COURT FILE NO.: 48569/06

DATE: 2014/12/22

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1162740 ONTARIO LIMITED, JOSEPH PINGUE and SABATINO PINGUE JR.

Plaintiffs

• and -

VENANZIO PINGUE, 2077626 ONTARIO INC. and 912618 ONTARIO LIMITED

Defendants

M. Kenneth Douglas, for the Plaintiffs

Timothy R. Pedwell, for the Defendants

HEARD: October 7, 8, 9, 10, 11, 15, 16, 17, 18, 21, 22 23, 24, December 9, 10, 11, 12, 17, 18, 19, 20, 30, 31, 2013, January 2, 8, 9, 10, 13, 14, 15, 16, 17, March 24, 25, 26, 27, April 3, 4, August 5 & 6, 2014

The Honourable Madam Justice L.M. Walters

Overview

[1] Two brothers and a cousin were the closest of friends until they decided to become business partners in an apartment building. Now, after 40 days of trial and thousands of dollars in legal fees, this family is forever fractured.

[2] This is an action against the defendants for various breaches of fiduciary duty, theft, fraud and misappropriation of funds. In addition, the plaintiffs seek a tracing of funds which went into three real properties purchased by the defendants.

[3] The defendants deny any wrongdoing and ask that all claims be dismissed with costs.

The Parties

[4] Joseph Pingue (hereinafter referred to as “Joe”) is the first cousin of the co-plaintiff, Sabatino Pingue (hereinafter referred to as “Tino”). Tino is the brother of the defendant, Venanzio Pingue (hereinafter referred to as “Venanzio”).

[5] 1162740 Ontario Limited (hereinafter referred to as “116”) is the corporation which took title to the apartment building in question, namely 315 Glendale Avenue, St. Catharines, Ontario, (hereinafter referred to as “315”).

[6] 912618 Ontario Limited (hereinafter referred to as “912”) and 2077626 Ontario Inc. (hereinafter referred to as “207”) are Ontario corporations whose only officer and shareholder is the co-defendant, Venanzio.

Credibility

[7] Over the course of this lengthy trial, the court heard from several witnesses and voluminous materials were filed as exhibits. For the purposes of these reasons, I will not review in detail the evidence of every witness, nor will I summarize the volumes of exhibits filed. Instead, when making findings of fact, I will reference the necessary evidence in support of same.

[8] In making my findings of fact, the court was often faced with contradictory evidence between the three business partners, namely, Joe, Tino and Venanzio. For the reasons which follow, the court has been unable to place much if any reliance on the evidence of Venanzio. I found his evidence, for the most part, unbelievable. Venanzio appeared to say whatever he felt would advance his case irrespective of any evidence to the contrary. Where the evidence of Venanzio conflicts with the evidence of any other witnesses, I have accepted the other witnesses’ evidence.

[9] The court heard evidence from Joseph Pingue, Sabatino Pingue, Venanzio Pingue, Joseph Zabek, Brian St. Hilaire, Robert Forsyth, Darren Chapelle, Karen McMaster and Paula Dyck. In all cases, save and except for Venanzio Pingue, the witnesses gave their evidence in a straightforward manner. They were not seriously challenged on cross-examination. No one was caught in any outright lie or fabrication. In some cases, certain witnesses, for example Karen McMaster, Joseph Zabek and Paula Dyck, were unable to recall with particularity many of the events in question due to the passage of time. However, there was no suggestion that they were less than truthful in the evidence that they did recall. The same cannot be said for Venanzio Pingue.

[10] Venanzio’s evidence was fraught with inconsistencies and outrageous explanations.

[11] Most troubling was Venanzio’s testimony regarding what he said was his agreed compensation for managing the apartment building. He testified that he, Joe and Tino agreed that he would receive 3% of the gross rents, plus one month’s rent for each 12 month lease. This information was provided at trial for the first time despite some almost seven years of litigation. The problem with this evidence is that this assertion was never set out in the statement of defence, nor was this supposed agreement put to either Joe or Tino during their cross-examination. This evidence was not given on Venanzio’s examination for discovery. Although Venanzio was the individual instructing the corporate accountant, this information was not contained in any of the financial statements. I find this evidence by Venanzio is a complete fabrication on his part, in order to justify monies he felt he was entitled to as a management fee. More egregious, in order to support this fabrication, Venanzio, at trial, during the course of his examination in-chief, for the first time, attempted to produce spreadsheets which he said had been on his computer and had been shared with Joe and Tino, showing calculations of what he felt was owing to him as a management fee. Knowing that his compensation was a central issue, these documents were never produced until after the close of the plaintiffs’ case and were never put to either Joe or Tino in their cross-examination. Again, I find these alleged spreadsheets are a complete fabrication after the fact, prepared by Venanzio, in order to support his position before the court. These outright deceptions have seriously undermined Venanzio’s credibility with the court and have overshadowed the totality of his evidence.

[12] Venanzio further testified that he understood from the beginning that 116 was holding title to the apartment building as a bare trustee and that he, Tino and Joe were the owners of the property. Venanzio went on to give evidence about how this bare trustee was discussed at the time of closing, how it was explained to him and how he understood the purpose of the nominee agreement. In chief, he also testified that he and Karen McMaster, the first accountant for the corporation, discussed this bare trustee. In cross-examination, he resiled from that position and said he didn’t discuss it with her and then thereafter indicated that well perhaps he did. His evidence flies in the face of every other witness who testified about this matter. Both Joe and Tino indicated that they knew nothing about a bare trustee. As far as they were aware, the apartment building was owned by 116. Mr. St. Hilaire, the corporate accountant testified that the issue of the bare trustee was a surprise to Venanzio. Karen McMaster herself testified that she did not even know what a bare trustee was and that she had to Google it in order to inform herself. Further, all financial statements and income tax returns filed on behalf of the corporation were done on the basis of 116 owning the apartment building. The court would have to disbelieve every other witness who testified on this subject in order to accept the testimony of Venanzio. Once again, I conclude that Venanzio lied to the court in order to support his position in this law suit.

[13] When challenged as to why the financial statements and income tax returns were prepared showing that 116 owned the corporation, instead of as a bare trustee, Venanzio could not give a plausible answer. Instead, he blamed Joe’s non-resident status. He kept contacting Joe and asking him to deal with this issue but Joe kept putting him off. Again, this proposition was never put to Joe during his cross-examination.

[14] Venanzio testified that he advised Mr. Zabek, his solicitor, that he paid Joe for his shares. This is in direct contradiction to the evidence of Mr. Zabek.

[15] Venanzio testified that Mr. St. Hilaire had all the legal documents pertaining to 116’s set up in 1998. Mr. St. Hilaire denied this and testified he only received this information in 2002.

[16] Venanzio’s evidence at trial even contradicted the admissions he made in his statement of defence.

(a) For example, at trial, Venanzio made much about the fact that the documents were not executed on April 29, 1996. However, in para. 1 of the statement of defence, Venanzio admits that the shareholders agreement was executed by all the parties on April 29, 1996.

(b) In para. 5 of his statement of defence, he indicated that “no bare trust existed in the corporate (sic) holding assets for the personal parties.” Here at trial, much evidence was given regarding Venanzio’s assertion that he knew that 116 was a bare trustee for the shareholders.

(c) In para. 6 of the statement of defence, Venanzio alleges that his shares were paid for by the work he performed on a full time basis. Yet, in para. 19 of the same statement of defence, he said that he paid $58,608.00 to the corporation on account of the 1996 promissory note which paid for his shares.

(d) Despite his explanation at trial about the management fee, in para. 10 of the statement of defence, he indicated that his living expenses would be paid for by the corporation and he would be entitled to a fair and reasonable compensation. He stated that no further agreements or arrangements were made in regards to the manager’s fee.

[17] Venanzio’s evidence at trial was often at offs with the evidence he gave at discovery. His explanation for the discrepancies, in most cases, defied credibility.

[18] I need not go on. Venanzio’s credibility is in shambles.

Issues to be Determined

[19] With this background, I now turn to the issues to be determined by the court.

[20] Before deciding what, if any, monies Venanzio may have misappropriated from 116, one has to look at the agreement between the parties as to what monies Venanzio was entitled to. In this regard, the court must also determine whether or not Venanzio is a shareholder in the corporation. Only after making these determinations can the court consider whether any monies have been improperly removed from the corporation. Therefore, the issues to be determined are as follows:

1. What was the agreement between the parties?

2. Is Venanzio a shareholder of 116? In other words, did he pay for his shares?

3. What monies was Venanzio entitled to receive from 116?

4. What monies did Venanzio take/receive from 116?

5. Has Venanzio breached his duties and obligations as an officer and director of 116?

6. What is the appropriate remedy for breach of fiduciary duty and misappropriation of funds?

7. What was the agreement between the parties?

(a) Evidence of the Parties

Joseph

[21] Joe testified that he was approached by his uncle, Sam Pingue Sr., sometime in March 1996, regarding the acquisition of an 80 unit apartment building located at 315 Glendale Avenue, in St. Catharines. Joe analyzed some financial feasibility information regarding the project. Ultimately, an offer to purchase was negotiated and signed by Uncle Sam, in trust, for a company to be incorporated. Joe would front the money necessary to purchase 315 and he would give his cousins’ family an opportunity to purchase up to 50% of the shares of the company to be incorporated. He would advance the money, interest free, for a period of five years.

[22] It was his understanding that the corporation would own the property. He didn’t want anything in his name. As he was fronting all of the money, he would own all of the shares and his cousins would be able to redeem the shares from him. It was only after they purchased their shares would they then be entitled to any of the profits from the business. Until then, he was entitled to all of the profits. If any of the profits were re-invested for capital improvements, then those monies would also be considered a loan from Joe to his cousins. It was money that he was entitled to receive and instead he was paying it back into the company.

[23] The incentive to his cousins to purchase the shares quicker would be that they would be owners and be able to share in the profits. Their cost of the shares would continue to increase the longer they took to repay the money. He was adamant that this was the absolute understanding between all three cousins.

[24] With respect to the corporate documentation, he denied ever receiving the memorandum prepared by Mr. Marinucci. He never gave these instructions to Mr. Zabek and the terms in that memorandum were not in accordance with the agreement made between the cousins. Although accurate that there would be 1,000 common shares, his cousins did not have a beneficial ownership until such time as he received the monies that he advanced on their behalf. The memorandum did accurately state that he was to receive all the profit from the corporation until the cousins paid their shares.

[25] Joseph testified that he first saw the corporate documents prepared by Mr. Zabek on April 19 when he delivered the cheque necessary to complete the transaction. However, he did not look at the documents until they were signed on the 29th. He did not review the documents. On the day of closing, there was a flurry of paperwork and he just signed what he was told to. The closing of the building was delayed because, once he and Venanzio inspected the property on April 22, they found several misrepresentations. He was not prepared to close the transaction unless there was some re-negotiation. His Uncle Sam met with the owner of the property and the terms of the sale were changed so that the amount of the down payment was reduced and the second mortgage was increased to $125,000.00 to be paid over five years with no interest.

[26] Joe acknowledged signing all of the corporate documentation. Despite the clear reading of the initial agreement, Joe did not understand that the company was going to be a bare trustee. Nor did he think that his cousins and he would be co-owners. His cousins would only be owners after they paid for their shares. The initial agreement reflects the instructions received from Mr. Marinucci but did not reflect the agreements between the cousins.

