CITATION: Canadian National Railway Company v. Holmes, 2015 ONSC 3038
COURT FILE NO.: CV-08-7670-00CL
DATE: 20150618
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian National Railway Company
Plaintiff
– and –
Scott Paul Holmes, Jennifer Lynn Parisien, also known as Jennifer Lynn Flynn, in her personal capacity and as the sole proprietor and operating as Efficient Construction, Janice Shirley Maureen Holmes, Murray Fussie, Scott Albert Pole, Ricky Sousa, in his personal capacity and operating as Trax Unlimited, Michael Sousa, also known as Mike Sousa, in his personal capacity and operating as Trax Unlimited, Julie Sousa,
2035113 Ontario Ltd., Complete Excavating Ltd., Monterey Consulting & Construction Ltd., 2071438 Ontario Ltd., operating as Complete Trax, 2071442 Ontario Ltd.,
The Scott Holmes Living Trust,
The Jennifer Lynn Flynn Living Trust,
Greyslone Ltd. and Belview Management Ltd.
Defendants
Marc Munro, for Jennifer Lynn Flynn and Scott Holmes
Aubrey Kauffman and Dylan Chochla, for Schonfeld Inc.
Frank Bowman and Deepshikha Dutt, for Bossy Nagy Geoffrey (BNG) previously known as the Michael Bossy Group
HEARD: May 4, 2015
MCEWEN j.
reasons FOR DECISION
[1] In the course of these proceedings, Schonfeld Inc. (“Schonfeld”) was appointed as Monitor and Receiver of certain parties including the defendants Scott Holmes (“Holmes”) and Jennifer Flynn (“Flynn”). After Schonfeld’s discharge as Monitor and Receiver Holmes and Flynn commenced an action (the “Hamilton Action”) against Schonfeld and their own accountants and tax advisors Bossy Nagy Geoffrey (BNG), previously known as the Michael Bossy Group (“BNG”). In the Hamilton Action, Holmes and Flynn allege that Schonfeld and BNG breached their obligations in law and equity, resulting in a re-assessment of Holmes and Flynn’s tax returns by the Canada Revenue Agency (“CRA”). According to the re-assessment, Holmes and Flynn are now obliged to pay additional income tax. They claim $2,500,000 in damages.
[2] The Hamilton Action was commenced without the consent of Schonfeld and without leave of the Court. Consent or leave is required pursuant to paragraph 7 of the Monitor Order. Accordingly, Schonfeld brings this motion seeking an order dismissing the Hamilton Action and BNG’s crossclaim against it. Holmes and Flynn deny leave was required, but have also brought a motion seeking an order granting them leave to commence the Hamilton Action nunc pro tunc. Lastly, BNG brings a motion seeking leave to commence a crossclaim against Schonfeld or, alternatively, a third party claim.
BACKGROUND
The Appointment of Schonfeld
[3] The Hamilton Action relates to longstanding and fractious litigation involving Holmes, Flynn, companies controlled by them and others against the Canadian National Railway Company (“CN”). This litigation includes the present action.
[4] In this action, on August 8, 2008, CN obtained a Mareva Order and an Anton Pillar order against Holmes, Flynn and companies controlled by them. Thereafter, on the consent of Holmes and Flynn, Schonfeld was appointed as Monitor by way of the order of Spence J. dated August 26, 2008.
