ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
1196303 Ontario Inc.
Plaintiff
– and –
Glen Grove Suites Inc., Spendthrift Developments Limited, Firm Capital Mortgage Fund Inc., Nelly Zagdanski and Linda Darer, estate trustees of Sylvia Hyde, deceased, 1297475 Ontario Inc., Montreal Trust Company of Canada and Royal Trust Corporation of Canada
Defendants
F. Tayar, for the Plaintiff
M. Simaan, for the Defendants, Nelly Zagdanski and Linda Darer, Estate Trustees of Sylvia Hyde, deceased, Glen Grove Suites Inc. and Spendthrift Developments Ltd.
HEARD: April 22 and 23, 2013
D. M. Brown J.
I. Overview
[1] The plaintiff, 1196303 Ontario Inc., the court-appointed receiver and manager of the interests of certain investors in three Hyde Mortgages (the “Receiver”), brought this action to enforce a 2004 Settlement Agreement. The Receiver has obtained default judgment against the counter-party signatory to the Settlement Agreement, 1297475 Ontario Inc. It now seeks judgment against Glen Grove Suites Inc., Spendthrift Developments Limited and the estate of the late Sylvia Hyde (collectively the “Defendants”).
[2] In April, 2012, the Receiver and the defendants, Nelly Zagdanski and Linda Darer, estate trustees of the estate of the late Sylvia Hyde, brought competing motions for summary judgment. I dismissed both motions and directed a trial of this action (the “Summary Judgment Reasons”: 2012 ONSC 4567). The trial took place this past April, at which time viva voce evidence was heard from four witnesses. The record at trial also consisted of the written record filed on the motions for summary judgment. For ease of setting out the evidence, I have incorporated certain portions of the Summary Judgment Reasons into this judgment.
[3] For the reasons set out below, I allow the action against Glen Grove and Spendthrift, but dismiss the action against Sylvia’s estate.
II. The events
A. Edwin Hyde’s debts and bankruptcy
[4] Edwin Hyde, the husband of the late Sylvia Hyde, was a lawyer and real estate developer. A large group of investors loaned several million dollars to companies owned by Edwin, secured by mortgages over various properties granted in 1990 and 1991.
[5] 1196303 Ontario Inc. was formed to represent the interests of several investors in three Hyde Mortgages. In 1996 this Court appointed the plaintiff as the receiver and manager of the investors’ interests in those Mortgages. The Receiver petitioned Edwin into bankruptcy in 1997, and the trustee admitted the Receiver’s proof of claim for over $10.9 million.
B. Efforts by Sylvia’s companies to purchase estate assets
[6] Sylvia owned all the shares of 1297475 Ontario Inc., Glen Grove Suites Inc. (“Glen Grove”) and Spendthrift Developments Limited. A handwritten agreement dated January, 1993 prepared by Edwin purported to transfer to Sylvia 100% of the shares in Glen Grove.
[7] Glen Grove and Spendthrift owned short-term and long-term rental apartments and condominiums. One of the rental properties was located at 2837 Yonge Street, Toronto (the “Yonge St. Property”). Although the registered owner of that Property was Montreal Trust, Glen Grove and Spendthrift held long-term leases on the Property which were of value.
[8] In 1998 Glen Grove made three offers to Edwin’s Trustee to purchase the assets in his estate. In each case Sylvia signed the offer on behalf of Glen Grove. The Trustee did not accept the offers. Further offers were made between 1999 and 2002, but none were accepted.
C. Settlement between 129 and the Receiver
[9] Then, on May 3, 2002, 1297475 Ontario made a written offer to purchase the Receiver’s proof of claim in Edwin’s bankruptcy and related debts. The offer was communicated through a May 3, 2002 letter from 129’s counsel, Mr. Mel Solmon. In December, 2002 the Receiver accepted that offer, but changes had to be negotiated to some of the payment dates, and a new schedule of payments was agreed to and set out in letters from Solmon dated August 28 and October 3, 2003. In the result the settlement was memorialized in the Three Letters dated May 3, 2002, August 28, 2003 and October 3, 2003.
[10] Edwin was still alive at the time the settlement was reached. He died, however, on May 27, 2004, before a court order was obtained approving the settlement. Edwin died an undischarged bankrupt.
[11] Farley J. approved the settlement contained in the Three Letters by order made October 4, 2004. Paragraph 2 of his Order stated:
THIS COURT FURTHER ORDERS that the settlement agreement (“Settlement Agreement”) entered into by 1196303 with 1297475 the terms of which are contained in the letters dated May 3, 2002, August 28, 2003 and October 3, 2003 which are attached hereto as Schedule “A” be and is hereby approved.
[12] Under the Settlement Agreement 129 agreed to purchase all the debts owed by Edwin Hyde to the Receiver (i.e. the Hyde Mortgages investors) for $527,408.50. That amount was to be paid in a series of installments running from the execution of Minutes of Settlement through to October 31, 2006. The Settlement Agreement also called for the provision of security for those payments, including a mortgage on the Yonge St. Property. The May 3, 2002 letter read, in part, as follows:
- As security for payment, the purchaser [129] will provide:
a) If the owner of the Glengrove property is able to do so, using reasonable efforts, and acting in good faith, a mortgage, to be registered against the Glengrove property subsequent to $4,700,000.00 of debt in mortgages, which are presently registered against the property, which mortgage will be in the principal amount of $500,000.00, with interest at 7% per annum, payable in accordance with paragraph 2(b) above, provided that the mortgage given to the vendor will provide that it will be postponed to new or amended mortgages not to exceed $4,700,000.00 of debt;
b) A guarantee from the owner of the Glengrove property guaranteeing the $500,000.00 balance owed; and,
c) A consent to judgment from the owner of the Glengrove property to be held in escrow providing for the full amount of $500,000.00, plus 7% interest as referred to herein (less any part payments made including the $100,000.00, and each of the $200,000.00 payments). If there is default that is not cured within 10 days written notice to the owner of the Glengrove property and its solicitors, then your clients would be able to release the consent to judgment from escrow, commence an action, place the action number on the consent and obtain judgment.
[13] Solmon acted for 129 on the Settlement. He testified at trial testified that he understood the “reasonable efforts” language in paragraph 3(a) had been driven by the fact that consent of the Royal Bank of Canada, which held a first mortgage on the Yonge St. Property, might be required to place further encumbrances on the Property. Indeed, on April 8, 2003, Solmon received a memo from an associate who advised that he had reviewed the draft minutes of settlement with Edwin. In respect of the mortgage to be granted by Glen Grove, Edwin had advised that “he is unable to secure this mortgage as security…The Royal Bank has informed Mr. Hyde that they will not consent to any further encumbrances of the property”. In his memo the associate suggested that the Glen Grove mortgage provision be removed from the minutes and that they advise Mr. Fred Tayar, counsel for the Receiver, that “the mortgage could not be secured, despite our best efforts”.
[14] Nevertheless, a few days later, on April 11, 2003, Solmon received further mark-ups of draft minutes of settlement from Edwin who did not remove the obligation of Glen Grove to grant a mortgage. On August 18, 2003, Edwin sent Solmon a letter, on the letterhead of Glen Grove, suggesting a “payment program” for the settlement which included 129 providing a mortgage on the Yonge St. Property. Solmon testified that he had understood that, in the result, a mortgage could be placed on the Property and no problem existed with the RBC.
