ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 06-CV-34609
DATE: 2012/01/06

BETWEEN:

META ENERGY INC. Plaintiff – and – ALGATEC SOLARWERKE BRANDENBERG GMBH, TREND CAPITAL GMBH & CO ALGATEC SOLARWERKE BRANDENBERG KG and LD INDUSTRIES LTD. Defendants

Douglas R. Adams, for the Plaintiff
Barbra H. Miller, for the Defendants

HEARD: December 13, 2011

REASONS FOR DECISION
Annis j.

Introduction

[ 1 ] The plaintiff, Meta Energy Inc. (“Meta”) seeks an initial order striking out the defence of Algatec Solarwerke Brandenberg GMBH and Trend Capital GMBH & Co Algatec Solarwerke Brandenbeg KG (together “the Algatec Defendants”). This matter is not in dispute and the order will go as requested.

[ 2 ] Meta seeks a further order that $13,000 being held in trust for the defendant LD Industries Ltd. (“LD Industries”) by the plaintiff’s previous lawyers pursuant to orders of Power J. dated September 28, 2007, and December 14, 2007, be paid out to Meta.

[ 3 ] In addition, it argues that the lawyers representing LD Industries should be ordered to pay costs in the amount of $30,000.

[ 4 ] LD Industries opposes the plaintiff’s motion and requests that the funds held in trust be paid out to its receivers, Madelbaum Spergal Inc, with costs.

Facts

[ 5 ] Meta brought LD Industries into this action for the sole purpose of obtaining a Mareva injunction requiring LD Industries to keep in its care and control in the province of Ontario custom-made equipment manufactured by it for one of the Algatec defendants.

[ 6 ] It is common ground that LD Industries was dissolved effective June 22, 2007.

[ 7 ] In its Article of Dissolution filed effective June 22, 2007, LD Industries stated that it had no debts, obligations or liabilities and that there were no proceedings pending in any court against the corporation.

[ 8 ] In his affidavit filed in this matter dated September 26, 2007, Terry Horner, President of the dissolved LD Industries, averred that LD Industries was in receivership without mentioning that the corporation had been dissolved.

[ 9 ] By order dated September 28, 2007, Power J. imposed, as a term of setting aside the administrative dismissal of the defendants’ defence, the requirement that the plaintiffs were to pay to the defendant LD Industries the sum of $11,000 in compensation for its out-of-pocket expenses for storage of the custom-made equipment. He also awarded LD Industries an amount of $2,000 all in, for its costs on the motion to set aside the dismissal.

[ 10 ] In his affidavit of December 14, 2007, filed in respect of Power J.’s second order, Mr. Horner repeated the allegation that LD Industries was in receivership. He further deposed that LD Industries had been dissolved, noting that because of arrangements in place “the dissolution of LD Industries does not appear to materially affect the outcome of this motion”.

[ 11 ] On December 14, 2007, Power J. further ordered that “The plaintiff’s counsel shall retain possession of the $13,000 arising from the September 28, 2007 award to the defendant LD Industries pending further order of the court or the agreement of the parties”.

[ 12 ] On December 20, 2007, Mr. Horner further deposed as follows:

2 The dissolution of LD Industries was first raised to me by my accountant Neil Cowling (“Cowling”), at that [ sic ] time I signed the tax returns for LD Industries. Although Cowling may have mentioned dissolution, the significance was lost on me. Cowling advised me that so long as LD Industries remained an active corporation, income tax returns and other such documents would have to be filed in respect of LD Industries. I relied on him for accounting advice and to prepare necessary filings in connection with my business and personal affairs. I simply understood that steps being taken in connection with the tax return of LD Industries were being taken in connection with the usual process in respect of a company that was no longer carrying on business.

