COURT FILE NO.: 7065-12

DATE: 2013/12/20

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Jacob Weiche, Alan Weiche and Weiche Estates Inc. (Plaintiffs)

• and -

The Berghof Estate Incorporated, Jeannet Anne Weiche, Christa Maria Weiche (Malik) and The Estate of Martin Karl Weiche (Defendants)

BEFORE: Justice M. A. Garson

COUNSEL:
M. Paul Downs, for the plaintiffs
Ian S. Wright, for the defendants

HEARD: November 27, 2013

ENDORSEMENT

Introduction

[1] The defendants bring a motion to discharge the Certificate of Pending Litigation (“COPL”) issued by Weiche Estates Inc. (“WEI”) pursuant to the order of Leach J. on June 26, 2012 against land and premises known municipally as 1681 Gainsborough Road, London, being comprised of part of the south half of Lot 29 Concession 4 as more particularly described in Instrument No. 258194, London Township (now in the municipality of Middlesex Centre) and being all of PIN 08137-0116 LT (“the property”).

[2] The plaintiffs brought a cross-motion seeking an interlocutory Mareva injunction. However, given the fact that the outcome of the motion to discharge the COPL may make the injunctive relief sought moot, the parties agreed to have this court deal solely with the COPL motion at this time.

Facts

[3] The plaintiffs, Jacob and Alan Weiche, are the sons (“the sons”) of the late Martin Karl Weiche (“Martin”), who passed away September 2, 2011 and whose estate is one of the named defendants in this matter.

[4] The plaintiffs were shareholders in WEI before it was voluntarily wound-up and dissolved in March 16, 2009.

[5] Although the date of the transfer is in dispute, the evidence is clear that either on March 16, 1999 (according to an agreement of purchase and sale relied on by the defendants) or some time in February 2004, (according to the plaintiffs), WEI sold the property to the defendant Berghof Estate Inc (“BEI”). The property was the only substantial asset of WEI.

[6] The defendant, Janet Weiche, is the widow of the late Martin, a director of BEI and the personal representative of Martin’s estate. She also currently resides in a home located on the property.

[7] On June 7, 2012, the plaintiffs issued a statement of claim against the defendants, claiming several forms of relief, including an order for leave to issue a COPL against the property. The plaintiffs allege that the transfer of the property from WEI to BEI was done fraudulently and secretly, without payment of proper consideration, and without notice to all shareholders.

[8] On June 18, 2012, a motion for inter alia the COPL was brought by the plaintiffs, without notice to the defendants.

[9] On June 26, 2012, Leach J. granted the order and the COPL was registered against the title to the property. The COPL was issued in the name of WEI.

Position of the Parties

[10] The defendants rely on the voluntary dissolution of WEI and argue that section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43, (“CJA”) prevents a wound up corporation from having a reasonable claim to an interest in the property. The defendants further suggest that since the sons only derive an interest in the land from their position as shareholders of a wound-up corporation, they can assert no claim for a wrong done to this dissolved company. Simply put, the sons cannot assert the rights of WEI.

[11] The plaintiffs oppose the discharge of the COPL out of fear that it could lead to the property being sold or mortgaged which would deprive them of the alleged beneficial interest in the property as shareholders of WEI. They rely on section 238(1)(d) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) as an exception to the general rule that a shareholder cannot claim for a wrong done to a voluntarily dissolved company. They argue that because of the fraudulent transfer of the property, this court should treat the property as property of WEI. They suggest that because the conveyance was fraudulent, the dissolution should be set aside and the court should make an order on a nunc pro tunc basis and treat WEI as if it still exists with the right to sue and to hold a COPL.

Analysis and the Law

[12] There are three issues to be decided in this motion:

(i) does a wound-up corporation have capacity to pursue this action;

(ii) can the shareholders of a wound up corporation maintain an interest in land sufficient to maintain a COPL; and

(iii) can an allegation of fraud be sufficient to trigger a nunc pro tunc declaration and maintain the COPL?

