COURT FILE NO.: 137-2014
DATE: 2015/08/07
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Harold Vander Glas, Shelley Vander Glas, and 1238557 Ontario Ltd.
Sherry A. Kettle, for the plaintiffs
Plaintiffs
- and -
MV Power Systems Ltd., Maclellan Welding Ltd., and Jamco Trailers North America Inc.
Gregory F. Stewart, for the defendants
Defendants
HEARD: June 10, 2015
B.W. Miller J.:
REASONS FOR DECISION
I. Introduction
[1] The plaintiffs have brought an action against the defendants arising, in part, out of the purchase of a wind turbine by the plaintiffs Harold and Shelley Vander Glas from the defendant MV Power Systems Ltd. (“MV Power”) for $101,105.75.
[2] It is undisputed that the wind turbine failed on three occasions. On the first occasion, the entire turbine head blew off and landed in a field. On the second occasion, a rotor blade struck the tower and became bent. On the third occasion, two of the rotor blades blew off and landed in a field. After the third failure, the turbine was not repaired.
[3] The plaintiffs claim $93,694.24 under several heads of damage, including breach of contract, breach of an implied warranty pursuant to the Sale of Goods Act, RSO 1990, c s. 1, negligent misrepresentation, and pure economic loss arising from negligent manufacture and construction.
[4] Additionally, the plaintiff 1238557 Ontario Ltd (‘557’) claims against the defendants for $13,842.04 for sales commissions owed to 557. Mr. Vander Glas was a salesperson for 557, and 557 provided sales services to MV Power.
[5] At the time of the purchase of the wind turbine, Mr. Vander Glas and Bernie MacLellan, the sole shareholder and directing mind of the three defendant corporations, had an ongoing business relationship. The nature of that business relationship is disputed, as is the relationship among the defendant corporations, and the characterization of the sale of the turbine itself.
[6] The defendants have brought the present motion for summary judgment in favour of the defendants MacLellan Welding Ltd. (“MacLellan Welding”) and Jamco Trailers North America Inc. (“Jamco”). The defendants have not brought a motion with respect to MV Power.
The Plaintiffs’ Position
[7] The plaintiffs allege that there were warranties attaching to the contract of sale of the wind turbine and that those warranties have not been fulfilled. The plaintiffs allege that they purchased the wind turbine for the purpose of hooking it up to the electricity grid to produce electricity for their farming operation, and that Mr. Vander Glas had advised Mr. MacLellan at the time that this was the reason for the purchase.
[8] Apart from the physical damage to the wind turbine, which is undisputed, there are also allegations that the wind turbine failed to generate the electricity that it was supposed to, and that the defendants had guaranteed a level of electricity production over five years that would be sufficient to pay for the wind turbine.
[9] The plaintiffs advance various theories of interdependence among MV Power and the other defendant corporations. Their central argument is that the defendant corporations are in effect one business entity. The plaintiffs argue that MV Power is under the complete control and domination of MacLellan Welding and Jamco, and that Bernie MacLellan and Helen MacLellan are the directing minds of all three defendant corporations.
[10] All of these allegations are advanced in support of the argument that MV Power, MacLellan Welding, and Jamco are jointly and severally liable for the obligations of MV Power. These arguments are crucial to the plaintiffs, as MV Power has no assets and is not carrying on business. The plaintiffs’ only hope of recovery in this action is as against MacLellan Welding and Jamco.
[11] The plaintiffs argue that MV Power is so closely related to the other defendants that it would be just to lift the corporate veil in the circumstances of this case.
[12] In the alternative, the plaintiffs argue that MV Power acted as the agent for MacLellan Welding and Jamco, such that MacLellan Welding and Jamco are liable for the obligations incurred by MV Power.
[13] Finally, the plaintiffs have brought a claim in tort against the defendants for pure economic loss arising from the negligent manufacture and construction of the wind turbine. This claim in negligence is brought against all three defendants directly. The plaintiffs also claim that MacLellan Welding and Jamco are vicariously liable for the negligence of MV Power.
The Defendants’ Position
[14] The defendants take the position that the wind turbine that is the subject of the action was manufactured and produced by MV Power, that the plaintiffs’ contract for purchase was with MV Power, and that the plaintiffs have no cause of action against the remaining defendants.
[15] Mr. MacLellan disputes that the wind turbine was purchased for the primary reason of providing electricity for the Vander Glas farm, and states that Mr. Vander Glas purchased it as a marketing tool to assist Mr. Vander Glas in his business of selling MV Powers’ wind turbines.