[5] The Monitor’s powers and the general purpose of Schonfeld’s appointment were set out in paragraph 2 of the Monitor Order. The powers were limited primarily to managing the assets of the Monitored Parties and paying for the legal fees and disbursements of the Monitored Parties. Paragraph 2 of the Monitor Order sets out the Monitor’s powers as follows:
MONITOR’S POWERS
- THIS COURT ORDERS that the Monitor is hereby empowered and authorized, but is not obligated, to act at once in respect of the Property. The Monitor is granted this power in order to facilitate the management of the assets of the Monitored Parties pursuant to a Mareva Injunction granted by the Honourable Justice Lederman on August 8, 2008, as continued and amended by Order of the Honourable Justice Newbould dated August 18, 2008 (“Mareva Injunction”) and the documents reflected in the Anton Piller Order granted by the Honourable Justice Lederman on August 8, 2008, as continued by the Order of the Honourable Justice Newbould on August 18, 2008, (“Anton Piller Order”) and as more particularly reflected in a Supplementary Interim Agreement dated August 14, 2008 between the plaintiff and the Monitored Parties. Without in anyway limiting the generality of the foregoing, the Monitor is expressly empowered and authorized to do the following:
(a) To monitor and review the Property and any and all proceeds, receipts and disbursements arising out of or from the Property;
(b) To enter into and assess, on satisfactory disclosure by the Monitored Parties, the business and undertaking of the Holmes Companies and related entities and the assets of Holmes, Flynn and the Trusts;
(c) To make a recommendation as to the future of any or all of the Holmes Companies, including the wind-down of any or all of them, and to supervise the implementation of those steps;
(d) To determine and recommend the necessary expenditures for purposes of achieving such recommended steps, including wind down, and meeting the necessary ongoing obligations of the Holmes Companies, including:
(i) Who the necessary employees of the Holmes Companies are; and
(ii) Who is on the payroll of the Holmes Companies, but not providing necessary services to them.
(e) To accumulate and provide at the same time to counsel for the Monitored Parties and to counsel for the plaintiff those documents within the power, possession and control of the Monitored Parties reflecting:
(i) The gross revenues and profits earned by any of the Monitored Parties, directly or indirectly, from the plaintiff from the inception of the business relationship between the Holmes Companies and the plaintiff;
(ii) Whether the plaintiff was charged for equipment or services by the Holmes Companies where such equipment or services were not provided;
(iii) As to any connection, including amounts passing from or between any of, the Monitored Parties and an entity known as Boyle Excavating;
(iv) As to any connection, including amount passing from or between any of the Monitored Parties and any of Michael Sousa (also known as Mike Sousa), Julie Sousa, Rick Sousa (also known as Ricky Sousa) and Michael Sousa operating as Trax Unlimited and 2071438 Ontario Ltd. operating as Complete Trax (“Sousa Parties”).
(f) To receive and hold in trust funds presently standing to the credit of Holmes and/or Flynn at the law firm Brimage, Tyrrell LLP (“Trust Funds”), including the purpose for which the law firm was holding such Trust Funds;
(g) To utilize the Trust Funds for the payment of legal fees and disbursements to counsel for the Monitored Parties consistent with the terms of the Mareva Injunction or as agreed between counsel for the Monitored Parties and counsel for the plaintiff or as ordered by this Honourable Court and as against appropriate accounts and supporting materials as requested by the Monitor;
(h) To pay such legal fees of the plaintiff as agreed between counsel for the Monitored Parties and counsel for the plaintiff or as may be ordered by this Honourable Court;
(i) To determine what bank account or accounts should be set up to govern the affairs of the Monitored Parties consistent with the discharge by the Monitor of its duties and obligations and consistent with the terms of the Mareva Injunction;
(j) To report to this Honourable Court and to the parties with respect to the foregoing;
(k) To take any steps reasonably incidental to the exercise of these powers,
and in each case where the Monitor takes any such actions or steps, it shall be exclusively authorized and empowered to do so, to the exclusion of all other Persons (as defined below) and without interference from any other Person.
[6] The Monitor Order also provided the usual types of protections afforded to Monitors in paragraphs 7 and 8:
NO PROCEEDINGS AGAINST THE MONITOR
- THIS COURT ORDERS that no proceeding or enforcement process in any court or tribunal shall be commenced or continued against the Monitor except with the written consent of the Monitor or with leave of this Court;
LIMITATION ON THE MONITOR’S LIABILITY
- THIS COURT ORDERS that the Monitor shall incur no liability or obligations as a result of its appointment or the carrying out the provisions of this Order, save and except for any gross negligence or wilful misconduct on its part;
[7] Shortly after becoming Monitor, Schonfeld was also appointed as Receiver of the Monitored Parties by way of Campbell J.’s order dated December 4, 2008. In addition to the powers described in the Monitor Order, Schonfeld thereafter had authorization as Receiver to liquidate certain assets. Holmes and Flynn did not oppose the motion by CN for the Receiver Order.