3 Further, at that time, this action by Meta Energy Inc. (“Meta”) had, as far as I was aware, gone dormant, and I had not heard anything from my solicitors with respect to Meta’s action for many months. I verily believed that this action was no longer an active proceeding. Cowling presented me with a document with respect to the dissolution and I executed it without appreciating the consequences of that action. I did not inform my solicitors at Aird & Berlis LLP of the dissolution of LD Industries. Had I known at that time the consequences of the dissolution of LD Industries, I would not have acted on the advice of my accountant, and LD Industries would remain an active corporation today.

[ 13 ] Mr. Horner was not cross-examined on his affidavit.

[ 14 ] I accept as a fact that the dissolution of LD Industries, its consequences, and the misstatement of LD Industries being in receivership in the affidavit of September 26, 2007, were not understood by Mr. Horner nor communicated to Aird & Berlis LLP.

Issues

(1) Whether the dissolution of LD Industries is a bar to an order requiring that the $13,000 in possession of the plaintiff’s former lawyers should be paid out to the receiver of LD Industries.

(2) Whether the inadvertent misstatement to the court that LD Industries was in receivership vitiates the order of September 28, 2007, of Power J. resulting in the plaintiff retaining the $13,000 held by its former lawyers.

(3) Whether the lawyers of Aird & Berlis LLP should have an order of costs made against it personally as a result.

Analysis

(i) Effect of Dissolution

[ 15 ] Meta’s argument on the motion was somewhat different from that made in its factum. It originally submitted that when a corporation is dissolved it ceases to exist and cannot instruct a solicitor, thereby effectively terminating a solicitor’s retainer as of the date of dissolution.

[ 16 ] By Meta’s logic it would follow that any decision of the court based upon submissions of counsel on behalf of a dissolved entity were made without authority and should be set aside, with the costs thrown away assessed against the lawyer personally.

[ 17 ] At the return of the motion, Meta further argued that because LD Industries ceased to exist upon dissolution, the receivership ceased to have effect. The order of Power J. dated September 28, 2007, should be set aside, and the monies held in trust retained by the plaintiff.

[ 18 ] To briefly state my conclusions, I disagree with Meta’s argument concerning the effect of the dissolution of LD Industries, whether based upon the alleged lack of authority of counsel when representing a dissolved entity in court proceedings or the effect of dissolution proper on the orders of Power J. when LD Industries is in receivership.

[ 19 ] Section 242(1) of the Ontario Business Corporations Act , R.S.O. 1990, c. B. 16 (“ OBCA ”) is relevant to these issues.

242(1) Despite the dissolution of a corporation under this Act,

(a) a civil, criminal or administrative action or proceeding commenced by or against the corporation before its dissolution may be continued as if the corporation had not been dissolved;

(b) a civil, criminal or administrative action or proceeding may be brought against the corporation as if the corporation had not been dissolved;

(c) any property that would have been available to satisfy any judgment or order if the corporation had not been dissolved remains available for such purposes; and

(d) title to land belonging to the corporation immediately before the dissolution remains available to be sold in power of sale proceedings.

[ 20 ] The issue of the effect of the dissolution of LD Industries was raised in the motion of Meta to extend the Mareva injunction. Power J. deferred ruling on the issue, but in his reasons dated July 17, 2008, he commented as follows:

[42] I note, for the record, that s. 242 (1) of the Ontario Business Corporations Act , R.S.O. 1990, c. B. 16 , provides that despite the dissolution of a corporation, a civil suit commenced against that corporation before its dissolution may be continued as if the corporation had not been dissolved.

[ 21 ] In the recent case of Malamas v. Crerar Properties Corp. (2009), 65 B.L.R. (4th) 277 (Ont. S.C.) at para. 9 , Matlow J. interpreted s. 242 (1) of the OBCA to include an implicit recognition that a dissolved corporation could instruct counsel to defend any claim against it.

[ 22 ] I see no reason why the same logic would not apply to permit counsel to be instructed by a dissolved corporation in defence of an action, particularly where it appears to have been dragged into this litigation as a bystander and forced to incur expenses and legal costs that have been recognized by the court as recoverable by it.

[ 23 ] With respect to the issue of whether the dissolution of a corporation terminates a receivership, it appears that there is no decision squarely on point.