[16] Furthermore, the defendants argue that the wind turbine purchased by Mr. Vander Glas was a prototype, that Mr. Vander Glas knew that it was a prototype, and that there were no warranties made with respect to the performance of this particular wind turbine.
[17] The defendants argue that Mr. MacLellan foresaw that a venture into green energy products would carry risks, and that he wanted to insulate his existing businesses from exposure to that risk. For that reason, he incorporated a new company, MV Power, for the assembly and sale of green energy products. It was intended to be a separate legal entity from MacLellan Welding and from Jamco, with separate operations, so that its liabilities would remain distinct from those of MacLellan Welding and from Jamco.
[18] Mr. MacLellan denies any relationship between MV Power and Jamco, other than through their common ownership by him, and MV Power’s use of premises owned by Jamco.
[19] MV Power and MacLellan Welding are also legally distinct but transacted business with each other. The relationship between MV Power and MacLellan Welding, on the evidence of Mr. MacLellan, was that MV Power would obtain customer orders and a cash deposit, and use the cash deposit to order components from MacLellan Welding. MacLellan Welding would manufacture the components (or order some of them from third parties), conduct sub-assembly, and sell the assembled components to MV Power. MV Power would assemble the components and install the wind turbines on the premises of its customer.
[20] MV Power operated out of a building located on premises owned by Jamco. MacLellan Welding and Jamco operated out of another building located at the same premises at 75836 London Road, Brucefield, Ontario. There is contradictory evidence on this motion as to whether employees of MacLellan Welding and Jamco were sometimes redeployed to work on MV Power Projects, and vice versa. There is contradictory evidence as to the extent to which MV Power`s financial and business affairs were truly separate from MacLellan Welding and Jamco.
[21] With respect to the record before me, it is worth noting that the defendants had not, at the time of the hearing of the motion, provided an affidavit of documents to the plaintiffs, and examinations for discovery had not been held. Mr. MacLellan and Mr. Vander Glas each filed an affidavit and were cross-examined on their affidavits. The defendants’ accountant also filed a brief affidavit.
II. Test for summary judgment
[22] The defendants have brought this motion for Summary Judgment seeking dismissal of the action against MacLellan Welding and Jamco. The defendants do not seek dismissal of the claims against MV Power and are content that those proceed to trial.
[23] The plaintiffs resist the motion for summary judgment on the basis that their claims require a full trial for resolution and, in the alternative, that the motion is premature due to the defendants having resisted providing an affidavit of documents, and because examinations for discovery have not been conducted.
[24] Rule 20.04(2) of the Rules of Civil Procedure states that:
the court shall grant summary judgment if, (a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence;
[25] The leading case setting out the methodology for determining whether there is a genuine issue requiring a trial is Hryniak v. Mauldin, 2014 SCC 7. Generally, ‘a trial is not required if a summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the judge to make the necessary findings of fact, apply the law to those facts, and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.’ (Hryniak v. Mauldin, para. 4).
[26] Furthermore, even in those cases where a judge cannot make the necessary findings of fact, or apply the legal principles to reach a just and fair determination on a summary judgment motion, Hryniak establishes that the judge may use enhanced fact-finding powers under Rule 20.04(2.1) unless it is in the ‘interest of justice’ for these powers to be exercised only at trial.
In practice, whether it is against the “interest of justice” to use the new fact-finding powers will often coincide with whether there is a “genuine issue requiring a trial”. It is logical that, when the use of the new powers would enable a judge to fairly and justly adjudicate a claim, it will generally not be against the interest of justice to do so. What is fair and just turns on the nature of the issues, the nature and strength of the evidence and what is the proportional procedure. (para. 59)
III. Analysis of the claims
[27] For the purposes of this motion, I must consider the elements of each claim against the defendants MacLellan Welding and Jamco and determine whether there is a genuine issue requiring a trial. If I cannot make the necessary findings to answer that question, then I must consider whether it would be just to make use of the enhanced powers under Rule 20 to make the necessary findings, failing which the matter must proceed to trial.
[28] I will address the three claims: (1) whether the corporate veil should be lifted to impose any liability of MV Power for breach of contract, breach of implied warranty, or negligent misrepresentation on MacLellan Welding and Jamco; (2) whether MacLellan Welding and Jamco can be liable as agents of MV Power; and (3) whether MacLellan Welding and Jamco can be liable for the tort of pure economic loss for the negligent manufacture and construction of the wind turbine.
