COURT OF APPEAL FOR ONTARIO

CITATION: Koubi v. Hascalovici, 2016 ONCA 867

DATE: 20161117

DOCKET: C60785

Strathy C.J.O., Pardu and Brown JJ.A.

BETWEEN

Rom Koubi and 1355863 Ontario Inc.

Plaintiffs (Appellants)

and

Avi Hascalovici and Michael Averbuch

Defendants (Respondent)

Mark A. Klaiman, for the appellants

Jamie J. VanWiechen, for the respondent

Heard: November 10, 2016

On appeal from the judgment of Justice Robert Charney of the Superior Court of Justice, dated June 25, 2015, with reasons reported at 2015 ONSC 4132.

ENDORSEMENT

[1] The appellants, Rom Koubi and 1355863 Ontario Inc. (the “Corporation”), appeal the trial judge’s dismissal of their action as against the respondent, Avi Hascalovici. In their action, the appellants claimed the respondent was liable personally for the sum of approximately $108,000, which represented one-half of the indebtedness of the Corporation at the time it ceased business.

[2] Koubi had set up the Corporation to manufacture and sell powder-compacting presses in accordance with a technology developed by his father. Koubi persuaded Hascalovici to join him in the business. There was no dispute the business was operated through the Corporation and that Koubi and Hascalovici were equal shareholders.

[3] When the Corporation needed operating funds, it entered into a loan agreement with Finance Tax and Insurance Co-ordinators (“FTIC”), a company controlled by Koubi’s in-laws. The two advances made by FTIC under the loan agreement constituted most of the Corporation’s indebtedness at the time it ceased operations. The FTIC loan was unsecured; neither Koubi nor Hascalovici provided a personal guarantee of the Corporation’s obligations under the loan.

[4] When the Corporation ceased operations, Koubi sued Hascalovici for half of the Corporation’s liabilities on the basis that Hascalovici had agreed with Koubi that they each would be responsible personally for half of the Corporation’s debt. The trial judge dismissed the claim.

[5] The appellants recognize their appeal involves questions of mixed fact and law and, as a result, the standard of review is that of a palpable and overriding error.

[6] The appellants advance two main grounds of appeal.

[7] First, the appellants submit that if two parties agree they will share equally in the profits of a business, “it is axiomatic that they should equally be responsible for the debt.” They contend, in effect, that the trial judge failed to follow that axiom.

[8] The trial judge dealt with that argument at para. 58 of his reasons, holding:

It is a “basic principle of corporate law… that shareholders, as such, have limited liability. In the absence of a personal guarantee given by a shareholder, a shareholder in his capacity as such is not liable for any act or liability of a corporation because the corporation is a separate legal entity.”

[9] That is a correct statement of the law: see Ontario Business Corporations Act, R.S.O. 1990, c. B.16, s. 92(1). To find that the shareholders of a corporation have departed from that basic principle, a claimant would have to establish the shareholders had agreed to assume personal liability for corporate debt.

[10] Which leads to the appellants’ second ground of appeal. They submit the trial judge committed palpable and overriding errors of fact by failing to consider or give effect to what they contend were admissions by Hascalovici that he personally would be responsible for half of the debt of the Corporation.

[11] The trial judge conducted a detailed review of the evidence regarding the dealings between Koubi and Hascalovici concerning their obligations as shareholders of the Corporation. During that review, he considered the evidence the appellants point to as admissions by Hascalovici of personal liability for half of the Corporation’s debts: see paras. 16, 17, 32, 40, 42, 45, 46 and 67.

[12] Placing that evidence in the context of the evidence as a whole, the trial judge made two key findings: (i) both Koubi and Hascalovici understood that by proceeding as shareholders in a corporation, they were limiting their personal liability (para. 61); and (ii) the totality of the agreement between the shareholders was contained in the minutes of the February 5 and 24, 2010 meetings, which did not contain any suggestion “that either party thought that he was departing from the standard form of limited corporate liability and agreeing to be personally liable for all of the corporation’s debts and liabilities”: paras. 62 and 64.

[13] Ample evidence supported those key findings of the trial judge. We see no palpable and overriding error.

[14] The appeal is dismissed.

[15] The appellants shall pay the respondent its costs of the appeal fixed at $11,000, inclusive of disbursements and HST.

“G.R. Strathy C.J.O.”

“G. Pardu J.A.”

“David Brown J.A.”