Remo Valente Real Estate (1990) Limited v. Portofino Riverside Tower Inc. et al.

[Indexed as: Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc.]

108 O.R. (3d) 401

2011 ONCA 784

Court of Appeal for Ontario,

Doherty, Goudge and Epstein JJ.A.

December 14, 2011

Appeal -- Jurisdiction -- Divisional Court -- Appellant's oppression claim under Ontario Business Corporations Act succeeding at trial -- Trial judge not dealing with appellant's breach of contract claim -- Appeal from oppression finding lying to Divisional Court -- Divisional Court having jurisdiction to deal with breach of contract claim -- Divisional Court erring in dismissing entire action after finding that trial judge had erred on oppression issue -- Breach of contract claim remitted for trial.

Corporations -- Oppression -- Appellant real estate company having listing agreement with Company A to sell condominium units in building to be constructed by Company A -- Corporate restructuring leading to transfer of legal title to lands to Company B and of equitable title to limited partnership -- Company B locking appellant's agents out of project and retaining another real estate agent -- Limited partnership providing appellant with irrevocable direction to indemnify appellant for any commissions that Company A might be legally obligated to pay -- Corporate restructuring therefore not rendering Company A assetless -- Restructuring not unfairly prejudicial to appellant's interests and not constituting oppression.

RV was the principal of the appellant, a real estate company, and he, C and two others were the owners of Portofino 1. The appellant signed a listing agreement with Portofino 1 to sell condominium units in a building to be constructed by Portofino 1. C bought out the other owners of Portofino 1 and undertook a corporate restructuring. Portofino 1 transferred the legal title to the lands to Portofino 2 and the equitable title to a limited partnership. Shortly thereafter, the appellant's real estate agents were locked out of the project. Portofino 2 subsequently listed the property with another realtor. The appellant sued the respondents for oppression under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 and for breach of contract. The oppression claim succeeded at trial. The trial judge did not deal with the breach of contract claim. The Divisional Court reversed the finding of oppression, allowed the respondents' appeal and dismissed the action in its entirety without addressing the breach of contract claim. The appellant appealed.

Held, the appeal should be allowed in part.

The trial judge erred in finding that the corporate restructuring left Portofino 1 without assets. The limited partnership provided the appellant with an irrevocable direction to indemnify the appellant for any commissions that Portofino 1 might be legally obligated to pay, so that all the assets once held by Portofino 1 were still available to satisfy any claim that the appellant might have. The restructuring was therefore not unfairly prejudicial to the appellant's interests and could not constitute oppression under s. 248 of the OBCA. [page402]

The Divisional Court had jurisdiction to deal with the breach of contract claim. Because of s. 255 of the OBCA, the respondents' appeal of the oppression finding was to the Divisional Court. That encompassed the appeal from the resulting compensation order, even though the amount of that order exceeded the $25,000 monetary limit for the court. The breach of contract claim was factually intertwined with the oppression claim, but even if they were viewed discretely, the monetary limit of the Divisional Court would not be triggered, since the trial judge made an order dismissing that claim. While the Divisional Court had jurisdiction to deal with the breach of contract claim, it erred in dismissing it. The breach of contract claim should be remitted for trial.

APPEAL from the order of the Divisional Court (Hambly, Murray and Ray JJ.), [2010] O.J. No. 1062, 2010 ONSC 280, 68 B.L.R. (4th) 66 (Div. Ct.) dismissing an action for oppression and for breach of contract.

Cases referred to Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc. (2007), 2007 36072 (ON SC), 86 O.R. (3d) 667, [2007] O.J. No. 3271, 36 B.L.R. (4th) 288 (S.C.J.); Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc., 2008 22150 (ON SC), [2008] O.J. No. 1887, 44 B.L.R. (4th) 307, 169 A.C.W.S. (3d) 330 (S.C.J.)

