ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO. 07-CV-332104PD3
DATE: 20121113
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
CRAIG HRONCOK Plaintiff
A. Charles Gluek for the Plaintiff
- and -
ALEX PELLIZZARI and RODNEY J. HICKMAN Defendants
The Defendant Hickman represented himself
HEARD: September 10-12, 2012
M.A. SANDERSON J.
Reasons for DECISION
Introduction
[ 1 ] The Plaintiff Mr. Craig Hroncok ("Hroncok" or "the Plaintiff") sues Mr. Alex Pellizzari ("Pellizzari") for damages for breach of contract and Mr. Rodney Hickman ("Hickman") for damages for breach of contract, negligence and breach of fiduciary duty.
[ 2 ] Pellizzari did not appear at the trial.
Facts
[ 3 ] In 2002, Hroncok was a "Senior Evaluation Consultant" at an insurance company and also the sole shareholder of Tyda Corp., a company that he used to conduct various business activities, including a construction business and a factoring business [purchasing receivables at a discount.]
[ 4 ] In late 2002 or early 2003, Hroncok, Mr. Michael Cruikshank ("Cruikshank"), and Mr. Angelo Grossi ("Grossi") were meeting to discuss investments. In the spring of 2003, Cruikshank brought Hickman to one of their meetings ("the first meeting") for a general discussion about "discounted paper" and to "pick his brain."
[ 5 ] Cruikshank gave evidence that Hickman told them he had contacts in the United States. If the investors decided to proceed in Europe, it would be necessary for them to retain a European lawyer. If they decided to proceed in the U.S., they would need a U.S. lawyer.
[ 6 ] Cruikshank also gave evidence that at the first meeting, Hroncok showed the others a Federal Reserve Bulletin document (Exhibit 3). Copies were made.
[ 7 ] On or about June 5, 2003, Hickman introduced Cruikshank and Hroncok to the Defendant Pellizzari. Pellizzari told them he was a retired banker and as such, he had information from a senior banker in Switzerland that significant profits could be made on paper trades.
[ 8 ] Cruikshank explained the type of deal for which Pellizzari was seeking their participation, as follows: if Bank A had a 10 year note for instance for $100 million and wanted to sell it to another institution, Pellizzari wanted to earn commissions by facilitating the deal. Pellizzari said he already had a contract with a Bank A. If Bank A, with his assistance, were successful in arranging a purchase of the note by a Party B, Pellizzari would earn a commission. He was seeking to borrow $50,000 from Cruikshank and $50,000 to $100,000 from the Plaintiff to cover travel, lodging and other expenses so he could go to Europe to broker the deal.
[ 9 ] Hroncok said he was interested in participating in such a deal but he wanted to be sure that Hickman would hold the funds he was lending in escrow until trading had begun. The money he was considering investing was money his parents had given him to invest, so he wanted a safe investment.
[ 10 ] On June 6, 2003, he sent Hickman Exhibit 4, an email posing several questions, including "If Alex will be approved for the commission, why would he simply not wait until he has received his commission to pay off his disbursements?" Exhibit 4 also contains the following: "If Alex' documentation comes to fruition, and he is approved for his commission, I would like to proceed."
[ 11 ] In essence, the Plaintiff claimed that Hickman represented to him that if he, Hroncok, invested, his money would not be at risk. It would remain in Hickman's trust account/would not be released/could not be accessed until trading had started.
[ 12 ] Exhibit 5 is the Memorandum of Agreement dated July 2, 2003 (the "First Memorandum of Agreement;") Exhibit 20 is a Memorandum of Agreement dated June 12, 2003 (the "Second Memorandum of Agreement); and Exhibit 24 date September 30, 2003 is the Third Memorandum of Agreement (the "Third Memorandum of Agreement")
[ 13 ] I have numbered the relevant Memoranda of Agreement chronologically by date of first negotiation, not date of execution.
[ 14 ] There was conflicting evidence about what occurred between June 5 and the execution of the First Memorandum of Agreement on July 2, 2003. The Plaintiff said that there were negotiations and exchanges of drafts during that period.
[ 15 ] It is clear that in addition to discussing the First Memorandum of Agreement, between the June 5 meeting and the execution of the First Memorandum of Agreement, the Plaintiff was involved in other discussions and deals.
Second Memorandum of Agreement
[ 16 ] On June 12, the Plaintiff met a Mr. Jeffrey Curran ("Curran") and a Ms Sophie Hofbauer about another deal set out in Exhibit 20, the Second Memorandum of Agreement dated June 12, 2003.
[ 17 ] Hofbauer, the borrower on behalf of EITC [Experiential Innovation and Technology Center] had advised Bowler [the accountant for all of Hroncok, Hickman, Pellizzari and Curran], Curran [the lender] and Hroncok [the guarantor] of her desire to borrow US$150,000 in bridge funding.
