ONTARIO

SUPERIOR COURT OF JUSTICE

Commercial List

COURT FILE NO: 03-CL-4928
DATE: 20121206

B E T W E E N:

Cold River Resources LLC and Frederick Williams Plaintiffs - and - 1279514 Ontario Inc. and IPO Capital Corp. Respondents

Scott A. Crocco , for the Respondents/Plaintiffs
Jeffrey A. Kaufman, for the Appellant, Northern Financial Corporation

HEARD : December 4, 2012

GOLDSTEIN J.:

[ 1 ] The Plaintiff obtained a judgment against 1279514 Ontario Inc. (“ 127 Ontario ”) and IPO Financial Ltd. (“ IPO ”) (collectively “ the Defendants ”). Shortly after the litigation commenced Northern Financial Corporation (“ Northern ”) acquired 127 Ontario. IPO was wholly owned by 127 Ontario. Northern appears to have integrated IPO’s brokerage business into its own securities business. The Defendants were subsequently dissolved. Eventually, the Plaintiffs won at trial before Hoy J. (as she then was). The judgment was upheld by the Court of Appeal.

[ 2 ] The litigation was hard-fought. The Plaintiffs were not aware that the Defendants had actually been dissolved. The evidence appears clear that Northern, the corporate successor, funded the litigation but was never added as a party.

[ 3 ] The Plaintiffs have been trying to enforce their judgment. They have brought a motion, which has not yet been heard, seeking to enforce the judgment against Northern (I refer to this motion as “ the main motion”) . The Plaintiffs summonsed one Robert Bruggeman to attend for an examination pursuant to Rule 39.03 of the Rules of Civil Procedure. Mr. Bruggeman gave evidence for the Defendants at the trial.

[ 4 ] Mr. Bruggeman refused to answer questions and to produce documents. The questions are essentially grouped into three categories:

1. Questions related to whether the property of the Defendants was distributed to Northern;

2. Questions related to the corporate successorship of the Defendants;

3. Miscellaneous questions.

[ 5 ] The Plaintiffs brought a motion before Master McAfee to compel answers. The Master found that the questions were relevant and ordered that they be answered. Northern appealed. At the hearing I dismissed the appeal with costs payable to the Plaintiffs by Northern and indicated that written reasons would follow. These are those reasons.

ANALYSIS:

[ 6 ] Although the Notice of Appeal raises several grounds, the appeal essentially boils down to one issue: whether the Master erred in law by failing to find that since the Court is functus , the questions were irrelevant.

[ 7 ] There is no question that this case is unusual. The Plaintiffs are trying to collect on a judgment from Northern. Northern was not party a party to the litigation. They assert that the property of the Defendants became the property of Northern. The main motion (which is not before me) seeks the following relief (I paraphrase and do not include everything):

• An order adding Northern as a defendant;

• An order that the judgments against 127 Ontario and IPO are enforceable against Northern;

• In the alternative, an order amending the judgments substituting Northern as a defendant/judgment debtor;

• In the further alternative, an order varying the judgments substituting Northern as a defendant/judgment debtor and including a declaration that the judgments are enforceable against Northern;

• In the further alternative, an order granting leave to amend the Statement of Claim to include a claim against Northern Financial pursuant to sections 242 and 243 of the Ontario Business Corporations Act , R.S.O. 1990, c. B.16 (“ OBCA ”).

[ 8 ] Mr. Kauffman, for Northern, argues that since Justice Hoy was functus once the judgment was rendered, there is no jurisdiction in the court for a party to vary a judgment except in the case of a slip or an error: Doucet-Boudreau v. Nova Scotia , 2003 SCC 62 , [2003] 3 S.C.R. 3. Thus, only questions related to whether there was a slip or an error in the judgment should have been permitted by the Master. Relevance is a question of law. Since the Master failed to address these questions, she committed an error of law.

