COURT FILE NO.: 302/07
DATE: 20090811
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SWINTON, LOW AND KARAKATSANIS JJ.
B E T W E E N:
PRESTIGE TOYS LTD.
Appellant
- and -
REGISTRAR, MOTOR VEHICLE DEALERS ACT
Respondent/ Appellant, Cross Appeal
Vincenzo Rondinelli, for the Appellant and Respondent in the Cross Appeal
Christopher L Ezrin, for the Respondent and the Appellant in the Cross Appeal
- and -
SVETLANA LIOUBIMOVA
Respondent in the Cross Appeal
Christopher L. Ezrin, for the Respondent in the cross appeal
HEARD at Toronto: June 30, 2009
KARAKATSANIS J.:
[1] The appellant, Prestige Toys Ltd. (Prestige), appeals a decision by the Licence Appeal Tribunal dated June 13, 2007. The Tribunal directed the respondent, the Registrar under the Motor Vehicle Dealers Act, R.S.O. 1990, c. M.41 (the MVDA), to carry out its proposal to revoke Prestige’s registration as a motor vehicle dealer pursuant to s. 5(1) of the MVDA. The Tribunal found insufficient evidence to direct revocation of Svetlana Lioubimova’s registration as a salesperson. An appeal to the Divisional Court lies under s. 11 of the Licence Appeal Tribunal Act, S.O. 1999, c. 12, Sched. G. The appellant asks that the order directing revocation of the registration of Prestige be set aside. The respondent, the Registrar, cross appeals asking that the Tribunal’s decision not to direct the revocation of the registration of Lioubimova be set aside, and that the Registrar be directed to carry out the proposal to revoke Lioubimova’s motor vehicle salesperson registration.
Overview
[2] The Registrar issued a proposal dated July 20, 2006 to revoke the registration of Prestige as a motor vehicle dealer and of Lioubimova as a motor vehicle salesperson. The grounds for the revocations included: a conviction against Prestige for breach of the Business Practices Act, R.S.O. 1990, c. B.18, as amended by Consumer Protection Statute Law Amendment Act, 2002, S.O. 2002, c. 30, Sched. E, s. 1; failure to disclose material facts about a vehicle to purchasers in three different sales transactions; and misrepresentation of the selling price of vehicles on bills of sale. The proposal was based upon the Registrar’s investigation of three sales transactions in 2005.
[3] Lioubimova was the sole officer and director of Prestige. There was evidence that she was actively involved in the management of the dealership in a small office environment. However, she was not the salesperson who sold the car in any of the sales transactions before the Tribunal.
[4] Prestige and Lioubimova both faced charges under s. 17 of the Business Practices Act for failing to make full disclosure of material facts with respect to the sale of a 2001 Mercedes s500 for $46,500 to Consumer A. The vehicle had been branded as “salvage” as a result of fire damage and had been written off and re-built. The Tribunal accepted the purchaser’s testimony that she was not advised that it had been branded as “salvage” or rebuilt. Prestige pleaded guilty and the charges against Lioubimova were withdrawn.
[5] Consumer B purchased a 1998 BMW from Prestige for $14,000. The vehicle’s accident history was not disclosed to the purchaser at the time of sale. She asked whether the car had a prior accident history and was told it had not. As well, the bill of sale that Prestige provided during the investigation did not correspond with the purchase price or the bill of sale provided to Consumer B at the time of purchase. The Tribunal found that the bill of sale did not disclose the vehicle’s accident history which was clearly known to both Prestige and Lioubimova when they acquired the vehicle.
[6] Consumer C purchased a 1999 Ford Expedition for $11,740 in August 2005 and received a bill of sale in that amount at the time of purchase. The bill of sale that Prestige provided during the investigation showed a purchase price of $4,000 and other discrepancies. Consumer C had never seen that document and the signature on the document was not hers. In August 2006, after the investigation had commenced and she had been randomly sent a questionnaire to complete, Consumer C received a telephone call from Prestige; she was told “in case anyone asked,” that the dealer had only made $4,000 from its sale to her.
The Statutory Framework
[7] Pursuant to s. 3(1)(a) of MVDA, a person must not carry on business as a motor vehicle dealer unless registered under the Act.