[13] Although a COPL does not confer rights and therefore does not constitute an interest in land per se, a COPL does encumber the land and is a deterrent to dealing with the land while the determination of a claim for an interest is pending: see Greenfield Pioneer Inc. v. Moore (2002), 2002 6832 (ON CA), 58 O.R. (3d) 87 (C.A.).

[14] Rule 21.01(3)(b) of the Rules of Civil Procedure O. Reg. 575/07, s. 6 states:

A defendant may move before a judge to have an action stayed or dismissed on the ground that (b) the plaintiff is without capacity to commence or continue the action or the defendant does not have the legal capacity to be sued.

[15] Section 103(6) of the CJA states:

Order discharging certificate

(6) The court may make an order discharging a certificate,

(a) where the party at whose instance it was issued,

(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,

(ii) does not have a reasonable claim to the interest in the land claimed, or

(iii) does not prosecute the proceeding with reasonable diligence…

[16] In Toll v. Marjanovic, [2001] O.J. No. 1308 (S.C.), Nordheimer J. confirmed that the decision to vacate a COPL is an equitable determination. At paragraph 18, he states:

18 In any event, the decision both to grant and to vacate a certificate of pending litigation is a discretionary one. In determining whether to vacate a certificate of pending litigation, the Divisional Court said, in Clock Investments Ltd. v. Hardwood Estates Ltd. et al (1977) 1977 1414 (ON SC), 16 O.R. (2d) 671 (Div. Ct.) per Steele J. at p. 674:

I am of the opinion that the governing test is that the Judge must exercise his discretion in equity and look at all of the relative matters between the parties in determining whether or not the certificate should be vacated (my emphasis).

[17] The status of a wound up corporation is set out in Halsbury’s Laws of Canada at HBC-350:

When a voluntary winding-up commences, the corporation must cease to carry on business except insofar as may be required as beneficial for the winding-up of the corporation. The debts, obligations and other liabilities for which the corporation is liable are determined as of the commencement of the winding-up. As of that moment, limitation periods cease to run.

[18] The OBCA provides the following dealing with a wound-up corporation:

Corporation to cease business

198. A corporation being would-up voluntarily shall, from the commencement of its winding-up, cease to carry on its undertaking, except insofar as may be required as beneficial for the winding-up thereof, and all transfers of shares, except transfers made to or with the sanction of the liquidator taking place after the commencement of its winding-up, are void, but its corporate existence and all its corporate powers, even if it is otherwise provided by its articles or by-laws, continue until its affairs are wound-up.

No proceedings against corporation after voluntary winding-up except by leave

199. After the commencement of a voluntary winding-up,

(a) no action or other proceeding shall be commenced against the corporation; and

(b) no attachment, sequestration, distress or execution shall be put in force against the estate or effects of the corporation.

except by leave of the court and subject to such terms as the court imposes.

[19] Any action by a corporation that had been commenced before its dissolution or winding-up may be pursued as if the corporation had not been dissolved. However, upon dissolution, a corporation ceases to be a legal entity capable of pursuing a new piece of litigation. See: s. 242(1)(a) OBCA.

[20] It follows that a corporation that ceases to be a legal entity for the purposes of conducting business, suing, or being sued would also not have standing to maintain a COPL after dissolution because it no longer has a reasonable claim to an interest in land as required by section 103(6) CJA.

[21] In the same way that a post dissolution claim by a dissolved corporation is a nullity, (see: 602533 Ontario Inc. v. Shell Canada Ltd. (1998), 1998 1775 (ON CA), 37 O.R. (3d) 504 (C.A.) at para. 14) a corporation has no ability post-dissolution to hold a COPL.

[22] In this case, WEI initiated and received the COPL long after it had been voluntarily wound-up. This court takes the view that it lacks the capacity and ability to hold the COPL.

(ii) Can the shareholders of a wound-up corporation maintain an interest in land sufficient to maintain a COPL?

[23] If WEI cannot hold a COPL, this court must determine whether the sons, as shareholders of the wound-up WEI, can maintain the COPL.

[24] There can be no shareholders of a non-existent corporation. The plaintiffs argue that the distribution of assets upon dissolution to the shareholders (once creditors are satisfied) creates an interest in the land which would be considered as an asset.