[ 18 ] Exhibit 20 includes the following recitals:
Borrower [Sophie Hofbauer] operates as a development stage company with a plan to build a specialized commercially operated research and development facility ("EITC Project")
Borrower has an offer to finance the EITC Project from Williams & Associates International Corp. ("Williams") for $700 Million US more or less.
Borrower has provided Craig [Hroncok] with direct full disclosure of the Business Plans and Williams' Offer.
Borrower has provided similar due diligence disclosure to Jeff [Curran] indirectly by disclosing the information to Gerry Bowler C.A. ("Gerry") as the representative for Jeff.
[ 19 ] Curran agreed orally on June 12, 2003 to provide bridge financing of US$150,000 on the condition his funds were fully secured. The Plaintiff agreed to provide that security/a guarantee [supported by cash reserves or liquid securities. Curran advanced US$90,000 before a formal agreement was signed, and stipulated that further advances were to be conditional upon completion of a formal agreement [the Second Memorandum of Agreement.]
[ 20 ] The Second Memorandum of Agreement provided that for giving the guarantee/ security, the Plaintiff would receive US$150,000 plus further consideration of ½ of 1% equity of EITC .
[ 21 ] The Plaintiff did not sign the Second Memorandum of Agreement dated June 12, 2003 until June 16, 2003.
[ 22 ] On July 2, 2003, Pellizzari and the Plaintiff executed the First Memorandum of Agreement [Exhibit 5/the Agreement that had been first discussed on June 5, 2003], reciting that Pellizzari had executed fee agreement contracts in respect of fees he would be paid for his services as a facilitator of a US$10 million deal. Pellizzari had provided full disclosure of the fee agreement and supporting documentation to the Plaintiff Hroncok, on a confidential, non-disclosure basis. It also recited that the fee agreement entitled Pellizzari to fees for services in the nature of accounts receivable once formal agreements had been executed and trading had commenced. The First Memorandum of Agreement recited that Hickman would act as escrow lawyer, receive funds from Hroncok and distribute them to Pellizzari or "as Pellizzari may direct according to this agreement." Hroncok agreed to advance up to US$400,000, initially US$250,000. The procedure specified the procedure for advancing the initial US$250,000 as follows:
(a) as noted above, Alex [Pellizzari] shall advise Rod [Hickman] concerning the underlying transaction to confirm that there are executed contracts in the underlying transaction and Rod shall then contact and inform Craig of this; (b) on the next business day after Rod has so reported the satisfactory evidence in 2(a) above, Craig shall do the following for advancement of funds: (i) Craig shall arrange with his bank for the conversion or funds sufficient to in effect an advance of the initial US$250,000; (ii) Craig shall advance funds to Rod's trust account by bank draft, hand-delivered or bank wire transfer. (e) provided that in the event trading does not commence within the stipulated period, Rod shall return the funds to Craig in accordance with the procedures in this agreement unless Craig shall instruct Rod otherwise in writing.
[ 23 ] Paragraph 3 provided that Pellizzari would repay Hroncok in U.S. dollars. Paragraph 5 provided " in lieu of payment of interest , Pellizzari would grant Hroncok a right of assignment of Pellizzari's interest in the fee agreement for participation in fees [to a cap of 50% of the total amounts advanced by Hroncok, including the initial advance and subsequent advances, if any, after return to Hroncok of the principal of the advance and subsequent advances.]" In other words, for an investment of US$250,000 for not more than six months, the Plaintiff would be repaid his principal of US$250,000 plus up to US$125,000. It specified Pellizzari would be responsible for Hickman's legal fees and disbursements.
[ 24 ] Hickman was not a party to the First Memorandum of Agreement.
[ 25 ] To fulfill his obligations under the First Memorandum of Agreement, Hroncok did not issue a personal cheque. Tyda Corp. issued a corporate cheque.
[ 26 ] Exhibit 16, Tyda Corp.'s Account Statement at ING Bank, shows a transfer to the CIBC of US$250,000 on July 3, 2003. Exhibit 4 is a Tyda cheque for US$250,000 to Hickman in trust dated July 4, 2003.
[ 27 ] Hroncok gave the cheque to Hickman on July 5, 2003 when they attended a presentation at the University of Waterloo on EITC.
[ 28 ] I have already noted that by that date, Hroncok and Curran had signed the Second Memorandum of Agreement involving EITC.
Third Memorandum of Agreement
[ 29 ] On or about August 17, 2003, Hroncok and Curran negotiated the terms of a Third Memorandum of Agreement. They agreed orally to form a joint venture involving factor financing transactions. Curran orally agreed to contribute capital. Hroncok agreed to manage the business of the joint venture through Tyda Corp. and contribute his expertise and access to quality factor financing portfolios.