[ 24 ] Nevertheless, s. 242(1) of the OBCA recognizes that proceedings, which I would interpret to include actions taken by receivers on behalf of creditors, may be continued against a dissolved corporation. Paragraphs (c) and (d) of the provision further recognize that property belonging to a dissolved company remains available to satisfy judgments or orders.

[ 25 ] In my view, the monies held in trust pursuant to the orders of Power J. constitute property of LD Industries.

[ 26 ] There is no reason why the dissolution of the corporation would terminate the receivership. If not apparent by the effect of s. 242(1) of the OBCA , I rely on the reasons of Farley J. in Mortgage Insurance Co. of Canada v. Innisfil Landfill Corp . (1995), 3 O.T.C. 30 (C.J.) , at paras. 2 , 12 and 26.

[ 27 ] In that case, the receiver-manager of the debtor corporation brought a motion to be discharged and for the termination of the receivership. The debtor corporation had been dissolved over two years earlier for failure to file annual returns.

[ 28 ] Despite the dissolution of the debtor corporation, the receivership continued since the property of a dissolved corporation continues to be available to creditors. Farley J. granted the motion by the receiver-manager of the debtor corporation to be discharged and terminated the receivership.

(ii) Inadvertent Misstatement

[ 29 ] I reject the plaintiff’s suggestion that the inadvertent misstatement to Power J. that the company was in receivership, as opposed to being dissolved, would have impacted on his order. I believe that this conclusion is implicit in the brief comment made by him referred to above.

[ 30 ] Any misstatement made in the process of dissolving the LD Industries, I find has no bearing on this case. It certainly should not prevent the creditors of the corporation from receiving monies held in trust for the dissolved corporation when these costs were unnecessarily caused by the plaintiff’s actions.

[ 31 ] In my opinion, in order to set aside a decision on the grounds that it was based upon an inadvertent misrepresentation of a fact, the plaintiff must demonstrate that had no misstatement occurred, the orders of Power J. would not have been made, or some other miscarriage of justice would otherwise have resulted. See generally 1307347 Ontario Inc. v. 1243058 Ontario Inc. (c.o.b. Golden Food Restaurant), (2001), 4 C.P.C. (5th) 153 (S.C.) .

(iii) Costs

[ 32 ] Inasmuch as the plaintiff has not succeeded in its motion, no award of costs against the solicitors of the defendant need be considered, not that there was any basis for such an order in the first place.

[ 33 ] LD Industries is entitled to its costs in this motion on a partial indemnity basis which I fix at $10,000 inclusive of disbursements and HST. In essence, this award reflects acceptance of LD Industries’ submissions, including the tariffs applied and most of the time allocated to the file. My only concern is that more work could have been allocated to less senior lawyers in the firm.

Order

[ 34 ] It is ordered that,

(1) the defence of Algatec Solarwerke Brandenberg GMBH and Trend Capital GMBH & Co Algatec Solarwerke Brandenberg KG is struck;

(2) the $13,000 being held in trust in the accounts of Connolly, Nichols & Allan & Co. LLP be released to Aird & Berlis LLP in trust for Madelbaum Spergal Inc., the receivers of LD Industries Ltd.;

(3) the plaintiff pay costs to LD Industries Inc. in the total amount of $10,000, which amounts are to be paid to Aird & Berlis LLP in trust for Madelbaum Spergal Inc., the receivers of LD Industries Ltd., subject to any terms of its retainer with the receivers.

Mr. Justice Peter Annis

Released: January 6, 2012

COURT FILE NO.: 06-CV-34609
DATE: 2012/01/06

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: META ENERGY INC. Plaintiff – and – ALGATEC SOLARWERKE BRANDENBERG GMBH, TREND CAPITAL GMBH & CO ALGATEC SOLARWERKE BRANDENBERG KG and LD INDUSTRIES LTD. Defendants REASONS FOR DECISION Annis J.

Released: January 6, 2012