[8] Section 5 deals with entitlement to registration. Subsection 5(1) provides:
- (1) An applicant is entitled to registration or renewal of registration by the Registrar except where,
(a) having regard to the financial position of the applicant, the applicant cannot reasonably be expected to be financially responsible in the conduct of business; or
(b) the past conduct of the applicant affords reasonable grounds for belief that the applicant will not carry on business in accordance with law and with integrity and honesty; or
(c) the applicant is a corporation and,
(i) having regard to its financial position, it cannot reasonably be expected to be financially responsible in the conduct of its business, or
(ii) the past conduct of its officers or directors affords reasonable grounds for belief that its business will not be carried on in accordance with law and with integrity and honesty; or
(d) the applicant is carrying on activities that are, or will be, if the applicant is registered, in contravention of this Act or the regulations.
The Tribunal Decision
[9] The Tribunal made reference only to s. 5(1)(b) in its reasons. It found that Prestige did not disclose material information to the consumers at the time of sale in the three transactions described above and therefore did not act with integrity and honesty. Further, the Tribunal found that two different versions of the bill of sale were created in the sales involving Consumers B and C; by evidencing the sale with a false and misleading document, Prestige was not in compliance with its obligations under the legislation. The Tribunal also found there was evidence of an attempt to cover up the discrepancies after the proposal was issued. The Tribunal concluded that the past conduct of Prestige afforded reasonable grounds for the belief that it will not carry on business in accordance with the law and with honesty and integrity and that its licence should be revoked.
[10] The Tribunal found that Lioubimova, the sole officer and director, “bears ultimate responsibility for ensuring the integrity of the Dealer’s business operation.” On at least three occasions, her direct employees in a small office environment provided false information to her consumers and failed to maintain honest and proper records for her business. The Tribunal stated that, “This is a clear failure which demonstrates, at the very least, inadequate supervision and control necessary for a registered business enterprise obligated to abide by consumer protection standards.”
[11] The Tribunal found that there was no evidence that Lioubimova was personally involved in any of the sales transactions before the Tribunal or that she was aware of the improper or dishonest activity. The Tribunal concluded that there was insufficient evidence to conclude that her past conduct affords reasonable grounds for the belief that she will not carry on the business of salesperson with law, honesty and integrity.
Standard of Review
[12] Generally, the standard of review for decisions of the Licence Appeal Tribunal is one of reasonableness (see Goselin v. Ontario (Motor Vehicle Dealers Act, Registrar), [2009] O.J. No. 1433 at para. 2 (Div. Ct.); Allright Automotive Repair Inc. v. Ontario (Motor Vehicle Dealers Act, Registrar), [2008] O.J. No. 1557 at para. 5 (Div. Ct.)).
[13] The licence holder submits that the Tribunal’s interpretation of the statutory provisions of the MVDA should be subject to the standard of review of correctness. The Registrar submits that the cross-appeal raises general legal principles relating to piercing the corporate veil and that the appropriate standard of review for such an issue is correctness.
[14] As noted in Dunsmuir v. New Brunswick, 2009 SCC 9, [2009] S.C.J. No. 9 (at paras. 54-55, 60), the standard of review for questions of law may depend upon the nature of the question in issue. Where the question is one of general law that is both of central importance to the legal system as a whole and outside the adjudicator’s specialized area of expertise, a standard of correctness will apply. Deference will usually be afforded where a tribunal is interpreting its own statute or statutes closely connected to its function, with which it will have particular familiarity. Deference may also be warranted where an administrative tribunal has developed particular expertise in the application of a general common law or civil law rule in relation to a specific statutory context.
[15] A measure of deference is appropriate where a tribunal’s governing statute provides a specialized adjudicative regime for resolving disputes. Under the Licence Appeal Tribunal Act, the determination of whether past conduct of an applicant or registrant affords reasonable grounds for belief that it will not carry on business in accordance with law, honesty and integrity is a core function of the Tribunal. This is the case not only in relation to the registration of car dealerships or salespersons under the MVDA, but also in relation to registrations or licences under numerous other statutes containing a similar provision. The Tribunal therefore applied a statutory provision with which it has particular familiarity. As well, with respect to the principal’s responsibility for the actions of the corporation, the legal and factual issues are intertwined and cannot be readily separated. In these circumstances, a deferential standard of reasonableness applies.
Was the Tribunal entitled to consider the past conduct of the corporate car dealership?