[ 9 ] Mr. Crocco, for the Plaintiffs, makes a more complex argument. He argues that the questions were relevant because they logically follow from the relief sought in the Notice of Motion. He argues that the jurisdiction of the Court is found in clause 242(1) (c) and sub- paragraph 243(1) of the OBCA . Where property of a dissolved corporation has been distributed to a shareholder those sections allow recovery of the property from that shareholder. Since the questions he sought to ask Mr. Bruggeman concerned the issues that would be relevant to a proceeding under s. 242(1)(c) and 243(1) of the OBCA, the Master was correct to order them answered.

[ 10 ] The standard of review for an appeal from a master was summarized by Strathy J. in Paul v. Pizale , 2011 ONSC 3490 :

19 The standard of review on appeal from the Master was set out by the Divisional Court in Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Ont. Div. Ct.), aff'd, (2009), 2009 ONCA 415 , 96 O.R. (3d) 639 (Ont. C.A.): the decision should not be interfered with unless the Master made an error of law, exercised his or her discretion on the wrong principles or misapprehended the evidence such that there was a palpable or overriding error. Where there is an error of law, the standard of review is correctness, whether the order is final or interlocutory. Where there is an error in the exercise of discretion, it must be established that the discretion was based on a wrong principle or that there was a palpable or overriding error in the assessment. See also Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 (S.C.C.).

20 A Master's decision concerning relevance is a question of law: Republic National Bank of New York (Canada) v. Normart Management Ltd. (1996), 31 O.R. (3d) 14 (Ont. Gen. Div.).

[ 11 ] In Ipex Inc. v. AT Plastics Inc. , [2011] O.J No. 3636, 2011 ONSC 4734 , 337 D.L.R. (4 th ) 63, Strathy J. also made the following comments regarding master’s decisions on the production of documents:

19 I accept the general proposition, put forward by counsel on behalf of ATP, that a Case Management Master's decision on documentary production is one that falls squarely within the Master's area of experience and expertise. Masters have been aptly described as being on the "front line" of production and discovery motions and their decisions on those issues are entitled to deference on appeal: Noranda Metal Industries Ltd. v. Employers Liability Assurance Corp . (2000), 49 C.P.C. (4th) 336 , [2000] O.J. No. 3846 (S.C.J.); Temelini v. Wright, [2009] O.J. No. 4447 (S.C.J.) at para. 16 , aff'd. 2010 ONCA 354 , [2010] O.J. No. 5994 . This is particularly so where the decision involves an element of discretion.

[ 12 ] Questions that are sought to be asked on an examination must be relevant to the issues on the particular application or motion, matters raised in the affidavit, or questions relating to the credibility or reliability of the deponent: Ontario v. Rothmans Inc. [2011] O.J No. 1896, 2011 ONSC 2504 , 2011 CarswellOnt 2916 at para 143 . Those principles apply equally to non-parties: Elf Juvenile Products Inc. v. Bern , [1994] O.J. No. 2840, 76 O.A.C. 54 (Gen.Div.) at paras. 22-30 .

[ 13 ] The relevant sections of the OBCA are set out here:

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 purpose; and

(d) title to land belonging to the corporation immediately before the dissolution remains available to be sold in power of sale proceedings. R.S.O. 1990, c. B.16, s. 242 (1) ; 1998, c. 18, Sched. E, s. 27 (1, 2).

243. (1) Despite the dissolution of a corporation, each shareholder to whom any of its property has been distributed is liable to any person claiming under section 242 to the extent of the amount received by that shareholder upon the distribution, and an action to enforce such liability may be brought. R.S.O. 1990, c. B.16, s. 243 (1) ; 2002, c. 24 , Sched. B, s. 27 (2).

(2) The court may order an action referred to in subsection (1) to be brought against the persons who were shareholders as a class, subject to such conditions as the court thinks fit and, if the plaintiff establishes his, her or its claim, the court may refer the proceedings to a referee or other officer of the court who may,

(a) add as a party to the proceedings before him or her each person who was a shareholder found by the plaintiff;

(b) determine, subject to subsection (1), the amount that each person who was a shareholder shall contribute towards satisfaction of the plaintiff’s claim; and

(c) direct payment of the amounts so determined.

