BARRIE COURT FILE NO.: CV-11-0826

DATE: 20120518

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: VALERIE BRENNAN, Plaintiff

AND:

PAUL ANDREWS, BARBARA ALLISON and ERIC’S SNACK SHACK, Defendants

BEFORE: THE HON. JUSTICE S.E. HEALEY

COUNSEL: R. E. Anka, for the Plaintiff

M. Adams, Agent for the Defendants

HEARD: March 30, 2012

ENDORSEMENT

NATURE OF THE MOTION

[1] This is a motion made by the plaintiff for:

(i) summary judgment in favour of the plaintiff for the sum of $83,862.77 plus interest and costs;

(ii) in the alternative, summary judgment in favour of the plaintiff for payment of the sum of $30,000 in accordance with the terms of a promissory note dated July 29, 2011 plus interest and costs;

(iii) an injunction restraining the sale of 26 Jane Crescent, Barrie (the “property”), or alternatively, an order permitting the registration of a certificate of lis pendens against title to the property, or in the further alternative, an order directing that the proceeds of sale of the property be paid into court pending the final disposition of this action, including appeals;

(iv) an order setting aside the transfer of title to the property from Barbara Allison to Barbara Allison and Paul Andrews as joint tenants registered on November 29, 2011 on the grounds that the transfer constitutes a fraudulent conveyance or fraudulent preference or both;

(v) an order requiring the defendants to deliver a further and better Affidavit of Documents and an order requiring the individual defendants to submit to a cross-examination upon their affidavit of documents sworn December 28, 2011;

(vi) an order striking out the Statement of Defence and Counterclaim of the defendants for having failed to attend to be examined for discovery; or alternatively to attend to be examined for discovery within 15 days;

(vii) costs in favour of the plaintiff on a complete or substantial indemnity basis.

THE FACTS

[2] The facts briefly are that the plaintiff and the defendant Allison entered into an undated written contract in the fall of 2010 which related to a restaurant venture, incorporated under the business name of Eric’s Burger Express Inc. (the “Corporation”). The defendant Andrews, who is the husband of Allison, was the driving force behind the venture, although not a party to the contract. The contract provides that the plaintiff is to have a 30% interest in the business as a result of making an investment of $30,000, and that Allison would have a 70% ownership interest in return for investing $70,000 of her own money. The plaintiff alleges that Andrews represented that it would cost $100,000 to retrofit the leased space into a fast-food takeout outlet.

[3] Prior to preparing the contract, Andrews prepared a preliminary document entitled "Proposal Overview". Neither the Proposal Overview nor the contract provides for the payment of wages to any of the parties for any work performed by them during the course of construction. What the plaintiff and Allison were to receive for their respective investments was an equity position in the Corporation.

[4] No shares were ever issued by the Corporation. There is no evidence that Allison made the investment of $70,000.

[5] In mid-to-late January 2011, Allison approached the plaintiff and asked her to invest an additional $20,000. The explanation given was that the new restaurant required more work and material than initially contemplated, and the additional $20,000 was needed for the project to move forward. In return for advancing an additional $20,000, the plaintiff was told that her ownership interest would be increased to 40% and Allison's interest would be reduced to 60%. The plaintiff advanced the additional $20,000, and an amended, undated, contract was signed.

[6] The monies invested by the plaintiff were drawn against her line of credit and deposited into the corporation’s bank account with the Peoples Credit Union in Innisfil. The defendants have not been able to account to the plaintiff for their use of the monies provided by her. They contend in their affidavit material that they purchased building material and restaurant equipment for cash and no receipts were provided. It is their position that it was the very nature of the agreement that, in order to keep costs as low as possible, all transactions would be paid for in cash. They maintain that, even though the lease for the restaurant premises was not signed until February 1, 2011, they began to purchase material and equipment, which they stored in their garage, and began to pay for labour as early as the previous fall.

[7] When the initial $30,000 was deposited to the corporation's bank account, Andrews made two withdrawals of $1,500 each on the following day. Three days later he made another withdrawal of $3,000, and wrote a cheque to himself the same day in the sum of $7,000 for unspecified "equipment funds". He also has an expense entry on November 27, 2011 at Georgian Downs racetrack for $201.50. In the January 2011 corporate bank statement there are unspecified withdrawals totalling approximately $1,500, and transactions at Casino Rama for $483 and $303 plus service charges. There are other withdrawals in that month which may or may not be related to the restaurant venture.

[8] The plaintiff alleges that she continued to advance money to the defendants through the months of February to July 2011, above the two initial advances. It is her contention that, together with interest paid on her line of credit for funds borrowed to make the advances, she has given funds to the defendants totalling $83,862.77.

