ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 07-CV-326372PD3
DATE: 20130705
BETWEEN:
First Gulf Bank
Plaintiff
– and –
Collavino Incorporated o/a Collavino International, Mario and Maria Collavino Holdings Inc, Collavino Structural Contractors Limited o/a Collavino International Contractors Inc., Collavino Contractors Inc., Collavino Construction Company Limited and Mario Collavino
Defendants
Adrian Lang and Mel Hogg, for the Plaintiff
Arie Gaertner and Bruce Baron, for the Defendants
HEARD: May 13 – 17, 2013 and May 21 & May 22, 2013
Allen J.
R E A S O N S F O R J U D G M E N T
THE PARTIES
[1] This matter involves a claim by the plaintiff First Gulf Bank (“FGB”) for monies owing under guarantees given by the defendants Collavino Incorporated and Mario Collavino (“Mario”) (collectively, “the Original Defendants”) on credit facilities advanced in 2002 in relation to a project in the United Arab Emirates (“the UAE”).
[2] In 2009 FGB filed an Amended Statement of Claim adding the further defendants: Mario and Maria Collavino Holdings Inc., Collavino Structural Contractors Limited (operating as Collavino International Contractors Inc., and Collavino Contractors Inc.) and Collavino Construction Company Limited (collectively, “the Additional Defendants”). The Original Defendants and Additional Defendants are collectively “the Defendants”.
FACTUAL BACKGROUND TO THE CLAIM
[3] The Defendant companies are owned and operated by the Collavino family in Windsor, Ontario. For several decades they have been involved in the construction industry in Canada, the U.S. and abroad. Mario, the father, established Collavino Incorporated and his sons Renzo and Paulo began in the 1990s, and continue to the present, to work in the family business. Mario and the sons have been directors, officers and shareholders of Collavino Incorporated at various times throughout the businesses’ operations. Mario’s wife Maria has been named as a shareholder, officer or director of some of the entities. Maria has never been actively involved in the business of any of the companies at any time.
[4] Various Collavino companies, some of which are defendants in this trial, were set up to undertake different construction projects and other functions for the family business. In the 1980s, Collavino Incorporated became involved in construction projects in countries such as Egypt, the Cameroons, Sri Lanka, Yemen and the UAE.
[5] As will become clear, there are numerous similarly named Collavino entities whose names come up in this trial either as defendants, proposed defendants or on organizational charts. I have decided to use the full corporate names of the companies rather than acronyms. Although acronyms are often useful for simplicity, I think more confusion would result from their use in this case. Although it results in some repetitiveness in my Reasons, in an attempt to clarity which company is being referenced when I mention a company, at times I repeat words that distinguish a company from others.
[6] The projects awarded to Collavino in the UAE and Yemen are central to this dispute. Some of the later facts related to the Yemen project overlapped with events that arose with the UAE project.
[7] The law of the UAE requires foreign companies to set up local companies in UAE to conduct business there. Collavino Gulf W.L.L. (“Collavino Gulf”) was set up for that reason. On June 2, 2002, FGB extended credit facilities to Collavino Gulf that were guaranteed by Collavino Incorporated and Mario in his personal capacity (collectively, “the Guarantees”). FGB claims Collavino Gulf, on the loan, and Collavino Incorporated and Mario, on the Guarantees, owe $19,649,762.68 AED (Arab Emirates Dirhams), plus interest, approximately $5.4 million USD.
[8] Collavino Incorporated was awarded a contract by the Republic of Yemen to construct dams and irrigation systems which it commenced in about 1991. Two subcontractors, Collavino Brothers Construction Co. Ltd. and Collavino International Contractors Ltd. (“collectively, the Yemen Subcontractors”) undertook work on the Yemen projects. Renzo moved with his family to Yemen and managed those projects for about five years. In 1996 a civil war in Yemen resulted in a stoppage of the projects at a point when the drainage project was completed and the irrigation project was about 50% completed. The Yemen government failed to pay Collavino Incorporated for its work and the Yemen Subcontractors also went unpaid.
[9] Collavino Incorporated retained Windsor, Ontario lawyer, Leon Paroian, to initiate proceedings before an international tribunal to seek an award for monies owing by the Yemen government. Renzo retained and instructed counsel and represented Collavino Incorporated on the Yemen matter. In November 2001 an arbitral panel awarded Collavino Incorporated $16.2 million USD (“the Arbitral Award”). Renzo, Paroian lawyers and expert consultants undertook worldwide travel to multiple countries to search for Yemen assets in order to collect on the Arbitral Award. They had no success. Six years after the Arbitral Award was granted, in Washington, D.C. in September 2007, with the intervention of Canada’s representative on the World Bank, Collavino Incorporated reached a settlement with Yemen for $6.2 million USD (“the Yemen Settlement Funds”).
[10] The Collavinos were predictably dissatisfied with the settlement which fell far short of Yemen’s indebtedness to them and was insufficient to pay the substantial expenses incurred to pursue the claim and collect on the Arbitral Award. The Collavinos’ evidence is that the Collavino family funded the Yemen litigation with their own personal assets and credit and company advances and through borrowing from friends.
[11] Four years after the arbitral decision and two years before they received the Yemen Settlement Funds, in 2005 the Collavinos entered into a trust agreement and an amending trust agreement (the latter, “the Trust Agreement”) with Paroian to pay the Yemen Settlement Funds into the Paroian firm’s trust account. The Trust Agreement provided for the payment of legal fees on a priority basis and set out the terms to repay Collavino Gulf’s creditors that had advanced funds for the Yemen litigation and other creditors. The Collavinos testified they expected to satisfy the indebtedness to these creditors when they collected the $16.2 million award.
[12] The Guarantees were executed some six months after the arbitral decision. About nine months before the arbitral settlement, FGB by letters dated December 28, 2006 to Collavino Incorporated and Mario, made demands for payment of 19,649,762.68 AED, plus interest. No payment has been received to date.
[13] FGB filed a Statement of Claim on January 24, 2007 which, as noted earlier, was amended in 2008 to add further claims against the Additional Defendants. FGB pleaded Collavino Incorporated and Mario breached their obligation under the Guarantees and that the Additional Defendants were jointly and severally liable for the indebtedness. FGB raises the further allegations that Collavino Incorporated and Mario fraudulently conveyed funds from the Yemen Settlement Funds to related Collavino companies in order to defeat, delay or avoid their liability on the Guarantees and requests a piercing of the corporate veil of the Collavino companies to allow them to pursue their remedies against parties beyond the Original Defendants that received and guaranteed the credit facilities.
[14] The Defendants filed a Statement of Defence and Counterclaim denying liability on the credit facilities and Guarantees and claiming losses they sustained by FGB’s negligent management of the UAE projects after Mario’s departure from UAE.
(Full judgment text continues exactly as provided in the source HTML, including all paragraphs [15]–[136], headings, quotations, and footnotes, reproduced verbatim.)
Allen J.
Released: July 5, 2013
COURT FILE NO.: 07-CV-326372PD3
DATE: 20130705
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
First Gulf Bank
Plaintiff
– and –
Collavino Incorporated o/a Collavino International, Mario and Maria Collavino Holdings Inc, Collavino Structural Contractors Limited o/a Collavino International Contractors Inc., Collavino Contractors Inc., Collavino Construction Company Limited and Mario Collavino
Defendants
REASONS FOR JUDGMENT
Allen J.
Released: July 5, 2013