Driedger’s The Construction of Statutes states:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament.

[ 14 ] Mr. Kauffman argues that what the Plaintiffs seek to do is to obtain an examination in aid of execution of Northern in advance of obtaining an actual judgment. In general, such an examination is unavailable: 1427814 Ontario Ltd. v. 367584 Canada Inc., 2008 CarswellOnt 5554 (Sup.Ct.) . In my view that case, which concerned security for costs, is distinguishable. Mr. Kauffman bases his argument on the wording of s. 243(1) , which states that an action may be brought to enforce liability. He says that the OBCA requires that the Plaintiffs must commence a new action against Northern.

[ 15 ] I do not, with respect, read the section that restrictively. The permissive term “may” does not preclude other forms of relief. This question is something that will be before the judge hearing the main motion.

[ 16 ] Most of the cases dealing with dissolved corporations involve questions of corporate capacity, especially the capacity to bring or defend actions. Mr. Crocco was only able to find one case dealing with questions of the property of dissolved corporations. In Reliable Life Insurance v. Ingle , 2009 28225 (ON SC) , [2009] O.J. No. 2312 Master Haberman stated:

30 Dissolution is quite different from bankruptcy. It does not protect a corporation from its creditors. It does not permit the corporation to escape its debts or its liabilities or to reduce them. A dissolved corporation may still be sued civilly, prosecuted in a criminal court or investigated in an administrative proceeding. Their property also remains available to satisfy any judgments and orders made against them after dissolution. In fact, if they distribute their property to others after dissolution, each shareholder of the corporation remains liable to pay claims under s. 242, to the extent of the amount they received. Those who make such claims can sue the shareholders directly to recover that property from them.

31 The purpose of s. 242 is to ensure that a corporation cannot escape its debts by falling into a state of non-compliance so that it can be dissolved. The goal of s. 243 is to allow a creditor to recover what it is owed even if the dissolved corporation siphons off its property to others.

32 Anyone who has an interest in the outcome of these events can step in and revive the corporation. One would normally expect the shareholders to do this, as they potentially have exposure if any of the property of the corporation fell into their hands, as apparently occurred here.

[ 17 ] I agree with Master Haberman’s characterization of the relevant sections of the OBCA . In theory, and without in any way prejudging the main motion, it seems to me that it is at least arguable that s. 242(1) (c) and s. 243(1) of the OBCA contemplate that a successor corporation may well be liable for a judgment obtained against a dissolved corporation. Thus, although the Court may be functus to the extent that the Plaintiffs seek to vary or amend the trial judgment, it does not necessarily follow that the Court cannot take measures to enforce its own judgments – which is what the Plaintiffs really seek.

[ 18 ] I acknowledge that Northern may well be right that the Plaintiffs cannot succeed on the main motion, but that is something for the judge hearing it to decide. That is what the Master decided and I agree. Had the Master confined herself to whether or not the questions went to slip or error, I believe that she would have usurped the function of the judge on the main motion – an obvious error of law . She did not need to decide the issues on the main motion and neither do I. I only need to determine whether the Master correctly decided that the questions were relevant. Since the legal issues that are raised on the main motion are at least arguable, it follows that the questions were relevant and the Master was correct.

COSTS

[ 19 ] At the hearing of the appeal the costs in the amount of $3,234.81 were awarded to the Plaintiffs, payable by Northern within 30 days.

GOLDSTEIN, J.

Released: December 6, 2012

COURT FILE NO: 03-CL-4928
DATE: 20121206

ONTARIO SUPERIOR COURT OF JUSTICE Commercial List B E T W E E N:

Cold River Resources LLC and Frederick Williams Plaintiffs - and - 1279514 Ontario Inc. and IPO Capital Corp. Respondents

JUDGMENT
GOLDSTEIN J.

Released: December 6, 2012