COURT FILE AND PARTIES

COURT FILE NOS.: CV-11-436798 and CV-13-474392

DATE: 20131210

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Borden Ladner Gervais LLP, Plaintiff

– and –

James C Sinclair, Demolition & Recycling Inc., Thermosets Limited, and Sinclair’s Landing Inc., Defendants

AND RE: Borden Ladner Gervais LLP, Plaintiff

– and –

Patricia Sinclair, Defendant

BEFORE: Justice E.M. Morgan

COUNSEL: Sean L. Gosnell, for the Plaintiff

HEARD: December 10, 2013

ENDORSEMENT

[1] The Plaintiff is a law firm that moved for default judgment in two actions that it brought in respect of its fees. The two actions were directed to be tried together by Order of Master Abrams dated November 29, 2013.

[2] The Defendants were duly served with the Statements of Claim – in the first action (Court File No. CV-11-436798) by substituted service on the last known address (for the personal Defendant) and the registered office addresses (for the corporate Defendants) pursuant to the Order of Master Glustein dated May 29, 2012, and in the second action (Court File No. CV-13-474392) by personal service.

[3] The Defendants were noted in default on June12, 2012. The allegations in the pleadings are therefore deemed to be true.

[4] James C. Sinclair, the personal Defendant in the first action, retained the Plaintiff to represent himself and the corporate Defendants in respect of a number of environment-related regulatory charges. One set of charges was brought by the Department of Fisheries and the other by the Ministry of the Environment.

[5] Both of the retainers were with respect to appeals of convictions already entered against Mr. Sinclair and/or the corporations he controlled. In both cases, Mr. Sinclair and/or his corporations were represented by Gabrielle Kramer, a partner at the Plaintiff law firm, and in both cases Ms. Kramer was successful in having the penalties substantially reduced either by negotiating a settlement or by achieving a favourable judgment on appeal. These beneficial results were achieved in the face of aggressive prosecution by the two ministries on charges that carried serious financial consequences for Mr. Sinclair and his corporations.

[6] Ms. Kramer testified at trial and proved the Plaintiff’s damages.

[7] Between August 26, 2008 and September 17, 2010, the Plaintiff issued seven invoices to Mr. Sinclair in respect of the Department of Fisheries charges. Between December 31, 2008 and December 31, 2009, the Plaintiff issued four invoices to Mr. Sinclair in respect of the Ministry of the Environment charges. In addition, the Plaintiff passed on to Mr. Sinclair as a disbursement an invoice from a court reporting service dated May 21, 2009.

[8] The total amount owing to the Plaintiff by Mr. Sinclair and the corporate Defendants in the first action here is $$266,764.09, including all disbursements and HST.

[9] There is no doubt that the accounts rendered by the Plaintiff represent fair value for work performed on Mr. Sinclair’s and his companies’ behalf and for their benefit. Ms. Kramer testified that Mr. Sinclair has acknowledged to her that the amounts billed by the Plaintiff are due and owing, and that he has expressed to her his intention to pay the balance owing on the accounts.

[10] Ms. Kramer also testified that Mr. Sinclair advised her that he had set himself up as a “man of straw” in order to avoid his debts.

[11] Counsel for the Plaintiff points out that the tactic of hiding behind corporate façades and family members in order to avoid paying debts appears to be a familiar pattern of conduct with Mr. Sinclair. In several reported judgments, he is described as having transferred or mortgaged property in non-arm’s length transactions in the face of creditors’ claims. The courts have been unimpressed with Mr. Sinclair’s conduct, finding his testimony inconsistent and casting doubt on the bona fides of various transactions involving Mr. Sinclair, his spouse, his son, and corporations of which he is the directing mind and will. See Doef’s Iron Works Ltd. v Mortgage Corporation Canada Inc., [2002] OJ No 5953, at para 33 (SCJ), reversed on other grounds [2004] OJ No 4358 (Ont CA); Settlers Savings and Mortgage Corp. v Sinclair, Sinclair and Sinclair, [1993] OJ No 3179 (SCJ Master); Stone Mills (Township) v Rebel Scrap Metal Inc., [2012] OJ No 4437, at para 30 (SCJ), affirmed [2013] OJ No 1268 (Ont CA).

[12] The Plaintiff states in its Statement of Claim, and it is deemed true, that Mr. Sinclair at one point volunteered a property he owned at 218 Station Street, Belleville, Ontario, to satisfy the debts that he and the corporate Defendants owe to the Plaintiff. On October 16, 2008, Mr. Sinclair obtained an appraisal of this property in the range of $225,000 to $235,000.

[13] The Plaintiff pleads that at a time when Mr. Sinclair was aware of his debt to the Plaintiff, he directed 218 Station St. Inc., in whose name the 218 Station Street property was held, to convey that property to his spouse, Patricia Sinclair, for the stated consideration of $60,000. This transfer was implemented pursuant to a Deed dated December 9, 2010 and registered in the Land Registry Office for the Land Titles Division on December 9, 2010 as Instrument No. HT84087. Mr. Sinclair is the sole officer and director of 218 Station St. Inc., and the registered corporate address for 218 Station St. Inc. is the same as that of the corporate Defendants which he also controls.

[14] The pleading further states that on or about June 30, 2011, a company called 816 Goodyear Rd. Inc. acquired a property at 816 Goodyear Road, Napanee, Ontario, and that Mr. Sinclair is the sole director of 816 Goodyear Rd. Inc., with a registered head office at the Sinclair family home in Scarborough, Ontario. It goes on to say that while aware of his debt to the Plaintiff, Mr. Sinclair directed 816 Goodyear Rd. Inc. to give a mortgage to Patricia Sinclair in the amount of $300,000. This mortgage was implemented pursuant to a Charge dated July 5, 2011 and registered in the Land Registry Office No. 29 for the Land Titles Division on July 5, 2011 as Instrument No. LX35113.