[15] Another term of the Settlement Agreement, as set out in the May 3, 2002 letter, was that upon execution of minutes of settlement 129 would pay Receiver’s counsel, Tayar, the sum of $27,408.50 in satisfaction of his legal fees. In November, 2003, Glen Grove Management Inc. provided Solmon with two cheques of $15,000 each to cover that payment, and by letter dated November 7, 2003 Solmon confirmed to Edwin that the amount was being sent to Tayar. Both of the November 7, 2003 cheques for $15,000 from Glen Grove Management were noted as being “re 1297475 Ont Inc”, and Sylvia had signed one of the cheques.
[16] 129 did not perform any other of its obligations under the Settlement Agreement, and the Receiver never received any security for 129’s obligations under the Settlement.
D. The commencement of this action
[17] On April 12, 2005, the Receiver commenced this action seeking judgment in accordance with the Settlement, damages of $500,000 for breach of that agreement, delivery of a mortgage against the leasehold interest of Glen Grove and Spendthrift in the Yonge St. Property, and related relief. The Statement of Claim alleged that the Settlement was binding on Sylvia, that she had defaulted on the agreement, she had caused the other defendants to default on the payments required under the Settlement, and she had prevented the delivery of the mortgage required under the Settlement.
[18] Sylvia, Glen Grove and Spendthrift defended the Action.
[19] 129 did not, and on May 30, 2005, Ground J. granted Default Judgment against 129 requiring that corporate defendant to (i) pay the plaintiff $619,383.56, (ii) cause Spendthrift and Glen Grove to deliver a mortgage against the Yonge St. Property in the principal amount of $500,000, containing certain terms, (iii) cause Spendthrift and Glen Grove to execute a $500,000 guarantee of 129’s indebtedness to the Receiver, and (iv) cause Spendthrift and Glen Grove to execute a consent to judgment for $500,000 at a stipulated rate of interest.
[20] 129 did not perform any of its obligations under the Default Judgment, nor did Spendthrift or Glen Grove deliver mortgages, guarantees or consents to judgment.
[21] On May 17, 2010, Master Short granted a certificate of pending litigation against the Yonge St. Property. His Reasons described many of the events which took place between the start of this action and the date of his decision:
[60] This action and the motion for a Certificate of Pending Litigation against the Property were initially brought in April 2005. The motion was adjourned at that time and subsequently removed from the list due to the parties not being ready for the motion. No efforts were made by 119 to bring this motion back on for more than 4 years.
[63] Mrs. Hyde asserts that on the initial return of the plaintiff’s application for a CPL, Justice Campbell refused to make the Order. The plaintiff’s explanation is that the only material originally before the court on the motion was the applicant's filed on April 15; and that Mr. Simaan on behalf of the defendants asked for an adjournment to file responding material.
[64] The disposition of the court on April 18, 2005 is set out in the handwritten endorsement of Campbell J.:
“Request for adjournment based on recent service of material.
Counsel for applicant content to have matter adjourned as long as status quo maintained.
Matter adjourned for time tabling and setting of new hearing date at a 9:30 am on Tuesday, April 26, 2005.
In the interim on a without prejudice basis & without consideration of the merits, the respondents Glen Grove & Sylvia Hyde & Spendthrift appearing undertake that no further encumbrances or steps to transfer will be undertaken without further court order. On the same terms existing encumbrances to be kept current.[^1]
[67] The motion was adjourned to June 15, 2005 and subsequently it was removed from the list as the parties were not ready to have the matter heard. No efforts appear to have been made by either side in the subsequent months and years to restore the CPL motion to the motions' list.
[70] In 2008 the terms of the existing prior encumbrances on title were expiring. At the time, these expirations were neither raised by the plaintiff, nor addressed by the defendants with plaintiff’s counsel.
[71] It was only some months after a new Charge of Lease was registered against the title to the Property that counsel for the plaintiff discovered that a new $4.1 million mortgage had been registered on July 14, 2008. No order had been obtained dealing with the requirements of Justice Campbell’s 2005 endorsement, nor had any consent been sought nor notice given to the plaintiff receiver and manager.
[72] The registration details indicate that charge is granted by Glen Grove Suites Inc. and is guaranteed by Sylvia Hyde and Spendthrift Developments Limited.[^2]
Master Short stated that the case ought to move to an early trial.
[22] The Receiver obviously did not concur because in July, 2010, C. Campbell J. issued directions for the Receiver’s planned summary judgment motion to be heard that November. The Receiver filed its record. Sylvia previously had sworn an April 15, 2005 affidavit in the motion for a certificate of pending litigation on which she had been cross-examined. Sylvia then swore a September 26, 2010 affidavit which was included in her responding summary judgment materials.
[23] A dispute then arose between counsel over scheduling a further cross-examination of Sylvia who took the position that her personal travel plans and convenience trumped all, with the result that she would not attend for cross-examination on a date which would preserve the November hearing date and, as a result, that date was adjourned until early 2011. When the parties went back before C. Campbell J. in early February, 2011 to set a new schedule, Sylvia’s counsel took the position that she now suffered from dementia and could not be cross-examined, but that he intended to rely on Sylvia’s most recent 2010 affidavit in any event.
[24] Sylvia’s “side” continued to delay and stall. On April 5, 2011, C. Campbell J. ordered “counsel for Sylvia Hyde to provide affidavit of daughter & further medical evidence”. That did not occur - more stalls and delays from Sylvia’s “side”, evidently stemming from her daughter attornies.
[25] As of August 28, 2011, when the Receiver’s representative swore an affidavit on its motion for summary judgment, Sylvia’s daughters had not sought appointments as litigation guardians nor had they provided the affidavit and medical evidence ordered by C. Campbell J. Sylvia died in the fall of 2011.
III. Claims against Sylvia, Glen Grove Suites and Spendthrift
[26] Neither Sylvia, Glen Grove nor Spendthrift were named as signatory parties to the Settlement Agreement. As stated in the Approval Order of Farley J., the Settlement was between 119 and 129. The May 3, 2002 letter identified 129 as the “purchaser” under the proposed Settlement, as did the other letters of August 28 and October 3, 2003. On what legal basis, then, does the Receiver seek to attach liability to Sylvia, Glen Grove and Spendthrift for the obligations of 129 under the Settlement?
[27] In its Statement of Claim the Receiver advanced the following grounds upon which to attach such liability:
(i) 129, Glen Grove and Spendthrift were the “alter egos” of Sylvia (Statement of Claim, para. 8);
(ii) The settlement offer was “from Sylvia through 129” (para. 19);
(iii) “1297475 was the named party to the settlement. The settlement is binding on Sylvia, 1297475, Glen Grove and Spendthrift, as well”;
(iv) “Sylvia caused 1297475, Glen Grove Suites and Spendthrift to avoid their obligations under the settlement” by dismissing their solicitors and causing them to default on the payments under the settlement (para. 24);
(v) The defendants conspired to injure the Receiver, but the particulars of the conspiracy were not known to the plaintiff (para. 27);
(vi) The defendants tortiously interfered with the economic relations between the Receiver and 1297475 as determined by the Settlement (para. 28) or induced a breach of contract by procuring 129’s default under the settlement (para. 29).
[28] At trial the Receiver advanced several other arguments as to why Sylvia, Glen Grove and Spendthrift were bound by and liable under the Settlement, central to which was the factual assertion that Sylvia knew about the Settlement, had agreed that the Settlement would bind not only 129, but Glen Grove and Spendthrift, and she then worked to cause those three corporations to default on their obligations under the Settlement.
[29] On their parts, the estate of Sylvia, Glen Grove and Spendthrift have asserted several defences to the Receiver’s claims:
(i) They had no knowledge of the Settlement and had no dealings with 129 or the Receiver in respect thereof (Statement of Defence, paras. 4, 9);
(ii) Although the nominal owner of 129, Sylvia “had nothing whatsoever to do with the operations of this company, nor did she have any specific knowledge that this company even existed” (para. 7);
(iii) The Receiver’s assertion that “it accepted a settlement offer from Sylvia is a complete fabrication” (para. 8);
(iv) The Defendants were not a party to the Settlement, so therefore they did not default on the Settlement (para. 10); and,
(v) The Defendants denied that they had “interfered or caused the other Defendants…to default on their alleged obligations under the settlement agreement” (para. 10).