[ 30 ] On August 17, 2003, Hroncok/Tyda Corp. sent Curran an email (Exhibit 21) including the following:
Let this be a legally binding agreement between Tyda Corp. … and Jeff Curran. …
For a stated sum, it is hereby agreed that Jeff shall lend Tyda funds for the purpose of financing purchase orders and/or receivables (hereafter called "deal") …
Tyda shall notify Jeff of a deal and present full disclosure of information and documentation to Jeff, indicating what the deal is for, the amount of funds required, for what time and Jeff's profit.
August 26, 2003: Further Negotiations re First Memorandum of Agreement
[ 31 ] Hroncok gave evidence that in August 2003, Hickman called him and said the deal involving Pellizzari had evolved. They needed a meeting to discuss changes.
[ 32 ] There was disagreement on the day the meeting took place. The Plaintiff said they met on August 31, 2003. Hickman gave evidence that the meeting was on August 26, 2003.
[ 33 ] At that time, Pellizzari and Hroncok met privately. Hickman was not present during their private discussion. After their private discussion concluded, Hickman understood they had reached an oral agreement to amend the First Memorandum of Agreement so that Hickman could release the US$150,000, which Hickman had been holding in his trust account, before trading commenced. Hickman understood that Hroncok had agreed that Pellizzari could and would direct Hickman to release the US$150,000 from his trust account.
[ 34 ] Hickman gave evidence that because he understood from Pellizzari that Hroncok had agreed to an amendment of the First Memorandum of Agreement, Hickman wrote by hand Exhibit 6, dated August 26, 2003. It included the following:
To: Craig Hroncok:
Whereas :
The undersigned introduced Craig Hroncok … to Alex Pellizzari …
Craig entered into an agreement with Alex for funding.
Alex requested that Craig allow an interim advance before the satisfaction of the condition of "trading" takes place.
The undersigned gave disclosures to Craig of a transaction called "Intersports," in which the undersigned has a commission receivable. The undersigned also gave disclosure to Craig of other transactions in which undersigned has a pending interest.
THEREFORE
In consideration of Craig giving the concession to Alex, the undersigned hereby agrees to guarantee and indemnify Craig to the extent of US$150,000 … advanced by Craig to Alex under concessions by an assignment of interest in and to Intersports commissions due to the undersigned and any other fees, profits or commissions due or which become due to the undersigned as disclosed by the undersigned to Craig. [Emphasis added.]
[ 35 ] Hickman gave evidence he prepared this document only in consideration of Hroncok agreeing to amend the First Memorandum of Agreement [to allow an interim advance before any "trading" took place.]
[ 36 ] Hroncok denied that he and Pellizzari orally agreed on August 26 or at all that Hickman was authorized to disburse the US$150,000 he was holding in trust before trading started.
[ 37 ] The accountant Bowler gave evidence that he, not Hickman, administered Hickman's trust account. Pellizzari consulted him about the US$150,000 to be released and told him how the funds would be disbursed. Pellizzari told Bowler that Hickman was to receive US$12,500, Bowler US$25,000, Pellizzari $12,500 and Curran $100,000.
[ 38 ] During Bowler's evidence, he was referred to the transcript of Pellizzari's Examination for Discovery. containing the following questions and answers:
112 Q. Okay.
A. [Rod] said, 'I am in the funds now.' He had received funds from Craig and he says, 'What do you want me to do with it?' because he had advanced $250,000
113 Q. That is U.S.?
A. Yes.
114 Q. What was your response to Mr. Hickman or Rod?
A. …
116 Q Okay
A. I said that's as far as I am concerned, when we walked away from our particular meeting, it was understood that certain amendments would be made to this and my need is only $150,000.
117 Q. What was his answer to that statement of yours?
A. He said something like, 'Okay, we'll do what we have to do,' something to that nature. He asked me, 'I need a list or the names of the payables that have to be attended to,' which I gave verbally to him.
118 Q. During that telephone call?
A. Yes.
121 Q. A sign of that agreement was you gave him a list of your accounts payable?
A. Yes.
122 Q. One of the documents that Rod has produced is a document headed "Re Constructed Trust Ledger. A. Pellizzari U.S. Dollar Account." Have you seen that document before?
A. No.
123 Q. Okay
A. But it pretty well reflects what I told him.
[ 39 ] On August 27, 2003, Hickman released the US$150,000 on Pellizzari's instructions: $25,000 was paid out to Bowler [Bowler said, so that he could pay debts of Pellizzari,] $12,500 to Hickman [so that Hickman could pay $12,500 of Pellizzari's debts], $125,000 to Pellizzari and $100,000 to Curran [to repay a loan Curran had earlier made to Pellizzari.]
[ 40 ] Bowler gave evidence that the $100,000 Pellizzari owed to Curran was left in Hickman's trust account and reallocated by accounting entry [as Curran had agreed to invest in EITC.]