[15] The Plaintiff contends that Mr. Sinclair has wrongfully structured his affairs to shield his assets from his creditors, and that the various corporate entities through which he does business and holds property are his agents and alter egos. More specifically, the Plaintiff submits that the conveyance of 218 Station Street and the mortgage of 318 Goodyear Road were part of a scheme by the Defendants in both actions – Mr. Sinclair, Ms. Sinclair, and the corporate Defendants – to hide or encumber their assets with the intent to defeat, hinder, delay or defraud the Plaintiff (and other creditors).

[16] Given this state of affairs, the Plaintiff requests that the court pierce the corporate veil and treat the 218 Station Street and 318 Goodyear Road properties as if they were owned personally by Mr. Sinclair. Counsel for the Plaintiff acknowledges that the more typical case of piercing the corporate veil is in the reverse direction – i.e. piercing through a corporate debtor and attributing the debt to the person that is the owner of the corporation. Here, by contrast, the Plaintiff urges the court to look beyond a personal debtor and attribute the debt to the corporation that is the owner of the property. He argues that despite this unusual reversal of direction, there is no logical reason that the corporate veil cannot be pierced here with a view to righting an obvious wrong.

[17] The Supreme Court of Canada has for several decades held the view that corporate form, while ordinarily respected as a legitimate method of business organization, is not to be abused. In Kosmopoulos v Constitution Insurance Co., 1987 75 (SCC), [1987] 1 SCR 2, at 10, Wilson J. stated that, “the ‘separate entities’ principle is not enforced when it would yield a result ‘too flagrantly opposed to justice, convenience or the interests of the Revenue.’” [citations omitted]

[18] Likewise, the Court of Appeal’s leading judgment on the subject, Fleischer v 642947 Ontario Limited (2001), 2001 8623 (ON CA), 56 OR (3d) 417, demonstrates that piercing the corporate veil is a very robust doctrine in the presence of bad behaviour. Laskin J.A. reasoned in Fleischer that the corporate veil can be pierced if “those in control expressly direct a wrongful thing to be done”. [para 68] He went on to explain, quoting Transamerica Life Insurance Co. v Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 OR (3d) 423, at 433-34 (Ont Gen Div), affirmed [1997] OJ No 3754 (Ont CA), that “the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.”

[19] In so elaborating the corporate veil principle, Laskin J.A. was following up on his prior observation in Gregorio v. Intrans-Corp. (1994) 1994 2241 (ON CA), 18 OR (3rd) 527, at 536, that “[t]he alter ego principle is applied to prevent conduct akin to fraud that would otherwise unjustly deprive claimants of their rights.” Applying Kosmopoulos, supra, in a way that appears particularly applicable here, he had concluded in Gregorio that, “allowing [the defendant] to shield his assets under the series of sham transactions and puppet companies described in the evidence would certainly yield a result flagrantly opposed to justice”. [para 154]

[20] These cases make it clear that piercing the corporate veil is an equitable doctrine whose purpose is to relieve against injustice. Its very point, as the English Court of Appeal indicated in Adams v Cape Industries Plc, [1990] Ch 433, at 539, is to dispense with formalism where the company “is no more than a corporate name… [and] is a mere façade concealing the true facts.” It therefore would make little sense to stand on formalism and to refuse to apply it in a new direction. If piercing the veil is a doctrine that can be deployed one way to make a personal shareholder responsible for corporate debt, then it can logically be deployed the other way to make a corporate property holder responsible for the controlling shareholder’s personal debt.

[21] It is apparent that Mr. Sinclair has used corporate vehicles, and has transferred and encumbered property in favour of his spouse, in order to perpetrate a fraud on the Plaintiff as his creditor. He has thereby violated section 4(1) of the Assignments and Preferences Act, RSO 1990, c A 33, and section 2 of the Fraudulent Conveyances Act, RSO 1990, c F 29. In seeking to unjustly deprive the Plaintiff of its rights, Mr. Sinclair has acted in a way which prompts the court to pierce the corporate veil of 218 Station St. Inc. and 318 Goodyear Rd. Inc., and to treat the two properties as if they were owned by Mr. Sinclair.

[22] The Plaintiff shall have judgment against the Defendants in the first action in the amount of $266,764.09, together with pre-judgment interest at a rate of 1.24% from September 9, 2010 in the amount of $14,074.32. The judgment shall bear interest at the current post-judgment rate of 3% from today’s date.

[23] The conveyance of 218 Station Street, Belleville, and the mortgage of 816 Goodyear Road, Napanee, to Patricia Sinclair, are void as against the Plaintiff and their registrations are to be deleted from the relevant Land Registry offices. The judgment herein can be registered against those properties as if their respective titles were in the name of Mr. Sinclair. The Defendants in both actions, and any corporations related to or controlled by them, are prohibited from disposing or dealing in any way with those two properties without the consent of the Plaintiff.

[24] Given the findings of fraudulent conveyances against the Defendants, counsel for the Plaintiff submits that substantial indemnity represents an appropriate scale of costs. Although this was not a complicated or lengthy trial, the Plaintiff was forced to go through a number of procedural hurdles before getting to trial. It was also compelled to research a number of property transactions and to amend its claim several times to reflect the trail of title following the Defendants’ fraudulent transactions.

[25] The Plaintiff has submitted a Bill of Costs seeking the all-inclusive amount of $33,849.71. Under the circumstances, this is a reasonable amount for the costs of the action.

Morgan J.

Date: December 10, 2013