Court File and Parties

Court File No.: St. Catharines 14-3725 Date: 2017-01-26 Ontario Court of Justice

Between:

Her Majesty the Queen (Electrical Safety Authority) Applicant/Appellant

— And —

1137749 Ontario Ltd. operating as Pro-Teck Electric Respondent

Before: Justice Fergus O'Donnell

Reasons for judgment released on: 26 January 2017

Counsel:

• Mr. P. Wright, for the applicant, the Electrical Safety Authority
• Mr. A. Larmand, for the respondent, 1137749 Ontario Ltd.

Judgment

Fergus O'Donnell, J.:

Overview

[1] This is an application by the Electrical Safety Authority ("ESA"), the prosecuting authority in this matter, for an extension of time to file an appeal against a sentencing decision of Her Worship Justice of the Peace Moses. The application is made necessary because the ESA's notice of appeal was not served on the respondent in time. Realistically speaking, the central issue here is whether or not there is sufficient arguable merit to the ESA's proposed appeal as to satisfy the threshold for obtaining leave. Having reviewed the material with respect to the process followed and the steps taken by the ESA after the decision appealed from, it seems to me that it is beyond gainsaying that the ESA certainly did have a bona fide intention to appeal within the appeal period. It was getting the appeal served on the respondent that took the ESA beyond the appeal period.

The History

[2] The respondent is 1137749 Ontario Ltd., which I shall refer to as "Pro-Teck" since its operating style was Pro-Teck Electric Ltd. I shall not long dwell on the facts. The eventual guilty plea was supported by a twelve-and-a-half page, single-spaced agreed statement of facts complete with photographs and diagrams.

[3] It does not require a descent into hyperbole to describe this as a tragic case. Mr. Alexander Mulchenko, together with his wife, his daughter and his son-in-law, bought a duplex in Niagara on the Lake in 2010. They had renovations done to both sides of the duplex, one side for each couple. On 5 April, 2014, Mr. Andrei Krioukov, Mr. Mulchenko's son-in-law, found Mr. Mulchenko, who was eighty-three years old, on the floor of Mr. Mulchenko's bathroom. The heated floor in the bathroom was activated. Subsequent examinations and testing involving the coroner, the ESA and others determined that Mr. Mulchenko had been on the floor about twenty-five minutes and that the surface of the floor reached a temperature of 129 degrees Fahrenheit within thirty minutes. The sensor that should have been installed in the under-tile floor mat had not been installed. The under-tile heating mat should have been connected to a 120V electrical source; it was instead connected to a 240V source, thus quadrupling the potential heat produced. The missing sensor and improper connection allowed the floor to reach a heat of at least 144 degrees Fahrenheit under testing by an engineer.

[4] Mr. Mulchenko died of his injuries on 27 April, 2014, twenty-two days after being admitted to the burn unit. The cause of death was burns to twenty-two percent of Mr. Mulchenko's body, "many of which were full thickness".

[5] The ESA laid charges on 12 August, 2014 and Pro-Teck pleaded guilty to three charges on 29 April, 2015. Her Worship imposed total fines of $430,000 on Pro-Teck on 30 March, 2016, with a payment schedule envisaging payment in full within no longer than five years. The charges Pro-Teck pleaded guilty to reflected the company's failure to apply for an inspection of the electrical work at the house, that it failed to install equipment with due regard for the safety of persons or property and that it connected the mat to electrical power without the required inspection and approval. At the sentencing proceedings the ESA asked Moses, J.P. to pierce the corporate veil and apply any sentence to Pro-Teck's principal, Mr. Tony Merante, and to Master Electrical Contracting Services Ltd., ("Master Electrical") his new enterprise.

[6] The Notice of Appeal is dated 24 May, 2016, which is obviously longer than thirty days after 30 March, 2016. The grounds of appeal relate to the question of whether or not Moses, J.P. erred by not piercing the corporate veil on the sentencing proceedings insofar as Mr. Merante had allegedly set up Master Electrical in order effectively to neuter any penalty the Provincial Offences Court levied against the defendant Pro-Teck. Obviously, those are only allegations at this stage. The certificate of incorporation shows that Master Electrical was incorporated on 10 September, 2014, that is to say less than a month after the ESA laid charges against Pro Teck. In the application to transfer Mr. Merante's status as a master electrician from Pro Teck to Master Electrical on 30 September, 2014, Mr. Merante gave as his reasons, "not longer employed with this co," and, "found employment elsewhere". Mr. Merante is listed as the president in Master Electrical's application for an ESA licence. The business addresses of both corporations and Mr. Merante's residential address are identical.