[25] Section 238(1)(d) of the OBCA states:

238 (1) For the purpose of bringing the dissolution authorized under clause 237(a) or (b) into effect, articles of dissolution shall follow the prescribed form and shall set out,

(d) that after satisfying the interests of creditors in all its debts, obligations and liabilities, if any, it has no property to distribute among its shareholders or that it has distributed its remaining property rateably among its shareholders according to their rights and interests in the corporation or in accordance with subsection (4) where applicable.

[26] This argument is prefaced on a finding that WEI still held the interest in the land on the date of dissolution and that the conveyance to BEI was void due to fraud. In this court’s view, although there is some evidence that may need to be explained by the defendants at trial, the finding of fraud is an issue for the trial judge and given the strong denial by the defendants, cannot be assumed at this interlocutory stage in the proceedings.

[27] Alternatively, the defendants correctly assert that a shareholder does not have a personal cause of action for an alleged wrong done to the corporation: see the longstanding rule in Foss v. Harbottle as confirmed in Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165; Martin v. Goldfarb (1988), 1998 4150 (ON CA), 163 D.L.R. (4th) 639 (C.A.); Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 41710 (ON CA), 61 O.R. (3d) 786 (C.A.).

[28] Simply put, the sons do not have a right as shareholders of a wound-up corporation to step into the shoes of that corporation and assume an interest in maintaining and pursuing a COPL on behalf of WEI.

(iii) Can an allegation of fraud be sufficient to trigger a nunc pro tunc order and maintain the COPL?

[29] The plaintiffs set out a long list of allegations of fraud (which I shall not list in detail here). They rely on these allegations as being sufficient to allow this court to exercise its discretion on a nunc pro tunc basis and maintain the COPL.

[30] As discussed above, any findings of fraud are best left to the trial judge. Issues surrounding the validity of the conveyance of the property and the legality of the dissolution of WEI are not matters for determination on this motion.

[31] In any event, Morden and Perell JJ. in their text The Law of Civil Procedure in Ontario (Toronto:Lexis Nexis 2010) state at p.193:

...A certificate [of pending litigation] may be discharged whether or not there is a triable issue relating to the plaintiff’s claim to an interest in land.’ For support, the authors reference Pepall J. of the Superior Court of Justice in Hunter’s Square Developments Inc. v. 351658 Ontario Ltd. (2002), 2002 49491 (ON SC), 60 O.R. (3d) 264 (S.C.), aff’d (2002) 2002 9163 (ON CA), 62 O.R. (3d) 302 (C.A.), where the court stated inter alia:

59 There is also authority for the proposition that a CPL may be discharged in circumstances where there is a triable issue as to the plaintiff’s right to specific performance: Sandhu v. Braebury Homes Corporation (1986), 8 C.P.C. (2d) 22 and 1062609 Ontario Inc. v. 392602 Ontario Ltd., [1997] O.J. No. 3620. In addition, a CPL may be discharged pursuant to s. 103(6)(c) even where there is a triable issue sufficient to found a reasonable claim to an interest in lands: 1062609 Ontario Inc. v. 392602 Ontario Ltd., [1997] O.J. No. 3620 (Gen. Div.) aff’d on appeal at [1997] O.J. No. 5276 (O.C.A.). ...

[32] The plaintiff provides a list of authorities that allow for the issuance of a COPL based on concerns of fraud. These authorities speak to the issuance of a COPL and not to its discharge. As referred to above, the existence of a triable issue of fraud does not remove the discretion available to this court to vacate the COPL.

[33] Even if this court is satisfied that WEI cannot hold a COPL, and that the fraud determination is one for the trial judge, this court may still consider maintaining the COPL on a nunc pro tunc basis.

[34] An order made on a nunc pro tunc basis is one that cures irregularities, providing it is not unjust to make such an order: see e.g. Degroote v. Canadian Imperial Bank of Commerce (1998), 1998 2640 (ON CA), 37 O.R. (3d) 651 (C.A.); Gordon v. Canada (Deputy Minister of National Revenue, Customs and Excise) (1990), 44 C.P.C. (2d) 129 (Dist. Ct.); Tummulo v. Prouty (1990), 42 C.P.C. (2d) 308 (Dist. Ct.).