[8] The Receiver Order identified a number of assets to be liquidated. Schonfeld was to use the money, amongst other things, for Holmes and Flynn’s living expenses and to pay various professionals. Included amongst these professionals were counsel to Holmes, Flynn and their related companies.
[9] Of note, paragraph 25 of the Receiver Order also contained a limitation of liability provision, and paragraph 26 set out a general provision relating to the prior Monitor Order. These paragraphs provide as follows:
LIMITATION ON THE RECEIVER’S LIABILITY
- THIS COURT ORDERS that the Receiver shall incur no liability or obligation as a result of its appointment or the carrying out of the provisions of this Order, save and except for any gross negligence or wilful misconduct on its part. Nothing in this Order shall derogate from the protections afforded by the Receiver by section 14.06 of the Bankruptcy and Insolvency Act (“BIA”) or any other applicable legislation.
GENERAL
- THIS COURT ORDERS that this order should be read in conjunction with the Monitor Order and that nothing in this Order shall derogate from the powers of and protections for the Monitor/Receiver described in the Monitor Order. All the provisions of the Monitor Order shall continue to apply to activities of the Receiver in respect of this Order.
[10] The relationship between Schonfeld and Holmes and Flynn over the course of these proceedings has been uneasy. There were several attendances before the Court. Ultimately, a discharge motion was brought before Campbell J. Once again, Holmes and Flynn did not oppose the motion. On September 26, 2011, Campbell J. granted a Discharge Order that included the following terms:
DISCHARGE OF RECEIVER, MONITOR AND FEE ASSESSOR OFFICER
THIS COURT ORDERS AND DECLARES that the Receiver has duly and properly discharged all of its duties, liabilities and obligations as Monitor/Receiver of the Monitored Parties (as defined in the Order of Spence J., dated August 26, 2008 and the Order of Campbell J., dated December 4, 2008).
THIS COURT ORDERS that the Receiver is discharged from its duties, liabilities and obligations, in its dual capacity as either Monitor or Receiver of the Monitored Parties’ property and assets is discharged, save for its duties with respect to the Claim, and is also released from any duties, liabilities and obligations arising from the Mareva Order of Lederman J., dated August 8, 2008 (as amended).
THIS COURT ORDERS that upon filing the Initial Completion Certificate the Receiver shall continue to remain Receiver and continue to have authority as Receiver in order that it may complete its ongoing duties with respect to the Claim until such matters are complete. The Receiver shall continue to have the full benefit of the provisions of all Orders made in this Monitor/Receivership, including all approvals, protections and stay of proceedings in favour of the Schonfeld Inc. in its dual capacity as Monitor/Receiver.
THIS COURT ORDERS that upon completion of all Claim matters, the Receiver shall file a Supplementary Certification of Completion with this Court and shall at that time be forever discharged and released of any further Receivership duties and obligations.
RELEASE OF LIABILITY
- THIS COURT ORDERS AND DECLARES that the Receiver is hereby released and discharged from any and all liability that the Receiver now has or may hereafter have by reason of, or in any way arising out of, the acts or omissions of the Receiver while acting in its capacity as Receiver and/or Monitor herein, save and except for any gross negligence or wilful misconduct on the Receiver’s part. Without limiting the generality of the foregoing, the Receiver is hereby forever released and discharged from any and all liability relating to matters that were raised, or which could have been raised, in the within Receivership/Monitor proceedings, save and except for any gross negligence or wilful misconduct on the Receiver/Monitor’s part.
The Hamilton Action
[11] On February 5, 2014, Holmes and Flynn commenced the Hamilton Action against Schonfeld and BNG seeking damages in the amount of $2,500,000 arising from potential tax liabilities owed by them to the CRA for failing to repay certain shareholder loans. Holmes and Flynn became aware of this potential tax liability when the CRA wrote to them on a number of occasions in early 2012 advising that there was a tax liability for the 2006-2009 taxation years. This liability arose as a result of loans made to Holmes and Flynn by their corporations, as shareholders, or to other persons connected with Holmes and Flynn, which were not repaid within one year after the end of the taxation year. The loans were made prior to Schonfeld’s appointment as Monitor. According to the CRA, the loans are considered to be income and subject to tax.