[7] On an earlier occasion, Nadel, J. ordered that notice be given to Mr. Merante and Master Electrical of the proposed appeal.

The Test For An Extension of Time

[8] Speaking generally, there are three principal factors to be considered in determining whether or not to grant an extension of time to appeal. The list is not limited to those three factors and none of the three factors is a pre-condition. The factors are:

(a) Did the applicant demonstrate a bona fide intention to appeal during the appeal period (and where possible communicate that intention to the opposing party)?

(b) Has the applicant explained the delay in filing the notice of appeal?

(c) Does the appeal have merit?

[9] I was provided with numerous authorities on this point, but shall refer to only one as the principles (as compared with their application in some cases) seem axiomatic: see paragraphs 20-23 of the judgment of the Court of Appeal for Ontario in R. v. Ansari, [2015] O.J. No. 6634. There is also fairly frequent reference in the authorities to the overarching principle that the court should inquire whether the interests of justice require that an extension be granted.

A Timely Intention To Appeal?

[10] In its responding factum, Pro Teck asserts that, "the Applicant did not communicate or imply a firm intention to appeal until the eleventh hour of the deadline," and stressed that the ESA only began its efforts to serve the notice of appeal forty-eight hours before the expiry of the appeal period. This may be true, but it loses sight of the fact that both the figurative "eleventh hour" and the literal forty-eight hours are within the limitation period for appealing from the sentence below. Pro Teck did not press this point vigorously in argument so I shall not linger on it. I am satisfied on the material before me that the ESA did have a bona fide intention to appeal within the appeal period. The record before me permits of no other conclusion.

Diligence In Pursuing The Appeal?

[11] With respect to the explanation for delay, I shall focus on the responding material filed by the ESA, which sets out in some detail the attempts made by the ESA to obtain the transcripts of Justice of the Peace Moses's reasons. Those efforts were both timely (the transcript was ordered the day of the ruling) and persistent and the affidavit material filed show that the ESA was diligent in pursuing the transcripts. As it happened, the transcripts were delayed as a result of being reviewed twice by Justice of the Peace Moses, which I do not fault her for, but note simply as part of the context of the "eleventh hour" attempts to serve and file the notice of appeal. As the eleventh hour approached, the ESA contacted Pro Teck's counsel who did not have instructions to accept service. Attempts to locate Mr. Merante for service during the last couple of days of the appeal period were not successful.

[12] It is an entirely desirable practice for counsel to want to have the verbatim record of the trial justice's reasons before making a final decision to pursue an appeal. In some cases it may be that the need for an appeal is self-evident. In others, it may be that a nuance in the reasons makes what appeared in the moment to be a solid ground of appeal appear less solid on reviewing the transcript. It is desirable that the original notice of appeal account for all grounds to be argued, which is often best done with the transcript in hand. In some cases, that detailed review of the transcript may cause the would-be appellant to reconsider, thus sparing the potential respondent from further cost or uncertainty. All things considered, I do not think there is anything to fault the ESA with in their handling of the notice of appeal.

Merit To The Proposed Appeal?

[13] That brings us to the third of the "big three" considerations, the merits of the appeal. It is again axiomatic that the onus is on the appellant to demonstrate that there is merit to the appeal; it is not the respondent's burden to show that there is no merit.

[14] There have been various articulations of the standard an appellant must meet in order to satisfy the "sufficient merit" criterion for obtaining an extension of time to appeal, but they all have pretty much the same tenor: the standard is not particularly exacting. For example, in Ansari, supra, the Court of Appeal asked itself if, "the appeal is devoid of merit" (paragraph 33). The Oxford English dictionary defines "devoid" as "entirely lacking or free from". Other cases have spoken of the need to demonstrate an "arguable" ground of appeal or that the ground of appeal is not "frivolous". I do not take these cases as establishing different standards but simply as reflecting alternative wordings of the same standard. An extension of time ought not to be granted if the proposed ground of appeal could not succeed, but a ground of appeal does not have to be shown to be a guaranteed winner in order to get over the threshold.

