COURT FILE AND PARTIES

COURT FILE NO.: CV-11-9062-00CL
DATE: 20140703

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: MARGARITA CASTILLO,

Applicant

AND:

XELA ENTERPRISES LTD., TROPIC INTERNATIONAL LIMITED, FRESH QUEST, INC., 696096 ALBERTA LTD., JUAN GUILLERMO GUTIERREZ and JUAN ARTURO GUTIERREZ

Respondents

BEFORE: Newbould J.

COUNSEL: Jeffery S. Leon and Jason W.J. Woycheshyn, for the Applicant

Joseph Groia and Kevin Richard, for the Respondents

ENDORSEMENT

[1] This application was started in January 2011. The applicant alleges that her father (Juan Arturo) and brother (Juan Guillermo) have conducted the business affairs of certain family companies in a manner that unfairly disregards her interests as: (i) a beneficial shareholder and director of Xela Enterprises; and (ii) a shareholder, director and officer of Tropic International.

[2] In April, 2011 the respondents commenced their own action against Margarita and others who have been referred to as the “foreign defendants”. The foreign defendants in that action contest the propriety of service on them ex juris and if not successful on that ground intend to contest the jurisdiction of the Ontario courts to deal with the claim against them. At one point the respondents moved to have the application converted into an action and consolidate it with their April 2011 action. That motion was abandoned in August 2013.

[3] The allegations in the statement of claim include allegations that Margarita breached her fiduciary duties to Xela. The applicant points out that none of the allegations in the pleadings in the action include any claim that she breached any duties owed to Tropic or its subsidiary Fresh Quest.

[4] The applicant now moves for directions regarding the hearing of the application. More particularly, the applicant states that it is possible to sever the Tropic issues from the Xela issues and she wishes to proceed with the application relating to the Tropic issues. The applicant takes the position that the Tropic issues are four, namely:

i. Does Margarita own her Tropic shares?

ii. What is the fair value of Margarita's Tropic shares?

iii. Is Margarita entitled to receive the fair value of her Tropic shares? and

iv. Is Margarita entitled to receive the fixed value of her beneficial interest in Xela?

[5] The respondents take the position that the Tropic and Xela issues cannot be severed and that an order should now be made that the application be heard as a whole and proceed as a trial rather than the hearing of an application. They assert that the trial could now proceed quickly and take no more than three or four weeks. They assert that any attempt to bifurcate the hearing to deal only with issues relating to Tropic is unrealistic and will unfairly deprive the respondents of an opportunity to call evidence and raise defences that they say illustrate that Margarita’s conduct as a whole regarding Tropic and Xela was the impetus behind any actions taken by the respondents.

[6] The applicant replies to this argument on a number of grounds. She asserts that the respondents have identified a number of witnesses that it will want to call at the trial of the application, including six of whom reside in Guatemala and are defendants to the action started by the respondents who are contesting the jurisdiction of this Court over them. The applicant believes that it would no doubt delay for months, if not years, any trial of her application. The respondents have asserted the existence of a conspiracy involving Margarita and Xela. Margarita asserts that it there is a fundamental unfairness in asking this Court to make factual findings on the existence of a conspiracy in the application when the alleged directing minds of the conspiracy (the cousins who are foreign defendants in the action) are not parties to the proceeding and takes the position that is contrary to the interests of justice to risk having these issues litigated in the application in the cousins' absence only to litigate the same issues years later in the action. The applicant asserts that it is not necessary to be put in this position as the issues regarding Tropic and Xela are separate.

[7] The applicant acknowledges that issues in her application relating to her beneficial interest in Xela may require a trial and that proceeding to an application hearing on all issues, including Xela, may result in the application judge ordering a trial of the issues and thus not be an efficient use of court resources. She says that because the Tropic issues are discrete, a more efficient and cost-effective adjudication would be to hear the application only on the Tropic issues. The applicant requests, however, in the alternative that all issues in the application now be heard. She states that while there will be possible inefficiencies with proceeding to an application hearing of all issues, any such inefficiencies pale in comparison to the inefficiencies and unfairness that would be created if the entirety of the application was converted to an action and she was forced to a trial at this stage.

[8] It is not clear to me whether the respondents take the position that there should be a trial of all issues in the application for tactical reasons. The applicant points out that the respondents’ tactics have changed over the course of this application and it may be that their tactic now is to prevent the application from being heard for some considerable time. I will assume that their position is not simply driven by tactics.

[9] The issue is what is the most just, fair and efficient procedure for the application to proceed. Both parties take the position that a motions judge may make an order under rule 38.10 that provides for orders to be made by an application judge hearing the application, including ordering any issue to proceed to a trial. See University Health Network v. Made in Japan Japanese Restaurants Ltd., [2003] O.J. No. 2026 and Keewatin v. Ontario (Minister of Natural Resources (2003) 66 O.R. (3d) 37. This is consistent with the principles recently enunciated by Karakatsanis J. in Hryniak v. Mauldin, 2014 SCC 7.

[10] I must say that it is not clear to me at this stage whether the Tropic and Xela issues in the application can or cannot be severed and whether a trial of one or more issues will be required. While there has been much argument in the written material by both sides, it really will take a close examination of the evidence to be presented to the application judge. If the applicant is right, it will be possible to proceed on the application to a decision as sought by the applicant relating to the Tropic issues as enunciated by the applicant. If not, and evidence is required to be tried by a trier of fact to determine those issues, that will have to be ordered.

[11] For that reason, I am not persuaded that it should now be ordered that the applicant must proceed with both the Tropic and Xela portions of her application and or that all issues should now be sent to a trial. The applicant should be entitled to proceed as requested.

[12] I therefore direct the parties to agree on a timetable for all steps necessary to have the issues relating to Tropic in the application heard by an application judge. A 9:30 a.m. appointment is to be taken out with me to settle the timetable.

Newbould J.

Date: July 03, 2014