[12] Generally, Holmes and Flynn take the position that Schonfeld failed to exercise a reasonable duty of care, supervision and control over the management of their affairs. Specifically, they suggest that Schonfeld was obliged to engage in reasonable tax planning while handling their assets and the assets of their companies. They claim that Schonfeld should be liable for the significant tax liability they became aware of after the Discharge Order. They claim that BNG similarly failed to fulfil their professional responsibilities as tax advisors and chartered accountants and is therefore also liable.
ANALYSIS
Holmes’ and Flynn’s Claim against Schonfeld
[13] There are a number of issues to be determined as between Holmes, Flynn and Schonfeld. I will deal with each in turn. As a preliminary matter, I note that Holmes and Flynn argued that Schonfeld’s motion was premature and that the action should be stayed on consent pending the final determination of the tax proceedings between Holmes, Flynn and the CRA. I disagree. In my view, it would be unfair to require Schonfeld to adopt a wait-and-see approach while the CRA matter proceeded when the issue can be properly dealt with now.
- Did Holmes and Flynn Require Leave of the Court to Issue the Hamilton Action Against Schonfeld?
[14] Holmes and Flynn argue that they did not require leave to commence the Hamilton Action against Schonfeld. The basis for this submission is the fact that they have only sued Schonfeld in its capacity as a Receiver. Holmes and Flynn argue that, as the leave requirement is only contained in paragraph 7 of the Monitor Order, they do not require leave of the Court.
[15] Schonfeld concedes that the Receiver Order does not explicitly stipulate that leave of the Court is required to commence an action against Schonfeld. However, Schonfeld argues that paragraph 26 of the Receiver Order preserves the leave requirement set out in the Monitor Order. That paragraph, it will be recalled, provides that nothing in the Receiver Order shall derogate from the powers and protections of the Monitor/Receiver described in the Monitor Order, and further stipulates that all provisions of the Monitor Order shall continue to apply to activities undertaken by the Monitor/Receiver as Receiver. Since paragraph 7 of the Monitor Order expressly states that no proceeding in any court shall be commenced against the Monitor except with leave (or written consent), leave is similarly required to initiate proceedings against Schonfeld in its capacity as Receiver.
[16] Schonfeld also relies upon paragraph 11 of the Discharge Order, which provides Schonfeld with the full benefit of the provisions of both the Monitor Order and the Receiver Order.
[17] I agree with Schonfeld that leave is required.
[18] When interpreting an order, a Court will use accepted principles of statutory and contractual interpretation to ascertain the intent of the ordering judge: L’Homme v. Pliskevicius Estate, 2011 ONSC 6102, 2011 CarswellOnt 10969. In my view, employing this approach, it is evident that Schonfeld was intended to have all of the protections afforded to it as Monitor, including those specified in paragraph 7 of the Monitor Order, when acting as Receiver. This interpretation flows naturally from a plain reading of the three orders together in their grammatical and ordinary sense. Furthermore, it is consistent with the factual and legal context animating this case, and the protections typically afforded to Monitors/Receivers in commercial litigation matters. I do not agree with Holmes and Flynn that by adopting this interpretation I am either impermissibly expanding the scope of the Monitor Order or importing an implied term into the Receivership Order. I therefore find that leave was required the Hamilton Action.
- Should Leave be Granted nunc pro tunc?
[19] In determining whether leave should be granted nunc pro tunc, I must first consider whether granting leave will result in any prejudice or substantial injustice to Schonfeld. Assuming no prejudice or substantial injustice would result, I must then consider whether leave would have been granted had it been sought at the appropriate time: Gallo v. Beber (1998), 1998 CanLII 907 (ON CA), 116 OAC 340, 7 C.B.R. (4th) 170 (C.A.).
[20] I do not find that Schonfeld would suffer any prejudice or substantial injustice by granting leave nunc pro tunc.