[30] At trial the Defendants submitted that 129 had not acted as their agent in respect of the Settlement. As an alternative argument they submitted that if 129 had acted as their agent, then the plaintiff was estopped from pursuing them because it had already obtained judgment against the agent, 129. The Defendants also argued that if the Receiver sought to attach liability basis on the defendants by piercing the corporate veil of 129, the evidence disclosed that none of the defendants controlled 129 in the manner required by the law to pierce the corporate veil.
[31] On July 31, 2012, after the hearing of the summary judgment motions, the plaintiff sought and was granted leave to introduce evidence which was not known to it at the time of the hearing, specifically a March 2, 2012 Agreement of Purchase and Sale between Glen Grove and Timbercreek Asset Management Inc. under which the latter purchased Glen Grove’s interest in the Yonge St. Property. Some of the proceeds from that sale were paid into Court.
[32] As mentioned, the evidentiary record for the trial consisted both of the written evidence filed on the summary judgment motions, as well as the viva voce evidence heard at the trial. For purposes of reviewing the evidence, I propose to divide it into three parts: (i) the evidence concerning Sylvia’s role in 129, Glen Grove and Spendthrift; (ii) the evidence dealing with Sylvia’s role the Settlement Agreement with 129; and, (iii) Sylvia’s conduct following court approval of the Settlement Agreement.
IV. Evidence: Sylvia’s role in 129, Glen Grove and Spendthrift
A. Plaintiff’s affidavit evidence
[33] The Corporation Profile Reports filed by the plaintiff listed Sylvia as a director and officer of 129, together with Edwin as an officer, as well as the sole director and officer of Glen Grove and Spendthrift.
[34] According to Mr. Franklin Bialystok, the President of the Receiver, Edwin Hyde, as a bankrupt, had been represented by two counsel: first, Mr. Emilio Bisceglia and later by Mr. Mel Solmon. Bialystok deposed that in the bankruptcy proceeding Edwin’s creditors learned that:
(i) Edwin, through Spendthrift, held a long-term lease on the Yonge St. Property. A 1993 document purported to transfer that interest in the Property to Sylvia; Edwin told the Official Receiver it was a gift; and,
(ii) On December 20, 1994, Edwin transferred his shares in Glen Grove to Sylvia.
Those transactions were regarded by the creditors as reviewable transactions in Edwin’s 1997 bankruptcy.
[35] Mr. Zeifman, in his March 10, 2009 affidavit, asserted that while Sylvia was “the principal and guiding mind” of 129, Glen Grove and Spendthrift, at the same time Mr. Robert Carberry, the President of Glen Grove, also was “a guiding mind” of those companies.[^3] He stated that through this action he had learned that Sylvia and Carberry “control Glen Grove and Spendthrift”. In another affidavit Mr. Zeifman stated that Mr. Carberry “runs Glen Grove”.
B. Sylvia’s 2005 Affidavit
[36] In her first affidavit Sylvia deposed that prior to his death Edwin had not involved her in the negotiations with his creditors nor did he advise her of the particulars of those negotiations. As a result, she stated:
[I[t came as quite a surprise to me to learn that my husband was planning upon securing a settlement which Ed made with the plaintiff through the use of the Glen Grove. Prior to his death, my husband never asked me to consent to same nor did he apparently take any steps to prepare documents for this mortgage for my signature.
[37] Sylvia admitted that she controlled Glen Grove, “technically” controlled Spendthrift, although it was not actively operating, but was “not sure of my exact relationship with” 129, although she acknowledged she was an officer and director. Sylvia contended that she had no knowledge of the settlement agreement between 129 and the Receiver “at the time it was made or at all prior to my husband’s death”,[^4] which was on May 27, 2004. Moreover, according to Sylvia, “129 has no involvement in the Glen Grove and, accordingly, it cannot purport to bind it to a settlement”.
C. Sylvia’s 2006 and 2007 cross-examinations
[38] Initially on her January 31, 2006 cross-examination Sylvia testified that prior to his death Edwin had not discussed his business affairs with her. Later in her examination she acknowledged that Edwin had told her he was trying his best to settle with his creditors, and she had given him some of her personal funds to assist him in his affairs.
[39] Sylvia was aware she owned Glen Grove, but she was not involved in its management. She said that Edwin was running the business and that was fine with her. On that point, on December 18, 2003 Glen Grove granted a charge on the Yonge St. Property to Firm Capital Mortgage Fund Inc. in the amount of $1 million. The charge stated that Edwin had the authority to bind Glen Grove.
[40] Sylvia did acknowledge her signature on 1997 resolutions of the company as its President. She testified that she could not stop Edwin from doing a deal in relation to Glen Grove nor did she ever stop him. According to Sylvia, following her husband’s death she began to sign cheques for Glen Grove which were prepared by Mr. Carberry, and she used Edwin’s old office.
[41] Sylvia stated that she had not been aware she was a director of Spendthrift until this action started, nor was she aware that she had been authorized to sign cheques for that company.
[42] Sylvia also testified that she was not aware of 129 until this lawsuit began; she was adamant in that position on her 2006 cross-examination. Sylvia stated that she only learned she was a shareholder of 129 during her cross-examination. When shown the Minute Book for 129, Sylvia acknowledged her signature as President of 129 on resolutions dating back to May, 1998. Sylvia testified that she had nothing to do with the business of 129.
[43] At trial was filed a May 31, 2001 letter from Sylvia to the Trustee of Edwin’s estate. In it Sylvia wrote that as a creditor of Edwin she directed the Trustee “to call a general meeting of creditors for the purpose of considering and if necessary approving the offer to purchase the assets of the estate put forward by 1297475 Ontario Inc.” Sylvia also signed a June 15, 2001 general proxy for the creditor’s meeting supporting approval of the offer by 129. These documents were not put to Sylvia on her cross-examination. Solmon testified that his firm likely prepared the letter and sent it to Edwin for Sylvia’s signature; he did not have direct contact with Sylvia. Solmon testified that he was comfortable with Edwin dealing with the company’s matters because notes in his file indicated that Edwin would advise him at times of Sylvia’s position.
[44] Sylvia stated that as of early 2006 there was no money in 129.[^5]
[45] Sylvia testified that her husband often asked her to sign documents, which she did. She never refused to sign a document he placed in front of her.
D. Sylvia’s 2010 affidavit
[46] Sylvia swore a September 26, 2010 affidavit. At the time of the motions for summary judgment, the plaintiff moved to strike the affidavit, primarily on the basis that Sylvia had delayed in permitting cross-examination on it and then became incompetent, rendering cross-examination impossible. In the result I held:
I will admit the 2010 affidavit for consideration, but in light of the conflicting evidence about Sylvia’s mental condition at the time she swore the affidavit, the obvious involvement of a lawyer in shaping her affidavit, and the repetitive and argumentative nature of most of the statements contained in the affidavit, I place little weight on it, save for paragraph 23 which appears to contain admissions against Sylvia’s interest.[^6]
[47] Paragraph 23 of Sylvia’s 2010 affidavit reads as follows:
Furthermore, while the Plaintiff has alleged that I knew about the Settlement and chose to ignore it, this is only a small part of the story. In reality, what I knew was that a company (which turned out to be 129) had made an offer to pay a substantial sum of money to another party, I did not even know what this money was for or who it was supposed to be paid to. It was explained to me that this company had agreed to have the Glen Grove guarantee its payment but, as I had never agreed to this, it didn’t seem to pertain to me. It was recommended to me by my brother-in-law, that as I did not know anything about nor did I ever agree to this settlement, that I should not get myself involved.