[15] The issues on this appeal strike me, in general terms, as being whether or not a justice of the peace on a Provincial Offences Act trial has jurisdiction to "pierce the corporate veil" and whether or not, assuming such jurisdiction exists, it ought to have been exercised in the circumstances of this case. In effect, the ESA argues that Mr. Merante, as the alleged directing mind and will of both Pro Teck and Master Electric, denuded the one corporation of assets in order to protect those assets and carried on, more or less, "business as usual" clothed in a new suit of corporate armour.

Is It Arguable That The Trial Court Had Jurisdiction To Pierce The Corporate Veil?

[16] The parties seem to be agreed that there is no authority known to them directly on the point of whether or not a provincial offences court (or for that matter any non s. 96 court), possesses the authority to pierce the corporate veil. It is fair to say that a statutory court generally enjoys only those authorities granted to it by statute, but it also enjoys those powers that are by implication necessary for it to do its job. The simple reality is that there are countless lacunae in enabling statutes that would result in probably every statutory court or regulatory tribunal being neutered if they were absolutely limited to what the particular statute provides and entirely deprived of any resort to implicit powers.

[17] There is nothing controversial or novel in that conclusion. To recite just one recent authority, I cannot conclude that the ESA's contention that the trial court had the authority to pierce the corporate veil is "frivolous" or "devoid of merit" or "not arguable". In R. v. Fercan Developments Inc., 2016 ONCA 269 LaForme, J.A. stated on behalf of the Court of Appeal for Ontario:

[44] As a statutory court, the Ontario Court of Justice does not have any inherent jurisdiction and derives its jurisdiction from statute. It is well established that a statutory court or tribunal enjoys both the powers that are expressly conferred upon it and, by implication, any powers that are reasonably necessary to accomplish its mandate: Dunedin, at para. 70. The jurisprudence has recognized that statutory courts possess certain implied powers as courts of law: R. v. Romanowicz (1999), 45 O.R. (3d) 506 (C.A.), at paras. 59-60. In addition, powers may be implied in the context of particular statutory schemes as well.

[45] This court recently considered the "doctrine of jurisdiction by necessary implication" in Pierre v. McRae, 2011 ONCA 187, 104 O.R. (3d) 321. Justice Laskin, at para. 34, noted that a power or authority may be implied: (i) when the jurisdiction sought is necessary to accomplish the objects of the legislative scheme and is essential to the statutory body fulfilling its mandate; (ii) when the enabling act fails to explicitly grant the power to accomplish the legislative objective; (iii) when the mandate of the statutory body is sufficiently broad to suggest a legislative intention to implicitly confer jurisdiction; (iv) when the jurisdiction sought is not one which the statutory body has dealt with through use of expressly granted powers, thereby showing an absence of necessity; or (v) when the legislature did not address its mind to the issue and decide against conferring the power to the statutory body.

[48] Finally, I note that the power being conferred does not have to be absolutely necessary. It only needs to be practically necessary for the statutory court or tribunal to effectively and efficiently carry out its purpose: Dunedin, at para. 71.

[18] Considering that standard, I do not believe it is frivolous to argue that a judicial officer applying a quasi-criminal or regulatory statute has the power to pierce the corporate veil in appropriate circumstances, i.e. to deny an alleged wrongdoer the capacity to escape consequences by manipulating its corporate status. That is not to say that the ESA's argument will necessarily succeed on appeal, but that is not the standard at this stage.

If The Trial Court Had That Jurisdiction Is The ESA's Argument That The Corporate Veil Should Have Been Pierced Too Insubstantial To Grant Leave?

[19] As for the merits of ESA's argument that Justice of the Peace Moses "should" have pierced the corporate veil, I agree with the respondent that piercing the corporate veil is not something that should be done lightly. Authority for that robust and recognized proposition can be found in the judgment of Laskin, J.A. in 642947 Ontario Limited v. Fleischer et al., [2001] O.J. No. 4771, at paragraph 69. It is, however, clear from that and other authorities that any decision to pierce the corporate veil must depend on the context. In that same decision, at paragraph 67, Laskin, J.A. cites the observation by Wilson, J. of the Supreme Court of Canada in Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2 at p. 10 that decisions on piercing the corporate veil follow, "no consistent principle. The best that can be said is that the 'separate entities' principle is not enforced when it would yield such a result 'too flagrantly opposed to justice, convenience or the interests of the Revenue': L.C.B. Gower, Modern Company Law (4th ed. 1979), at p. 112."