Statutes referred to Business Corporations Act, R.S.O. 1990, c. B.16 [as am.], ss. 248 [as am.], 255 Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19(1.1) [as am.]

Gino Morga and Michelle D. Reynolds, for appellant. William V. Sasso and Jacqueline A. Horvat, for respondents.

The judgment of the court was delivered by

GOUDGE J.A.: --

Introduction

[1] On November 22, 2002, the appellant, a real estate company, signed a listing agreement with the respondent Portofino Riverside Tower Inc. ("Portofino 1") to sell the condominium units in a building to be constructed by Portofino 1 on land it owned.

[2] On May 3, 2005, Portofino 1 transferred its legal title to the land to Westview Park Gardens (2004) Inc., which then changed its name to Portofino Corporation. Both names appear in the style of cause referring to this respondent, which I will refer to as "Portofino 2". When Portofino 1 transferred the legal title to Portofino 2, it simultaneously transferred the equitable title in the land to a limited partnership, Portofino (2005) Limited Partnership (the "Limited Partnership"). The respondent Dante Capaldi owned Portofino 1, Portofino 2 and the corporate general partner of the Limited Partnership. [page403]

[3] On May 9, 2005, Portofino 2 locked the appellant's agents out of the project and at about the same time retained another real estate agent.

[4] The appellant subsequently sued the respondents for oppression under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the "OBCA") and for breach of contract. At trial, the trial judge found that the claim for oppression succeeded, and awarded the appellant $1,883,097.26 together with costs [(2007), 2007 36072 (ON SC), 86 O.R. (3d) 667, [2007] O.J. No. 3271 (S.C.J.) and 2008 22150 (ON SC), [2008] O.J. No. 1887, 44 B.L.R. (4th) 307 (S.C.J.)]. The trial judge did not address the breach of contract claim.

[5] On appeal to the Divisional Court, the finding of oppression was reversed. The Divisional Court allowed the appeal and dismissed the appellant's action in its entirety. Like the trial judge, it did not address the contract claim.

[6] The appellant comes to this court with leave. For the reasons that follow, I conclude that the Divisional Court was correct to dismiss the oppression claim, but incorrect to dismiss the breach of contract claim without addressing it. That claim has never been tried. In the circumstances of this case, I think it should be. I would therefore allow the appeal and remit the contract claim for trial.

The Facts

[7] Remo Valente is the principal of the appellant. He and three other individuals, including the respondent Capaldi, were the owners of Portofino 1 through their personal corporations. Portofino 1 owned land in Windsor on which it planned to build a condominium development. The appellant had an exclusive listing agreement with Portofino 1 pursuant to which its real estate agents began marketing and selling the condominiums in the project in 2003.

[8] Problems among the four owners resulted in Capaldi buying out the others and becoming the owner of Portofino 1 in January 2005. He then undertook a corporate restructuring. On May 3, 2005, Portofino 1 transferred the legal title to the lands to Portofino 2 and the equitable title to the Limited Partnership. Shortly thereafter, on May 9, 2005, the appellant's real estate agents were locked out of the project and their role in marketing the project ended. Portofino 2 subsequently listed the property with another realtor.

[9] The appellant commenced this action on November 15, 2005. It claimed relief against oppression under s. 248 of the OBCA and damages for breach of contract. [page404]

The Trial Decision

[10] In his reasons for judgment, the trial judge dealt extensively with the appellant's oppression claim. Indeed, the oppression claim appears to have been the focus, perhaps the only focus, of the case advanced by the appellant at trial. The trial judge did not address the breach of contract claim and made no finding of breach of contract.

[11] In disposing of the oppression claim, the trial judge first concluded that the appellant was a creditor of Portofino 1 and therefore an appropriate complainant under s. 248 of the OBCA. He based this finding on his interpretation of the provision of the exclusive listing agreement entitling the appellant to payment before closing of 50 per cent of the commissions on the sales it had made, if the necessary condition was met. That condition provided that the appellant was entitled to receive 50 per cent of those commissions "45 days from the day in which the necessary pre-sales have been achieved to satisfy the condition in the Project Financing commitment".