[35] As regards the meaning and basis for such an order, MacDonald D.C.J.’s discussion at p. 134-136 (in part) in Gordon remains relevant to this discussion:

The question of what correcting order can be made is more difficult. The Notice of Application issued July 4 rectifies the errors in substance and procedure relating to the Notice of Application received by the court on April 4. But can it replace the earlier document, nunc pro tunc? The Canadian and British sources are not particularly helpful in this connection.

The Encyclopedia of Words and Phrases Legal Maxims, Canada, 6th Cumulative Supplement, 1990 states merely:

nunc pro tunc: ‘Now, as of the previous date.’

The Canadian Law Dictionary, by John A. Yogis, Q.C., provides:

Nunc pro tunc: Lat.: now for then. A judgment nunc pro tunc is entered when the court directs a proceeding to be dated as of an earlier date than that on which it was actually taken. A judgment that was delayed by act of the court can be antedated, or if the plaintiff has died between the hearing and date when the judgment was given, a judgment nunc pro tunc may be entered.

‘Leave of the court must be obtained to do things nunc pro tunc; and this is granted to answer the purposes of justice, but never to do an injustice. A judgment nunc pro tunc can be entered only when the delay has arisen from the act of the court.’ Carey v. Beardsley (1973), 1973 2303 (NS SC), 6 N.S.R. (2d) 46 at 48 (Co. Ct.), quoting from 11 Bouvier’s Law Dictionary 247 (1875). ...

Kelly J. also offered this helpful discussion of the application of the nunc pro tunc doctrine at para. 4 in Hogarth v. Hogarth (1945), 1945 396 (ON SC), 3 D.L.R. 78 (H.C.J.), aff’d (1945) 1945 341 (ON CA), 3 D.L.R. 750 (C.A.):

4 There is inherent jurisdiction to the Court to make orders nunc pro tunc to validate proceedings which have been carried out and have been found ineffective by reason of some slip or oversight having been made in the conduct of such proceedings, and to ensure against some injustice resulting therefrom. The procedure has been invoked to direct the entry of an order or judgment made on an earlier date but, by some oversight, has not been entered, although proceedings have been taken in pursuance of such judgment or order. The procedure has also been invoked to make an order as of a date when argument has been terminated before the Court and decision thereon reserved, so as to protect the litigant against some injustice resulting from the delay in rendering the judgment, which delay was caused for the convenience of the Court. But where a litigant has been delayed by his own laches, or where the delay has been extraordinary, some delay being unavoidable, the Court will refuse to direct a judgment order to be entered nunc pro tunc. In my opinion, the Court should not make an order nunc pro tunc when the litigant adopts one procedure and carries it through to completion, and then decides he might have been in a more advantageous position if he had adopted some other procedure.

[36] Clearly, a dissolved corporation holding a COPL or shareholders of that dissolved corporation attempting to assert an interest in the COPL can only maintain this status if the court were to make an order nunc pro tunc.

[37] As conceded by the plaintiffs, any order made nunc pro tunc would be dependent upon the revival of WEI and it being empowered to proceed with the current action.

[38] This revival process has been going on for almost a year and a half and is currently at the mercy of an opposed private members’ bill. This process may take another few years to succeed and even that outcome is in question. This is not a situation where an adjournment of this motion pending the revival of WEI is either viable or desirable.

[39] There is no evidence before the court of a present intention to transfer or encumber the property. The defendants vigorously deny any wrongdoing.

Disposition

[40] Accordingly, this court orders that the certificate of pending litigation issued pursuant to the Order of Leach J. dated June 26, 2012 against land and premises known municipally as 1681 Gainsborough Road, London, be discharged.

Costs

[41] For the reasons cited by Leach J. in his endorsement of August 14, 2013, the ultimate determination of whether or not a fraud has occurred will be decided by the trial judge and the most appropriate cost determination is to reserve costs of this motion to the trial judge.

“Justice M. A. Garson”

Justice M. A. Garson

Date: December 20, 2013