[20] The principles have also been conveniently summarized by Grace, J. in Chan v. City Commercial Realty Group Ltd., 2011 ONSC 2854, [2011] O.J. No. 2136 (S.C.J.), as follows:

[19] It is trite to say that generally a corporation is a separate legal person. Most of the time the identity, rights and obligations of companies and their shareholders are distinct.

[20] However, the rule is not inviolate and will not be applied if its result would be "too flagrantly opposed to justice". The alter ego theory is designed to prevent the use of a corporate vehicle to achieve an objective which offends a right minded person's sense of fairness.

[21] Four governing statements can be drawn from the authorities:

(a) First, the separate legal personality of a corporation will not be disregarded lightly;

(b) Second, the analysis is largely fact specific;

(c) Third, typically the corporate veil is lifted when incorporation occurs for a purpose that is illegal, fraudulent or improper;

(d) Fourth, even if that is not the case, personal liability may be imposed on a person who controls a company and uses it as a shield for fraudulent or wrongful conduct provided that conduct is the reason for the complaining party's injury or loss.

[22] Two elements must be proven by the plaintiffs in this case: first, that the activities of the companies were completely dominated by Martin and Samuel and second, that they engaged in improper conduct that unjustly deprived the plaintiffs of their rights.

[21] I take it that the position of the ESA is that offences leading to the death of an elderly man and resulting in the imposition of what Pro Teck describes as, "the highest fine amount for a violation of the Electricity Act", yet frustrated by what the ESA says was a wrongful use of the corporate veil is something that is, "too flagrantly opposed to justice." There are undoubtedly arguments to the contrary, including arguments about the social importance of the corporate structure, and it may well be true that the ESA has an uphill climb on the appeal, but that is not the test. The test is whether there is arguable merit to the appeal and, here again, given the relatively low merit threshold for obtaining leave to extend time, I think it is clear that the ESA has met its burden.

[22] I do not wish to belabour the point as this is, after all, an application for leave to appeal and not the appeal proper, but I should note that Pro Teck also argued before me that there was a preliminary issue before we even got to the issue of the merits of the proposed appeal, namely whether or not there was jurisdiction for the court to "de facto" extend the limitation period for these offences, i.e. that any imposition of consequences on Mr. Merante or on Master Electrical would effectively extend the limitation period by allowing the ESA to prosecute them for the offences originally prosecuted against Pro Teck. To pierce the corporate veil, Mr. Merante argues, would be the equivalent of instituting new proceedings against Mr. Merante and Master Electrical. During argument I wondered out loud if the obvious question was whether or not that is really the same issue as piercing the corporate veil, simply stated in other terms. I take the gist of the ESA's position to be that Mr. Merante and Pro Teck and Master Electrical are in effect all the same person, that it is only the legal persona of the corporation that distinguishes them and that Mr. Merante, by his own actions, has forsaken the protections that corporate personhood would otherwise entitle him and his corporations to. I cannot say that the respondent's position, i.e. that to allow the piercing of the corporate veil would violate s. 85 of the Provincial Offences Act (which does not allow extensions of limitation periods) is so inescapably self-evident as to undermine the ESA's argument with respect to the merits of the appeal. As for the argument that the ESA seeks to "sanction multiple non-parties as a result of information disclosed (not upon evidence tested at trial) but on submissions made during a hearing for the purposes of sentencing only," it seems to me that there is nothing patently absurd in the prosecution raising an issue at that point that only became either evident or relevant at that point. The "non-parties" issues, again, is inextricably tied up in the issue of whether or not Mr. Merante's actions effectively deny him the protection of the corporate veil insofar as the ESA argues that his conduct makes it clear that he himself, wrongfully, ignored the niceties of corporate personhood for his own advantage.

Conclusion

[23] In light of the foregoing, I am satisfied that the applicant ESA has met its burden to obtain an extension of time to file its appeal. The time for filing the notice of appeal is hereby extended to 17 February, 2017. The parties are to arrange with the trial coordinator a date to appear before me on any day when I am presiding at St. Catharines between 6 and 17 February, 2017 in order to discuss scheduling and next steps.

Released: 26 January, 2017