[27] There was never any discussion of a promissory note and one was never prepared. No money was owed to the corporation. His cousins owed him the money personally. Although the initial agreement indicated that there would be no wages, it was ultimately agreed that Venanzio would receive $1,000.00 a month or $12,000.00 a year. In addition, he would be allowed to have a unit which was renting for $600.00 or $700.00 a month and his phone, cable and utilities would be paid.

[28] Joe testified that he knew nothing about the nominee agreement and as far as he is concerned, it was never utilized.

[29] He received a copy of the reporting letter which confirmed his understanding that the property was in the name of the corporation absolutely. There was no mention of a bare trustee.

[30] He understood the security agreements to be very clear that his cousins were signing over their beneficial ownership in the company to him, along with their shares and any profit, until they each paid him $37,000.00 U.S. ($50,000.00 Canadian). If the amount he contributed increased, the amount of the indebtedness by his cousins would also increase.

[31] Although the shareholders’ agreements indicated that the corporate accountant would be Mr. Marinucci, that was never the case. Venanzio, instead, chose to use Karen McMaster. He did not review in detail any of these documents and just signed what was presented to him on April 29.

[32] The financial statements and income tax returns of 116 were completed on the basis that 116 was the absolute owner of 315. It was not until August 2003 when Joe requested copies of the minute book from Mr. Zabek that he was advised that the corporation was a bare trustee.

[33] In terms of his own personal income tax returns, he never treated 116 as a bare trustee.

Tino

[34] Tino testified, in February 1996, the former owner of 315, Mr. Zago, approached his father because he wanted to sell the building. His father then contacted his cousin, Joe, and a decision was made to purchase the property. His father contacted Joe because he was unable to purchase the property himself due to several legal judgments against him. At this point in time, neither Tino nor his brother, Venanzio, had any money to invest in the property.

[35] Joe advanced all the money for the deal. Prior to closing, Joe and Venanzio took a look at the building and determined that there had been some misrepresentations and the deal needed to be re-negotiated. His father and Mr. Zago hashed out the deal at the eleventh hour.

[36] The agreement was that Joe would have a 50% interest in the building, Venanzio would have 25%, and Tino, along with his other siblings, would have 25%. Twenty-five percent of the original down payment was approximately $37,000.00 U.S. ($50,000.00 Canadian). Tino hoped that he would be able to pay for his loan sooner and start getting some returns on his money. The money that Joe advanced on his behalf and Venanzio’s behalf was money that was owed to Joe. Tino’s understanding was that they would get their shares when they paid Joe back this original loan.

[37] There was never any discussion about Joe being a non-resident. That issue only came up once the law suit started.

[38] The memorandum from Mr. Marinucci did not accord with the discussions he had with Joe and Venanzio. Their discussions were that they would incorporate a company to purchase the building. There was never any discussion of a bare trustee.

[39] At the time of closing, there was not much talk about the documentation. They were just told to sign.

[40] He reiterated that his understanding of the deal was that Joe would front the money. He and Venanzio had five years to repay the money. When they paid back the original $37,000.00 U.S. plus any additional payments Joe made, they would receive their shares. If they had paid $37,000.00 U.S., as soon as the deal closed, they would have been fully vested.

[41] Tino testified that there was always a conversation with Joe when the second mortgage came due. Joe would ask Tino if he had any money. Tino would say no and then Joe would have to front the money for him.

[42] On April 29, they were not even sure that the real estate deal was going to close. The lawyers were going back and forth and his father re-negotiated the deal with Mr. Zago. He recalls that they were all ushered into the boardroom and started signing documents. Paper was flying everywhere. It came to light later that some things were not signed. As far as he was concerned, that didn’t matter. His understanding of the deal was pretty cut and dry. Joe would hold his shares in trust until he and Venanzio were able to pay the initial loan and any additional monies that Joe advanced. He further testified that there was no explanation by Mr. Zabek regarding this arrangement. Mr. Zabek did not go through the documentation line by line. There was never any use of the words “bare trustee.” H did not read the corporate documentation; he just signed it. He understood that the shareholders agreement would not take effect until he became a shareholder. If he and Venanzio did not pay their money, they weren’t shareholders. The profits of the company would go to Joe until they paid Joe back the money he advanced to them.

[43] As far as he is concerned the nominee agreement has no effect because there is no bare trustee. He understood the security agreement to represent that Joe was holding his shares as security for the money he advanced on his behalf. Once the money was repaid, he would be vested. If he didn’t pay, he couldn’t be a shareholder.

[44] He acknowledged that although receiving the reporting letter, he didn’t recall reading it. He just put it in a drawer.

[45] Tino went through the actual share certificates and acknowledged that after he and Venanzio each got 250 shares, they transferred their 250 shares back to Joe, in trust. The top of his share certificate has the word “cancelled” written on it. However the back of the certificate was never signed. The fact that it was not signed did not matter. Tino knew that Joe was holding the shares until he paid for them.

Venanzio

[46] Venanzio’s father told him that 315 was for sale. He had discussions with Joe who was interested in acquiring a property in St. Catharines. He and Joe went into the building before April 22 and found several deficiencies. As a result, the agreement of purchase and sale was renegotiated and an amending agreement was prepared.

[47] Venanzio testified that the corporate documents were signed prior to April 29. Despite the admission in the statement of defence, Venanzio insists that he was not present on April 29. He was only there to pick up the keys. He also testified that Joe was not present on the 29th as he left on the weekend before and returned to Ohio.

[48] He testified that there were no discussions regarding the memorandum. He didn’t question it; he assumed that Mr. Zabek was acting in their best interests. Venanzio further testified that the memorandum accurately reflected their agreement. It was his understanding that Joe would receive 100% of the income from the building. Joe would advance all the money on their behalf. He understood the ownership structure would be that Joe would own 50%. He and Tino would each own 25%. They were approved to take over the mortgage.

[49] Venanzio testified that the initial agreements, although dated April 18, were signed some time before the 29th, on either the Thursday or the Friday. He said that the agreement was explained by Mr. Zabek. When asked about the promissory note, he was told that it was referred to as a security agreement. It was explained that Joe advanced the funds in U.S. dollars and that he and Tino were responsible for 25% of what was advanced. It was his understanding that he and Tino were owners and Joe would have security like a mortgage on their shares. But all three of them definitely had ownership.

[50] There was never any definition of capital improvements. Mr. Zabek told him this was a matter to be dealt with by the accountants.

[51] Venanzio understood the nominee agreement to say that 116 held title to the building. He, Joe and Tino had shares that were owned personally. He said the bare trustee was set up through Sam Marinucci and that this allowed them to retain title personally and any increase or losses would be taken personally for accounting purposes. He said this was for everyone’s benefit and that the nominee was holding title but that the nominee didn’t own the assets. He testified that he understood the purpose of this nominee agreement and why they signed it.

[52] His understanding of the security agreement was that security was given to Joe until there was a repayment of the money advanced. Joe got the profits. They had five years to repay the money advanced with no interest. A partial payment could be made. If they didn’t pay in five years, then there would be interest. There was no discussion about what would happen if Joe made further advances. This agreement deals only with the original $37,000.00 U.S. that was owed by he and Tino.

[53] With respect to the shareholders agreement, again he indicated that this was signed prior to April 29. He testified that Mr. Zabek highlighted specific points. Paragraphs 18 to 22 were covered in detail. He said this was the key document as to how the business was to carry on. The consent of all shareholders was necessary.

[54] The share certificates came from the corporate minute book and were signed on April 26. He denied that there was ever any suggestion that he missed signatures on any of the documents. He said that everyone read the by-laws and all the directors and shareholders were asked to sign the documents. Although his signature is not on one of the documents, he thinks that it was just an oversight.

[55] He indicated that Karen McMaster did not do the financial statements properly in accordance with the legal documents she received. Venanzio did not instruct her. Instead, he gave her all the legal documents and told her to contact Mr. Zabek directly. He did not tell her to ignore the corporate structure. In his examination in-chief, he testified that he and Karen McMaster discussed the bare trustee and the non-resident issue as it related to Joe. In cross-examination, he denied that he told Karen about the bare trustee. Later, he said he may have discussed it with her, but he gave her instructions to contact Mr. Zabek. Venanzio also testified that he told Mr. St. Hilaire about the bare trustee.

[56] Although he acknowledged that he pledged his interest of $50,000.00 Canadian in the security agreement, he denied that he was giving his ownership to Joe. He felt that Joe had a mortgage on his shares.

[57] He further testified that although the security agreements indicated that Joe would be repaid 25% of amounts he advanced to the corporation, Venanzio indicated that that was not how he interpreted it. He thought he was only responsible for 25% of the money that Joe advanced on closing. Any further monies would be paid from the corporation. When Venanzio was asked why the statement of defence indicated that the bare trustee was not an issue, Venanzio testified that it was overlooked. Although the corporation was never run as a bare trustee, the agreement was still there. Every time the issue came up, Joe said he would get back to him. Venanzio testified that Mr. St. Hilaire was given all the legal documentation when he was retained.

[58] With respect to the original minute book and shares, Venanzio testified that the shareholders ledgers were prepared after the fact. He did not transfer his shares to Joe. He still has full ownership.

(b) Other Evidence

Joseph Zabek

[59] Mr. Zabek was the corporate solicitor for 116. Sam Pingue was a long-standing client and the father of Tino and Venanzio. Sam gave him instructions. Sam provided him with an agreement of purchase and sale regarding a property that he purchased in trust. Sam Marinucci was Sam Pingue’s accountant and Sam Marinucci was to be the accountant for the corporation. Sam Marinucci sent him a memorandum as to how the company was to be set up. It was to be a bare trustee corporation. Joe was to provide all the money and Joe was to receive all the income until each of Tino and Venanzio paid 25% of the monies advanced and then they would become beneficial owners.

[60] Mr. Zabek testified that the amending agreement was signed the same day as closing. It was a hectic day. A number of documents were explained and executed before going to the Registry Office.

[61] Mr. Zabek testified that all parties understood that if there were any capital expenditures made by the corporation, then this added to the amount that Joe was owed and reflected the amount of money he put into the corporation. Mr. Zabek assumed that Joe wanted to be repaid as soon as possible. He did not believe that promissory notes were ever prepared. Mr. Zabek was led through all of the corporate documentation and re-enforced that Joe was the absolute owner until he was paid. That was the intention of the parties.

[62] When asked why the back of the share certificates were not signed, Mr. Zabek indicated it was a hectic day and there were a lot of documents being signed and that this matter slipped through the cracks. It was his evidence that shares were issued to all three parties on April 18 when the company had no assets. Tino and Venanzio’s shares were cancelled on April 29 and a new share certificate, in trust, was issued to Joe for their 500 shares. He indicated that Tino and Venanzio gave up their beneficial ownership but had an equitable right to buy their shares back from Joe.

[63] Following closing, the parties did not come back and sign the updated minute book despite his reporting letter to them explaining their responsibilities under the Business Corporations Act. It wasn’t until he was contacted by Brian St. Hilaire in January 2002 that he became aware that the corporation was not being operated as a bare trustee but rather as the beneficial owner of the land. He forwarded the corporate documents to Mr. St. Hilaire.

Brian St. Hilaire

[64] Mr. St. Hilaire, the current corporate accountant for 116, and the accountant since 1999, testified that he was first contacted by Venanzio in 1999 to prepare the financial statements and income tax returns for the 1998 year for 116.

[65] Venanzio told him he was a 25% shareholder and he had no reason to question this. He took all his instructions from Venanzio. He did not meet Joe or Tino until 2002.

[66] Mr. St. Hilaire further testified that he believed that 116 was the beneficial owner of the apartment building. The corporate tax return form specifically asks if a corporation is a bare trustee and that question had not been answered in the affirmative on any previous returns nor on any returns prepared by Mr. St. Hilaire after 1998.

