ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-448699
DATE: 20140228
BETWEEN:
RDP ASSOCIATES INC.
Plaintiff
– and –
MAIN PROTOTYPES LIMITED AND NANCY TOMAN
Defendants
Brian Diamond, for the Plaintiff
Nancy Toman, Representing herself
HEARD: February 27, 2014
carole j. brown j.
reasons for decision
[1] The plaintiff brings this motion for summary judgment against the defendants on the ground that the statement of defence discloses no valid defence to the plaintiff's claim and there is no genuine issue requiring a trial.
[2] The defendants have not provided any responding motion materials, although duly served. Ms. Toman appeared on her own behalf and made submissions at this the hearing of the motion.
[3] On or about December 11, 2008, RDP and Main executed an Agreement, whereby RDP agreed to assist Main in assessing, preparing and submitting claims for federal tax credits. The individual defendant, Ms. Toman, was at all material times the sole officer and director, as well as the sole directing mind of Main. It was she who signed the Agreement on behalf of the corporate defendant.
[4] Pursuant to clause 7 of the Agreement:
The client [Main] agrees to hold in trust any tax refunds resulting from any claims made by the company [RDP]… You acknowledge and agree that, as of the date hereof, RDP's fees do not form part of your property and are the sole and exclusive property of RDP, including but not limited to, in accordance with the meaning of section 67 of the Bankruptcy and Insolvency Act, as amended. You agree to remit RDP's fees to RDP within five business days from receipt of any tax refunds.
[5] It is the submission of the plaintiff, based on the tax credit claim, which is in evidence for this Court that, as a result of the claims submitted by RDP, Main was granted income tax credits for the taxation year ending May 30, 2009 in the amount of $75,278. The percentage of this amount to which RDP was entitled pursuant to the trust imposed on Main pursuant to the Agreement was $15,013.58. This amount was never paid.
[6] RDP contacted Ms. Toman on several occasions for payment and subsequently Sent a demand letter on July 18, 2011. Following this, Ms. Toman acknowledged Main's obligation to RDP pursuant to the trust agreement but stated that she had insufficient funds to pay. She requested that RDP submit tax claims on behalf of Main for 2010, under the same terms as the original Agreement, in order to obtain additional tax refunds, from which she would pay RDP.
[7] RDP agreed to this, submitted a claim for 2010, as a result of which, based on the submissions of the plaintiff, Main was granted income tax credits in the amount $39,841, of which RDP was entitled to $9,004.07 pursuant to the trust imposed on Main pursuant to the Agreement.
[8] Again, this amount remains outstanding. As a March 13, 2012, the balance due, with interest accrual pursuant to the terms of the invoice, was $29,670.90.
[9] Ms. Toman submits that she never received any tax refund in either 2009 or 2010, although I note that she had, upon receipt of the original demand letter, acknowledged the original amount owing. She had no evidence to support her submission that no tax credits had been received. Further, she stated that while she signed the Agreement on behalf of her corporation, she had not initialed the first page or the date change on the signing page of the Agreement. Finally, she submitted that she had no money to pay RDP and would be declaring bankruptcy. Her statement of defence simply denies all paragraphs in the statement of claim and, further, denies that she had any knowledge of the Agreement or trust, although it is clear that she signed the Agreement on behalf of the Corporation and, accordingly, that she had no personal liability.
[10] I do not find the plaintiff submissions persuasive. I find that amounts are outstanding which constant trust funds pursuant to the Agreement signed by Ms. Toman, that Ms. Toman knew that the Agreement imposed a trust in favor of the plaintiff on said funds and that such trust was not honored.
[11] Based on the evidence before me, I am of the view that the relationship between RDP and Main was a trust relationship, pursuant to the Agreement, that a trust was imposed on monies received by Main from the tax credit refunds, and that Main is in breach of that trust. The issue is whether Ms. Toman, as sole officer and director and directing mind of Main, should be held personally liable for the breach of trust on the basis that she was a constructive trustee.