[ 41 ] Exhibit 7, headed "Amendment to [First] Memorandum of Agreement," prepared by Hickman, faxed at 6:55 on August 31, 2003, contains the following recitals setting out the changed circumstances:
Alex and Craig entered into a Memorandum of Understanding Agreement for the purchase of an interest in a fee agreement Alex has regarding Private Placement investments which Memorandum of Understanding Agreement is incorporated herein by reference.
Craig signed the Memorandum of Understanding Agreement personally with respect to US$250,000 invested and as agent for a syndicate of other investors with respect to an additional US$150,000 which included Michael Cruikshank … for participation for US$50,000.
The Memorandum of Understanding Agreement was based upon fees to be generated from transaction involving US$10 million proof of funds disclosed to Craig and Mickey.
The structure of the original US$10 million transaction was altered so that while the original US$10 million investment and investor is still in process, Alex and his co-intermediaries secured an alternative investment venue for the US$10 million so that now the investor has a menu of choice for proceeding and the investor has instructed Alex to proceed with the transaction that will go to contract first.
Alex advised the investor and Craig that the new alternative investment option was for a short term contract of one month more or less and a flat fee payment to the investor rather than monthly or other form of periodic payment.
The original Memorandum of Understanding Agreement provided that the payment obligation to Craig and/or participating members of his syndicate would be paid from whichever transaction closed first.
Alex disclosed to Craig that he had on hand two other transactions with documentary support for $100 million and $1 billion investment, which extended and expanded the fees to be earned by Alex.
The original Memorandum of Understanding provided that Craig and syndicate would invest up to $400,000 at the option of Alex the intent for which was to cover the carrying costs from the start of the transaction, through the transition period and final payout for Alex. The new option for a short term contract means Alex no longer requires the full $400,000 and has advised Craig.
The original Memorandum of Understanding Agreement provided that Craig would place the initial US$250,000 and subsequent advances up to $400,000 into the trust account of Rodney Hickman, Barrister & Solicitor … and Rod was instructed and directed to release payment to Alex from the trust upon presentment to Rod of evidence from Alex that the transaction has proceeded to contract and trading has commenced.
As the new option has only one lump sum payment and not periodic payments, this term of the original Memorandum of Understanding Agreement no longer fits the facts of the amended transaction.
Alex advised Craig that he had on hand two other transactions with documentary support for $100 million and $1 billion investment, which extended and expanded the fees to be earned by Alex.
Alex advised Craig that Alex only required $150,000 of the contract amount in the original Memorandum of Understanding Agreement, but he required a consent from Craig to amend the terms for advance in order for Alex to meet obligations that were time-sensitive.
Craig orally agreed to the amendment for release of the US$150,000 initial advance, effective 26 August 2003, subject to terms of amending agreement and Craig and Alex orally directed Rod to release the funds and draft an instrument that memorialized the amending terms.
THEREFORE
In consideration of one dollar, the receipt and sufficiency of which is by all parties hereby acknowledged and the exchange of promises herein, the parties agree as follows:
The purpose of this written agreement is to evidence and memorialize the oral agreement made between the parties on 26 August 2003 so that notwithstanding that this written agreement is made after that date, this agreement shall be deemed to be effective as of August 26, 2003.
Craig consents to a release of US$150,000 from Rod's trust and the balance of US$100,000 as provided below, to Alex, or as Alex shall direct subject to the terms of this agreement.
This agreement constitutes a direction on funds to Rod to release funds from trust by the parties in accordance with the terms of this agreement.
Save and except for these amending terms, the balance of the provisions of the original Memorandum of Understanding Agreement shall prevail …
[ 42 ] Cruikshank gave evidence relevant to whether Hroncok agreed to the amendment of the First Memorandum of Agreement. He said that after the first meeting with Pellizzari, he heard nothing further from anyone for several months. Then he received a call from Grossi, advising that, in effect, the deal was not dead. He was surprised and concerned he had not been included in the further negotiations. Since Cruikshank had introduced the parties and his participation had been discussed on June 5, he had thought that if the deal originally discussed was going ahead, his right to put in $50,000 should be recognized.
[ 43 ] Sometime in September of 2003, Cruikshank had a discussion with Hroncok about whether he, Cruikshank, would be prepared to loan the $50,000 in an amended deal in which funds were to be advanced to Pellizzari before trading started. Cruikshank said since the amended deal was riskier, he did not agree to participate. Hroncok called him "a pussy."
Formal Execution of Third Memorandum of Agreement
[ 44 ] I note that the Third Memorandum of Agreement was signed on September 30, 2003, well after the meeting of August 17 and ten days after Curran advanced the first factoring loan to Tyda on September 20.
[ 45 ] Exhibit 24, a Memorandum of Agreement (the Third Memorandum of Agreement) between Curran and Hroncok, recited the following:
Gerry Bowler, C.A. ("Gerry") is the accountant for Jeff and advised Jeff of the advisability of entering into Factor financing business transactions, but neither Jeff nor Gerry had the necessary expertise or access to quality receivables.
