double spaced. Any party receiving such a submission may respond to it in a brief responding submission not to exceed two pages double spaced. These further cost submissions shall be delivered on May 26, 2023 and June 2, 2023, respectively. In the event any further cost submissions are exchanged, they shall be filed with the court in the normal course, uploaded onto CaseLines and emailed to my judicial assistant: linda.bunoza@ontario.ca
Final Disposition
76The following orders made, and the balance of the issues raised on this motion regarding the Challenged Expenses, are adjourned for further consideration by the Sales Officer and/or determination by the court in the context of the Sales Process and/or winding-up of the Companies:
a. Neither of the Companies shall pay any non-recurring expenses without the express prior written approval of Mark, Jason and the Sales Officer, or further order of this court. To avoid future disputes, only recurring periodic expenses made pursuant to contractual or other pre-existing arrangements with arm’s length third parties shall be considered to be ordinary course expenses of the Companies.
b. The powers of the Sales Officer, if not yet sufficiently broad to cover the investigation into the Challenged Expenses, shall be expanded to allow for this to take place.
c. Mark and his affiliates shall forthwith disclose to Jason and the Sales Officer any payments they have caused to be made since January 31, 2023 until the date of this endorsement that would not fall within this clarified definition of ordinary course expenses.
d. The issue of the Challenged Expenses raised on this motion shall be adjourned to be determined by the Sales Officer and/or by this court upon further motion in the context of the Sales Process and/or winding-up of the Companies.
e. There shall be no costs of this motion to either the moving or responding parties, unless the court is persuaded that there was a settlement offer that would change this determination. The latter point shall, if applicable, be addressed in brief written cost submissions of no more than two pages double spaced to be served, filed and delivered by any party seeking costs on or before May 26, 2023. Responding submissions of no more than two pages double spaced may be served filed and delivered on or before June 2, 2023.
77This endorsement and the directions and orders contained in it shall have the immediate effect of a court order without the necessity of a formal order being taken out. Either party may, however, take out a formal order by following the procedure under r. 59.
Kimmel J. Date: May 12, 2023
1References to Jason and Mark herein shall include their respective holdings companies where the context requires.