[29] The three claims are largely interconnected, such that facts and evidence that are relevant to one of the claims will likely also be relevant to the others. What this means practically is that if one claim requires a trial, it will not likely be proportionate to sever the remaining claims to be dealt with summarily. The exception would be if the corporate veil claim could be defeated summarily; however, as I set out below, I do not think that it can be.
1. Lifting the Corporate Veil
[30] With respect to the claim that liability be imposed on MacLellan Welding and Jamco for the breach of contract, breach of implied warrant, and negligent misprepresentation alleged against MV Power, the starting proposition is that a corporation is a legal entity that is distinct from its shareholders (Constitution Insurance Co. of Canada et al v. Kosmopoulos et al, 1987 CarwellOnt 132 (SCC), para. 12). Except in extraordinary circumstances, the liabilities of one corporation are distinct from the liabilities of another, even where both corporations are wholly owned by the same shareholder.
[31] However, in exceptional circumstances, a court can lift the corporate veil and attach the liabilities of a corporation directly to its shareholder(s) (Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85; 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (Ont. C.A.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 CanLII 7979 (ON SC), 1996 CarswellOnt 1699 (OCJ.GD)).
[32] In Fleischer, Laskin JA held that only exceptional cases resulting in flagrant injustice authorize lifting the corporate veil. This includes circumstances where those in control expressly direct that a wrongful act be done:
Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done": Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."
[33] The parties here disagree about whether such circumstances exist in this case, such that McLellan Welding or Jamco or both could be held liable for the liabilities of MV Power.
[34] It is disputed as to whether MV Power is ‘completely dominated and controlled’ by MacLellan Welding or Jamco. The evidence presented on this motion is conflicting as to what extent MV Power operated independently of MacLellan Welding and Jamco.
[35] The crucial issue is whether something wrongful has been done in the requisite sense of wrongful. In the defendants’ submission, nothing wrong has been done. Even if MV Power were to be held liable to the plaintiffs as alleged, which the defendants contend it should not be, the defendants argue that MV Power’s current impecuniosity is not a wrong; it is merely a matter of a business having failed.
[36] As to the purpose for the incorporation of MV Power, there is no question that MV Power was incorporated for the express purpose of shielding its principal from future liability. That is not a wrongful act, nor is it an act that in itself can warrant the lifting of the corporate veil. Were it to be otherwise, the very concept of a limited liability corporation would be undone. However, the plaintiffs go further and allege that MV Power was organized specifically to ensure that it had no assets and no means to satisfy its warranties. Crucially, the plaintiffs argue, MV Power marketed itself on the basis that its affiliation with MacLellan Welding and Jamco meant that it would have the means to satisfy its warranty and service obligations. MV Power’s primary point of differentiation from its competitors, the plaintiffs argue, was precisely the claim that its corporate structure meant that it would honour its promises.
[37] In support of this argument, the plaintiffs pointed to some of MV Power’s marketing materials that they say tie MV Power together with the other defendants:
the sister company to MV Power Systems is Jamco Trailers. They have been in business since 1972 and have been known for their manufacturing quality tongue and groove wall- planked trailers. You can check out their website at www.Jamcotrailers.com …
[38] Another MV Power brochure states:
Our commitment to you
MV Power systems is dedicated to providing you with an excellent PV solar panel system with excellent value (quality and price). More than that, we are going to be around for years, providing PV solar solutions and providing on-demand maintenance to all the projects we have installed.
Our commitment to PV solar and wind turbine projects and our affiliation with Jamco Trailers means we are going to be there for you long after other PV solar companies have packed it up and left the industry. When you buy components from various suppliers and assemble them on site you really have little or no financial commitment to product support commitment.
If OPA decides to reduce the rate of the offer many of the current PV solar suppliers will move on. Well we can’t and we won’t because of our commitment to renewable energy and our affiliation with our other manufacturing interest.
[39] The authorship of these materials is contested. The plaintiffs claim that they were authored by Mr. MacLellan, or at the very least, they were produced with his knowledge and approval.
[40] The defendants claim that Mr. Vander Glas himself was the author of the materials, and that Mr. MacLellan was not his source for this information and neither approved of the claims nor was aware of them.
[41] These allegations require not only fact finding and assessments of credibility, but qualitative assessments as to whether the operations of MV Power, together with the representations allegedly made by MV Power in the context of the sale of this particular wind turbine, constitute a wrongful act as contemplated by Fleischer that would justify the extraordinary step of lifting the corporate veil. These assessments cannot be made safely on the record before me and require a trial.
2. Agency
[42] With respect to the claim of agency, the plaintiffs argue that MV Power acted as an agent for the other defendants, and that the other defendants are liable for the obligations of the agent MV Power. The plaintiffs ground the claim in a type of agency that results from the control of one corporation by an affiliated corporation.