Jeff has capital to invest in Factor financing business transactions.
Craig has access to Factoring transaction portfolios that are all top-rated receivables …
Craig has capital that is currently tied up in another transaction, being in the form of cash in a lawyer's trust account or good receivables, which assets he is unable to deploy for Factoring until the completion of the underlying transaction into which these assets are committed.
Craig met with Gerry and Jeff to discuss the feasibility of doing business together for Factor financing business transactions and Craig presented Jeff with disclosure of his documentation on hand.
Craig suggested that Craig and Jeff could pool their resources under a Joint Venture to do business together for Factor financing business transactions.
Craig and Jeff orally agreed to proceed with the formation of a Joint Venture to do business together for Factor financing business transactions through a pooling of their resources, being Jeff's capital and Craig's access to quality Factor financing business transactions and his expertise, and the parties desired to memorialize their arrangements between them in this agreement.
[ 46 ] Exhibit 26 sets out the dates of three factoring deals in which the Plaintiff participated with Curran.
[ 47 ] Curran's first loan to Tyda, US$70,601.49, was made by a deposit into Tyda's account on September 20, 2003. Tyda forwarded cheque no. 0014 payable to Givaudan Canada dated September 22, 2003. Tyda repaid Curran by cheque 0019 for US$73,047.53 dated November 17, 2003.
[ 48 ] Curran's second loan to Tyda was made by cheque dated October 11, 2003 for US$17,291.86. Tyda repaid Curran by cheque 0029 for US$17,995.00 dated May 31, 2004.
[ 49 ] Curran's third factoring loan to Tyda for US$120,000 by cheque 0017, payable to Givaudan Canada was dated October 17, 2003. Curran received partial repayments by Tyda cheque 0020 dated December 6, 2003 for US$53,196 and Tyda cheque 0025 dated December 23, 2003 for US$20,000.
Events 2006-2007
[ 50 ] As of May 2, 2006, the third factoring loan remained partially unpaid.
[ 51 ] As of the date of Exhibit 26, May 3, 2006, Tyda owed Curran principal of US$46,804 and interest of US$3,510.30, totalling US$50,314.30.
[ 52 ] Exhibit 26, Hroncok/Tyda Corp. wrote to Curran a letter dated May 3, 2006, containing the following:
As I indicated to you previously, unfortunately the distributor provided erroneous information that the entire product was pre-sold, when in fact it was not. The factoring was based on a bona fide PO [purchaser order]. All avenues short of litigation have been explored and exhausted in order to collect the outstanding funds. Litigation would be very costly with no guarantee of favourable results. Given the length that has transpired for the remaining breath strips to sell, I would recommend that you consider the principal amount outstanding as an investment loss (please consult your financial expert for advice.) Tyda Corp. will be writing this off as well.
[ 53 ] On July 20, 2006, Hroncok wrote Pellizzari [on the letterhead of Tyda Corp. Exhibit 10], including the following:
It has been over three years since I advanced $250,000 US to Rod Hickman, the lawyer that represented you and drew up the Memorandum and Agreement dated July 2, 2003. In October 2003, US$100,000 was returned to me. I have fulfilled my legal obligations under the agreement and you have not.
Please be advised I demand the full amount of $225,000 CAN immediately! No more stalling and lies! I want my money back. This has caused my family tremendous stress and conflict. I believe I have been lied to and this entire transaction was misrepresented. Consider this correspondence formal notice of pending litigation. I intend to claim pre-judgment and post-judgement interest in accordance with the Courts of Justice Act .
[ 54 ] Hroncok did not copy Hickman with this letter or make any demand on Hickman at the time he sent the letter to Pellizzari.
[ 55 ] On September 29, 2006, Hroncok completed a Complaint Form about Hickman and sent it to the Law Society of Upper Canada, specifying that Hickman had released funds from his trust account contrary to the First Memorandum of Agreement. On that form he acknowledged that Hickman did not represent him. He represented Pellizzari.
[ 56 ] Exhibit 17, Hroncok's undated email to LawPro re Law Pro suit, includes the following:
Rod and I spoke in late August, perhaps the 28 th or 29 th and we met on August 31 /03. Rod says he needs the funds desperately or the deal will fall through if they can't pay off the closing costs. I reiterated the funds are to be released only once he has confirmation of closing from Alex, as this is my only safety net. Rod then excused himself, I sat and spoke with Alex while Rod wrote at another table. He came back with a hand-written promissory note and it was backdated. I said I do not want a promissory note because it does not protect my funds. He then told me Alex does not need all the funds, only US$150,000 and he will give me back $100,000 shortly. Rod advised me he had to release the funds or the deal wouldn't close. I told him I did not agree to this and he breached the original agreement. Rod said he will do up a proper amendment to our agreement and email it to me. I received the email September 1/03. I did not sign or agree to any amendment of the original agreement between Alex and I [sic]. I asked for a meeting regarding this email. Rod, Alex and I met at the hotel again mid-September/03. I asked how he could release the funds since the deal has not closed and I wasn't informed of this. Alex said I can be rest assured he (Alex) will pay me back. Alex said he had been successful with this before, but the lawyers stole his money.