[12] The trial judge found that the essence of this condition was a clear determination that the project was in fact going ahead, and that this was evidenced in this case by Portofino 1 giving formal notice to purchasers on January 11, 2005 waiving its right to cancel the project if it did not look to be financially viable. In his view, this met the condition. In addition, while the trial judge acknowledged that there was at that point no formal project financing commitment in place, he found, at para. 74 of his reasons, that "financing arrangements had been worked out in principle with the Bank of Montreal and had simply not been formalized": Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc. (2007), 2007 36072 (ON SC), 86 O.R. (3d) 667, [2007] O.J. No. 3271 (S.C.J.).

[13] Having thus found the appellant to be a creditor, and therefore entitled to be a complainant under s. 248 of the OBCA, the trial judge went on to find that the respondents had conducted the affairs of Portofino 1 and Portofino 2 in a manner oppressive or unfairly prejudicial to the appellant's interests. In particular, he found that the real reason that the corporate restructuring was undertaken was to block the appellant's ability to collect the commissions owed to it by rendering Portofino 1 "an empty shell", as the minority judgment in the Divisional Court put it: Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc., 2010 ONSC 280, [2010] O.J. No. 1062, 68 B.L.R. (4th) 66 (Div. Ct.), at para. 72. [page405]

The Divisional Court Decision

[14] Following a subsequent accounting conducted by the trial judge to determine the appropriate remedy under s. 248, he found the respondents jointly and severally liable to the appellant for $1,883,097.26. Finally, he awarded the appellant costs in the amount of $253,817.98.

[15] Under s. 255 of the OBCA, an appeal from an order pursuant to s. 248 is to the Divisional Court. In this case, the Divisional Court rendered two sets of reasons.

[16] The majority dealt only with the conclusion of the trial judge that the appellant was a creditor and therefore a proper complainant under s. 248. They held that the trial judge erred in this finding because, in their view, no financing was ever obtained from the Bank of Montreal, and the trial judge was therefore wrong to find that the condition in Bank of Montreal financing had been satisfied, therefore entitling the appellant to payment of 50 per cent of the commissions. The majority concluded that since the condition in the exclusive listing was not shown to be satisfied, neither Portofino 1 nor Portofino 2 owed anything to the appellant when the action was commenced or when it was tried. Hence, the appellant was not a creditor and therefore could not be a complainant under s. 248.

[17] The majority concluded their reasons by saying about the breach of contract issue only that the trial judge made no finding of breach of contract. They then allowed the appeal, and dismissed the action in its entirety, including the breach of contract claim.

[18] In his minority reasons, Murray J. agreed with the result reached by his colleagues, and, like the majority, he did not deal directly with the contract claim. He focused on the oppression claim and concluded that at the time of the corporate restructuring, the proposed Bank of Montreal financing had not been finalized. The condition in that financing for payment of 50 per cent of the commissions could therefore not be met. He found that the trial judge made a legal error in holding that it had been met, and that therefore the appellant was a creditor of Portofino 1.

[19] Murray J. went on to find that, in any event, the corporate restructuring could not constitute oppression of the appellant for two reasons. First, the appellant's exclusive listing agreement did not protect it from the refinancing, which in turn opened the possibility of replacement of the appellant as project realtor. As he put it, it is not the function of the oppression remedy to rewrite commercial agreements. [page406]

[20] Second, Murray J. looked to an indemnity provided by the Limited Partnership to the appellant, which the trial judge had before him, but had ignored. Murray J. found that the Limited Partnership had provided the appellant with an irrevocable direction to indemnify the appellant for any commissions that Portofino 1 might be legally obligated to pay, so that all the assets once held by Portofino 1 were still available to satisfy any claim that the appellant might have. Thus, contrary to the trial judge's finding, the corporate restructuring did not render Portofino 1 without assets. Murray J. concluded that the restructuring was not unfairly prejudicial to the appellant's interests and therefore could not constitute oppression under s. 248 of the OBCA.