As I noted in my earlier Reasons:
In her affidavit Sylvia did not put any date on these events. However, during her cross-examinations she gave similar evidence about advice she received from family members immediately following Edwin’s death.[^7]
E. Robert Carberry: Rule 39.03 examination
[48] On July 11, 2005, the Receiver conducted a Rule 39.03 examination of Robert Carberry, the President of the Glen Grove Group of Companies since 2001. Carberry testified that he understood Sylvia controlled Glen Grove. However, in respect of that company Mr. Carberry always received his instructions from Edwin up until his death. Prior to Edwin’s death Sylvia did not come to the Glen Grove office on a frequent basis. Following Edwin’s death Sylvia would come to the office about twice a week.
[49] Spendthrift was a shell company which had a long-term lease for the Yonge St. Property in its name, but otherwise was not active. Edwin controlled Spendthrift’s affairs.
[50] Edwin had shown Carberry a by-law of 129, signed by Sylvia, which authorized Carberry to sign on behalf of the company. That made Carberry feel comfortable about signing documents for 129, and he was content to take instructions from Edwin. 129 did not have a bank account.
F. Emilio Bisceglia: Rule 39.03 examination
[51] Mr. Emilio Bisceglia, a lawyer, acted for Edwin in his bankruptcy at one point. During the course of Edwin’s bankruptcy Bisceglia acted for and met with Sylvia on some bankruptcy-related matters, including possible BIA s. 163 examinations.
[52] On matters concerning the 129 corporation Bisceglia received his instructions from Edwin or Carberry, and it was his understanding that Sylvia was comfortable with that state of affairs. His primary dealings were with Edwin. Based on his meetings with Sylvia, before and after Edwin’s death, Bisceglia thought that she would understand what a release was.
G. Findings of fact
[53] In the Summary Judgment Reasons, I expressed the view that the evidence disclosed the following uncontroverted fact:
Although Sylvia was a director and the sole shareholder of 129, Glen Grove and Spendthrift, prior to Edwin’s death he had operated and managed the companies. Sylvia played little role in the affairs of those companies, save to sign any documents which Edwin put in front of her. Sylvia was comfortable with Edwin running those companies. Mr. Carberry also played a significant operational role in the affairs of Glen Grove.
No evidence led at trial provided any basis for altering that view, and I therefore formally make that finding of fact.
[54] I make the following additional findings of fact:
(i) During the period of time from 2002 until Edwin’s death in May, 2004, Sylvia had given her husband de facto control and full authority to operate 129, Glen Grove and Spendthrift and to enter into transactions which bound those companies without requiring Edwin to obtain transaction-specific consent from her;
(ii) Consequently, Edwin exercised de facto control over 129, Glen Grove and Spendthrift, with the full consent of Sylvia; and,
(iii) I reject Sylvia’s contention that she did not know about 129 until this lawsuit had started. The evidence showed that she had signed resolutions as a director of 129 as far back as 1998, signed documents on behalf of 129 in 2001 in respect of Edwin’s bankruptcy, and had signed one of the Settlement Agreement-related November 7, 2003 cheques for $15,000 from Glen Grove Management which was noted as being “re 1297475 Ont Inc”. The number of 129-related documents signed by Sylvia before Edwin’s death belie her protestations of ignorance. Sylvia’s evidence on this point was not believable and I do not accept it.
V. Evidence: Sylvia’s role in the 129 offer to, and settlement with, the Receiver
A. Plaintiff’s affidavit evidence
[55] Glen Grove’s 1998 offer to purchase all the bankrupt’s assets had been signed by Sylvia on behalf of the corporation; 129’s 1999 offer to purchase the bankrupt’s assets was not signed by Sylvia. The inspectors rejected that offer by 129. As a result of subsequent assignments of certain claims against the bankrupt, a further vote of creditors in August, 2001 overturned the initial rejection of the offer. Both sides initiated motions regarding the validity of that vote. Those motions were not argued. Instead, in May, 2002, 129 made an offer to purchase the proof of claim. As described above, the Three Letters resulted in the Settlement Agreement.
B. Sylvia’s 2005 affidavit
[56] Sylvia denied any knowledge “of a settlement offer being made by 129 to the plaintiff. I did not cause 129 to default on its obligations. In fact, I do not believe that I have ever taken any steps in relation to 129.” She concluded: “All that I have done, and continue to do since my husband’s death, is assist in the running of the Glen Grove in attempt to make this business profitable again.”
C. Sylvia’s 2006 cross-examination
[57] Sylvia did not deny her signatures on some of the early offers made to the Trustee, but she denied any knowledge of the contents of the offers.
[58] Sylvia testified that she had only met Solmon once, following Edwin’s death. She denied that Solmon had ever acted as her lawyer, and she did not know whether he had acted as lawyer to any company she had controlled. Notwithstanding that position, Sylvia initially asserted privilege over any communications between herself and Solmon.[^8] She also took the position that Besceglia had only acted for Edwin, never for her. The evidence, taken as a whole, does not support these assertions by Sylvia.
[59] On her 2007 cross-examination Sylvia was shown a note dated August 31, 2004 from Solmon’s file in which he recorded points from a conversation with a mortgage institution. Solmon noted that a Mr. Dadouch had told him that Sylvia had been taking $20,000 per month out of Glen Grove for the last years. When shown the note on her cross-examination Sylvia initially responded, “So what?”, then said that Solmon was lying.[^9]
D. Sylvia’s 2010 affidavit
[60] Sylvia repeated that she was not aware of the various offers made to settle claims against her husband’s bankruptcy estate and that she had no idea her husband was planning to secure any settlement by involving Glen Grove.
[61] Sylvia went on to depose that had her husband approached her regarding the Settlement Agreement, she would not have agreed to it, in large part because she regarded the Yonge St. Property as the only asset left to her for the needs of her daughter and herself. She also conjectured why Edwin had inserted certain terms in the Settlement. Her evidence on these points was speculative and of little probative value.
E. Robert Carberry: Rule 39.03 examination
[62] Carberry did not see the Three Letters at the time they were sent; he had no advance knowledge of the offers. While Edwin was alive Carberry did not know that 129 had made a deal with Edwin’s creditors. He did not give Solmon or Bisceglia any instructions about the Settlement Agreement nor, to his knowledge, did Sylvia give any instructions to Solmon. Carberry understood that it was Edwin who had instructed Solmon. At the time Carberry did not know that a motion had been brought to approve the Settlement Agreement.
[63] From Sylvia’s reaction to seeing the motion record to enforce the Settlement Agreement, Carberry had the impression that she had not been aware of the settlement. I place little weight on that evidence. As will be seen from the evidence below, by the time Solmon sent Bisceglia the motion record for the Approval Order in late August, 2004, Bisceglia already had discussed the settlement with Sylvia.
[64] Based on his observation of the relationship between Edwin and Sylvia, Mr. Carberry would not have expected Edwin to consult with Sylvia before negotiating a corporate guarantee, mortgage or sale of property. He would have expected Edwin to have given a corporate guarantee by Glen Grove for an offer without consulting Sylvia. Carberry did not recall any discussion with Edwin about a guarantee from Glen Grove to support a settlement offer.