[9] The plaintiff alleges that on or about July 27, 2011, Andrews again approached her to advance more money to bolster the corporate account. At that point, although still being unaware of what was occurring in the corporate bank account, she became anxious about the business arrangement and decided to have a lawyer prepare a promissory note.

[10] The promissory note was signed by Andrews and Allison on July 29, 2011. It provides that the borrowers, being Eric’s Burger Express Inc., Barbara Allison and Paul Andrews, are to repay the principal sum of $30,000 as follows: $1,200 on July 31, 2011 and $1,300 on the first day of each month starting September 1, 2011 and continuing to March 1, 2012, the balance payable on March 28, 2012. The note further provides that in default of any payment due, the full remaining principal balance shall immediately be due and payable. The note also contains the following term: "In the event there is not (sic) funds available to pay lump sum due, monthly payment shall continue until outstanding balance is paid in full".

[11] The defendants made only one payment on the note on July 31, 2011 in the amount of $1,200, but defaulted in making payments due on the first days of September 2011 until March 2012, or any time thereafter.

TEST FOR SUMMARY JUDGMENT

[12] Rule 20 of the Rules of Civil Procedure was amended effective January 1, 2010. The amendments created two key changes. First, the court is to grant summary judgment if satisfied that “there is no genuine issue requiring a trial.” Previously, the Rule had stated “no genuine issue for trial.” Second, a judge hearing a motion for summary judgment is provided with enhanced powers. He or she may weigh the evidence, evaluate the credibility of a deponent and draw any reasonable inference from the evidence.

[13] The purpose of the change from “no genuine issue for trial” to “no genuine issue requiring a trial” in the test for summary judgment was to make summary judgment more readily available and to recognize that with the court’s expanded forensic powers, although there may be issues appropriate for trial, these issues may not require a trial because the court has the power to weigh evidence on a motion for summary judgment. As noted in Healey v. Lakeridge Health Corp. (2010), 2010 ONSC 725, 72 C.C.L.T. (3d) 261 (S.C.) at para. 22, aff’d (2011), 2011 ONCA 55, 103 O.R. (3d) 401 (C.A.), “rule 20.04(2.1) is a statutory reversal of the case law that held that a judge cannot assess credibility, weigh evidence, or find facts on a motion for summary judgment.”.

[14] As stated in Canadian Imperial Bank of Commerce v. Mitchell, 2010 ONSC 2227 at para. 20, the changed wording in the Rules, combined with the powers granted to the motions judge to make evidentiary determinations, necessarily permits a more meaningful review of the paper record and expressly permits the motions judge to make evidentiary determinations and credibility findings. This overrides prior jurisprudence that sought to prevent a judge from makings such determinations. “As a result, consistent with the new principle of proportionality in the Rules, cases or issues need not proceed to trial unless a trial is genuinely required”: Cuthbert v. TD Canada Trust (2010), 2010 ONSC 830, 88 C.P.C. (6th) 359 (S.C.) at para. 10; Canadian Imperial Bank of Commerce v. Mitchell, supra, at para. 20.

[15] Even with the change to Rule 20, however, it is to be remembered that the purpose of Rule 20 is not to deny the parties due process. As stated in Dawson v. Rexcraft Storage and Warehouse Inc., supra, at para. 29, “[i]t is not intended to deprive plaintiffs and defendants of their day in court absent demonstrated compliance with its requirements. . . . [I]ts purpose is to weed out cases at the pre-trial stage when it can be demonstrated clearly that a trial is unnecessary” [emphasis added]. This principle has been reiterated in the now leading case on Rule 20, Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 (“Combined Air”), where at para. 38 the Court of Appeal emphasized that the purpose of the new rule is to eliminate unnecessary trials, not to eliminate all trials, and that the guiding consideration is whether the summary judgment process will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.

[16] Combined Air has of course articulated the “full appreciation test” as being that which the motions judge must apply to determine whether or not a trial is required in the interests of justice. The motions judge must ask the question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?

DISPOSITION OF THE MOTION

[17] This case raises issues that fall into two categories. The evidence surrounding the promissory note is such that the court has no difficulty concluding that it is appropriate to grant partial summary judgment in this case, as the defendants have no chance of success on this issue.

[18] The balance of the monetary amounts sought in the claim, however, will have to be the subject matter of a trial because there are too many contentious factual issues raised in the evidence before the court to permit for a just determination of the plaintiff’s claim and the defendants’ counterclaim. Although there is evidence strongly suggestive of dubious uses of the plaintiff’s money, such as the gambling purchases, the evidence of the defendants is that some tradesmen asked to be compensated through gambling chips. Further, the evidence is undisputed that the restaurant opened and was operational for a short period, and therefore it remains to be determined how much of the plaintiff’s money was used for its intended purpose – construction costs – as opposed to, as the plaintiff contends, funding the defendants’ personal needs.

