COURT FILE AND PARTIES

COURT FILE NO.: CV-10-15000
DATE: 2012090 7

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ernest S. Petrasovic and John Petrasovic, Executors and Trustees of the Estate of Ernest J. Petrasovic, deceased, Plaintiffs

AND:

1496348 Ontario Limited, o/a Honest Lawyer Restaurant Richmond Hill and Greg Sandwell, Defendants

BEFORE: Leach J.

COUNSEL: Barbara Opalinski, for the Plaintiffs

Catherine Patterson, for the Defendants

HEARD: August 27, 2012

ENDORSEMENT

[ 1 ] There currently are three motions before the Court in this corporate-commercial litigation.

[ 2 ] Two motions originate with the plaintiffs. They seek an order compelling the defendants to deliver a further and better affidavit of documents, and permitting inspection of specified documents, prior to oral discovery examinations. The plaintiffs also now seek an order granting leave to amend their statement of claim after the close of pleadings.

[ 3 ] The other motion, brought by the defendants prior to delivery of the plaintiffs’ motion for leave to amend, seeks an order granting leave to further amend their statement of defence and counterclaim after the close of pleadings. As noted by counsel for the defendants, their motion nevertheless may become moot, (subject to arguments about related costs), if the plaintiff’s motion for leave to amend is successful. This is because the defendants generally will have the ability to amend their pleading as of right in response to an amended pleading. (See Rule 26.05 of the Rules of Civil Procedure.)

[ 4 ] As far as the motions for leave to amend are concerned, this case presents the odd situation of both sides simultaneously wanting to resile from their respective earlier pleaded positions, in order to now plead and rely upon the position previously put forward by their opponents.

[ 5 ] Like ships passing in the night, the parties are intent on assuming each other’s previous positions without meeting in transit.

Background

[ 6 ] The primary focus of the litigation is the corporate defendant, which operates a tavern/restaurant in Richmond Hill, Ontario.

[ 7 ] Many underlying facts are in dispute. However, based on the pleadings and evidence placed before me in relation to the motions, the following appears to be common ground or not seriously contested:

a. The defendant corporation was created by articles of incorporation on or about December 3, 1991, in order to create and operate the aforesaid tavern/restaurant business.

b. The defendant corporation has had one director and officer - the defendant Greg Sandwell.

c. The defendant corporation has had and/or has numerous shareholders. Their rights are determined in part by the aforesaid articles of incorporation, and possibly by shareholder and subscription agreements dated June 1, 2003. (None of these documents were tendered in evidence by either party in relation to the parties’ motions, although references were made to their purported content and effect.)

d. Shares in the defendant corporation unquestionably were issued to Mr Petrasovic at some point. (Evidence filed by the defendant in relation to the motion, and not disputed by the plaintiff, suggests this was done pursuant to the subscription agreement dated June 1, 2003.) As noted below, whether that shareholding has come to an end, (as a result of a possible share purchase arrangement initiated on or about May 30, 2008), is something that has been disputed in the litigation.

e. Creation and/or operation of the defendant corporation’s business was funded, at least in part, by at least $225,000 advanced to the corporation by Mr Petrasovic in the Spring of 2003, prior to his death. (The date of death is not mentioned in any of the pleadings or proposed pleadings, but evidence filed by the defendants relating to claimed payments “made to Petrasovic, and after his death, to his Estate”, suggests that Mr Petrasovic died sometime between April 30, 2004, and October 25, 2005. The factum filed by the defendants indicates that he died in September of 2004.) The circumstances in which Mr Petrasovic advanced funds to the corporation, (as a shareholder investor or creditor), and the manner in which the corporation subsequently made payments to Mr Petrasovic and his estate, are matters of dispute in the litigation. However, it is not disputed that a promissory note, (referred to by the parties, but also not tendered in evidence for purposes of the motion), was issued by the corporation to Mr Petrasovic on or about June 1, 1993.

[ 8 ] Following the death of Mr Petrasovic, there was a deterioration in the relationship between the defendants and the plaintiffs, (Mr Petrasovic’s estate trustees), resulting in this litigation.

Chronology and Evidence

[ 9 ] Progress of the litigation, and the evidence filed in relation to the motions, may be summarized as follows:

• On July 12, 2012, the plaintiffs issued their current statement of claim. The prayer for relief included requests for a declaration that the affairs of the corporation have been conducted in an “oppressive or unfairly prejudicial” manner, (although few particulars are alleged in that regard apart from alleged non-disclosure, delayed payment in relation to the promissory note, and differential treatment whereby payments to Mr Petrasovic were characterized as debt reduction payments while payments to other shareholders were characterized as dividends). The claim also requests ancillary relief including an orderly winding up of the corporation, an accounting in relation to various corporate revenues and disbursements, and substantial damages from the defendant Mr Sandwell. The supporting allegations included assertions that Mr Petrasovic was a shareholder and creditor of the corporation, and that his estate remained so at the time of pleading. In particular, the plaintiffs specifically alleged:

o that a purported offer and share purchase by Sandwell, (whereby Sandwell purported to purchase Mr Petrasovic’s shares in the corporation in exchange for $94,000 deposited to an escrow account), were “null and void”; and

o that the corporation still owed money to Mr Petrasovic’s estate, (such that the estate was still a creditor).

• On August 30, 2010, the defendants delivered a statement of defence. In their pleading, the defendants admitted few of the plaintiffs’ allegations, and denied many. This included a specific denial of the allegation that Mr Petrasovic or his estate was “a creditor of the corporation for loans it advanced”. At the time, the defendants pleaded, inter alia:

o that a transfer of shares was indeed pending, (once the plaintiff had complied with unspecified contractual requirements, prior to which the sum of $94,000 was being held in an escrow account); and

o that Mr Petrasovic had advanced funds to the corporation not as a creditor but as a shareholder investor.

[Text continues exactly as in the source…]

“ Justice Ian F. Leach”

Ian F. Leach
Justice

Date: September 7, 2012