[67] Mr. St. Hilaire explained the basics of a bare trustee. The corporation does nothing but hold title to the property. The beneficial owners of the trust are the individuals. Income and expenses are reported by each individual in accordance with their pro rata share.

[68] Mr. St. Hilaire testified that he first became aware that the corporation was a bare trustee when he received a letter from Mr. Zabek, dated January 16, 2002. There was a meeting he attended with Venanzio and Mr. Zabek. It was clear to Mr. St. Hilaire that Venanzio did not understand the reporting requirements and the fact that the corporation was a bare trustee was, in his view, a surprise to Venanzio.

Karen McMaster

[69] Karen McMaster was the corporate accountant for 116 for the 1996 and 1997 years. She prepared the income tax returns and financial statements for the corporation for those two years. Ms. McMaster testified that she did not even know what a bare trustee was. She Googled it and it is quite likely that if she knew that 116 was a bare trustee, she probably would not have accepted the engagement. She was not aware that Joe Pingue was a non-resident, but she did not know the effect if a non-resident owned 50% or more of the shares. She never dealt with any non-resident Canadian controlled private corporation. Throughout her engagement, she dealt only with Venanzio.

(c) The Corporate Documents

[70] The initial agreement for the purchase of 315 was negotiated by Sam Pingue with the assistance of Joe. A copy of that original agreement of purchase and sale is filed as Exhibit 1, Volume 6, Tab 5. Sam Pingue was shown as the purchaser in trust for a corporation to be incorporated.

[71] All legal documents were prepared by Joseph Zabek, the corporate solicitor for Sam Pingue. Mr. Zabek had also done legal work for both Tino and Venanzio.

[72] Mr. Zabek explained that the basics of the agreement he prepared were set out in a memorandum prepared by Sam Marinucci (Sam Pingue’s accountant) on April 16, 1996. A copy of that memorandum is filed as Exhibit 1, Volume 1, Tab 1.

[73] The outline of the suggested structure for the purchase of 315 was as follows:

• Legal title would be in the name of a trustee corporation.
• The corporation would have a minimum of 1,000 common shares, 25% to be owned by each of Venanzio and Tino and the remaining 50% to be owned by Joe.
• A trust agreement was to be prepared to reflect beneficial ownership as follows: Joe 50%; Venanzio 25%; Tino 25%.
• Joe to provide all cash required for closing.
• Joe was entitled to 100% of income from the property until each of Venanzio and Tino reimbursed him for their 25% of the monies required to purchase the property. Thereafter, income would be split according to beneficial interests.

[74] On April 18, 1996, 116 was incorporated. The incorporators and first directors were listed as Tino and Venanzio. Mr. Zabek prepared an initial agreement which on its face was dated the April 18, 1996 between Joe, Venanzio and Tino. The agreement reflects the particulars set out in the Marinucci memorandum.

[75] The preamble of that initial agreement provided that 1162740 Ontario Limited was incorporated for the sole purpose of holding the property as a bare trustee with no beneficial interest and without assets and the parties would be co-owners of the property.

[76] That agreement further provided that the co-owners agreed that legal title to their respective undivided interest would be as tenants in common, with Joe holding 50%, Venanzio 25% and Tino 25%.

[77] The agreement stipulated that a trust agreement was to be signed by the co-owners.

[78] Joe was to advance all money to be used to acquire the property (a total of $148,000.00 U.S., or the equivalent of $200,000.00 Canadian).

[79] Venanzio and Tino agreed to reimburse Joe one-half of the monies he advanced. They also agreed that until such time as they each repaid Joe 25% of the money that he advanced, Joe would be entitled to all the profits derived from the property. As Venanzio and Tino repaid the funds to Joe, they would be entitled to their proportionate share of the profits from the date the payment was made.

[80] The co-owners also agreed that the company was to grant each party a promissory note bearing no interest for the amount of the respective advances.

[81] If there were insufficient funds to pay the debts of the company, the deficiency was to be shared 50% by Joe, 25% by Venanzio, and 25% by Tino.

[82] If there was ever a surplus of funds, the co-owners would receive the surplus proportionate to the co-ownership interest. The parties also agreed that none of the parties would be entitled to any payment for wages or fees for services rendered to the company, unless the payment was mutually agreed to by the parties.

[83] If the company paid for any capital improvements to the property from the profits or rent before the repayment of the 25% by each of Venanzio or Tino, then those capital amounts would be added as a capital contribution by Joseph and were to be repaid in the same proportion as the original contribution made by him.

[84] Mr. Zabek also prepared a shareholders agreement between 116, Joe, Venanzio and Tino. The beneficial owners of the shares of the corporation were as follows: Joe - 500 common shares; Venanzio - 250 common shares; and Tino - 250 common shares. The entirety of the agreement was filed as Exhibit 1, Volume 1, Tab 5.

[85] The shareholders agreement set out that there would be three directors and that the accountant of the corporation would be S. Marinucci. Joe was named the president, Venanzio the treasurer and Tino the secretary of the corporation. The quorum for directors and shareholders meetings was set at three.

[86] Mr. Zabek prepared a nominee agreement between the co-owners, namely, Joe, Venanzio, Tino and 116. The preamble of the nominee agreement stated that the co-owners were the beneficial owners of 315 and that the nominee had no beneficial interest in the land but would hold the registered title to the land as a nominee and bare trustee for the co-owners.

[87] Two security agreements were prepared: one between Tino and Joe, and the other between Venanzio and Joe. Both agreements are identical. The relevant portions of those security agreements are as follows:

• Tino and Venanzio granted Joe a security interest in all of their beneficial interest in 315 and all shares in 116.
• The collateral included the beneficial interest in 315, the shares of 116, and all profits of the venture.
• Venanzio and Tino assigned to Joe all their beneficial interest held by 116 to be held by Joe to receive all benefits, profits and ownership of the interest until such time as Venanzio and Tino repaid the sum of $37,000.00 U.S. ($50,000.00 Canadian).
• Venanzio and Tino were at liberty to repay this $37,000.00 U.S. ($50,000.00 Canadian) with no interest any time up to five years provided they were solvent.
• If either Tino or Venanzio declared bankruptcy or insolvency, then their right to repay the debt and obtain the security would terminate and it was agreed that Joe would then remain the absolute owner of the security.
• The security agreements were signed on April 29, 1996.

[88] Mr. Zabek sent a reporting letter to each of Joe, Venanzio and Tino regarding the incorporation of 116 on May 10, 1996. In that letter, copies of the shareholders agreement, nominee agreement, initial agreement and the security agreements were provided to each of Joe, Venanzio and Tino.

[89] Then, on June 18, 1996, Mr. Zabek forwarded to Joe, Venanzio and Tino a reporting letter regarding the purchase of 315 by 116. In that letter, Mr. Zabek advised the parties that “116 is the absolute owner of the above property with a good and marketable title to the same in fee simple.” There was nothing in this reporting letter which referred to any bare trustee.

[90] Interestingly though however, the letter does advise the parties that the original agreement was entered into by Sam Pingue in trust and a declaration was enclosed advising that Sam had no beneficial or monetary interest in the project and acted strictly as a bare trustee on behalf of the parties.

[91] Mr. Zabek prepared the corporate minute book along with share certificates for each of Joe, Venanzio and Tino.

[92] The shareholders registers and corresponding share certificates show that on April 18, 1996, Joseph received 500 common shares, Venanzio received 250 common shares, and Tino received 250 common shares. These three transactions are dated April 18, 1996.

[93] The shareholders ledger shows that on April 18, 1996, Joe acquired 500 common shares, Venanzio 250 and Tino 250.

[94] On April 29, 1996, there is recorded a transfer of Venanzio’s 250 shares to Joe, in trust. A similar notation dated April 29, 1996 is shown on Tino’s shareholders ledger wherein his 250 shares were transferred to Joe, in trust. There is a shareholders ledger in the name of Joe, in trust, showing that on April 29, 1996, he acquired from Venanzio and Tino 500 shares.

[95] Share certificate No. 1 shows Joseph holding 500 common shares. Share certificate No. 2 shows Venanzio holding 250 common shares. Share certificate No. 3 shows Tino holding 250 common shares in 116. All three of these share certificates have been signed by Joe and Tino and are dated April 18, 1996.

[96] Share certificate No. 4 shows Joe, in trust, holding 500 shares of 116. This share certificate is dated April 29, 1996 and although there are signing lines for Joe and Tino, that share certificate was not signed.

[97] Share certificates No. 2 and 3 have written across the top of the certificate the word “cancelled.” The back of each of these two certificates are not signed but there is a signing line and below the signing line, there is the name Venanzio and Tino on each of their respective shares.

[98] The minute book contained what can be called the standard resolutions and by-laws. This minute book was not kept up-to-date and neither Joe, Tino nor Venanzio ever signed any of the other documents which may have been placed in the minute book.

[99] Financial statements and income tax returns were prepared for 116 each year. In 1996 and 1997, those statements and returns were completed by Karen McMaster. Thereafter, starting in 1998, the financial statements and income tax returns were prepared by Brian St. Hilaire of MacGillivray & Co. Except for 1996, those financial statements and returns have been filed with the court.

[100] In each and every year, the statements and income tax returns were completed as if 116 was the beneficial owner of 315. There is no mention whatsoever of any bare trustee.

Position of the Parties

The Plaintiffs

[101] The plaintiffs argue that the corporate documentation is not an accurate reflection of the agreement of the parties.

[102] Joe, Venanzio and Tino agreed that they would incorporate a company. That company would purchase 315. All money necessary to purchase that company ($200,000.00 Canadian), would be advanced by Joe. Joe would have 50% of the shares of the corporation and each of Tino and Venanzio would have 25% of the shares.

[103] Joe would hold Tino and Venanzio’s shares, in trust, until such time as Tino and Venanzio repaid Joe for his initial investment in the corporation ($37,000.00 U.S. or $50,000.00 Canadian) plus their proportionate share of any additional monies Joe invested in the company. Those additional monies would either be through direct injection of capital or by use of the profits of the corporation that were re-invested in the corporation.

[104] Until the shares were redeemed or paid for, the beneficial owner of all shares remained Joe. Venanzio and Tino had an equitable interest to redeem the shares. The money advanced was interest free for five years.

[105] The issue of the bare trustee is a red herring in this litigation. This bare trustee was never the understanding of the parties from day one and the corporation was never run in that fashion. The income tax returns and financial statements accurately reflect how 116 was treated.

[106] In their statement of defence, the defendants acknowledge that no bare trust existed. This issue has only been raised in the law suit in order to support the defendants’ position.

[107] The plaintiffs acknowledge that the corporate documents as prepared by Mr. Zabek were signed by them, however, they deny reading or understanding the meaning of this bare trustee. In any event, the contracts themselves were ignored and not followed by any of the parties. In essence, the parties agreed that 116 would be the beneficial owner of 315 and the terms of the documentation signed were varied by agreement of the parties to coincide with their actual intent.

The Defendants

[108] The position of the defendants is that the corporation was to be a bare trustee. Each of Venanzio, Tino and Joe were to be the absolute owners of 315. Profits and losses were to be declared by each of them in their personal income tax returns. This was not done because of an error on the part of the accountants whom Venanzio provided all documentation to.

[109] According to the defendants, the agreement between the parties was that Joe was the absolute owner of 50% of the shares. Venanzio and Tino were each the absolute owners of 25% of the shares.

[110] The security agreement executed by the parties was like a mortgage. It was not a transfer of ownership. The security agreement only covered the original $37,000.00 U.S. or $50,000.00 Canadian advanced by Joe. There was no provision for future injection of capital.