[21] First, contrary to the submissions of Schonfeld, Holmes and Flynn have sufficiently articulated the particulars of Schonfeld’s alleged breaches in the Hamilton Action. Second, although Schonfeld submits that Holmes and Flynn may not have adequate resources to pay a future costs award, this concern can be addressed on motion for security for costs if necessary, rather than in the instant motion. In any event, there was insufficient information on this motion before me to establish impecuniosity. Third, the passage of time between the Discharge Order and the current motion has not been significant, and there is no indication that the passage of time has resulted in documents being lost or destroyed, or witnesses becoming unavailable. Last, while it is true that a Receiver should be able to rely upon a Discharge Order establishing a comprehensive release, the impact of Discharge Order is, in this case, more appropriately considered on the second branch of the test: whether leave would have been granted had it been sought at the appropriate time.
[22] Turning then to the second question, I note that leave will generally be granted unless it is clear that there is no foundation for the claim or the action is frivolous or vexatious: Gallo, at para. 7; GMAC Commercial Credit Corp. – Canada v. T.C.T. Logistics Inc., 2006 SCC 35, [2006] 2 S.C.R. 123 at paras. 55-57. A stricter standard, under which the plaintiff must demonstrate a strong prima facie case, may be appropriate where the issues raised in the action could have been raised in the discharge proceedings: Gallo, at para. 7; Bank of America Canada v. Willann Investments Ltd. (1993), 23 C.B.R. (3d) 98, 44 A.C.W.S. (3d) 437 (Ont. C.A.). In either case, it is important to avoid exposing a court-appointed officer to unnecessary or unwarranted litigation: Royal Bank of Canada v. Vista Homes Ltd. (1985), 1985 CanLII 482 (BC SC), 63 B.C.L.R. 366, 1985 CarswellBC475 at para. 19.
[23] Holmes and Flynn note that the difficulties with the CRA and the extent of their tax liability did not come to light until after the Discharge Order was granted. Accordingly, they argue that the strong prima facie case standard is not applicable. I do not agree. In my view, the wording of paragraph 17 of the Discharge Order (reproduced above) is sufficiently broad to encompass the alleged misconduct. Whether Schonfeld adequately considered potential tax liabilities and the reasonableness of Schonfeld’s conduct from a tax planning perspective are issues that could have been raised in the discharge proceedings. Regardless, for the reasons below, I believe that the claim against Schonfeld is without foundation and is frivolous and vexatious. Consequently, whether the more stringent standard is applied or not is of no moment.
[24] In seeking leave to commence an action against a court appointed receiver, a plaintiff must establish a factual basis for the proposed claim and the proposed claim must disclose a cause of action: Alberta Treasury Branches v. Elaborate Homes Limited, 2014 ABQB 350, 2014 CarswellAlta 921. See also Society of Composers, Authors & Music Publishers of Canada v. Armitage (2000), 2000 CanLII 16921 (ON CA), 50 O.R. (3d) 688, 20 C.B.R. (4th) 160 (C.A.), applying the same test to a proposed action against a trustee responsible for administering a court-approved bankruptcy proposal.
[25] As a result of the orders under which Schonfeld operated, Holmes and Flynn must establish a factual basis to support either gross negligence or wilful misconduct. Mere negligence will not suffice. In Alberta Treasury Branches at paras. 35-39, Neilson J. provided a very useful summary of the case law on gross negligence/wilful misconduct in the course of deciding whether to grant leave to commence an action against a court-appointed receiver:
Black’s Law Dictionary, 9th ed (St Paul, MN: West, 2009) defines gross negligence as, inter alia:
A conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party, who may typically recover exemplary damages.
...As it originally appeared, this was very great negligence, or the want of even slight or scant care. It has been described as a failure to exercise even that care which a careless person would use. Several courts, however, dissatisfied with a term so nebulous...have construed gross negligence as requiring willful, wanton, or reckless misconduct, or such utter lack of all care as will be evidence thereof...But it is still true that most courts consider that ‘gross negligence’ falls short of a reckless disregard of the consequences, and differs from ordinary negligence only in degree, and not in kind...
The Dictionary of Canadian Law, 4th ed (Scarborough, Ont: Thomson Carswell, 2011) provides the following definition:
Conduct in which if there is not conscious wrongdoing, there is a very marked departure from the standard by which responsible and competent people...habitually govern themselves...a high or serious degree of negligence...