[16] Prestige submits that the Tribunal erred in considering the past conduct of the corporate car dealership and that its decision cannot be reconciled with the decision of the Divisional Court in Coates v. Ontario (Registrar of Motor Vehicle Dealers and Salesman) (1988), 1988 4555 (ON SC), 65 O.R. (2d) 526. It is argued that the Tribunal was not entitled to consider the past conduct of the corporate car dealership under s. 5(1)(b) but was restricted to a consideration of the past conduct of its officers or directors under s. 5(1)(c)(ii).
[17] In its reasons, the Tribunal referred to the past conduct of the corporate dealership. It referred only to s. 5(1)(b) and did not refer to s. 5(1)(c)(ii).
[18] In Coates, the corporate dealership was convicted of an offence. Based upon that conviction, the Tribunal revoked the registration of both the corporate dealership and the director and officer who was a registered salesperson. There was no evidence of the individual’s personal involvement in the offence and the company had some 60 employees. The Divisional Court held that there was no evidence of the nature and quality of the director’s operational control and that “it could not be presumed that the individual appellant had knowledge of what they were doing.” The Court held that the Tribunal was not entitled to revoke the registration of either the corporation or the officer and director.
[19] The Divisional Court in Coates stated, at paras. 25-26:
The plain meaning of s. 5 is that a non-corporate applicant is subject to s. 5(1)(a) and (b) and a corporate applicant is subject to s. 5(1)(c). The past conduct of officers and directors alone is relevant to the grant or continuance of a corporation’s registration. Why the legislature saw fit to not include reference to the past conduct of a corporation is not clear. What is clear is that a statute affecting livelihood must not be warped to fit the objectives of an administrative tribunal however laudable they might be.
To read “applicant” in s. 5(1) to include corporation is to ignore the distinctions the statue itself draws. It is a reading that, in my respectful opinion, is unacceptable.
[20] The above interpretation of s. 5(1) has the effect of permitting a corporation that commits offences or breaches its statutory obligations to continue to operate provided the officers and directors have no direct involvement in the unlawful conduct. Such an interpretation undermines the effective regulation of the industry and the consumer protection purpose of the legislation. This interpretation of s. 5(1) in Coates has not been considered by any other court in Ontario.
[21] The law governing statutory interpretation has evolved substantially in the last 20 years. The Supreme Court of Canada has now well established the principle that a modern purposive approach to statutory interpretation requires that “words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” (from Elmer Driedger in Construction of Statutes (2nd ed. 1983) at p. 87). See Rizzo & Rizzo Shoes Ltd. (Re), 1998 837 (SCC), [1998] 1 S.C.R. 27, para. 21; Bristol-Myers Squibb Co. v. Canada (Attorney General), 2005 SCC 26, [2005] 1 S.C.R. 533, at paras. 95-96.
[22] The Legislation Act, 2006, S.O. 2006, c. 21, Sched. F, s. 64(1) further justifies a strong emphasis on a purposive approach:
An Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects.”
[23] In my view, a purposive approach leads to a different conclusion regarding the interpretation of s. 5(1) of the MVDA from that in Coates and, as a result, the interpretation in Coates should be revisited.
[24] In my view, the Tribunal was entitled to consider the past conduct of the corporate car dealership under s. 5(1)(b), as well as the past conduct of its sole officer and director under s. 5(1)(c)(ii). An interpretation that permits the Registrar and the Tribunal to examine the past conduct of both the corporation and its officers and directors is consistent with the purpose of the Act as traced through its legislative history and with its increased focus on consumer protection. While the MVDA affects livelihood, as noted in Coates, amendments to broaden the ambit of the past conduct that may be considered in determining whether to grant, renew or revoke a registration have expanded its consumer protection focus. It is also consistent with the language of the MVDA.
[25] The purpose of legislation can also be established through an examination of its evolution through amendments. They may show a change in direction in the purpose of the statute. (See Ruth Sullivan, in her book Statutory Interpretation, 2d ed. (Toronto: Irwin Law Inc., 2007) at 203-205). The Supreme Court of Canada has used such an approach to determine the purpose of legislation through an examination of its evolution through amendments: see Zeitel v. Ellscheid, [1994] S.C.R. 142; Montreal v. 2952-1366 Quebec Inc., 2005 SCC 62, [2005] 3 S.C.R. 141.
[26] The original legislation introduced in 1964 did not contain a section specifically addressing the past conduct of corporations. The Used Car Dealers Act, S.O. 1968-69, c. 136, added s. 5(1)(b) and the clear statutory authority to look at the conduct of the corporation or its officers or directors. Section 5(1)(b) provided:
where the applicant is a corporation, its financial responsibility or the record of past conduct of the corporation or its officers or directors is such that it would not be in the public interest for the registration or renewal to be granted.