[111] It was Venanzio’s understanding that if Joe invested or paid more money to the company, then this money was owed to Joe from the company, not from him or his brother, Tino.

[112] The defendants’ position is that the agreements are clear on their face and they represent the agreement between the parties. The court cannot use parol evidence to change the terms of the contracts. Pursuant to the terms of those agreements, all shareholders and directors resolutions required unanimous approval of all three partners.

Discussion

[113] To say that the corporate documentation was a mess is an understatement.

[114] On the face of it, 116 was set up as a bare trustee for the purchase of 315. Joe, Tino and Venanzio were to be the absolute owners. Despite this, the corporation was treated throughout as the absolute owner.

[115] I accept the evidence of Joe and Tino regarding the money advanced by Joe, the ownership of the shares and the transfer of beneficial ownership to Joe until such time as Joe had been repaid the money he advanced. Their evidence was consistent throughout and was not seriously challenged on cross-examination. Further, their evidence regarding the intention of the parties is corroborated by the evidence of Mr. Zabek, who prepared the corporate documentation. Unfortunately, that corporate documentation as prepared did not accurately reflect what Mr. Zabek indicated he understood the intention of the parties to be.

[116] In addition, the parties’ conduct after the execution of all the documentation is inconsistent with the version of events as described by Venanzio.

[117] I do not need to repeat that I do not accept much of Venanzio’s evidence due to his lack of credibility.

[118] If the agreement was anything but as testified to by Joe and Tino, one would question why Joe would need to contact the parties requesting their contribution to the repayment of the second mortgage each year. As well, his letters to his cousins setting out what he felt he was owed, with no response from Venanzio or Tino, makes absolutely no sense whatsoever if his cousins’ obligations to him were restricted to the initial $37,000.00 U.S. ($50,000.00 Canadian).

[119] On the face of the security agreement, it is clear that Venanzio and Tino signed all beneficial interest, including the shares, to Joe.

[120] Even on equitable principles, it would be unreasonable to accept that Joe would advance all the necessary money and that somehow, without being repaid, Venanzio or Tino would be able to share in the benefits of this business venture. There is no suggestion whatsoever from any witness that Joe was making a gift to either of his cousins, save and except for the interest free period to repay the monies advanced. The financial statements prepared by the two corporate accountants, first Karen McMaster and, thereafter, Brian St. Hilaire, also reflect monies owing to Joe.

[121] Prior to any law suit being commenced, Tino repaid a total of $75,000.00 to Joe. There would be no reason for any payment in excess of $37,000.00 U.S. ($50,000.00 Canadian) if in fact the agreement between the parties was that only $37,000.00 U.S. ($50,000.00 Canadian) was owed.

If I accept this as being the intention of the parties, what effect does the corporate documentation have in determining this issue?

[122] Mr. Pedwell is correct; the court will not re-write the agreement of the parties. However, the court cannot concur with Mr. Pedwell’s suggestion that the corporate documents are clear on their face. The documents are anything but straightforward. I have already determined that the corporation was set up as a bare trustee which was contrary to the understanding or the intentions of the parties. The business was run as if 116 was the absolute owner. The financial statements and income tax returns of 116 reflect the same status. The agreement refers to promissory notes which didn’t exist. Shareholders are inappropriately numbered as two when, in fact, there may have been three. There is nothing in the security agreement to explain what happens after the five year interest free period expires.

[123] Even if somehow the terms in these agreements could be reconciled, the conduct of the parties after execution of the documents satisfies the court that the parties unanimously agreed to operate the company differently than as set out in those documents. There was no bare trustee and 116 was treated, for all intents and purposes, as the beneficial owner of 315. The income tax returns, not only of the corporation but, of the individual shareholders, Joe, Venanzio and Tino, reflect the same thing. When a mortgage had to be assumed, individual guarantees were not sought. It is also of note that it was Venanzio alone who was instructing the accountants throughout.

Conclusion

[124] I am satisfied on the evidence before me that despite the corporate documentation, the parties agreed to modify the agreement as evidenced by their conduct and subsequent behaviour.

[125] I find that 116 was incorporated to purchase 315. Joe, Venanzio and Tino were to be three shareholders when the company was incorporated. Joe received 500 shares; Venanzio 250 shares; and Tino 250 shares. Joe provided all the money necessary for 116 to purchase 315 on behalf of himself, Venanzio and Tino. Joe advanced the money on his behalf, which represented 50% of the beneficial interest. The balance of the money represented a 25% interest for each of Venanzio and Tino.

[126] In consideration of advancing this money, each of Venanzio and Tino transferred their shares to Joe, in trust, to be redeemed upon repayment of the initial monies invested by Joe, along with their share of any additional monies injected, either directly by the advancement of funds, or indirectly by use of the profits generated in 116, which were reinvested in 116. The money was loaned to Venanzio and Tino, interest free, for five years. The necessary implication is that after five years, interest would accrue, although there was no discussion or agreement between the parties as to what that rate of interest would be. If, however, the money was not repaid, Joe retained beneficial ownership of the shares.

[127] Although, according to the corporate documentation, 116 was to be a bare trustee, it was not operated as such. 116 was treated as the beneficial owner by implicit agreement of all parties. The income and losses of 116 were not declared by the “co-owners.” There was no partnership agreement between any co-owners. Instead, the income tax returns and financial statements for 116 confirm that all profits and losses were declared by the corporation.

2. Is Venanzio a shareholder of 116? In other words, did he pay for his shares?

(a) Evidence of the Parties

Joe

[128] Joe’s evidence is that Venanzio never paid for his shares. Venanzio did not repay Joe the initial $37,000.00 U.S. ($50,000.00 Canadian) he advanced on his behalf, nor any portion of the additional monies Joe injected into the company.

[129] By 2002, when Venanzio alleged he paid for the shares, Venanzio and his companies owed 116 a significant amount of money. Any monies Venanzio paid to 116 were to repay these loans.

[130] There was never any discussion or agreement with Venanzio that the $58,608.50 he deposited on July 25, 2002 was to redeem shares. Instead, Joe was purchasing a property on Pellee Island and he required this amount in order to complete the purchase. During his re-examination, Joe provided copies of the documents relating to that real estate deal to support this position.

[131] The financial statements prepared by Mr. St. Hilaire correctly showed that Venanzio’s payment was used to reduce his indebtedness to 116. In 2005, at Venanzio’s request, Mr. St. Hilaire prepared an amendment showing that this $58,000.00 was to pay for his shares and accordingly Tolmax’ indebtedness to 116 was increased. This was never agreed to by Joe or Tino.

[132] If Venanzio had paid for his shares, there would not have been any need for Joe to contact him after 2002 asking him to pay him the money that was owed to him.

Tino

[133] Tino’s evidence is that Venanzio never paid for his shares in 116. Each year when the second mortgage came due, Joe would contact him and Venanzio asking if they had their share of the mortgage, but they were not in a position to assist.

[134] Venanzio never mentioned anything to him about having paid for his shares and would always tell Tino that he would take care of Joe.

[135] When Tino received a letter from Mr. Zabek advising that if he did not pay for his shares, his rights were to be terminated, and then later, a letter that advised him that his rights had been terminated, Venanzio prompted him to see Mr. Nolan. In fact, Venanzio attended the lawyer’s office with Tino and paid for Mr. Nolan’s legal account. Throughout this whole period, Venanzio never mentioned anything about having already paid for his shares. Although Tino was stalling, he always knew he owed Joe the money.

[136] As well, Tino testified that he had a discussion with Venanzio telling him that before he (Venanzio) paid for his shares, he had to pay back all the money he took from the company in the first place.

[137] According to Tino’s evidence, the $58,608.50 Venanzio paid to 116 on July 25, 2002 was reimbursement for money that Venanzio’s company, Tolmax, inappropriately took from 116.

Venanzio

[138] Venanzio’s evidence is that he paid for his shares. At Exhibit 2, Volume 1, Tab 29, page 295, is a cheque from his personal account to 116 in the amount of $58,608.50. The words “Promissory note $37,500.00” were written on the cheque and this money was deposited into 116 and represented payment for his shares.

[139] Venanzio testified that Joe knew that this cheque was coming. When asked why it was deposited into the bank account of 116 instead of going directly to Joe, Venanzio testified that it was because he already had the banking and routing information. Venanzio said this money came from the closing funds of one of his houses and was properly recorded on the 2002 financial statements.

[140] Exhibit 2, Volume 2, Tab 25, is a copy of the company’s QuickBooks. At page 555, on July 25, 2002, this money is recorded as a deposit and in quotation are the words “Promissory note.”

[141] The money went in on the same day the money was withdrawn by Joe. Mr. St. Hilaire reported this as a withdrawal and, in 2003, it was shown as a withdrawal to shareholder.

[142] In the plaintiffs’ Exhibit 1, Volume 3, Tab 58, page 1376, the entry has been changed. Venanzio suggested that the plaintiffs’ documents have been altered from the originals. He did not make the changes. However, both Joe and Mr. St. Hilaire had access to the Quicken reports.

[143] After he paid for the shares, Joe called him and said he was satisfied and that they could move on and deal with the assignment of the mortgage.

[144] Venanzio also testified that he spoke with Mr. Zabek and told him that he had paid for his shares.

[145] Between July 25 and August 2, 2002, he was having regular discussions with Joe. Joe was clear and confident that Tino no longer had any shares as he had made no payments and that the assignment of mortgage would proceed but there would be only two directors, he and Joe.

[146] Venanzio said he took Tino’s side in this disagreement and it was after these discussions with Joe that he advised Tino that he needed to hire a lawyer and they saw John Nolan in Hamilton.

[147] The amount of $58,608.50 was the calculation of the original amount of monies Joe advanced on his behalf, plus the applicable exchange rate to convert from U.S. dollars to Canadian dollars.

Mr. Zabek

[148] Mr. Zabek’s evidence is that Venanzio never told him that he paid for his shares.

Mr. St. Hilaire

[149] Mr. St. Hilaire testified that he received all of his instructions from Venanzio as to how this $58,000.00 deposit and withdrawal was to be recorded in the financial statements of the corporation.

[150] At the 2003 meeting in his office, Mr. St. Hilaire recalled that both Venanzio and Tino indicated that they had not paid for their shares.

Banking documentation

[151] Statements from the Royal Bank show that on July 25, a deposit of $58,608.50 was deposited into the bank account of 116. That same day, July 25, 2002, the sum of $58,613.50 was withdrawn (Exhibit 66).

[152] Exhibit 67 is a photocopy of the Canadian dollar draft in the amount of $58,608.50 made payable to Sawatzky and Balzer. Attached to that bank draft is a receipt from the Royal Bank showing the amount of the bank draft as $58,608.50 with a service charge of $5.00 for a total withdrawal of $58,613.50.

[153] Exhibit 87 is a fax received by Joe from his lawyer, John Sawatzky, advising of the amounts necessary to close a transaction in Pelee Island. On the bottom of page 87 are the calculations showing that Joe’s share of the purchase price was $58,608.50 Canadian. This fax is dated July 22, 2002 and on page 3, Exhibit 87, is a trust ledger statement showing that $58,608.50 was provided to the solicitors for completion of this purchase.

Discussion

[154] The nub of this issue is how the $58,608.50 cheque is characterized.