[43] The domination of finances, policies, and practices of an affiliate, such that it effectively has no separate mind or existence of its own, provides a basis to imply the existence of an agency relationship (Elbow River Marketing Limited Partnership v. Canada Clean Fuels Inc., 2012 CarswellAlta 1914 (Alta CA), paras. 13-15).
[44] The plaintiffs have raised sufficient documentary evidence as to the domination of MV Power by the other defendants as to establish agency as an issue that requires a trial court’s determination. On the evidence of Mr. Vander Glas, which is denied by Mr. MacLellan, MV Power was directed entirely by Mr. MacLellan, using resources of the three defendants deployed on an as-needed basis by Mr. MacLellan. Mr. Vander Glas stated in his affidavit that he observed from his office in the premises of MacLellan Welding, particular employees and tools being temporarily reallocated to MV Power for particular jobs, and vice versa. The defendants deny it.
[45] The plaintiffs argue that MV Power was not self-governing, but served and was controlled by MacLellan Welding or Jamco or both. It was, they say, simply the conduit through which MacLellan Welding and Jamco worked from time to time. In support of this argument, the plaintiffs point to the defendants’ evidence that MacLellan Welding was the entity that developed, manufactured, and owned the prototype of the wind turbines that were sold by MV Power, and that MV Power had no capital, and paid no rent. The defendants insist that MV Power worked at arm’s length from MacLellan Welding and Jamco, and produced some documents to demonstrate that they maintained separate accounting.
[46] Determining (1) the extent to which MV Power was separate from, or dominated by, the other companies, (2) whether this control rises to the level needed to establish an agency relationship, and (3) whether MV Power was acting as agent with respect to the transaction for the wind turbine sold to Mr. Vander Glas, necessitates not only assessments of credibility, but also documentary production not yet made by the defendants. The motion is dismissed with respect to this claim.
3. Pure economic loss
[47] The claim for damages for pure economic loss resulting from negligence is a claim that lies against a manufacturer directly.
[48] The plaintiffs have alleged that MacLellan Welding and Jamco are the manufacturers of the wind turbine.
[49] The defendants did not advance a plausible argument as to why this claim should be dismissed against MacLellan Welding. They do, however, allege that Jamco played no role whatsoever in the manufacture.
[50] The inquiry into what role was played by MacLellan Welding and Jamco in the manufacture of the wind turbine turns on the same fact finding needed to resolve the questions of agency and lifting the corporate veil. These are not findings that I am able to make on the limited and disputed record before me. A trial of this issue is required.
IV. Disposition
[51] The defendants argue that there is little at stake in this motion for the plaintiffs: they are not being denied their action and can still proceed against MV Power in a streamlined trial that will not be bogged down with inquiries into the relationship between MV Power and the other defendants. Although it is true that the action against MV Power could continue if summary judgment were granted in favour of MacLellan Welding and Jamco, such a judgment would in reality bring the litigation to an end. There would be no reason for the plaintiffs to incur the cost of litigation where there would be no prospect of realizing on any judgment obtained.
[52] This would be an expeditious end to the litigation, but given ‘the nature of the issues, the nature and strength of the evidence’ canvassed above, it would not be a fair and just end. I have found that each of the causes of action advanced by the plaintiffs requires a trial. But even if I had come to that conclusion with respect to only one cause of action, I would still order all to be tried. Dividing the case in any way would not realize any efficiencies given the factual interconnections of the claims. A bifurcated proceeding would not be proportionate procedure given the amounts at stake.
[53] The motion is dismissed and the matter should proceed to trial, following the completion of discovery. I am not seized of the matter.
Costs
[54] The plaintiffs are entitled to their costs of this motion. If the parties cannot agree on quantum, I will receive brief written cost submissions from the plaintiffs, no more than three pages in length, within 3 weeks of the date of these reasons. The defendants shall provide their reply submissions 2 weeks thereafter.
“Justice B.W. Miller”
Justice B. W. Miller
Released: August 7, 2015
COURT FILE NO.: 137-2014
DATE: 2015/08/07
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
HAROLD VANDER GLAS, SHELLEY VANDER GLAS, and 1238557 ONTARIO LTD
Plaintiff
- and -
MV POWER SYSTEMS LTD., MACLELLAN WELDING LTD., and JAMCO TRAILERS NORTH AMERICA INC.
Defendants
REASONS FOR DECISION
Miller J.
Released: August 7, 2015