F. The lawyers: Messrs. Solmon and Bisceglia
[65] Mr. Solmon, a lawyer, gave evidence out-of-court on July 6, 2005 on a Rule 39.03 examination and, as well, he gave viva voce evidence at the trial. At the time of his Rule 39.03 examination Solmon was reluctant to provide details about who had instructed him on various matters because of privilege concerns. A subsequent May 15, 2006 ruling by this Court held that privilege had been waived, so Solmon was no longer subject to the same constraints when he testified at the trial.
[66] Bisceglia was gave evidence on a Rule 39.03 examination and testified at the trial.
The retainers
[67] Solmon testified that he had acted for Edwin in his bankruptcy and was also retained by 129 around August, 2001. He had obtained a resolution of 129’s directors authorizing his retainer. Solmon stated that Sylvia had never retained or instructed him as her solicitor, save for a very brief time in October, 2004, and Sylvia had never instructed him on behalf of 129. Sylvia never asked him to prepare an offer to settle the litigation with the Receiver. Solmon testified that Edwin gave him most of the instructions, although Carberry provided some instructions on behalf of 129 from time to time. Solmon had known from 2001 that Sylvia was the sole shareholder of 129.
[68] Solmon stated that it would have “surprised” him had Sylvia been involved in negotiations concerning mortgages on the Yonge St. Property. Solmon testified that he had not represented Glen Grove.
[69] At trial Bisceglia testified that he had acted for members of the Hyde family in the settlement discussions. One element of the offer had been the purchase of a number of causes of action from the Trustee, including one relating to the prior 1994 transfer of Glen Grove shares from Edwin to Sylvia.
[70] Bisceglia could not recall any interaction with Sylvia related to the various offers to settle which were made. He recalled that most of his instructions came from Edwin, although on occasion Carberry and Sylvia provided some instructions.
Negotiating the Settlement
[71] At trial Solmon testified that the main purpose behind the offer to purchase Edwin’s debt to the plaintiffs was that the purchase would include any cause of action against Sylvia in respect of the earlier 1994 transfer of the Glen Grove shares to her.
[72] Solmon confirmed that as part of the Settlement Agreement the plaintiff was insistent on getting some security. His notes of a November 16, 2001 call with Edwin recorded that providing a mortgage on the matrimonial home was a problem for Sylvia. There was a discussion about a third mortgage on Glen Grove. Solmon’s notes of a November 20 conversation with Edwin again referred to a mortgage on Glen Grove as part of the Settlement.
[73] On August 18, 2003, Edwin, as corporate counsel for Glen Grove Suites, sent a letter to Solmon enclosing a suggested payment program for the Settlement. That program provided, in part:
- …and in addition, 1297474 Ontario Inc. will provide your clients with a mortgage on the Glengrove property to secure the balance due under the settlement, of $450,000.00.
Prior encumbrances on the property will not exceed 75% of the market value as determined by The Morassutti Group, or a similarly qualified appraiser. The mortgagee will postpone the mortgage from time to time as requested by the Mortgagor, provided that the prior encumbrances will not exceed 75% of the market value of the building.
Solmon testified that the Edwin’s payment program formed part of his instructions at the time.
[74] As mentioned, part of the Settlement required payment of the costs of plaintiff’s counsel, Tayar. Glen Grove Management Inc. provided Solmon’s firm with two November, 2003 cheques to fund that payment; Sylvia had signed one of the cheques.
[75] On November 7, 2003, Solmon sent a memo to one of his associates asking him to “arrange for the preparation of the necessary security documentation for the closing of the transaction involving Glengrove in [the 1297475 Ontario file].” At that time Solmon was satisfied from his discussions with Edwin that the Glen Grove security documentation could be prepared. On February 12, 2004, one of Solmon’s associates sent a memo attaching draft settlement documentation, including a charge on the Yonge St. Property from Glen Grove to 1196306 Ontario Inc. which contemplated a first payment date of October 31, 2004, and a guarantee by Glen Grove of 129’s obligations under the Settlement, including the debt which would be owed to the Receiver. Those documents were revised later in February.
[76] Solmon spoke with Edwin on January 1, 2004. They discussed the Settlement which had been memorialized in the Three Letters of 2002 and 2003. In his notes of that conversation, Solmon recorded that “once sale through released s hyde from any claim – the chose in action has been sold” and “key no one can sue sylvia hyde once sale deal closed”.
[77] On his Rule 39.03 examination Solmon had testified that the person who had provided him with instructions concerning the Settlement, and whom he was not prepared to identify because of privilege concerns, had informed him that Glen Grove was prepared to guarantee the Settlement. From Solmon’s evidence at trial, it was clear that Edwin was the person who had provided those instructions.
[78] On January 28, 2004, Solmon sent Edwin an account for services rendered in the 129 Settlement matter during the last quarter of 2003. The accompanying dockets disclosed that Solmon was dealing with Edwin on the matter, not Sylvia.
[79] Solmon had written to Receiver’s counsel on February 9, 2004 regarding certain details about the Settlement. In his letter to Tayar he wrote:
[W]ith regard to paragraph 7, I advised you that the purchaser is not controlled by Mr. Hyde’s wife. It is controlled by Bob Carberry. A company controlled by Mr. Hyde’s wife has made a loan to the purchaser, but Mrs. Hyde has no control over the Purchaser.
Solmon testified that Edwin had informed him that Sylvia did not control 129; Solmon did not have any independent knowledge about who controlled 129.
Events after Edwin’s death
[80] After Edwin’s death in May, 2004, Bisceglia met with Sylvia to discuss the settlement, and he requested a status update from Solmon who was acting for the numbered company on the settlement. Solmon recalled receiving a call in June from Bisceglia who advised that he was acting for Sylvia.
[81] Prior to the trial Solmon met with both counsel to review the dockets which he had maintained, including entries recording contact with Sylvia. Solmon’s letter to Sylvia of December 1, 2004 enclosing his account included an itemization of the work he had performed between June 8 and October 25, 2004.
[82] Solmon stated that by late August, 2004, Bisceglia, on behalf of Sylvia, had told him that a problem existed regarding the funding of the Settlement. Solmon conveyed this information to Tayar on August 25 and said he was trying to obtain instructions.
[83] On August 26 Solmon sent Bisceglia motion records he had received from Tayar seeking approval of the Settlement. He wrote:
I believe Tayar will be calling you as he, obviously, wishes to deal with the issues and at this point in time I told him that we are not yet certain what is in the best interest of our clients.
The next day Solmon wrote Bisceglia to report that the approval motion had been set for October 4, and “I believe we should meet and determine what the best strategy would be in order to deal with this matter”.
[84] Solmon noted a conversation with Sylvia on August 30, 2004. Solmon did not recall the details of that conversation beyond what he had written in his notes. His note included the statement: “Sylvia will let the glengrove go”. Later on August 30 Sylvia sent Solmon a set of documents which included the 2003 financial statements for Glen Grove Suites Inc.
[85] Solmon’s note of an August 31 conversation with Sylvia recorded her saying that “she has no money” and “the terrible financial state of the property”. Sylvia authorized Solmon to talk with Mr. Dadouch, an employee with the mortgagee of the Yonge St. Property. Solmon’s note of a conversation with Dadouch later on August 31 painted a different picture, suggesting that there was some equity in Glen Grove– “standalone glengrove suites is fine” - and that Sylvia had been taking out $20,000 per month for the past few years.
[86] Following both calls Solmon prepared a memorandum stating that “when I get the information from Sylvia Hyde I will determine what the next step will be and see if she will give me instructions to contact Eli Dadouch and confirm the information.”
[87] Solmon then noted a conversation with Sylvia on September 2, 2004, which stated “they will not go to court” on October 4, the date of the settlement approval motion. Later that day Solmon contacted Dadouch and recorded that Dadouch had been instructed not to discuss Glen Grove any longer with Solmon.