[155] There is no doubt that Venanzio wrote a cheque on his Tolmax account and deposited these funds into the bank account of 116 on July 25, 2002. There is also no dispute that on that same date, that amount plus an additional $5.00 for a service charge was forwarded to Joe’s solicitor with respect to a property he was purchasing on Pelee Island. The financial statements of the corporation for 2002 reflect that this was a repayment by Venanzio for his shares and that the monies that were forwarded to Joe were a withdrawal from his shareholder’s account.

[156] Once again, I disbelieve the evidence of Venanzio and accept the evidence of Joe, Tino and Mr. Zabek with respect to this issue.

[157] First, the cheque which is from Venanzio’s company has never been produced. Accordingly, the court did not have the benefit of looking at the original documentation. This is important as there are suggestions that additions were made to the document after the fact. It is particularly troubling that the words “Promissory note” are alleged to have been written on the cheque, when in fact, the evidence is clear that there was no promissory note ever executed. Further, there is no dispute that the original monies advanced on behalf of Venanzio’s were $37,000.00 U.S. The amount allegedly written on the face of the cheque was $37,500.00.

[158] If there was a change to the Quicken report, I find that any change was made by Venanzio, not by Joe or Mr. St. Hilaire. Venanzio attempted to blame either Joe or Mr. St. Hilaire for changing that entry. However, the original Quicken document filed by Joe would suggest that if there were any changes, they were done when Venanzio’s documentation was photocopied in Exhibit 2.

[159] Exhibit 87 clearly demonstrates that the amount of $58,608.50 was the exact amount of money necessary to close the transaction on Pelee Island. I accept that that was how that amount was calculated and had nothing to do with the story Venanzio told about converting the original monies and taking into account the exchange fee.

Conclusion

[160] The explanation provided by Venanzio regarding the payment of this money is a fabrication and an attempt to show the court that he paid for the shares.

[161] I am satisfied on the totality of the evidence before me that he did no such thing. The monies that he deposited into the bank account of 116 on July 25, 2002 were a repayment of monies that Tolmax, his company, had removed from 116.

[162] Accordingly, Venanzio did not in July 2002, or up to and including the day of trial, ever pay for his beneficial interest in the shares that were held by Joe.

[163] It seems trite, but clearly, without having paid for his beneficial interest, Venanzio has never redeemed the shares held in trust by Joe since 1996. Without payment for the shares, Venanzio cannot be a shareholder of 116. To determine otherwise would permit Venanzio to reap the profits and benefits of this corporation without having paid any monies for its acquisition. This would be a clear case of unjust enrichment on the part of Venanzio.

3. What monies was Venanzio entitled to receive from 116?

(a) The Evidence

(i) Corporate documents

[164] The initial agreement executed by the parties stated that there would be no payment for wages or fees for services unless a payment was mutually agreement by all of the parties.

[165] The financial statements showed no management fees for the years 1996, to and including the 2000 year. Thereafter, the financial statements of 116 showed that the following management fees were recorded by MacGillivray & Partners:

2001 $50,000.00

2002 $50,000.00

2003 $86,000.00

2004 $69,000.00

2005 $170,000.00

(ii) The parties

[166] Joe testified that although the original agreement said that there would be no wages paid, it was ultimately agreed that Venanzio would receive $1,000.00 a month. He would be allowed to have an apartment unit in the building which was renting for $600.00 or $700.00 a month. In addition, his phone, cable and utilities would be paid. Joe thought that in total, this represented a compensation of about $24,000.00 a year. Thereafter, as Venanzio was doing a lot of work, they agreed that his fee would be increased to $2,000.00 a month and, ultimately, $3,000.00 a month, in addition to an all-expense-paid apartment.

[167] Joe also testified that in lieu of receiving his salary of $1,000.00 a month (or $2,000.00, or $3,000.00 a month), he could take a cheque from 116 for his personal use to pay bills.

[168] Joe denied that he and Tino ever agreed to the management fees as set out in the financial statements of the corporation.

[169] Tino’s evidence coincided with that of Joe. At no time did either he or Joe agree to the management fees suggested by Venanzio and set out in the financial statements. Venanzio was the one who was instructing Mr. St. Hilaire with regard to the financial statements. He and Joe were not receiving the financial statements in a timely fashion and it wasn’t until they saw the 2002 statements that they realized the extent of the monies that had been removed from the corporation by Venanzio.

[170] Venanzio testified that although it was not originally anticipated that managing the building would be a full time job, it very quickly became so. He was devoting many hours each and every week on behalf of the corporation. He was entitled to be appropriately compensated for all the work that he did. Venanzio testified that the agreement with Joe and Tino was that he was to receive 3% of the gross profits plus one month’s rent for each 12 month lease. At trial, he attempted to file spreadsheets of calculations he said were prepared and provided to Joe each year showing what he was entitled to receive.

Discussion and Conclusion

[171] As set out earlier in these Reasons, Venanzio’s explanation defies credibility and I reject it. The discrepancies in his explanation regarding the monies that he took from 116 with respect to his management fee were set out at the beginning of these Reasons and I do not need to repeat them here.

[172] I accept the evidence of Joe and Tino and find that the agreed compensation for Venanzio is as testified to by them. Accordingly, the calculation of what Venanzio was entitled to receive for management fees is as follows:

1996 $ 12,000.00

1997 $ 12,000.00

1998 $ 24,000.00

1999 $ 24,000.00

2000 $ 24,000.00

2001 $ 24,000.00

2002 $ 24,000.00

2003 $ 36,000.00

2004 $ 36,000.00

2005 $ 36,000.00

2006 $ 21,000.00

Total: $273,000.00

4. What monies did Venanzio take/receive from 116?

[173] The bulk of the evidence at trial dealt with the attempts by Joe, Mr. St. Hilaire and Mr. Forsyth to quantify exactly how much money Venanzio removed from 116. These calculations are found in three different sources. First, there are Joe’s “Nightmare in St. Catharines” documents. Then, there are the calculations done by Mr. St. Hilaire, and, finally, the expert report prepared by Mr. Forsyth.

(a) The Evidence

Joseph Pingue

[174] Joe testified that after the building was purchased, he returned to Ohio, and left Tino and Venanzio in charge. They were supposed to work together. He and Tino would disagree with things Venanzio was doing. They called him Mr. Trump. He and Tino told Venanzio to slow down as he was spending too much money on renovations. There was fighting between the two brothers and in the fall of 1996, Venanzio got Tino to sign something at the bank so that now, only one signature was required on cheques. By the fall of 1996, Venanzio was running the apartment building on his own. Joe came up in August 1996 and January 1997 and showed Venanzio how to set up the bookkeeping system. He and Venanzio were very close and continued to communicate on a regular basis.

[175] In 1997, Venanzio arranged a lease with Clearnet (Telus) who installed towers on the roof of 315. The lease was for a five year term, and paid $1,000.00 per month. Unknown to Joe and Tino, Venanzio opened a new bank account at Toronto-Dominion Bank where these lease payments were deposited.

[176] When it was time to make the first payment on the second mortgage in 1997, Joe asked his cousins for their share of the monies. Neither one had the money, so Joe advanced all the monies on his and their behalf. If Venanzio needed any money for 116, he would contact Joe and Joe would have the funds sent. Things continued this way for the first few years. Each year, Joe would ask for Venanzio and Tino’s share of the second mortgage payment. Each year, he was told they did not have the money, and so he would advance all the money, believing this would be included in the monies his cousins owed him for the redemption of their shares.

[177] Venanzio dealt with the bookkeepers/accountants. He gave all instructions and signed any necessary documentation on behalf of 116. Joe and Tino received the 1996 and 1997 financial statements and income tax returns in a timely fashion. Although there were things on the statements that didn’t appear correct, nothing was questioned. Joe trusted Venanzio implicitly.

[178] Joe testified that there was never any agreement that Venanzio could take money from 116 without the consent of Tino and Joe; all he could take was his management fee, or payment of some of his expenses, in lieu of the management fee. In 1997, Venanzio asked him if he could borrow some money from 116 and Joe told him no – all he could take was his management fee. In 1998, he asked again, and Joe permitted him to take $10,000 on the condition that he pay it back as soon as possible.

[179] It wasn’t until Joe saw the 1998 financial statements in November 2000 that he realized how much money Venanzio took. The 1998 financial statements showed a loan to 116 from Venanzio’s company 112, in the amount of $72, 182. When he questioned Venanzio, he apologized and said he’d pay it back.

[180] In April 2001, Joe asked his cousins to please repay all the monies he had advanced on their behalf. One year later, he still had not received any money from either Venanzio or Tino. Both cousins asked him to extend the terms. Joe did send Venanzio a letter to sign which included different terms, but Venanzio refused.

[181] In January 2002, Joe asked Mr. Zabek to forward a letter to Tino advising that if he did not pay for his shares they would be forfeited. By January 30th, when no payment was received, Mr. Zabek sent a letter to Tino advising that his shares were forfeited. Joe testified that he did not send a similar letter to Venanzio as Venanzio was running the building, and Joe kept hoping he’d redeem his shares.

[182] In October 2002, Joe requested copies of all the financial statements and income tax returns from Mr. St. Hilaire.

[183] When Joe saw the 2002 financial statements and income tax returns in June 2003, he knew he could sit back no longer. Joe came to St. Catharines and had a meeting with Mr. St. Hilaire. At his request, Mr. St. Hilaire prepared a shareholder’s analysis on the basis of Joe’s calculations and a meeting was arranged with Joe, Tino and Venanzio in December 2003 at Mr. St. Hilaire’s office.

[184] There was a very heated discussion at the meeting but no resolution was reached. Joe went back to Ohio.

[185] Despite the very heated discussions during this meeting and Joe and Tino’s concern that Venanzio had removed significant monies from 116, without their permission, Venanzio arranged to lease a new motor vehicle in the name of the company. Joe and Tino did not become aware that the company was paying for this leased vehicle until they received the financial statements for the 2003 year which were not received until 2005.

[186] When Joe received the 2005 draft financial statements along with Mr. St. Hilaire’s letter of July 6, 2006, he was furious. He arranged to come to St. Catharines with a friend Gary and they attempted to re-create the books and records of the corporation to see exactly where all the money went.

[187] Joe testified that at first Venanzio was not co-operative in providing the documentation. However, on threat of calling the police, Joe eventually received the receipt books, cancelled cheques, bank statements and Quicken reports for 116. With this information, he and Gary produced what has been referred to as the “Nightmare in St. Catharines” documents. According to Joe’s calculations, he felt that Venanzio had removed $528,011.12 more than he was entitled to take from 116. In addition to that, Joe calculated that $317,778.00 in rent had not been deposited to the bank accounts of 116.

Mr. St. Hilaire

[188] Mr. St. Hilaire testified that each year he would get the documentation from Venanzio to complete the financial statements and income tax returns. For 116. The filing deadline with Revenue Canada was June 30th. Venanzio provided him with his receipts and disbursements from his Quicken Books. MacGillivray & Co. would prepare the financial statements, make adjustments, and prepare draft statements that were forwarded to Venanzio for his approval. Once approved, the statements were finalized and the income tax returns filed with Revenue Canada. MacGillivray & Co. did not do an audit nor did they review the information provided by Venanzio. At the time, Mr. St. Hilaire understood that Venanzio had control of the books and records of the company and was the manager of the apartment building. Joe worked outside the country and Tino was not involved. Based on what Venanzio told him, Mr. St. Hilaire believed that Venanzio was a 25% shareholder and owner of the corporation.

[189] In 2002, Joe requested that he send him copies of the financial statements and corporate income tax returns. He first met with Joe in August 2003. At this meeting Joe was surprised at the number of transactions in Venanzio’s account and the number of transactions involving Venanzio’s companies.