[12] The case of Air Canada v M & L Travel Ltd, 1993 33 (SCC), [1993] 3 S.C.R. 787 is instructive in that regard. The case sets forth, at paragraphs 31 et seq, two general bases upon which a stranger to the trust can be held liable as a constructive trustee for breach of trust. First, strangers to a trust can be liable as trustees de son tort. Such persons, although not appointed trustees, "take on themselves to act as such and to possess and administer the trust property". A trustee de son tort will be held personally liable where he or she commits a breach of the trust while acting as trustee. A stranger to the trust can also be personally liable for breach of trust if he or she knowingly participates in a breach of trust. In addition to a trustee de son tort, there were traditionally two ways in which a stranger to the trust can be held personally liable to the beneficiaries as a participant in a breach of trust: as one in receipt and chargeable with trust property and as one who knowingly assisted in a dishonest and fraudulent design on the part of the trustees. The former category of constructive trusteeship has been termed "knowing receipt" or "knowing receipt and dealing", while the latter category has been termed "knowing assistance". This basis of liability raises two main issues: the nature of the breach of trust and the degree of knowledge required of the stranger. If the trust was contractually created, and it was here, then whether the stranger knew of the trust will depend on his or her familiarity or involvement with the contract.
[13] I am satisfied, based on the evidence before me and the submissions of counsel for the plaintiff and the submissions of Ms. Toman, that the defendants owe the plaintiff the amounts sought. I am satisfied that the defendant, Ms. Toman, as sole directing mind of the corporate, was aware of the fact that her corporation was to hold the tax refunds in trust for the plaintiff. Ms. Toman agreed on behalf of her corporation to these terms, as set forth in the Agreement signed by her with the plaintiff on December 11, 2008, acknowledged to RDP that the invoice of September 28, 2010 was owing, convinced the plaintiff to file an application for a second year, the tax year 2010, on behalf of the her company to assist her in obtaining tax refunds for 2010, from which she would pay the plaintiff. In such a case, Ms. Toman knew of the trust, knowingly participated in the breach of trust, was in possession of trust monies in the form of the refunds paid to the corporation and to be held in trust for the plaintiff, acted inconsistently with the terms of the trust, knowingly breached the trust and withheld the trust monies from the plaintiff. Accordingly, Ms. Toman is liable to the beneficiary as the constructive trustee. In such circumstances, I am of the view that Ms. Toman cannot hide behind the corporate veil and escape her company's commitment and agreement to the plaintiff. She is personally liable as a constructive trustee.
[14] The plaintiff further relies on RBC v Fogler Rubinoff, 1991 7071 (ON CA), [1991] O.J. No. 3390 for the proposition that where a corporate director knows of the trust, actually or constructively, takes possession of the trust property and acts inconsistently with the terms of the trust, they are liable to the beneficiary as constructive.
[15] I find that both defendants were aware of the trust, failed to remit funds, were in breach of the trust arrangement as set forth in the Agreement, and are liable to the plaintiff for the total amount owing to date which, including the accrual of interest on the invoices, amounts to $43,752.63. I declare that the monies owing in the total amount of $43,752.63 were imposed with the trust in favor of the plaintiff, that the defendant, Ms. Toman, knew of the trust, having signed the Agreement, but failed to honor that trust and therefore breached the trust. Accordingly, she, along with her corporation, are liable to the plaintiff.
[16] Based on the foregoing, I am satisfied that there is no genuine issue requiring a trial and that summary judgment should be granted.
[17] Accordingly, I Order it follows:
The defendants are both in breach of a trust agreement, pursuant to the Agreement signed by the defendant in the plaintiff on December 11, 2008;
The defendants, Main and Ms. Toman are to pay the plaintiff the sums owing of $29,792.99, comprised of the judgment of $20,265.45 and prejudgment interest of $9,527.54; and the sum of $13,959.64, comprised of the judgment of $9,495.47 and prejudgment interest of $4464.17;
The defendants are to pay to the plaintiffs the costs of this motion and action on a partial indemnity basis in the amount of $3,366.17;
The judgment of $29,792.99 bears interest at the rate of 24% per annum and the judgment of $13,959.64 bears interest at the rate of 24% per annum, pursuant to the invoices rendered, and the costs of this Judgment bear interest at the rate of 3% per annum, all from the date of this judgment.
Carole J. Brown J.
Released: February 28, 2014
COURT FILE NO.: CV-12-448699
DATE: 20140228
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RDP ASSOCIATES INC.
Plaintiff
– and –
MAIN PROTOTYPES LIMITED AND NANCY TOMAN
Defendants
REASONS FOR DECISION
Carole J. Brown J.
Released: February 28, 2014