[88] In a September 16, 2004 letter to Sylvia, Bisceglia described four options available to her “with respect to the proposed settlement involving the Glen Grove Suites”. The options were: (i) honouring the settlement, but since Sylvia did not have sufficient funds “this is not an option”; (ii) seeking to amend the settlement so that the full amount would be secured by a mortgage on the Yonge St. Property, but would not be payable until the property was sold – “you indicated that you would consider this option”; (iii) renegotiating the amount of the settlement “and still secure it by a mortgage payable when the Glen Grove Suites are sold”; and, (iv) doing nothing “and see whether or not they will litigate the matter further”. Bisceglia did not receive any instructions from Sylvia in response to his letter.
[89] On September 20 Solmon wrote Sylvia, in part regarding his conversation with her brother, Mr. Ernie Singer:
Mr. Ernie Singer advised me that he advised you that you should not use any lawyers whatsoever and, basically, see what happens. If they sue you or any company then you will get counsel…
As you know, there is presently a motion scheduled for October 4, 2004 in Commercial Court where approval is being sought of the agreement reached on behalf of the numbered company. Glengrove Suites is involved and is to give a guarantee and mortgage.
I believe it is important for your understand exactly what your legal position is and potential responsibilities in the circumstances.
There may be separate defences available to Glengrove Suites which I would like to talk to you about. (emphasis added)
[90] Sylvia testified that she read that letter, called her brother-in-law, and later spoke to Solmon who told her to hire a lawyer.
[91] On September 22, Sylvia wrote to Solmon stating, in part, that she knew Edwin “had the greatest respect for you and spoke so highly of you”, and she inquired whether Solmon could help her in the matter. Sylvia’s letter to Solmon was sent to him from Glen Grove’s fax address.
[92] At a certain point prior to the termination of his retainer in October, 2004, Bisceglia received documentation about the financial difficulties Glen Grove was encountering. On October 6, two days after the Court had granted the Approval Order, Bisceglia wrote to Sylvia and Carberrry passing on a letter from Tayar of the previous day which had asked for documents about the financial condition of Glen Grove Suites. Bisceglia wrote that “I think we should provide the documents he is requesting as I believe it would assist in resolving matters”, but he did not receive instructions to forward them to the Receiver. He did receive instructions to inform Tayar that there were financial issues about Glen Grove Suites.
[93] In a note of a telephone conversation he had with Sylvia on October 6 Solmon recorded: “Emilio sent 4 options, withdraw the offer, handle this, did not withdraw the offer”. Solmon had not seen the September 16 letter sent by Bisceglia to Sylvia setting out four options prior to the trial.
[94] Solmon testified that based on his discussions with Sylvia he thought she understood that the Settlement involved a $500,000 payment and that a mortgage would be involved.
[95] On October 12 Sylvia provided Solmon with a retainer of $500. He met with her on October 18 at which time he provided her with the names of some other counsel. According to Solmon, this was the only time he acted for Sylvia’s personal interests. By letter received by Solmon on October 28, 2004, Sylvia terminated his retainer.
[96] Solmon testified that between February and October, 2004, the instructions he had received from 129 to consent to the Settlement had never changed, but he had been instructed not to attend at court for the settlement hearing on October 4.
G. Creditors of Edwin: Samuel Zeifman and Frank Bialystok
[97] Samuel Zeifman, an officer of 1196303 Ontario Inc., testified briefly at trial. His evidence disclosed that he could not recall the state of his understanding at the time of the offers about who controlled the purchaser, 129. Franklin Bialystok, a director of 1196303 Ontario Inc., also testified, but he recalled little about the offer/acceptance process.
H. Findings of fact
[98] In the Summary Judgment Reasons, I expressed the view that the evidence disclosed the following uncontroverted facts:
(i) Sylvia did not play any role in the development or the making of the offer to settle made by 129 to the Receiver, the terms of which were set out in Mr. Solmon’s letters of May 3, 2002, August 28, 2003 and October 3, 2003 which were attached as Schedule “A” to the Settlement Approval Order made by Farley J. on October 4, 2004; and,
(ii) Following Edwin’s death and before the granting of the Approval Order on October 4, 2004, Sylvia learned of the offer to settle made by 129 to the Receiver;
No evidence led at trial provided any basis for altering that view, and I therefore formally make those findings of fact.
[99] However, the evidence adduced at trial leads me to make the following additional findings of fact in respect of the Defendants:
(i) Sylvia was aware that a settlement was under discussion well before the first of the Three Letters was sent. Solmon testified that in a November 16, 2001 call with Edwin the latter had told him that placing a mortgage on the matrimonial home was a problem for Sylvia;
(ii) Sylvia also was aware that 129 was making some payments to Solmon’s firm because she signed one of the November, 2003 cheques;
(iii) Sylvia had provided Edwin with full authority and control over 129, Glen Grove and Spendthrift, so Edwin possessed the full authority to enter into the Settlement Agreement memorialized in the Three Letters;
(iv) No later than August, 2004, Sylvia understood that the Settlement involved Glen Grove providing a mortgage on the Yonge St. Property and guaranteeing 129’s payment obligations under the Settlement. There is no other explanation for Sylvia’s delivery of financial information about Glen Grove to Solmon or her initial consent to Solmon discussing the affairs of Glen Grove with Dadouch. Solmon made those two aspects of the Settlement crystal clear to Sylvia in his September 20, 2004 letter to her;
(v) Prior to the making of the Approval Order, Sylvia had received the motion record filed by the Receiver seeking approval of the Settlement Agreement and she was aware that the Court would be asked to approve the Settlement Agreement proposed by her company, 129 as purchaser, on October 4, 2004. Sylvia also had received independent legal advice from Bisceglia about the options available to her in respect of the Settlement Agreement;
(vi) Notwithstanding that knowledge and advice, Sylvia did not alter the instructions previously given by her husband to Solmon that 129 consented to the Receiver placing the Settlement Agreement before the Court for approval. Sylvia, as the sole shareholder of 129, Glen Grove and Spendthrift, made no effort prior to the Approval Order to inform the Receiver that 129, as purchaser, no longer wished to proceed with the Settlement Agreement nor that any risk existed that any of her corporations would not perform the steps set out in the Settlement Agreement.
VI. Evidence: Sylvia’s role post-Approval Order
A. Plaintiff’s affidavit evidence
[100] Following the approval of the Settlement Agreement, on July 14, 2008, Glen Grove granted a $4.1 million charge on its interest in the Yonge St. Property to The Equitable Trust Company; Sylvia guaranteed its obligations under that charge.
B. Sylvia’s 2006 and 2007 cross-examinations
[101] When shown the Default Judgment and asked why Glen Grove and Spendthrift did not do what the Default Judgment had contemplated, Sylvia replied that they had no money.[^10] Spendthrift, she testified, was a shell company which was not in business, and her counsel took the position that Glen Grove would refuse any request by 129 to provide a mortgage or guarantee for the Settlement.[^11]
[102] Sylvia testified that she did not intend to take steps to cause 129 to fulfill any of its obligations under the Settlement because she had never heard of the company and it was her husband’s responsibility.[^12]
C. Sylvia’s 2009 affidavit
[103] In an affidavit sworn April 23, 2009, Sylvia said little of substance about the merits of this action, save that the plaintiff’s claim was “meritless”.
D. Robert Carberry: Rule 39.03 examination
[104] Carberry recalled that following Edwin’s death Sylvia’s brothers-in-law were suggesting that she begin to use different professional advisors than those whom Edwin had retained.