[190] At Joe’s request, he prepared a shareholder’s analysis based on Joe’s understanding of ownership. This analysis was used at a meeting with Joe, Venanzio and Tino in December 2003. At this meeting, Tino and Venanzio felt they only had to pay the original $50,000 Joe advanced when the building was purchased. At this time, both Tino and Venanzio acknowledged that they had not yet paid for their shares.

[191] In 2005, because the company was profitable, he recommended that management fees be approved by the shareholders in order to reduce the amount of tax 116 would pay. There was no consensus, but the parties agreed to file the statements as prepared in draft form in order to avoid late filing fees.

[192] He further testified that in 2005 and 2006, he was aware that some expenses of 912 were paid for by 116. Venanzio confirmed that $77,449.77 was owed to 116 by his company. He prepared the draft financial statements for 912, however, they were never approved because of the liability to 116. Venanzio removed his file and went to another accountant. The drafts he prepared were significantly different than those ultimately filed by Venanzio.

[193] In June 2010, he was asked to help summarize the receipt books of 116 between 1996 and 2004 and to compare those numbers with the actual bank deposits. As the rent receipt books were incomplete for 1996 and 1997, no additions were done. For the remaining years, the accountants added the entries from receipt books #10 through #59. Those additions, along with the actual bank deposits for those same years, were summarized in a document filed at Exhibit1, Volume 1, Tab 15. This summary also included estimates of what the laundry income should have been, utilizing Joe’s number of $1,300 per month. The rent received from Clearnet (Telus) was also included. Interest of 4.5% was calculated on any difference between the expected total income and the actual bank deposits, after taking into account NSF cheques.

[194] Mr. St. Hilaire made it very clear that his office was not performing an audit. They simply performed a mathematical calculation using an adding machine. Those calculations show a total difference of $252,972 from January 1998 to and including December 31, 2004.

Robert Forsyth

[195] Mr. Forsyth was qualified as an expert in the area of forensic accounting and statistics. He testified that his engagement was to review the business records of 116 to determine if there was any indication that the defendants misappropriated monies from 116, and, if so, how much.

[196] He prepared two reports. The preliminary report was completed in June 2011 and the final report in September 2011. As he received more information between the two dates his report was modified. Mr. Chapelle advised him of a major mathematical error he made and that number was corrected in his final report. His report covers the time frame form April 1996 to and including July 31, 2006.

[197] In completing his report, Mr. Forsyth had at his disposal the pleadings and documents contained in the trial record, answers to undertakings, transcripts of discovery of Venanzio, Tino and Joe, the affidavit of documents of the plaintiffs and defendants, and various analysis prepared by Joe. He had discussions with Mr. St. Hilaire along with his calculations and working papers. Mr. St. Hilaire provided him with the Quicken books, and annual financial statements. The books and records of 116 were brought to him by Joe. Those records included the receipt books for the years in question. He also had access to the books and records of 912 from 2003, including working papers and financial statements. He had discussions and correspondence with Joe and Mr. Morningstar who retained him.

[198] His most difficult task was to determine if there were any revenues not deposited to the credit of 116.

[199] The three potential sources of income for 116 came from the tenants’ rents, rents from Clearnet (Telus) and monies form the laundry machines.

[200] Regarding potential rents from tenants, he first looked at the rental receipts (69 books and 13,740 receipts) Schedule C-1a summarizes his calculation of these rent receipts for each apartment, in each of the relevant years. Those rents totaled $6,998,571.07.

[201] In order to determine if there were any unreceipted rent payments, Mr. Forsyth had to make certain assumptions. He considered if there were any “gaps” between receipts. If the same tenant’s name was found before and after any “gap” he assumed this represented a missed receipt. If there was a different name, he assumed this represented a vacancy. These calculations are set out in Schedule D-a and totaled $174,978.65 for the years in question.

[202] His schedule D-1 sets out the NSF cheques returned by the bank over the 10 year period. In determining what amount of these NSF cheques should be included in potential income, Mr. Forsyth had to make certain assumptions. He assumed that given the nature of the business it was unlikely that all these NSF cheques were outstanding, for if rents remained unpaid, there would be an eviction. He also assumed that the service charges imposed for these NSF cheques would more than offset any amounts that were not collected. On this basis, he included 95% of the total NSF cheques – or $114,564.

[203] Schedule E summarized the total deposits to the Royal Bank account for 116. These deposits amount to $8,452,547.21.

[204] Schedule E-2 sets out total debits to the Royal Bank account, made by the bank, in the amount of $41,077.42

[205] Several non-rent deposits were made to the Royal Bank account over the years. Those items are set out in Schedule F. According to Mr. Forsyth’s calculations, those amounts are as follows:

Venanzio deposited $230,177[^1]

Joseph deposited $427,013

Laundry coinage $130,285

Clearnet (Telus) $ 90, 578

Proceeds from loan $598,747

Returned cheques $ 68,887

Other $ 58,318

[206] Regarding the laundry coinage, Mr. Forsyth made certain assumptions about how much coinage should have been generated and compared that to the amount actually deposited. Using antidotal information he received from a colleague and his own experience, he determined that $1,800.00 should have been deposited each month in the years 1996 to 2001, and $1,900.00 per month for the years from 2002 to 2006.

[207] On these assumptions, Mr. Forsyth determined that there was missing laundry money of $96,615 over the 10 year period.

[208] Mr. Forsyth deducted the debit adjustments from total bank deposits, and also removed any non-rent deposits. This amount - $7,010,210 - represents the total rent deposits. This number was compared to the rent receipts issued plus 95% of NSF cheques - $7,113,135. The difference between these two numbers is $102,925. This shortfall was added to the unreceipted rent receipts for a total of $277,903. These calculations are found on Schedule F.

[209] The next thing Mr. Forsyth looked at were payments that were made to Venanzio either directly or to his related companies, or payments made on his behalf.

[210] Schedule M sets out payments made for properties owned by Venanzio. Those total $89,949.02. Mr. Forsyth arrived at this number using the invoices, cancelled cheques and Venanzio’s evidence at discovery.

[211] Amounts paid to Venanzio or his companies are summarized in Schedule N-1 and total $705,997.87.

[212] Credit Card payments totaled $115,160.97 and are shown on Schedule O-1a.

[213] Mr. Forsyth determined that there was a $12,000 overpayment on the second mortgage, and because the funds were not deposited into the bank account of 116, he made the assumption that these excess funds were taken by Venanzio.

[214] All of his numbers and calculations are set out in Schedule P, which show a cumulative total of funds Venanzio took from 116 in the amount of $830,349.

[215] Despite acknowledging some errors in cross-examination, which would reduce this total amount, Mr. Forsyth remained confident in his methodology and calculations. Given the volume of documents and values involved, Mr. Forsyth thought that it was reasonable that there could be a margin of error of 5-10% in either direction.

[216] On cross-examination Mr. Forsyth acknowledged that he had discussions with Joe regarding his report and provided Joe with a copy before it was finalized. He did not send a copy to Venanzio. Despite repeated attempts, he would not agree that he changed any part of his report after speaking with Joe. He repeated that Mr. Morningstar was his client and he received his instructions from him, not Joe. Any work he did for Joe personally was after the report was written. Mr. Morningstar did ask him to do certain things about the narrative of his report, and he did make minor changes. As well, he was asked to remove certain schedules that had nothing to do with his engagement, which he did.

[217] He acknowledged that an error of some $88,000 was found by Mr. Chapelle, which he corrected in the final report.

[218] Between the initial and final report, he made 25 changes and his schedules were amended accordingly.

[219] Despite these changes he is still 90-95% certain that his numbers are correct within 10%. He also acknowledged that there still could be some errors in his final report.

[220] He testified that he did not use the QuickBooks summaries, as these were prepared by Venanzio. Instead, he preferred to use information that could be verified. He tried to use the source material along with the undertakings from discoveries.

[221] Regarding the laundry, he arrived at his figure of $270 per year, per apartment unit, by averaging the information he received from his associate Mr. Persian, and printouts from certain real estate sales. He did not question Venanzio. He looked at the clientele of 315 and because there were a number of students in the building, he concluded that they do more laundry as they like to dress for others and keep their clothes clean. He used this calculation despite being aware that when the building was purchased, he had documentation that showed laundry income was estimated to be $13,200 year.

[222] Regarding management fees, he testified that Venanzio got credit for the management fees calculated by Joe along with the value of an apartment.

[223] From his transcript of discovery Venanzio admitted using $73,646.45 of monies from 116 for his personal properties. Once the answers to undertakings were received, Venanzio admitted a further $13,693.14 was used. These are the numbers used in Schedule M. Mr. Forsyth acknowledged that Joe prepared part of the schedule, but testified that he completed the balance, and many changes were made. In fact, Joe complained to him that his calculation was too low.

[224] He obtained the information regarding the vehicle costs directly from the QuickBooks print out. He made the assumption that 50% of the expenses were personal to Venanzio based on his knowledge and experience with Revenue Canada. He was not aware if Venanzio maintained a mileage log.

[225] Mr. Forsyth continued to re-iterate that if he had to make a judgment call, he always gave the benefit of doubt to Venanzio. If Venanzio or his lawyer would have provided him with different information, he would have considered it and revised any number. He asked for a meeting with Venanzio in January 2011 and April 2011 through Mr. Pedwell’s office but heard nothing.

[226] He agreed to several other mistakes pointed out by Mr. Pedwell, however, these errors did not change his view that his numbers were correct within a 10% margin of error. He also continued to reiterate that a number of judgment calls were made on Venanzio’s behalf.

Venanzio

[227] Venanzio’s evidence was that any monies taken from 116 by him, his related companies, or expenses paid on his behalf, were monies he was entitled to – either as management fees or a return on his investment as a shareholder. Tino and Joe all received profits form the corporation – he did not.

[228] I have already summarized his evidence regarding what he says he was entitled to for management fees. I will not repeat that evidence. Venanzio testified at length regarding all the work he did for the building and that, under his management, apartment vacancies were down and rental revenues were up. He put in a tremendous amount of hours for the benefit of himself, Tino and Joe. He feels Joe and Tino are undervaluing his contribution and hard work and attempting to freeze him out of the profits of the corporation.

[229] Although Venanzio acknowledges that several payments were made from 116 for his benefit, those monies represented management fees he was entitled to and didn’t receive for the first five years. He also took loans from 116, but those monies were all repaid. All monies taken are accurately reflected in the financial statements of the corporation.

[230] He acknowledges that he asked Joe for money because the mortgage was in arrears, and yet when he received those funds, they were placed in the account of 912 instead of 116. However, these monies were properly accounted for on the financial statements.

[231] Both Joe and Tino knew about the TD Bank account. He opened this account because TD had more favourable terms than Royal Bank. All monies deposited in that account were accurately recorded in the books and records of 116 and have been accounted for.

[232] He did acknowledge attempting to open another account in 2006 and attempting to cash the cheque from the Region, as he needed to get some money out of 116 as Joe and Tino were freezing him out.

[233] Specifically, with respect to laundry, it was Venanzio’s evidence that in the first few years Joe would come up and the coinage would be used at the casino for gambling. This was never reflected in the books of 116.

[234] Venanzio denied every taking any other laundry money. The financial statements accurately reflect the money collected from the machines.

[235] Both Tino and Joe were aware that he was buying a new vehicle in the name of the corporation for his use. His vehicle had died, and he specifically discussed the new vehicle with Joe. Tino went with him to purchase the car. A vehicle was necessary to pick up supplies, do errands and other jobs on behalf of 315. This purchase was properly recorded in the financial statements of 116 and both Joe and Tino were privy to those statements. No issue was ever raised about this vehicle until 2006.