The Supreme Court of Canada has considered these terms in the context of tort litigation. In McCulloch v Murray, 1942 CanLII 44 (SCC), [1942] SCR 141 at 145, [1942] SCJ No 7, Duff C.J. observed:
... All these phrases, gross negligence, wilful misconduct, wanton misconduct, imply conduct in which, if there is not conscious wrong doing, there is a very marked departure from the standards by which responsible and competent people in charge of motor cars habitually govern themselves. ...
In Peracomo Inc v Telus Communications Co, 2014 SCC 29, Cromwell J. for the majority commented on “wilful misconduct”:
57 In other contexts, “wilful misconduct” has been defined as “doing something which is wrong knowing it to be wrong or with reckless indifference”; “recklessness” in this context means “an awareness of the duty to act or a subjective recklessness as to the existence of the duty”: R. v. Boulanger, 2006 SCC 32, [2006] 2 S.C.R. 49, at para. 27, citing Attorney General's Reference (No. 3 of 2003), 2004 EWCA Crim 868, [2005] Q.B. 73. Similarly, in an insightful article, Peter Cane states that “[a] person is reckless in relation to a particular consequence of their conduct if they realize that their conduct may have that consequence, but go ahead anyway. The risk must have been an unreasonable one to take”: “Mens Rea in Tort Law” (2000), 20 Oxford J. Legal Stud. 533, at p. 535.
58 These formulations capture the essence of wilful misconduct as including not only intentional wrongdoing but also conduct exhibiting reckless indifference in the face of a duty to know...
Therefore, in order for Alco to establish PWC’s liability arising from the Receivership at an eventual trial, it must show that PWC demonstrated a very marked departure from the standards by which responsible and competent people in such circumstances would have acted or conducted themselves, or in a manner such that it knew what it was doing was wrong or was recklessly indifferent in its conduct.
[26] With the above in mind I am of the view that leave ought not be granted to Holmes and Flynn. The powers granted to Schonfeld by way of the Receiver Order were detailed and precise. In addition to the powers contained in the Monitor Order, Schonfeld was to deal with discrete liquidations, take possession over certain properties and, amongst other things, pay living expenses and professional fees incurred by Holmes and Flynn.
[27] Of significance is paragraph 13 of the Receiver Order which stipulates as follows:
- THIS COURT ORDERS that all funds, monies, cheques, instruments, and other forms of payments received or collected by the Receiver from and after the making of this Order from any source whatsoever, including without limitation the sale of all or any of the Property and the collection of any accounts receivable in whole or in part, whether in existence on the date of this Order or hereafter coming into existence, shall be deposited into one or more new accounts to be opened by the Receiver (the ‘Receiver Accounts’) and the monies standing to the credit of such Receiver Accounts from time to time, net of any disbursements provided for herein, shall be held by the Receiver to be paid in accordance with the terms of the Monitor Order, this Order, the Fee Assessor Order or any further Order of this Court.
[28] Nowhere in the Receiver Order (or the Monitor Order for that matter) is Schonfeld required to provide any form of accounting services or tax planning to the moving defendants. Notwithstanding this, Holmes and Flynn allege in their Statement of Claim that Schonfeld failed to take reasonable care of their assets by not adequately minimizing tax liabilities whilst managing their assets and by failing to maintain a sufficient reserve to ensure that there were sufficient funds in the estate to cover any future tax liability. The relevant pleadings in the Statement of Claim are set out in paragraphs 16 and 17:
Similarly, in breach of its obligations at law and in equity, the defendant Schonfeld Inc. failed to take reasonable care in the management of the assets and undertakings of the plaintiffs. In particular, but not limiting the generality of the foregoing, the defendant Schonfeld Inc. did not take any reasonable steps to eliminate or minimise potential tax liability and failed to account for the potential tax liability as described in the correspondence dated January 13, 2012, March 7, 2012 and March 12, 2012 from the Canadian Revenue Agency [sic].
Moreover, and in further breach of its obligations at law and in equity, in addition to taking no reasonable steps to minimise the take liability of the plaintiffs, the defendant Schonfeld Inc. failed to create a sufficient reserve in order to ensure any future tax liability which would come due and payable following the termination of the Receivership could be paid. As a result, the plaintiffs have suffered and will suffer in the future loss and damage as herein claimed.