Rod, Alex and I met at the hotel October 29/03 and Rod provided me with a typed personal promissory note, signed and dated by him. The promissory note was based on some type of grid system. He also gave me a cheque for US$100,000 … Alex, Rod and I met again on December 15/03 and Rod gave me another promissory note dated December 15/03. He was completely confident it will close, but there is a holiday in Asia and they won't get to the transaction until after the New Year.
[ 57 ] Hickman gave evidence that the two promissory notes [Exhibit 8 dated October 29, 2003 and Exhibit 9 dated December 15, 2003] to which Hroncok referred in that email had nothing to do with the transaction covered by the First Memorandum of Agreement and Amended Memorandum of Agreement. They were grid notes given with respect to money to be advanced in the future [not money advanced in the past.] Neither note specified principal amounts or attached "grids." Grid notes by definition do not specify a principal amount. [These did not guarantee or promise payment of the US$150,000 alleged by the Plaintiff to be owing to him.] However, I note that Exhibits 8 and 9 each specified "lender has provided debtor with advances." I also note that Hroncok alleged Hickman provided these notes to him on October 29, 2003 and December 15, 2003, the dates when he alleged meetings were held to specifically discuss repayment of the US$150,000 owing to Hroncok/Tyda Corp. under the First Memorandum of Agreement.
[ 58 ] Exhibit 19 is an incomplete copy of a handwritten note from Pellizzari to Hroncok, President of Tyda Corp., dated November 29, 2006, seemingly acknowledging the debt and promising to pay it.
[ 59 ] Hickman gave evidence that he was unaware of Hroncok's claim against him in this lawsuit until 2007 when he heard about it from the Law Society. In the meantime, he moved in 2006. Because he did not know about the claim at the time he moved, he did not keep documents he would have kept had he been advised about the claim earlier.
FACTUAL FINDINGS
[ 60 ] In my view, the Plaintiff was a poor witness. Where the evidence of Cruikshank and Curran differed from Hroncok's, I generally have accepted Cruikshank's and Curran's. Where Hickman's evidence differed from Hroncok's, I generally have accepted Hickman's. Where I have specifically not accepted Cruikshank's, Curran's or Hickman's evidence, I have made specific findings.
[ 61 ] I have accepted Cruikshank's evidence that at their first meeting, Cruikshank and Hroncok met with Hickman to "pick his brain" and that Hickman told them that if they were to enter into a "discounted paper" contract in the U.S., they would need to retain a U.S. lawyer, or if they were to do so in Europe, they would need to retain a European lawyer.
[ 62 ] I have rejected Hroncok's evidence and have found that Hroncok represented to the others at that meeting that he, Hroncok, had expertise in "discounted paper" transactions. Hroncok presented the Federal Reserve Bulletin documents to the others, not Hickman, as Hroncok alleged.
[ 63 ] Hroncok represented himself as sophisticated in business/discounted paper/factoring. For example, the recitals in Exhibit 24 refer to his expertise and factoring contacts.
[ 64 ] When the First Memorandum of Agreement and amendments thereto were being negotiated, and at the time Hickman followed Pellizzari's instructions to release funds from his trust account, Hroncok knew and accepted that Hickman was Pellizzari's lawyer, not his lawyer [except perhaps with respect to the drafting of the Memorandum of Agreement and the Amendment thereto about which Hroncok has no complaint.] That understanding is clear from the Law Society documents among others. He was not relying on Hickman for advice.
[ 65 ] I find that when Hroncok on Tyda letterhead wrote [Exhibit 10] to Pellizzari demanding repayment on July 26, 2006, the reason he did not copy Hickman was he was looking only to Pellizzari for repayment.
[ 66 ] I find Hroncok understood that Hickman was acting only for Pellizzari. Hickman was not a party to the First Memorandum of Agreement or the Amendment thereto. There is no privity of contract between Hroncok and Hickman.
[ 67 ] I specifically reject Hroncok's evidence that he was being particularly careful and conservative in investing the US$250,000 under the First Memorandum of Agreement. In 2003, Hroncok/Tyda were engaged not just in the transaction at issue, but also in several other high risk transactions concurrently during the relevant time frame. Hroncok obviously was hoping they would all generate extremely high returns. I accept Curran's evidence that he and Hroncok knew the deals they were doing together were high risk. The risk was commensurate with the potential profit.
[ 68 ] I find Hroncok knew and understood he was participating in transactions that were high risk.