[236] Venanzio testified that no monies from 116 were used to purchase his personal properties. Rianna was purchased in 2003 after he received a $60,000 investment from the Montrose Avenue property. The funds due on closing were $57,780.

[237] Although Venanzio acknowledges that funds were used from 315 to help purchase the property on Smythe Street, it was his evidence that all monies taken from 116 were monies that were owed to him either through management fees or from a distribution of the profits of the corporation which he never received. As well, any and all monies taken from 116 were accurately recorded as shareholders’ loans on the books and records of the corporation.

[238] The property on Oakdale was purchased through the sale of some of his stock along with $25,000 which he borrowed from his father at Cherry Ridge Homes.

Darren Chapelle

[239] Mr. Chapelle had been retained as an expert on behalf of the defendants, however, in time, he came to determine that he could not fulfill the role of an expert and, accordingly, did not prepare a report. Mr. Chapelle did point out certain errors he found in the reports of Mr. Forsyth. One major error was in the amount of some $88,000.

Discussion

[240] For reasons which I have already articulated, I do not believe much of Venanzio’s evidence. Instead, on the evidence I do accept, it is clear that by the fall of 1996, Venanzio was virtually in complete control of the financial affairs of 116. His bother and cousin trusted him completely and he was able to operate without any overseer. He managed the building and, either he or his employees, rented the units, collected the rents, provided the invoices, received the bills, paid the bills, hired the staff, and authorized repairs and maintenance. Most importantly, he was in effective control of the banking and financial records. He wrote virtually all the cheques, prepared the QuickBooks reports, engaged and instructed the accountants, approved the financial statements and signed any income tax returns on behalf of the company.

[241] In my view, the evidence is overwhelming that with this free reign, Venanzio treated 116 as his own personal piggy bank to do with as he saw fit. Without authorization, he used the rightful funds of 116 for his own personal use time and time again without compunction.

[242] How to quantify exactly how much he took from the coffers of 116 is not an easy task. By the time any review took place, 10 years had passed. Joe, with the assistance of his friend Gary, made a valiant effort. Mr. St. Hilaire has provided some simplistic additions for the assistance of the court.

[243] By far, the most comprehensive review was prepared by Mr. Forsyth.

[244] After a judicial pretrial in 2010, it was recommended that the parties obtain an expert report to assist the court in quantifying the monies the plaintiffs allege Venanzio misappropriated.

[245] In September 2010, the plaintiffs’ solicitor retained Robert Forsyth, a forensic accountant, to prepare such a report. The defendants retained Darren Chapelle, but in time, Mr. Chapelle questioned his independence and the defendants took no further steps to retain another expert until well after the commencement of trial. In a written ruling released May 1, 2014, the court refused to permit the late filing of this report.

[246] Accordingly, the only expert evidence before the court regarding this issue is that of Mr. Forsyth, who was qualified as an expert in the area of forensic accounting and statistics.

[247] Mr. Pedwell spent considerable time challenging the independence of Mr. Forsyth and asked that he not be permitted to testify. The court ruled that the witness could testify and any concerns regarding his lack of independence would ultimately go to the weight of Mr. Forsyth’s evidence.

[248] In his submission, the defendants again asked that Mr. Forsyth’s evidence not be permitted, or if permitted, that the court give it no weight whatsoever. Mr. Pedwell argues that Mr. Forsyth has failed in his duties as an independent witness. He had many different e-mail exchanges and conversations with the plaintiffs’ solicitors and Joe Pingue before finalizing his report. At the same time, he did not speak at all with Venanzio.

[249] The court had the benefit of hearing Mr. Forsyth testify over several days, both in chief and in cross examination. Throughout, I found the witness to be very direct and forthright in his testimony. He readily acknowledged errors that he made. He was not an advocate on behalf of either party. He gave his evidence in a clear, straightforward manner. Certainly, there were a number of contacts with the plaintiff, however, I am satisfied that that contact was to receive updated information or to clarify certain matters. It is important to remember, that even after he accepted his engagement, additional disclosure continued to arrive. Despite a very vigorous cross-examination, Mr. Forsyth was steadfast that he did not change anything in his report, or his oral evidence at the behest of the plaintiffs. Any and all conclusions are as a result of his own independent calculations and judgment calls.

[250] Mr. Forsyth testified that he had in excess of 15,000 documents to review and consider. Without his assistance, I cannot imagine how the court would be able to digest, analyze, review or compile 10 years of financial statements of 116 and the defendants’ related companies. I have found Mr. Forsyth’s evidence to be invaluable in this regard.

[251] Mr. Forsyth described in detail his methodology in coming to the conclusions he did. Although I may not have accepted all of his numbers, I take no fault with the methodology he used.

[252] For the purposes of these reasons, I do not need to set out in detail Mr. Forsyth’s evidence. Instead, I have relied on the various schedules filed with the court, and made adjustments I believe are necessary in order to arrive at the appropriate value.

[253] For ease of reference, I will go through each of the applicable schedules in order.

Schedule C – Summary of Rent Receipts Issued

[254] This is a simple arithmetical addition of each and every receipt issued over the period in question. These numbers were not seriously questioned in cross-examination. Of note is these additions match those done by Mr. St. Hilaire. I accept that the cumulative total of the receipts is $6,998,571.07.

Schedule Da – Estimate of Unreceipted Rent Payments

[255] With no evidence to the contrary, I accept Mr. Forsyth’s methodology in making this calculation. His assumptions are logical. If a tenant’s name appeared before and after a “gap” in the rent receipts, it is logical to assume the tenant was still in the apartment during the periods of the gap, and that for whatever reason, the rent was not receipted. If the tenant’s name changed, it was assumed there was a vacancy and not an unreceipted rent. I find the total non-receipted rents are $174,978.65.

Schedule D-1 – NSF Cheques – Royal Bank

[256] The total NSF cheques are as recorded by the bank. No one questions this entry. The issue is, what if any portion of these NSF cheques were ultimately collected and deposited (or should have been deposited) to the credit of 116?

[257] Mr. Forsyth has used a figure of 95% and explained why he felt that was a reasonable assumption. However, without some evidence to support this conclusion on his part, I am unable to accept this calculation. I simply do not know what, if any, portion of these NSF cheques were collected.

Schedule E – Bank Deposits – Royal Bank

[258] These numbers are directly from the bank statements and have not been challenged. I find that total deposits to the Royal Bank for the period in question are $8,452,547.21.

Schedule E-2 – Debit and PTB Adjustments

[259] These represent adjustments made directly by the Royal Bank. These amounts were not challenged. I find the total adjustments are $41,077.

Schedule F – Non-Rent Deposits

[260] Mr. Forsyth explained the sources of non-rent deposits in his evidence. During his cross-examination, he acknowledged that he had made an error and non-rent deposits should have been reduced by $28,938.90 and accordingly, rent deposits should have increased by the same amount. The amount of missing revenue for 1998 would be reduced by this same amount. Although his Schedule N would not change, his Schedule J which calculated the amount of missing monies would be reduced by this same $28,938.90. This change affects both his Schedule P, Q and R, as the amount in Schedule J is carried forward in each of those other Schedules.

Schedule G – Analysis of Laundry Deposits, Estimates of Missing Monies

[261] Mr. Forsyth calculated that $130,285 was identified as laundry income on the books of 116. On the assumption that the laundry machines should have generated $270 per apartment each year, he calculated that laundry income should have been $1,800 per month between 1996 and 2001, and $1,900 per month from 2002 to 2006. On this basis, he determined there was $96,615 of estimated missing money.

[262] The basis of Mr. Forsyth’s assumption was based on antidotal information he received from his associate, along with averages he took from some real estate sales provided to him by Joseph. He also made some assumptions about the washing behaviours of students that were totally without evidentiary support. This is not sufficient information to satisfy me on a balance of probabilities that the expected revenues from laundry were $21,600 to $22,800 a year.

[263] In my view, the more reliable information regarding laundry income is the evidence of the parties themselves, as to what they expected the machines to generate. When the property was purchased, the estimates were for $1,100 per month or $13,200 per year. As revenues increased, it is logical that the laundry income would increase as the number of apartments rented increased. In his evidence, it was Joe’s view that the laundry would generate at least $1,300 per month, or $15,600 per year. The actual monthly laundry deposits are, on average, fairly consistent with that estimate. I find that the laundry machines should have generated at least $1,300 per month in income, or $15,600 per year. As Venanzio was the only one with keys to the laundry machines, I find that any shortfall in laundry income was taken by him.

[264] In the first year of operation, although not agreeing on the amount, both Joe and Venanzio testified that they went to the Casino and used laundry money that was not recorded on the books and records of the corporation. For that reason, I am not prepared to make any adjustment for the 1996 year. However, starting in 1997 to and including July 31, 2006, I find that the laundry deposits should have been $149,500.[^2]

[265] During this same time period, from Mr. Forsyth’s Schedule G-1, laundry deposits were $130,285, resulting in a shortfall of $19,215.

Schedule H-1 – Estimated Revenues – Clearnet/Telus

[266] There was no dispute that the revenue generated by the Telus lease to and including December 29, 2006 was $122,421.31. All these monies were accounted for.

Schedule I – Deposits from Venanzio Pingue, 912618, et al.

[267] On this schedule, which I accept, Mr. Forsyth recorded all monies deposited in the Royal Bank account of 116 from Venanzio’s personal account, or one of his related companies. In total, $228,176.59 was deposited.[^3] This includes the $58,608.50 the court has already determined was not a payment for Venanzio’s shares, but was accurately recorded as repayment of monies borrowed by Venanzio and or one of his related companies. $5,000 was also deposited to the TD account.

Amended Schedule J

[268] With these amendments, I have re-calculated Mr. Forsyth’s Schedule J.

Total Royal Bank deposits as per Schedule E $8,452,547.00

Less debt and PTB adjustments as per Schedules E-2 (41,077.00)

Net deposits (a) $8,411,470.00

Less non-rent deposits (from Schedule F)

Loans $ 598,747.00

Identified non-rent 127,204.00

J. Pingue 226,089.00

V. Pingue (less $28,939 as amended) 199,238.00

Laundry 130,285.00

Clearnet 90,758.00

(b) $1,372,321.00

Total Rent Deposits (a) – (b) = (c) (c) $7,039,149.00

Receipts Issued (Schedule C) (d) $6,998,571.00

NSF Cheques 0

Surplus/Shortfall (c) – (d) = (e) (e) $ 40,578.00

Unreceipted Rents (Schedule Da) (f) $ 174,979.00

Total Missing Rent Monies (f) - (e) $ 134,401.00

Schedule L – Vehicle Expense by Date

[269] Without any evidence to the contrary, I accept Mr. Forsyth’s calculation of vehicle expenses charged to 116. Mr. Forsyth only charged 50% of those expenses to Venanzio. That determination is more than reasonable in all of the circumstances. Both Joe and Tino testified that a full time vehicle was not necessary to manage 315. Any transportation costs could easily have been dealt with through the payment of a mileage expense. This was reiterated by Mr. Forsyth and Mr. Chapelle.

[270] I accept the evidence of Tino and Joe that they never approved the purchase of the new Durango motor vehicle in 2003. Although they were aware that Venanzio bought a new car, they believed it was personal – not paid for from 116, especially after the huge disagreement they had in August 2003 about excessive spending on Venanzio’s part.

[271] Venanzio had no other vehicle after he purchased the new one in 2003. When he left 315, he took the car with him. In these circumstances, it is appropriate that he be charged with the expenses associated with the lease of that vehicle.