[29] The essence of the claim is that Schonfeld failed to engage in reasonable tax planning on behalf of Holmes and Flynn. Having reviewed the pleadings and the provisions of the Monitor/Receiver Order and the Discharge Order, I find that there is no foundation for the claim that Schonfeld’s conduct constituted a “very marked departure” from the standards by which a reasonable and competent Receiver in the same circumstances would have conducted itself. I reach this conclusion for the following reasons:
(i) the alleged tax liabilities began prior to Schonfeld becoming involved in the matter;
(ii) Holmes and Flynn were fully aware of the shareholder loans that were taking place;
(iii) throughout the relevant time BNG provided accounting services and tax advice to Holmes and Flynn;
(iv) Schonfeld’s mandate as Monitor/Receiver did not include providing the type of services to Holmes and Flynn that they now complain they did not receive;
(v) Holmes and Flynn either consented to or did not oppose any of the orders obtained that limited Schonfeld’s liability and led to its discharge.
There is similarly no foundation to the claim that Schonfeld conducted itself with reckless indifference or in a manner that it knew was wrong.
[30] In the absence of gross negligence or wilful misconduct, any liability that might otherwise have attached to Schonfeld falls within the scope of the release contained in paragraph 17 of the Discharge Order. Whether Schonfeld’s conduct was sub-optimal or not, any of the alleged shortcomings of its management clearly fall outside the ambit of gross negligence or wilful misconduct. Thus, no reasonable cause of action has been advanced
[31] Holmes and Flynn argue that in denying leave on this basis, I am inquiring into the merits of the case in a manner that should be ultimately reserved for the trier of fact. They urge me not to follow the approach adopted Alberta Treasury Branches. I disagree. As noted above, this analysis does not require an investigation on the merits, but rather a simple review of the contents of the Monitor/Receiver Order and Discharge Order, the allegations against Schonfeld, and the applicable legal tests. The matter can and should be dealt with now. Failing to do so would expose Schonfeld to potentially lengthy and expensive litigation in the absence of a reasonable cause of action.
[32] Leave is therefore refused.
BNG’s Claim against Schonfeld
[33] In law, BNG cannot be in a better position than Holmes and Flynn to pursue its action against Schonfeld. Thus, for the reasons set out above, BNG’s motion requesting leave to file a cross claim or in the alternative a third party claim is similarly dismissed.
DISPOSITION
[34] The motions of Holmes, Flynn, and BNG are dismissed.
[35] The motion of Schonfeld is granted and both the Hamilton Action and BNG’s crossclaim are dismissed.
[36] Schonfeld shall have its costs of the motion in the amount of $45,000.00 inclusive split two-thirds/one-third between Holmes/Flynn and BNG respectively. I have reduced the amount of costs sought by Schonfeld, in part, due to the fact that it also brought a contempt motion against Holmes and Flynn that was abandoned.
Mr. Justice T. McEwen
Released: June 18, 2015
CITATION: Canadian National Railway Company v. Holmes et al., 2015 ONSC 3038
COURT FILE NO.: CV-08-7670-00CL
DATE: 20150618
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian National Railway Company
Plaintiff
– and –
Scott Paul Holmes, Jennifer Lynn Parisien, also known as Jennifer Lynn Flynn, in her personal capacity and as the sole proprietor and operating as Efficient Construction, Janice Shirley Maureen Holmes, Murray Fussie, Scott Albert Pole, Ricky Sousa, in his personal capacity and operating as Trax Unlimited, Michael Sousa, also known as Mike Sousa, in his personal capacity and operating as Trax Unlimited, Julie Sousa,
2035113 Ontario Ltd., Complete Excavating Ltd., Monterey Consulting & Construction Ltd., 2071438 Ontario Ltd., operating as Complete Trax, 2071442 Ontario Ltd.,
The Scott Holmes Living Trust,
The Jennifer Lynn Flynn Living Trust,
Greyslone Ltd. and Belview Management Ltd.
Defendants
REASONS FOR DECISION
Mr. Justice T. McEwen
Released: June 18, 2015