[ 69 ] I do not accept Hroncok's evidence about representations he said Hickman made to him at and after the initial meeting with Pellizzari. I note that the Statement of Claim refers to representations made by Pellizzari and Hickman collectively. It alleges that the Defendants " between them … made the following representations." I find that the representations in question were made by Pellizzari, not Pellizzari and Hickman. I find the Plaintiff has not proven that Hickman made the representations set out in paragraphs 5(a) to (d) of the Statement of Claim.
[ 70 ] In his letter to the Law Society, Hroncok made it clear that his complaint was simply about Hickman's release of trust money from his trust account.
[ 71 ] Hickman conceded in his evidence that had the First Memorandum of Agreement not been amended, Pellizzari would not have been entitled to direct him to release the US$150,000 until trading had commenced.
[ 72 ] Hickman did not deny that under the terms of the First Memorandum of Agreement, he could not release the money he was holding in escrow until trading had begun.
[ 73 ] I accept Hickman's evidence and find that the meeting took place on August 26, 2003 and that Hroncok did agree to an amendment of the First Memorandum of Agreement so that Hickman was authorized to release US$150,000 from his trust account even though trading had not begun.
[ 74 ] Bowler's and Cruikshank's evidence support the conclusion that Hroncok did agree to the amendment. Hroncok felt that not agreeing to the amendment would be to act "like a pussy."
[ 75 ] I find Hickman released the funds from his trust account on August 27, 2003 because he correctly understood that Pellizzari and Hroncok had agreed to amend Exhibit 5 to allow Hickman to pay out US$150,000 before trading had commenced.
Analysis
Issue 1
[ 76 ] Is Hroncok entitled to judgment against Pellizzari?
[ 77 ] Based on his failure to appear at trial, the terms of the First Memorandum of Agreement, admissions made at discovery, and the other evidence at trial, I am satisfied that Pellizzari is the primary debtor and that he received US$150,000 from Tyda Corp. by Tyda Corp. cheque dated July 4, 2003.
[ 78 ] The US$150,000 has not been repaid.
[ 79 ] In Exhibit 19, as of November 29, 2006, Pellizzari wrote, "It is still my intention to repay the first instalment of US$50,000 … in the next or early December 2006. This amount is partial repayment of a loan of $150,000 from Tyda …" Pellizzari appears not to have taken the position that Hroncok had no right to seek repayment of the US$150,000 owing under the contract.
[ 80 ] I note that the parties to Exhibit 5, the First Memorandum of Agreement dated July 2, 2003 and Exhibit 7, the alleged Amendment, are Pellizzari and Hroncok. Under the First Memorandum of Agreement, Hroncok, not Tyda, was to advance US$250,000 to Pellizzari. However, Tyda, not Hroncok, advanced the US$250,000, paid into Hickman's trust account and then released on August 27, 2003. On October 29, 2003, US$100,000 was repaid to Tyda. US$150,000 remained owing.
[ 81 ] A concern was raised about whether only Tyda had status to sue.
[ 82 ] I note that where an individual has contracted personally, the mere fact that payment under the contract was made by corporate cheque will usually not make that individual immune from personal liability. The CED (Ont. 4th), vols. 12-13, title 35, at para. 193 explains that courts will typically examine the facts of each case in detail, such as the parties named, indications of contracting status in relevant documentation, non-compliance with business corporations and/or trade names registration statutes, oral exchanges between the parties regarding the contracting party's identity or legal status, sophistication of the parties, and the nature of the business. In particular, the CED mentions that the issuance of corporate cheques, although an important factor to consider, is only one factor. It includes the following at para. 194: “An individual who contracts personally cannot avoid personal liability by performing the agreement through a company and making payment by that company.”
[ 83 ] In Pennelly Ltd. v. 449483 Ontario Ltd. (1986), 20 C.L.R. 145, [1986] O.J. No. 2672 (Ont. H.C.) , two subcontractors asserted personal claims against D’Orsay, the sole shareholder of a company known as Alan D’Orsay Real Estate Limited, which operated a sole proprietorship, Alan D’Orsay Construction, the general contractor in this case. All the cheques received by Pennelly Ltd., one of the subcontractors, were from Alan D’Orsay Real Estate Limited. However, the three contracts with respect to the construction project were signed by D’Orsay without an indication that he was signing on behalf of his company. Further, D’Orsay’s letters to Pennelly were written in first person and again, signed with his own name, without any indication that he was representing his company. The Court found in favour of Pennelly Ltd. because D’Orsay was “rather cavalier” in his approach considering he was an experienced businessman.