[21] Murray J. went on to deal with the trial judge's finding against the respondent Capaldi personally (assuming there was oppression), his evaluation of the appellant's reasonable expectations for the purposes of the oppression remedy and his splitting of the case into two parts, the first about oppression and the second about accounting. For the purposes of this appeal, it is not necessary to deal with these issues.

[22] In the end, Murray J. agreed that the entire action, including the breach of contract claim, should be dismissed.

[23] After the Divisional Court issued its decision, the appellant moved to vary the judgment. The appellant sought an order that the breach of contract issue be referred to this court as being beyond the monetary jurisdiction of the Divisional Court or, alternatively, that the contract issue be referred back to the trial court for adjudication. The Divisional Court issued supplementary reasons, finding that it did have jurisdiction to deal with the contract issue as part of the appeal of the oppression order. It declined, however, to make any further order in response to this motion.

Analysis

[24] The appellant raises two issues in this court. The first is the oppression issue. The appellant argues that the Divisional Court erred in reversing the trial judge's finding of oppression. The second is the breach of contract issue. The appellant says that the Divisional Court had no jurisdiction to dismiss its breach of contract claim, and further, that it erred in dismissing that claim since it has never been adjudicated. The Divisional Court should at the least have referred the issue back to the trial court. I will deal with each of these issues in turn. [page407]

The Oppression Issue

[25] The respondents concede that the majority in the Divisional Court was in error in finding that no financing was ever obtained from the Bank of Montreal and in basing its decision on that. However, I agree with Murray J. that the trial judge erred in interpreting the condition in the exclusive listing agreement that had to be met before the appellant was owed 50 per cent of the commissions. To reiterate, that condition required that "the necessary pre- sales have been achieved to satisfy the condition in the Project Financing commitment". This condition in the exclusive listing agreement required a formal project financing commitment to be in place. The trial judge found that formal project financing had not been obtained at the relevant time. He could not find that the condition was met without this. He did so by finding the essence of the condition to be Portofino 1's decision that the project was going ahead. That interpretation of the exclusive listing agreement constitutes an error of law.

[26] I agree therefore that the trial judge was in error in concluding that the appellant was a creditor and therefore entitled to be a complainant under s. 248 of the OBCA.

[27] More importantly, I agree with Murray J. that regardless of whether the appellant can properly be found a complainant entitled to seek relief under s. 248, the corporate restructuring that took place could not constitute oppression because of the indemnification of Portofino 1 provided to the appellant for any amounts owed to it.

[28] I am significantly fortified in this conclusion by the exchanges in this court between counsel and the bench. It is true that the written indemnification given to the appellant in 2006 by the Limited Partnership arguably fell short of providing the appellant with assurance that either the Limited Partnership or Portofino 2 were legally bound to indemnify Portofino 1 for its obligations to the appellant under the exclusive listing agreement. For example, the written indemnification is unclear whether it constitutes a contract between the Limited Partnership and the appellant, or whether it is simply a gratuitous promise to the appellant. Nor is it clear that the proposed indemnification covers all the obligations of Portofino 1 arising under the exclusive listing agreement.

[29] However, any lack of clarity was dispelled by the admissions of respondents' counsel in this court. They could not have been clearer. Counsel agreed that all three entities involved in the corporate restructuring -- Portofino 1, Portofino 2 and [page408] the Limited Partnership -- are bound by the exclusive listing agreement.

[30] The consequence of these admissions is clear for the appellant's claim of oppression due to the corporate restructuring. The appellant can enforce any claim it properly has under the exclusive listing agreement against the same assets after the restructuring as before. It was not left by the restructuring to look only to an empty shell. In these circumstances, its oppression claim cannot succeed.