E. Findings of fact
[105] In the Summary Judgment Reasons I expressed the view that the following facts were not in dispute. No evidence led at trial provided any basis for altering that view, so I therefore formally make the following findings of fact:
(i) The Receiver obtained default judgment against 129 on May 30, 2005 requiring it to pay the Receiver $619,383.56 and to cause Spendthrift and Glen Grove Suites (i) to deliver a mortgage against the Yonge St. Property in the principal amount of $500,000, (ii) to execute a guarantee of $500,000 of the indebtedness owed by 129 to the Receiver, and (iii) to execute a consent to judgment for $500,000, plus interest thereon;
(ii) 129 did not take any steps to set aside the Default Judgment;
(iii) 129 did not pay the Default Judgment nor did it make any efforts to cause Spendthrift or Glen Grove Suites to take any of the steps specified in the Default Judgment;
(iv) Sylvia, as the sole shareholder of 129, did not intend to cause that company to fulfill any of its obligations under the Default Judgment;[^13]
(v) As of the date of Sylvia’s June 11, 2007 cross-examination, 129’s Minute Book listed her as the sole director and shareholder of the corporation. The Minute Book of 129 also contained a May 27, 1998 share subscription signed by Sylvia for the one share issued by the corporation and the share certificate issued to Sylvia, signed by her as President of 129. The 129 Minute Book contained a resolution dated May 27, 1998 by Sylvia, in her capacity as shareholder, electing herself as director of 129. Sylvia acknowledged the authenticity of her signature where it appeared on corporate documents. Consequently, it lay fully within the control of Sylvia to direct and manage the affairs of 129, including directing 129 to fulfill its obligations under the Settlement Agreement, Approval Order and Default Judgment;
(vi) Notwithstanding that Sylvia controlled 129, Glen Grove and Spendthrift, she decided that Glen Grove and Spendthrift would refuse to perform the acts specified in the Default Judgment that 129 (under Sylvia’s control) was required to cause them to do.[^14]
VII. Analysis of the claims against the Defendants
[106] In paragraph 22 of its Statement of Claim the plaintiff Receiver pleaded that “the settlement is binding on Sylvia, 1297475, Glen Grove Suites and Spendthrift, as well”. In paragraph 63 of its Factum the Receiver submitted that “because Sylvia admits that Hyde was acting with her authority…she, Glen Grove and Spendthrift have no defence. Having given Hyde authority, they cannot now complain about the Settlement.” I accept this argument, at least at it relates to Glen Gove and Spendthrift.
[107] The evidentiary record leaves no doubt that had Edwin not died before the Approval Order was made, the terms of the Settlement Agreement would have been fulfilled. As the person exercising effective control over 129, Glen Grove and Spendthrift, with the authorization of their sole shareholder, Sylvia, Edwin would have caused Glen Grove (and Spendthrift, if necessary) to grant the contemplated mortgage on the Yonge St. Property to the Receiver and to provide the guarantee specified by the Settlement Agreement.
[108] In return, 129 would acquire the Receiver’s claim against Edwin’s bankruptcy estate and all the pending motions in his estate would be dismissed. Through the purchase Edwin would remove any risk that his 1994 transfer of the Glen Grove shares to Sylvia would be challenged as a preferential transaction in his bankruptcy. Sylvia (and Edwin) would then be free to enjoy whatever equity remained in the Yonge St. Property.
[109] The sole reason that Edwin was able to propose, as part of the settlement offer, that security on the Yonge St. Property would form part of 129’s purchase was his common de facto control of 129, Glen Grove and Spendthrift. The facts disclosed that Edwin exercised that common control – control exercised with Sylvia’s permission - to propose that offer package.
[110] Edwin’s death in May, 2004 meant that the unity of de facto control he had exercised over the affairs of 129, Glen Grove and Spendthrift now passed into Sylvia’s hands.
[111] At that point of time 129 and the Receiver had reached a Settlement Agreement, as set out in the Three Letters, but by the terms of those letters the settlement required court approval. That approval had not been obtained by the time of Edwin’s death.
[112] Following Edwin’s death Sylvia knew about the Settlement Agreement and she knew that court approval was required for the deal. Sylvia had access to legal advice from Solmon, 129’s lawyer, and from Bisceglia, her own lawyer. Prior to the October 4, 2004 return of the sale approval motion before the court, Sylvia knew what options were open to her and her three corporations – Bisceglia had spelled them out clearly in his September 16, 2004 letter.
[113] Armed with all that information and possessing the unity of control over 129, Glen Grove and Spendthrift, Sylvia did not alter the instructions which Edwin had given to Solmon to proceed with the Settlement Agreement. Sylvia had seen the motion record for the October 4 sale approval motion; Carberry testified to that. She knew that come October 4 this Court would be asked to approve her company’s Settlement Agreement with the Receiver. And she made a decision – she permitted the Settlement Agreement which had resulted from 129’s offer to the Receiver to be placed before this Court for approval.
[114] It was open to Sylvia to instruct her counsel to notify the seller that she did not wish to proceed with the settlement. It was open to Sylvia to instruct her counsel to inform the Court that she did not want her company to proceed with the settlement. Instead, with full knowledge of what was going to happen on October 4, Sylvia did not alter the instructions her husband previously had given to proceed to secure court approval for the Settlement Agreement.
[115] Accordingly, on October 4 the seller – the Receiver – and the Court acted on the understanding that a willing purchaser wanted the judicial blessing of the deal struck between 129 and the Receiver.
[116] The blessing was given, with the result that the Court sanctioned 129’s acquisition of the Receiver’s proof of claim against Edwin’s bankruptcy estate and the court dismissed all outstanding motions in the bankruptcy estate. Sylvia obtained that which her husband had sought – certainty that his 1994 transfer to her of Glen Grove shares would not be set aside.
[117] Having continued to use the unity of control over 129, Glen Grove and Spendthrift to secure those court-approved benefits, Sylvia then turned her back on the purchaser’s obligations under the Settlement Agreement, relying on the separate legal personality of each of her companies and contending that only 129 – which was a shell corporation - was bound by the Settlement Agreement. Even then Sylvia refused to exercise her control over 129 so that it performed its obligations under the Settlement Agreement to cause its sister companies to grant the mortgage and guarantee.
[118] It was not open to Sylvia to exercise her common control over 129, Glen Grove and Spendthrift in that way. Having used her companies in combination following Edwin’s death to secure a court-approved benefit on the sale approval motion, Sylvia could not subsequently use them to avoid performing the obligations which secured for her a personal benefit – protecting from challenge the 1994 transfer of the Glen Grove shares to her.
[119] The Defendants submitted that it is trite law that the law will only hold parties to a contract liable for its terms and obligations. As a matter of general principle, of course that is true. However, while the separate legal personality of corporate entities must be given recognition when those entities are operated as separate entities, the same respect need not be accorded to the separate legal personalities when, having been used in combination to secure a court-approved benefit, the separate legal personalities are then erected as barriers to performing the obligations which secured the benefit.
[120] In its closing submissions the plaintiff relied on the jurisprudence which holds that the principle of res judicata prevents parties and their privies from raising matters in a proceeding which might and ought to have been brought forward in earlier proceedings, but were not.[^15] As put by Thorburn J. in Martinez de Morales v. Lafontaine-Rish Medical Group Ltd.:
Where a privy of another party has knowledge of prior proceedings, a clear interest in the proceedings, and the ability to intervene as a participant to protect its interest, but chooses to stand by, the non-party will be estopped by its conduct from proceeding to a trial in a subsequent proceeding on the same issue or issues that have already been determined.[^16]
Privity is established if there is a sufficient degree of identification between two parties such that it would be just to hold that the decision rendered against one should be binding on the other. The concept of privity is somewhat elastic and thus, the determination as to whether there is privity must be made on a case by case basis.[^17]
[121] In response the Defendants pointed out that this case does not involve prior and subsequent proceedings, so the privity principle has no application. The Defendants are correct in stating that res judicata does not formally arise on the facts of this case because 129 and the Defendants were sued as co-defendants in the same proceeding. However, the privity principle reflects a broader view that the law does not countenance a “lie-in-the-weeds” attitude by those whose interests are so intimately connected on a matter. In my view, in the present case, that attitude of the law is better expressed by stating that where companies intimately connected in interest are used by a common controlling mind in combination to secure a court-approved benefit, they cannot subsequently be used by the common controlling mind to avoid performing the obligations which arose from their earlier combined action.