[ 84 ] In 3253791 Canada Inc. v. Armstrong (2002), 27 B.L.R. (3d) 230, there was an oral contract for the supply of nutritional and health products. The plaintiff brought an action against the defendant for an amount outstanding on invoices. The Court found that Richard Armstrong, a director of the defendant corporation, Armstrong Nutrition Inc., was personally liable. Invoices and packing slips for the entire business relationship identified Armstrong Nutrition (not Armstrong Nutrition Inc.) as the party to be billed. Two cheques, shipping labels and miscellaneous documents with Armstrong Nutrition Inc. were not found to be sufficient notice to the plaintiff that they were dealing with a corporation. In coming to its conclusion, the Court referred to a statement made in CHED-CKNG FM v. Goose Loonies Inc. (1995), 31 Alta. L.R. (3d) 242, 172 A.R. 117 (Q.B.), at para. 27 , “As to later payments by corporate cheques, again, that is an after the fact situation. In addition, it offends common sense. Creditors are interested in getting payments on the account. Whether it be a cheque by an individual, by a corporation, by a partnership or a trade name does not particularly matter.”
[ 85 ] If Hroncok had not advanced the funds, Pellizzari could have sued him personally. If Hroncok could be sued on the contract as a party to it, it would be illogical to conclude that he could not sue only because one of his personal obligations was satisfied by another entity over which he had total control. Here, as Tyda's only shareholder, Hroncok can reasonably be assumed to have had authority to direct Tyda to pay out the US$250,000 either because Tyda was paying out funds belonging to Hroncok or because Hroncok had agreed to borrow them from Tyda. Here, Pellizzari knew and expected to be dealing with Hroncok personally.
[ 86 ] Hroncok gave evidence he is the sole shareholder of Tyda Corp. He said, "In my mind, Tyda was me."
[ 87 ] Hroncok gave evidence that although it had belonged to his parents, the US$250,000, the money he was lending to Pellizzari pursuant to the First Memorandum of Agreement was his money. In the circumstances here, I am prepared to infer that the US$250,000 payment by Tyda was made on Hroncok's direction to Hroncok's benefit and at Hroncok's risk.
[ 88 ] Pellizzari's contract was with Hroncok. Where Hroncok is personally liable on that contract, where Pellizzari has received the benefit of the funds, did not appear to contest Hroncok's personal status to sue, I grant judgment in favour of Hroncok against Pellizzari in the amount of US$150,000. I award nothing for interest because paragraph 5 of the First Memorandum of Agreement he is not entitled to interest.
Issue 2
(a) Is Hickman liable to Hroncok in contract, negligence or breach of fiduciary duty?
[ 89 ] I have found that the First Memorandum of Agreement was specifically amended on August 26, 2003 so that Hickman was authorized to release $US$150,000 from his trust account on August 27, 2003. Therefore, there was no breach of contract, and even if a duty were owed with respect to a trust account, he did not breach that duty. I do not find it necessary to do a proximity analysis in negligence given that even if I had found that a duty could be owed, there has been no breach of duty in this case. There is no basis on the facts here to find a breach of fiduciary duty.
(b) Is Hickman liable to Hroncok pursuant to the Guarantee and Indemnity dated August 26, 2003 and/or the Notes dated October 29 and December 15, 2003?
[ 90 ] I have found Pellizzari was the primary debtor under the First Memorandum of Agreement.
[ 91 ] Hickman gave evidence no demand has been made on him under the August 26 Indemnity Agreement.
[ 92 ] Exhibit 6 provides:
In consideration of Craig giving the concession to Alex, the undersigned hereby agrees to guarantee and indemnify Craig to the extent of US$150,000 … advanced by Craig to Alex under concessions by an assignment of interest in and to Intersports commissions due to the undersigned and any other fees, profits or commissions due or which become due to the undersigned as disclosed by the undersigned to Craig.
[ 93 ] As he had signed Exhibit 6, he declared his liability under it in his bankruptcy.
[ 94 ] In Exhibit 6, Hickman assigned his interest "in and to Intersports commissions due to him and any other fees, profits, commission due to the undersigned as disclosed by the undersigned, to Craig."
[ 95 ] It appears that Hickman limited the guarantee and indemnity to Intersports and other commissions specifically disclosed to Hroncok. There was no evidence before me on this point and I am therefore not in a position to determine the exact scope of the indemnity. It is a matter to be determined in the Hickman bankruptcy. If further direction is required from me, counsel may make an appointment.
DISPOSITION
[ 96 ] Judgment will go against Pellizzari for US$150,000. Given the wording of Exhibit 5, no interest is payable.
[ 97 ] The claim against Hickman for improper release of trust funds on August 27, 2003 is dismissed.
[ 98 ] The claim against Hickman on indemnity is referred to the trustee in bankruptcy.
[ 99 ] Counsel may make written submissions on costs on or before December 10, 2012.
M.A. SANDERSON
Released:
COURT FILE NO. 07-CV-332104PD3
DATE: 20121113
ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: CRAIG HRONCOK Plaintiff - and – ALEX PELLIZZARI and RODNEY J. HICKMAN Defendants REASONS FOR DECISION M.A. SANDERSON J.
Released: November 13, 2012