[27] In 1971, the Civil Rights Statute Law Amendment, S.O. 1971, c. 50, amended several of the statutes dealing with licensing and registrations and added the right to look at the past conduct of a corporation’s officers or directors. The current version of s. 5(1) of the MVDA was introduced at that time. Section 5(1)(c) provides consumers with greater protection by permitting the Tribunal to pierce the corporate veil and examine the conduct of the officers and directors of the corporation.
[28] Clearly, the legislative amendments to permit consideration of the past conduct of the principals of a corporation is an effort to enhance consumer protection and supports an interpretation of s. 5(1) of the MVDA that permits the Tribunal to consider both clauses (b) and (c) in relation to a corporate registrant. The section should not be interpreted in a manner to permit the corporation to avoid the consequences of conduct that it has admitted. For example, the addition of s. 5(1)(c) allows the Registrar and Tribunal to consider the actions of officers and directors of a new corporation without any previous record. However, s. 5(1)(b) allows them to consider the past conduct of the corporation as well.
[29] The language of s. 5(1) also supports an interpretation that permits the Tribunal to consider the past conduct of both the corporation and its officers and directors. The word ‘applicant’, or person, includes a corporation: Legislation Act, 2006, s. 87. The opening words of s. 5(1)(c) recognize that an applicant may be a corporation. Section 5(1) sets out alternative grounds that may disentitle an applicant to a registration or renewal of a registration. Accordingly, the language itself does not require that clauses (b) and (c) be mutually exclusive. The statute does not draw a distinction between an applicant and a corporation, but rather provides a means to pierce the corporate veil where the applicant is a corporation.
[30] As a result, a purposive interpretation of s. 5(1) permits the Tribunal to consider both the past conduct of a corporate registrant under s. 5(1)(b) and the past conduct of its officers and directors under s. 5(1)(c). Therefore, the Tribunal’s decision that the registration of Prestige should be revoked based upon the past conduct of the corporate dealership was reasonable.
Was the Tribunal reasonable in directing the revocation of Prestige’s registration based upon the conduct of its officer and director?
[31] Even if the Tribunal was required to rely only upon the past conduct of the officer and director of Prestige, its decision to direct the revocation of Prestige’s registration was reasonable on that basis.
[32] In Allright Automotive Repair, above, the Court found that the failure of a manager to effectively supervise the activities of a salesperson who entered into a number of fraudulent transactions justified revocation of both the dealership’s licence and the manager’s own salesperson licence.
[33] Even in Coates, the Court noted that evidence of the nature and quality of the officer’s and director’s operational control would have been relevant to the issue of whether he was personally involved in the wrongdoing of the corporation. In that case, the individual operated a company with some 60 employees and it could not be presumed that the individual appellant had knowledge of the employees’ activities.
[34] In my view, the term “conduct” under s. 5(1)(b) and (c) of the MVDA is broad enough to reasonably support the conclusion that the conduct of Prestige’s officer and director was a basis upon which to revoke the registration of the car dealership. Conduct does not require evidence of deceit or even of wilful blindness. It encompasses any act or omission or course of behaviour that affords reasonable grounds to believe that the business will not be carried on in accordance with law, honesty and integrity.
[35] The Tribunal noted at page 9 of its decision that Lioubimova displayed a “clear failure which demonstrates, at the very least, inadequate supervision and control.” She was the sole officer and director in a small office environment. There was evidence before the Tribunal that Lioubimova had personal knowledge of the background and history of all vehicles sold by the dealership and conducted a search for this information on the day Consumer A bought her car. The inspector testified that she believed that Lioubimova told her that she would compile a history report on every vehicle prior to being sold and that she gave a copy to the customers. She was clearly directly involved in the management of the business. Under Lioubimova’s management, the corporate dealership was guilty of an offence under the Business Practices Act. Since Lioubimova was the sole officer or director and the “operating mind” of Prestige, a small office environment, and since she failed in her duties to effectively manage or supervise the dealership, her inadequate management and supervision afforded reasonable grounds for the belief that the dealership would not carry on business in accordance with the law and with honesty and integrity.