[19] The defendants allege that they lost the business because the plaintiff closed the corporate bank account, and this largely forms the basis for their counterclaim. It remains for a trial judge to assess the credibility of these witnesses to determine whether there is any merit to such a contention, and the extent to which the defendants mitigated their alleged losses.

[20] The evidence surrounding the promissory note is a different matter. The defendants allege that they were forced to sign the note when the plaintiff presented it to them on a Friday afternoon, and they were unable to obtain legal advice. The defendants argue that this note had the effect of turning a shareholder into a creditor of the corporation, placing her in a position of conflict when she owed a fiduciary duty as a shareholder to not jeopardize the viability of the business and the investment of Allison. I disagree. The plaintiff was already a creditor, as the contract obligated the corporation to make payments under certain conditions. The terms of the promissory note required the borrowers to continue to make monthly payments if “funds” were not available, this word not being defined in the promissory note. While the defendants argue that the reference to funds means that funds must be available from the business, this term of the promissory note was handwritten by Barbara Allison and any ambiguity is to be construed against the defendants. And in any event, the note is clear that despite the absence of “funds”, the plaintiff is to continue to receive monthly payments.

[21] The defendants have not shown on the evidence that they were under duress to sign the note. They have not filed the business’ July profit and loss statement or proof of expenses outstanding at the time that they signed the note, although they contend that they had to sign it to receive the final advance from the plaintiff in order to keep the business afloat.

[22] The defendants are not inexperienced business operators. Andrews has a part ownership in a restaurant in the United States, where he has dual citizenship. He and Allison have operated a fast food business known as Eric’s Snack Shack at the 400 Market for approximately six years. Beyond that, Andrews had extensive former business experience which included running a trucking company known as Norstar, a Country Style doughnut shop in Mississauga, and managing an estate in Mississauga. It is apparent from the Proposal Overview drafted by Andrews that he has business experience. Allison has admitted to signing legal documents in the past without the benefit of legal advice. I conclude that Andrews and Allison chose to sign the promissory note simply to extract more money from the plaintiff, whether for a legitimate business purpose or not has yet to be determined. They have not satisfied me that they were unaware of what they were signing, or that they wanted to have legal advice prior to signing but were placed in a position where they were unable to obtain such advice.

[23] The defendants Andrews and Allison have breached the terms of the promissory note without reasonable, or any, explanation for why they have not, at a minimum, been making monthly payments of $1,300. Brennan has suffered loss and damages as a result of their delinquence.

[24] Therefore in respect of the promissory note, I find that a full appreciation of the evidence is established on the record now before the court, that a trial will add nothing to assist in assessing this portion of the debt claimed, and that there is no genuine issue requiring a trial. The plaintiff will have judgment accordingly.

[25] While the plaintiff seeks an order by way of Mareva injunction against the property currently owned by Allison and Andrews as joint tenants, I am not satisfied that the test has been met, and in any event the plaintiff can register a writ of execution and accomplish the same goal.

[26] With respect to the request for a declaration of fraudulent conveyance, this too is a triable issue that cannot be determined without an assessment of credibility, although the grounds for make such a declaration and remedial relief are not clear to me at this time given that the property remains in Allison’s name even following the transfer.

[27] The remaining triable issues are: 1) the balance of the plaintiff’s monetary claim, including advances to the corporation and interest paid on her line of credit; 2) the assessment of the claim for relief based on fraudulent conveyance; and 3) the counterclaim for damages.

ORDER

[28] This Court orders that:

(1) The plaintiff shall have judgment against Paul Andrews and Barbara Allison jointly and severally for payment in the sum of $28,800 plus prejudgment interest from September 2, 2011 to date of judgment and post-judgment interest thereafter, pursuant to the Courts of Justice Act.

[29] If the parties are unable to agree upon the costs of this motion they may make brief written submissions not exceeding two pages in length to be delivered through the office of the judicial assistants in Barrie. The plaintiff’s are due by June 1st, the defendants by June 6th, any reply by June 8th. The parties should bear in mind that the promissory note entitles the plaintiff to “the complete legal costs incurred by Valerie Brennan in enforcing this Note as a result of any default by the Borrowers…”, and therefore it is only submissions as to the amount of costs to be paid by the defendants, as opposed to argument over entitlement, that will be considered by the court.

HEALEY J.

Date: May 18, 2012