[122] The Defendants contended that there was no evidence tendered that 129 was acting as the agents for Glen Grove and Spendthrift. I accept that argument, but it does not assist the Defendants. Edwin, and after his death Sylvia, exercised their common control over all three corporations in combination to effect one purpose – the purchase of any preference and debt claims against Edwin in his bankruptcy estate. There was no need for 129 to act as the agent of Glen Grove or Spendthrift since the controlling mind behind all three corporations was the same and the controlling mind was directing them to act in combination.
[123] The Defendants submitted, by way of alternative argument, that even had 129 acted as agent for Glen Grove and Spendthrift in respect of the Settlement Agreement, the principle of election in agency law would apply. That principle states that where an agency is disclosed, if the third party elects to sue the agent and obtains a final judgment against it, the party cannot subsequently make the principal liable.[^18] Accepting the premise of that alternative argument that an agency relationship existed, I disagree that the principle of election prevents granting the judgment now sought by the plaintiff against Glen Grove and Spendthrift. The Default Judgment granted money judgment against 129. However, the provisions of the Default Judgment as they would affect the interests of Glen Grove and Spendthrift were different in nature – i.e. the delivery of a mortgage against the Yonge St. Property and the delivery of a guarantee. The principle of election would not be engaged.
[124] Although paragraph 3(a) of the May 3, 2002 settlement letter talked about the provision of a mortgage over the Yonge St. Property “if the owner of the Glengrove property is able to do so, using reasonable efforts”, there was no evidence placed before me to suggest that the owner of Glen Grove could not do so. Any earlier concern about the ability to obtain the consent of the first mortgagee, RBC, had disappeared. Based on the facts, I have no doubt that had Edwin still been alive following the making of the Approval Order, Glen Grove would have provided the contemplated mortgage to 129, and I so find.
[125] In sum, I do not accept the arguments advanced by the Defendants to resist the imposition of liability on Glen Grove and Spendthrift.
[126] Finally, I do accept the Defendants’ submission that personal liability should not attach to Sylvia or her estate.
[127] Piercing the corporate veil ignores the legal persona of the corporation.[^19] Courts will disregard the separate legal personality of a corporation where (i) it is completely dominated and controlled by another, in the sense that it does not operate independently of another, and (ii) it is being used as a shield for fraudulent or improper conduct.[^20] The evidence did not disclose that any of 129, Glen Grove or Spendthrift were used as a shield for a fraudulent or improper purpose. Accordingly, I see no basis to pierce the corporate veil and attach personal liability on Sylvia or her estate.
VIII. Conclusion
[128] By way of summary, for the reasons set out above, I grant judgment in favour of the plaintiff against Glen Grove Suites Inc. and Spendthrift Developments Limited. I dismiss the action against Sylvia’s estate.
[129] At trial plaintiff’s counsel advised that last year the Yonge St. Property had been sold and monies paid into Court to stand to the credit of this action. In light of that transaction, the relief concerning the delivery of a mortgage sought in the Statement of Claim can no longer be given. What is required is a judgment which enables the plaintiff to recover, from the funds paid into Court by Glen Grove Suites Inc. and Spendthrift Developments Limited, the amount which would have been payable by them had they given the mortgage and guarantee stipulated in the Settlement Agreement. I direct counsel to prepare a form of judgment to that effect and submit it to me for issuance.
[130] I would encourage the parties to attempt to settle the costs of this trial and the earlier summary judgment motions. If they cannot, the plaintiff may serve and file with my office written cost submissions, together with a Bill of Costs, by December 16, 2013. The Defendants may serve and file with my office written responding cost submission by January 8, 2014. Any brief reply cost submissions must be served and filed by January 15, 2014. Responding cost submissions should include a Bill of Costs setting out the costs which that party would have claimed on a full, substantial, and partial indemnity basis. If a party opposing a cost request fails to file its own Bill of Costs, I shall take that failure into account as one factor when considering the objections made by the party to the costs sought by the other party. As Winkler J., as he then was, observed in Risorto v. State Farm Mutual Automobile Insurance Co., an attack on the quantum of costs where the court did not have before it the bill of costs of the unsuccessful party “is no more than an attack in the air”.[^21]
D. M. Brown J.
Date: December 2, 2013
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1196303 Ontario Inc.
Plaintiff
– and –
Glen Grove Suites Inc., Spendthrift Developments Limited, Firm Capital Mortgage Fund Inc., Nelly Zagdanski and Linda Darer, estate trustees of Sylvia Hyde, deceased, 1297475 Ontario Inc., Montreal Trust Company of Canada and Royal Trust Corporation of Canada
Defendants
REASONS FOR JUDGMENT
D. M. Brown J.
Released: December 2, 2013
[^1]: Emphasis in original. [^2]: 2010 ONSC 7258 [^3]: See also paragraph 10 of Mr. Zeifman’s May 12, 2009 affidavit. [^4]: Sylvia repeated this position in her 2010 affidavit. [^5]: January 31, 2006 Cross-Examination of Sylvia Hyde, Q. 317. [^6]: 2012 ONSC 4567, para. 50. [^7]: Ibid., para. 46. [^8]: January 31, 2006 Cross-Examination of Sylvia Hyde, QQ. 304-310. [^9]: Sylvia 2007 Cross-examination, Q. 531. [^10]: January 31, 2006 Cross-Examination of Sylvia Hyde, QQ. 369-370. [^11]: June 11, 2007 Cross-Examination of Sylvia Hyde, Q. 485. [^12]: Ibid., Q. 486-7. [^13]: Ibid., Q. 487. [^14]: Ibid., Q. 485, p. 97, ll. 13 to 17. [^15]: Bank of Montreal v. Mitchell (1997), 1997 12306 (ON SC), 143 D.L.R. (4th) 697 (Ont. Gen. Div.), para. 66, affirmed(1997), 1997 14484 (ON CA), 151 D.L.R. (4th) 574 (Ont. C.A.); Martinez de Morales v. Lafontaine-Rish Medical Group Ltd., 2009 31991 (ON SC), paras. 19 and 25. [^16]: Martinez de Morales, supra., para. 25. [^17]: Ibid., paras. 21 and 22; see also Monteiro v. Toronto Dominion Bank, 2008 ONCA 137, paras. 45 and 46, leave to appeal dismissed (2008), 389 N.R. 396 (note) (S.C.C.). [^18]: G.H.L. Fridman, Canadian Agency Law (Toronto: LexisNexis, 2009), §6.56; AGB Halifax Enterprises Inc. v. Wood Street Development Inc. [1999] O.J. No. 3899 (C.A.), para. 6. [^19]: Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, para. 80. [^20]: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), para. 22. [^21]: (2003), 2003 43566 (ON SC), 64 O.R. (3d) 135 (S.C.J.), para. 10, quoted with approval by the Divisional Court in United States of America v. Yemec, 2007 65619 (ON SCDC), [2007] O.J. No. 2066 (Div. Ct.), para. 54.