Fresh Evidence
[36] The Registrar moved to submit fresh evidence in this appeal that minutes of settlement had been agreed to in litigation relating to Consumer A: Menon v. Prestige Toys Ltd., 158 A.C.W.S. (3d) 751 (Ont. Sup. Ct.), aff’d 168 A.C.W.S. (3d) 305 (Ont. C.A.). The decision refers to an affidavit by Lioubimova stating that she believed Ms. Menon was satisfied with the settlement and would take no further steps. The Registrar submits that this is fresh evidence of an admission of personal liability by Lioubimova.
[37] However, the mere fact of a settlement by Prestige Toys Ltd., or an affidavit by its officer and director, is not necessarily an admission of personal liability. Furthermore, the Tribunal decision refers to the settlement of the civil action and that Prestige Toys was taking the position that it did not have to honour it. The Registrar did not produce the Minutes of Settlement or the affidavit. Accordingly, the fresh evidence was previously available and would not have affected the outcome. It is not admissible.
Was the Tribunal unreasonable in failing to revoke the salesperson registration of Lioubimova?
[38] Lioubimova did not testify. No one testified on behalf of Prestige.
[39] There is no presumption that corporate wrongdoing is automatically attributable to the individual officer and director. The officer and director’s conduct is a matter of evidence. However, Lioubimova’s conduct as an officer and director should be assessed in the context of the operational circumstances, the conduct of the corporation, and her legal responsibilities as an officer and director. The Tribunal found that there was no evidence that Lioubimova was actively involved in any of the sales transactions before the Tribunal. The Tribunal found that there was no evidence that she personally knew of the legal contraventions and material misrepresentations entered into by her employees or that she personally took part in any of the improper or dishonest activity. The Tribunal held that the only evidence was limited to her apparent inability to manage the dealership so as to ensure its compliance with the Act and Regulation.
[40] There was evidence at this hearing that Lioubimova insisted that the Mercedes’ history was disclosed to Consumer A and that Lioubimova conducted a “Carfax” search on the vehicle’s history on the day it was sold to the customer. The Tribunal found that Lioubimova knew about the accident history of the cars sold to Consumers A and B. Lioubimova advised the inspector that she would consider the consumer’s request to rescind the contract if the consumer could “prove” the vehicle had been in an accident. The inspector testified that she believed that Lioubimova told her that she would do a history on every vehicle prior to being sold and that she gave a copy to the customers.
[41] Although there was evidence before the Tribunal that Lioubimova had knowledge of both the circumstances and the transaction involving Consumer A, there was no analysis of her conduct. Furthermore, the evidence at the hearing disclosed that Lioubimova had provided documents to the inspector during the investigation that were false and did not match up with the original bills of sale provided to the customers.
[42] The Tribunal concluded, however, that there was no evidence of knowledge of the misrepresentations and insufficient evidence to conclude that her past conduct affords reasonable grounds for the belief she will not carry on the business of salesperson in accordance with the law, and with honesty and integrity.
[43] Although the Tribunal is not required to comment on every piece of evidence heard, there is a complete lack of analysis regarding evidence of Lioubimova’s personal involvement to support the finding that she was not privy to improper or dishonest activity. Without a sufficiently articulated basis for the findings, meaningful appellate review is prevented.
[44] I am satisfied that the Tribunal failed to consider the evidence relevant to the issue of whether Lioubimova was personally implicated in the wrongdoing of which the corporation was found guilty. As a result, its conclusion that there was no evidence that the sole officer and director had any personal involvement or knowledge of the corporation’s wrongdoing was not reasonable in these circumstances.
Conclusion
[45] The appeal of the decision directing the Registrar to revoke the registration of Prestige Toys Ltd. is dismissed.
[46] The cross-appeal of the decision not to direct the Registrar to revoke the registration of Lioubimova is allowed; the decision is set aside and the matter is remitted to the Tribunal for a re-hearing by a different panel.
[47] The parties are agreed that costs should follow the event and that the appropriate quantum is $4000. Accordingly, the Registrar shall have its costs, fixed in the amount of $4000 inclusive of GST and disbursements.
Karakatsanis J.
Swinton J.
Low J.
Released: August 11, 2009
COURT FILE NO.: 302/07
DATE: 20090811
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SWINTON, LOW and KARAKATSANIS JJ.
B E T W E E N:
PRESTIGE TOYS LTD.
Appellant
- and -
REGISTRAR, MOTOR VEHICLE DEALERS ACT
Respondent
- and -
SVETLANA LIOUBIMOVA
Respondent in Cross Appeal
REASONS FOR JUDGMENT
KARAKATSANIS J.
Released: August 11, 2009