Superior Court of Justice – Ontario (Commercial List)

Citation: Cumbo v. 1120323 Ontario Limited, 2016 ONSC 2125 Court File No.: CV-15-11120-00CL Date: 2016-04-01

Re: Carmelo Cumbo, Applicant And: 1120323 Ontario Limited and David Calcagno, Respondents

Before: Hainey J.

Counsel: Peter W.G. Carey, for the Applicant David J. McGhee, for the Respondents

Heard: March 22, 2016

Endorsement

Overview

[1] This is an application pursuant to section 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") by Carmelo Cumbo ("Carmelo") for:

a) an order declaring that he is the legal and beneficial owner of 20% of the issued shares of the respondent, 1120323 Ontario Limited (the "Company");

b) an order requiring the records of the Company to be rectified to give effect to the declaration that Carmelo owns 20% of the equity of the Company and rectification of the Company's shareholder register to reflect his 20% interest in the Company;

c) an order directing the Company to issue a share certificate to Carmelo representing his shares in the Company; and

d) other related relief.

[2] Carmelo was married to Giovanna Calcagno-Cumbo ("Joanne") until her death on August 30, 2013. Prior to her death, Joanne was a director of the Company. She and her four siblings each owned 20% of the issued shares of the Company which they inherited from their mother, Rosetta Calcagno ("Rosetta"), who died in 2009.

[3] Joanne had no children and died intestate. As a result, Carmelo maintains that he inherited all of her property including her 20% interest in the Company.

[4] The respondent, David Calcagno ("David"), is Joanne's brother. He is a director of the Company. Carmelo has requested that Joanne's shares in the Company be transferred to him. David, on behalf of the Company, has refused to do so.

[5] David takes the position that Carmelo is not entitled to Joanne's shares because he and Joanne borrowed $130,000 from Joanne's now deceased father, Lorenzo Cumbo ("Lorenzo"), in order to purchase their residence at 10799 Clarkway Drive in Brampton, Ontario ("Clarkway Drive"). David alleges that as part of that purchase, Joanne and Carmelo held 50% of Clarkway Drive in trust for Lorenzo.

[6] Joanne and Carmelo sold Clarkway Drive in 2005. David alleges that Joanne and Carmelo did not pay Lorenzo's estate half of the net proceeds from the sale of the property as they were required to do pursuant to their trust agreement with Lorenzo. David submits that Joanne's and Carmelo's breach of their trust agreement with Lorenzo disentitles Carmelo from ownership of Joanne's shares in the Company.

[7] Carmelo submits that in August 2006, he and Joanne paid Rosetta $100,000 in full satisfaction of any trust claims that either she or Lorenzo's estate had regarding the sale of Clarkway Drive. He maintains that Rosetta, who inherited Lorenzo's estate after his death in 2002, executed a release in favour of Joanne and him.

[8] According to David, he and other members of the Calcagno family have known about Joanne's and Carmelo's sale of Clarkway Drive and the alleged breach of their trust agreement with Lorenzo since 2006. Neither David nor any other members of the Calcagno family have taken any steps to pursue a claim against Joanne or Carmelo for their alleged breach of trust since then.

Issues

[9] I must decide the following issues on this application:

(a) Are the allegations of breach of trust against Carmelo and Joanne relevant to the transfer of Joanne's shares in the Company to Carmelo?

(b) Is Rosetta's estate entitled to a set off against Carmelo and Joanne so that Joanne's shares in the Company cannot be transferred to Carmelo?

(c) Does Rosetta's estate have a valid claim against Joanne's shares?

(d) Should I decline to transfer Joanne's shares in the Company to Carmelo because of the allegations of breach of trust against Joanne and Carmelo?

Analysis

[10] I have concluded that the answer to each of the aforementioned questions is "no" for the following reasons.

[11] Mr. McGhee, on behalf of the respondents, submits that it would be inequitable to transfer Joanne's shares in the Company to Carmelo because of Joanne's and Carmelo's breach of trust with respect to Clarkway Drive. He argues that Carmelo does not have "clean hands" because of his breach of the trust agreement with Lorenzo and that this should prevent him from obtaining equitable relief under the oppression remedy section of the OBCA.

[12] I disagree with this submission. Carmelo's entitlement to Joanne's shares in the Company is unrelated to any claim that either Lorenzo's estate or Rosetta's estate may have against Joanne and him. The evidence establishes that Joanne is entitled to a 20% interest in the Company under the terms of Rosetta's will. The respondents concede that where a person dies intestate without any children and is survived by a spouse, the spouse is entitled to inherit the deceased spouse's property absolutely. (Section 44, Succession Law Reform Act, R.S.O. 1990, c. S.26.)

[13] Carmelo is, therefore, entitled to inherit Joanne's shares in the Company. The fact that Lorenzo's estate, or Rosetta's estate, on its behalf may have a claim against Carmelo or Joanne for breach of trust is unrelated and irrelevant to Carmelo's absolute entitlement to Joanne's shares in the Company.

[14] Further, David and the other members of the Calcagno family have known about Carmelo's and Joanne's alleged breach of trust since 2006. Since that time, almost ten years ago, they have taken no steps to pursue a claim against Carmelo or Joanne. Accordingly, any claim that may have existed is now statute-barred pursuant to section 4 of the Limitations Act, 2002, S.O. 2002, c. 24.

[15] I agree with Mr. Carey's submissions that the expiration of the limitation period extinguishes the right of Rosetta's estate to pursue the alleged breach of trust claim on behalf of Lorenzo's estate against Joanne and Carmelo. The Supreme Court of Canada made this clear in the case of Tolofson v. Jensen, 1994 CanLII 44 (SCC), [1994] 3 S.C.R. 1022.

[16] Accordingly, even if Rosetta's estate's claim against Joanne and Carmelo was relevant to Carmelo's entitlement to Joanne's shares in the Company, which I have concluded it is not, the alleged claim has been extinguished because it is statute-barred.

[17] As a result, the respondents' reasons for refusing to transfer Joanne's shares in the Company to Carmelo are not justified and are oppressive and unfairly prejudicial to Carmelo. I find that Carmelo is entitled to Joanne's shares in the Company. The Company is required to transfer her shares to him.

Conclusion

[18] The application is granted for these reasons.

[19] I make the following order pursuant to section 248 of the OBCA:

a) Carmelo is the legal and beneficial owner of 20% of the issued shares of the Company;

b) The shareholder register and other records of the Company shall be rectified to give effect to the declaration that Carmelo owns 20% of the shares of the Company;

c) The Company shall issue a share certificate to Carmelo representing his shares in the Company.

Costs

[20] Carmelo was successful on the application and is, therefore, entitled to his costs. I have reviewed each party's costs outlines. The respondents seek approximately $36,000 in all-inclusive partial indemnity costs. Carmelo seeks approximately $25,000. I am satisfied that an all-inclusive partial indemnity costs award in the amount of $25,000 is fair and reasonable under the circumstances.

[21] Carmelo is awarded all-inclusive costs in the amount of $25,000 payable by the respondents within 30 days of the date of this order.

HAINEY J.

Date: April 1, 2016