The Breach of Contract Issue

[31] In this court, the appellant argues that the Divisional Court erred in dismissing its claim for breach of the exclusive listing agreement because the amount sought in that claim exceeded that court's monetary jurisdiction. Secondly, the appellant says that its breach of contract claim has never been adjudicated and, at the very least, the Divisional Court should have referred the issue back for trial.

[32] The respondents answer by saying that the appellant did not pursue its contract claim at trial and should not be permitted to do so now. In any event, they say there has been no breach of the exclusive listing agreement.

[33] There is no doubt that the trial and the proceedings in the Divisional Court both focused on the appellant's oppression claim. The proper interpretation of the exclusive listing agreement was raised, but only as relevant to whether the appellant was a creditor of Portofino 1 and therefore a proper claimant under s. 248 of the OBCA. The appellant took this tack at trial in order to seek equitable relief under s. 248 that went beyond any damages that might be available for breach of contract. As well, as its counsel told us, this was in part because, at that stage, the uncertainty of the indemnification left grave doubts that any contract damages award could be collected, since Portofino 1 was an empty shell.

[34] Nonetheless, it is clear that at every stage of this litigation the appellant has raised its breach of contract claim -- in its statement of claim, in the Divisional Court and in its notice of appeal to this court. It is equally clear that throughout, the respondents have treated this as a contract case to be argued on its merits, and have submitted that there has been no breach of the exclusive listing agreement. In fact, a ground of appeal in their notice of appeal to the Divisional Court was that the trial judge failed to determine if a breach of contract had occurred. Moreover, the appellant agrees with the respondents that the trial judge did not adjudicate the breach of contract claim. While [page409] the trial judge recognized that this was not put forward as a contract case, in the sense that the appellant sought a remedy that extended beyond contract, I agree with the parties that he did not decide the contract claim. Nor, however, did he find that the appellant had abandoned it.

[35] In these circumstances, particularly when supplemented by the clarification of the extent of the indemnification given by the respondents in this court, I do not think the appellant can fairly be said to have at any stage relinquished its breach of contract claim.

[36] The Divisional Court found it had jurisdiction to deal with that claim. I agree. Because of s. 255 of the OBCA, the respondents' appeal of the oppression finding was to the Divisional Court. That obviously encompassed the appeal from the resulting compensation order, although the amount of that order exceeded the $25,000 monetary limit for the court found in s. 19(1.1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. The breach of contract claim was factually intertwined with the oppression claim, but even [if] it were viewed discretely, the monetary limit of the Divisional Court would not be triggered, since the trial judge made no order dismissing that claim. Moreover, since the oppression claim and the contract claim were intertwined, to send the appeal of one to the Divisional Court and the appeal of the other to this court would be impractical and unwarranted.

[37] In my view, while the Divisional Court had the jurisdiction to deal with the breach of contract claim, it erred in these circumstances in dismissing it. The claim was not adjudicated by the trial judge. He did not address the findings of fact or the legal arguments that might be relevant to adjudicating the contract claim. It is an inadequate second best to adapt to that purpose the findings relevant to the oppression claim.

[38] I conclude that the order that is just in the circumstances is to allow the appeal, but only to the extent of remitting the breach of contract issue for trial. Since the trial judge is now retired, that trial must be before a different judge, unfettered by any previous findings of fact. In light of the clarity that the respondents have now given to the indemnity, it may be appropriate that the Limited Partnership be joined with Portofino 1 and Portofino 2 as defendants, but that will be for the new trial judge to determine, if asked.

[39] In summary, the appeal is allowed to this extent, but is otherwise dismissed. In light of this disposition, the court will entertain written submissions for costs of the appeal, for the proceedings in the Divisional Court and for the trial. Submissions are [page410] not to exceed ten pages and must be filed within 30 days of the release of these reasons.

Appeal allowed in part.