[272] Accordingly, I find that the total amount for vehicle expenses is as calculated by Mr. Forsyth – namely, $34,899.

Schedule M – Payments Made for Properties Owned by Venanzio Pingue’s Companies

[273] Again, without evidence to the contrary, I accept the calculations of Mr. Forsyth on Schedule M. It is of note that Mr. Pedwell, in written submissions, admitted on behalf of Venanzio that approximately $90,000 was used from the bank account of 116 for the benefit of Venanzio’s companies.

Schedule N-1 – Amounts Paid to/on Behalf of Venanzio Pingue

[274] I accept Mr. Forsyth’s calculations on this schedule. In cross-examination, Mr. Pedwell did challenge certain amounts attributed to Venanzio however, in each and every case Mr. Forsyth’s explanation has satisfied the court on a balance of probabilities that the entries are correct. For example, on November 26, 1998, there was a $22,000 cheque made payable to cash. Mr. Forsyth concluded the money was for Venanzio’s benefit since it was signed by him and, given the nature of the apartment business, with no evidence that 315 required such a large cash amount, it was a reasonable assumption to make. It was certainly open to Venanzio to provide the court particulars of what the money was needed for – but no such evidence was provided.

[275] Accordingly, I find that $705,997.87 was paid to or on behalf of Venanzio from 116.

Schedule O-1 – Amounts paid on Venanzio Pingue’s Behalf by Credit Cards or Cheque

[276] The evidence was uncontradicted that 116 did not have any credit cards in the company name. Venanzio testified he would use his own personal credit cards for certain 116 expenses. Unfortunately, there was no evidence to suggest what these payments were for. Without such evidence, the credit cards are the personal responsibility of Venanzio and not 116. As well, Mr. Forsyth included cheques written to “cash” without explanation. Venanzio offered no explanation for these “cash” cheques at trial. Without such evidence, accept Mr. Forsyth’s assumptions that these expenditures were personal to Venanzio. An October 4, 2005 entry for legal fees of $774.60 was a proper expense of 116, representing an application to the Committee of Adjustments. Mr. Forsyth’s total shall be reduced by that amount and will now be $114,386.37.

Schedule O-2 – Second Mortgage

[277] Mr. Forsyth determined that $12,000 was overpaid on the second mortgage and assumed those monies were taken by Venanzio. Joe certainly didn’t testify that he provided more than the equivalent to $25,000 Canadian required each April on account of this mortgage. If in fact there was an overpayment, there is not sufficient evidence to convince me that this overpayment was taken by Venanzio.

[278] On Schedule P, Mr. Forsyth ascribed an imputed rent for Venanzio’s apartment. I have disallowed this amount, as the evidence I accept is that Venanzio’s management fee included a free apartment.

[279] With these findings, I have amended Schedule P as prepared by Mr. Forsyth.

Amended Schedule P

[280] I have re-calculated Mr. Forsyth’s Schedule P.

Missing Revenues

Receipted not deposited (surplus) from Schedule J as amended $ (40,578.00)

Unreceipted Rents from Schedule Da 174,978.65

Laundry from Schedule G as amended 19,215.00

Clearnet from Schedule H 0

Total Missing Revenues (A) $153,615.65

Payments/Expenditures

Amounts paid to/on behalf of VP from Schedule N $705,998.00

Amounts paid on VP’s behalf by Credit Cards or Cheque

from Schedule O-1 114,386.37

Payments made for properties owned by VP’s companies

from Schedule M 89,949.00

Excess Payment on Second Mortgage from Schedule 0-2 0

Vehicle Expense by Date from Schedule L 10,323.00

6,000.00

18,576.00

Imputed Rent for Apartment 0

Deposits from VP from Schedule I (228,176.59)

Deposits from Venanzio Pingue to TD Bank (5,000.00)

Total Payments/Expenditures (B) $712,055.78

Credit for Management Fee as fixed by the Court (C) $273,000.00

Total of Missing Monies (A) + (B) – (C) = $592,671.43

[281] These numbers show that Venanzio has inappropriately removed $592,671.43 from 116. Mr. Forsyth was very frank when he gave his evidence and said that he could have made errors. Certain ones were pointed out to him during his cross-examination. The total number of conceded errors is well within the margin of error Mr. Forsyth testified to. However, as Mr. Douglas pointed out, there were errors calculated in Venanzio’s favour, which, in my view, offset any of those errors acknowledged by Mr. Forsyth during his cross-examination.

Conclusion

[282] Accordingly, I find that Venanzio Pingue misappropriated the sum of $592,671.43 from 116.

Has Venanzio’s Breached His Duties and Obligations as an Officer and Director of 116?

[283] There is no question that as an officer and director of 116, Venanzio had a fiduciary duty to act in the best interests of the corporation. Venanzio denies any breach or wrongdoing on his part. Through his efforts, the company prospered and any accounting errors found were not deliberate on his part.

[284] I cannot agree. My findings regarding the misappropriation of almost $600,000 cannot be excused as an unintentional mistake or oversight. It shows a deliberate pattern of conduct on Venanzio’s part. I find that the frequency, extent and quantum of the monies taken, represent a fundamental breach of Venanzio’s fiduciary obligations to this corporation.

[285] The plaintiffs have alleged numerous breaches of fiduciary duty and lead evidence regarding several, including removing money from 116 without permission, buying a car without permission, paying expenses form 116 for Smythe Street, taking money earmarked for a mortgage and depositing it into the bank account of 912, opening a secret TD account, and attempting to cash a cheque payable to 116 after being removed as the manager. The list goes on and on. For the purposes of these reasons it is not necessary to analyze each and every breach, given the magnitude of the monies misappropriated. Venanzio has clearly breached his fiduciary duties as an officer and director of 116.

What is the Appropriate Remedy for Breach of Fiduciary Duty and Misappropriation of Funds?

Relief Sought

[286] The plaintiffs seek an order for Venanzio to repay the monies he inappropriately took form 116. In addition, they seek an order tracing the funds taken from 116 into the three properties purchased by Venanzio – Oakdale, Rianna and Smythe. In tracing these funds, the plaintiffs also ask that all profits Venanzio has gained as a result of his actions must be “disgorged” and that title to the Smythe Street property should be transferred to the plaintiffs.

[287] The plaintiffs also seek a declaration that Venanzio is not a shareholder of 116 and that he be removed as an officer and director of 116.

The Evidence

[288] I have already reviewed much of the evidence regarding the monies inappropriately taken by Venanzio from 116.

[289] During his evidence in chief, Joe went through the documents pertaining to the purchase of Venanzio’s three properties, their cost, financing and Venanzio’s source of income.

[290] Mr. Forsyth also did a partial tracing of funds taken by or on behalf of Venanzio set out in Schedule R-1 and R-2.

[291] As set out earlier, Venanzio denies that any funds from 116 were used to purchase the three properties in question and rejects any claim to trace funds.

Discussion

[292] In 2003, Venanzio or his companies took management fees or wages of $58,939 from 116 (see Schedule N-2). $53,939 of this money was taken before the purchase of Rianna. $20,000 was taken the day before closing and deposited in Venanzio’s personal account. $60,000 was deposited into the same account on that same day (November 3, 2003), representing the proceeds of the Montrose investment. On November 4, 2003, a cheque was written from this account in the amount of $57,780 in order to purchase the property.

[293] It is clear that the monies in this account were co-mingled. It is untenable to suggest that when Rianna was purchased using these co-mingled funds, that no money from 116 was used in the purchase.

[294] With respect to 6 ½ A and B Smythe Street, the evidence, including Venanzio’s, is uncontradicted that the majority of the funds used to purchase this property came from 116. Venanzio felt these were monies owed to him, however, my reasons make it clear, I do not agree with this proposition. Instead, I find that the bulk of the funds used to purchase this property were funds inappropriately removed from 116 by Venanzio.

[295] 290 Oakdale Avenue was purchased with monies Venanzio received through the sale of certain stocks and $25,000 which he borrowed from his father (Cherry Ridge Homes). However, Cherry Ridge Homes was inappropriately repaid this $25,000 with funds from 116. On August 10, 2005, a cheque for $12,500 was paid from 116 to Cherry Ridge Homes and on September 7, 2005, an additional cheque of $12,500 was written on the bank account of 116 to repay Cherry Ridge Homes (see Schedule N-3). These monies are part of the $267,316.17 Mr. Forsyth determined Venanzio removed from 116 in the 2005 year.

The Law

[296] Mr. Pedwell offered no contradictory authorities regarding the fiduciary duties officers and directors owe their corporations, nor did he provide any additional authorities regarding constructive trusts or the tracing remedy.

[297] In Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, the Supreme Court of Canada recognized the availability of constructive trust for both wrongful acquisition of property and unjust enrichment. At paras. 33 and 34 of the judgment, McLachlin J. stated:

33 ... The constructive trust imposed for breach of fiduciary relationship thus serves not only to do the justice between the parties that good conscience requires, but to hold fiduciaries and people in positions of trust to the high standards of trust and probity that commercial and other social institutions require if they are to function effectively.

34 It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case.

[298] Here, I am satisfied that an imposition of a constructive trust is necessary in “good conscience” in order to do justice between the parties. The plaintiffs have established on a balance of probabilities that the monies misappropriated by Venanzio can be traced to the three properties he or his corporations purchased.

[299] The plaintiffs have further asked that not only should a constructive trust be imposed, but that the court should vest title in the Smythe Street property to the plaintiffs in consequence of the defendants’ breach of fiduciary duty. I have considered the request and although such a remedy is available and may very well be appropriate in certain circumstances, I have declined to make such an order. Upon repayment of the monies owed plus applicable interest, the plaintiffs will be put back in the position they would have been in in the first instance if the monies had not been taken. I have also considered the fact that monies were co-mingled and some of the monies were legitimate funds of Venanzio’s.

[300] Accordingly, an order will go imposing a constructive trust on the three properties and/or their proceeds of sale, for the full amount of this judgment, plus applicable pre and post-judgment interest in accordance with the Courts of Justice Act. The monies currently held in trust from the sale of Rianna shall be immediately transferred to the plaintiffs. This judgment shall be a charge on the Smythe Street property and if the defendants are unable to retire the total amount of this judgment, then the Smythe Street property shall be immediately listed for sale and sold in order that these monies be repaid.

[301] In light of my findings that Venanzio breached his fiduciary duties to 116, there is no option but to remove him as an officer and director of the corporation.

[302] I have already determined that Venanzio did not pay for any shares in 116, and, accordingly, he will also be removed as a shareholder of 116.

Costs

[303] The plaintiffs have been substantially successful and at first blush, it would appear that they are entitled to their costs of the action. However, if the issue of costs cannot be resolved, I direct that the party seeking costs deliver written submissions to my office within 15 days of the release of these Reasons with responding submissions to be delivered to my office within 15 days thereafter.

[304] If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

Walters J.

Released: December 22, 2014

COURT FILE NO.: 48569/06

DATE: 2014/12/22

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1162740 ONTARIO LIMITED, JOSEPH PINGUE and SABATINO PINGUE JR.

Plaintiffs

• and -

VENANZIO PINGUE, 2077626 ONTARIO INC. and 912618 ONTARIO LIMITED

Defendants/Moving Parties

REASONS FOR JUDGMENT

Walters J.

Released: December 22, 2014

[^1]: Included in this amount is a $2,000 NSF cheque, so the actual amount deposited was $228,177.

[^2]: Nine years at $15,600 ($140,400) plus seven months at $1,300 ($9,100).

[^3]: On Schedule F, $130,176.39 includes a $2,000 NSF cheque.