PRW Excavating Contractors Ltd. v. Louras et al., 2016 ONSC 5652

COURT FILE NO.: 10308/15 DATE: 2016/09/09

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

PRW Excavating Contractors Ltd. Applicant

Counsel for Applicant: Gary H. Enskat

- and -

Nicholas Louras (also known as Nick Louras), Sylvana Louras, 992498 Ontario Inc., 1149821 Ontario Limited, 1006178 Ontario Limited, 1006178 Ontario Limited carrying on business as All Pro Rentals and All Pro Equipment Respondents

Counsel for Respondents: Paul R. Heath, for all Respondents except 992498 Ontario Inc. and All Pro Equipment

APPLICATION HEARD at Welland, Ontario: August 30, 2016

BEFORE: The Honourable Justice T. Maddalena

ENDORSEMENT ON APPLICATION

The Issues

[1] On the 30th of August 2016, I ordered that the Writs of Seizure and Sale that had expired, and were registered in both Niagara North and Niagara South in connection with this matter, were to be renewed effective 30th August 2016. Counsel are to work out the calculations. This was unopposed.

[2] Therefore, the issues left for adjudication on the hearing of this application were as follows:

1. Whether the applicant is entitled to enforce its judgment of May 8, 2007 as against the respondents jointly and severally by utilizing the oppression remedy in ss. 248(1) and 248(2) of the Ontario Business Corporations Act, R.S.O. 1990, Chapter B 16 as amended (“OBCA”).
2. Whether the two-year limitation period now applies so that the applicant’s request is statute-barred.
3. Whether the doctrine of piercing the corporate veil should apply, thus leaving all respondents jointly and severally liable.

Background Facts

[3] On May 8, 2007 the applicant PRW Excavating Contractors Ltd. (“PRW”) obtained judgment against All Pro Equipment and 992498 Ontario Inc. (“992”) carrying on business as All Pro Equipment.

[4] Sylvana Louras is a director and officer of 992. Nicholas Louras is director and officer of 1149821 Ontario Limited (“114”). This corporation was not involved in equipment rental but was involved in heating and air conditioning. It is now no longer operational and is insolvent.

[5] Nicholas Louras is also sole director and officer of 1006178 Ontario Limited (“1006”), carrying on business as All Pro Rentals.

[6] Nicholas and Sylvana Louras are spouses of one another.

[7] 1006 currently operates as All Pro Rentals. 1006 deals with rentals of larger equipment for commercial operations. 992 dealt with smaller rentals for residential equipment rentals.

[8] The registered address for 1006 is 4465 Drummond Road, Unit 6, Niagara Falls, Ontario. The registered address of 992 and 1006 are the same. The address of the former business of 992 at the time of the judgment was the same as 1006.

[9] On November 2, 2005, Nicholas Louras, utilizing letterhead from All Pro Rentals (i.e. 1006) addressed to the applicant, indicated that monies in the amount of $14,763.33 were being held in a separate trust account for the applicant.

[10] On November 8, 2006 Mr. Guy Ungaro, solicitor for All Pro Equipment, advised that “All Pro Equipment has no assets and that any judgment you obtain may become very expensive wallpaper”. Further, the solicitor advised that “the company has been inactive since June 2005”.

[11] The Statement of Defence filed on behalf of All Pro Equipment and 992 carrying on business as All Pro Equipment, confirmed that the plaintiff was hired to work on September 6, September 11 and September 19, 2005.

[12] Mr. Louras, in his affidavit sworn March 20, 2015, stated that 992 ceased operation on or about 2008.

The Oppression Remedy

[13] Sections 248(1) and 248(2) of the OBCA state as follows:

248(1) A complainant and, in the case of an offering company, the Commission may apply to the court for an order under this section.

(2) Where, upon application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) that any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or threaten to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of.

[14] Further, a “complainant” is defined in s. 245 of the OBCA as follows:

“complainant” means

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

[15] Case law has determined that a creditor may be a complainant as that term is defined in the OBCA. In the instant case, the judgment creditor is a “complainant” and thus a proper person to bring the oppression claim before the court.

[16] Once a litigant gains standing as a “complainant” in an oppression application, it must demonstrate specific conduct that is oppressive, unfairly prejudicial, and unfairly disregards the interests of the complainant.

[17] In the case of Levy-Russell Ltd. v. Shieldings Inc., [1998] O.J. No. 3571, the court held in paras. 30 and 31 as follows:

30 In determining that a creditor seeking the benefit of the oppression remedy should be in a position analogous to that of a minority shareholder Blair J., in Jacobs (supra) adopted the reasoning of Wallace J. in Re Dawn Development Corporation (1984), 54 B.C.L.R. 235 S.C. that the remedy was available to:

Those persons who have a direct financial interest in how the company is being managed and are in a position … somewhat analogous to minority shareholders – where they have no legal right to influence or change what they see to be abuses of management or conduct contrary to the company’s interest.

31 These creditor respondents could not have exerted any influence over the company which would have had the effect of protecting their interests. The involuntary tort creditor, as distinct from secured creditors or major lenders, has few avenues open to ensure that the debtor will not engage in conduct which will eliminate the prospects of recovery. In the instant case those avenues were effectively closed when Shieldings was put into receivership.

[18] In para. 33 the court made reference to the “reasonable expectation” of the applicant as follows:

33 In actions involving shareholders, the expectations arise from a relationship that was, initially, at least, voluntary. It is not clear what the rule is if the relationship involved is involuntary. In the circumstances of this case it would be a reasonable expectation of the plaintiff who subsequently became a judgment creditor that the defendant would not engage in conduct during and after the trial that would reasonably be expected to hinder even partial satisfaction of the judgment if the action were successful.

[19] Thus, it is open to conclude that the judgment creditor, as in the case of Levy-Russell Ltd., has a legitimate interest in the manner in which the affairs of 992 are managed, that the judgment creditor is in the position analogous to that of a minority shareholder, and also the judgment creditor would have a reasonable expectation that the company’s affairs would be conducted with a view to protecting its interest as a judgment creditor.

Oppressive Conduct

[20] The applicant PRW obtained judgment May 8, 2007 against 992498 Ontario Inc. carrying on business as All Pro Equipment.

[21] All Pro Equipment defended the original lawsuit. Correspondence from its prior solicitor, dated November 8, 2006, indicated that 992 had been inactive since June of 2005.

[22] However, in its Statement of Defence, 992 acknowledged a contract with PRW on September 6, 11 & 19 of 2005. Nicholas Louras stated in his affidavit of March 20, 2015 that 992 ceased operations in 2008, as it had not been profitable (para. 10).

[23] However, from the cross-examination of Nicholas Louras, held May 28, 2015, the following is clear:

• All Pro Equipment (992) owned its equipment and rented it to smaller residential projects;
• All Pro Rentals (1006) did not own its equipment and it would source equipment for larger commercial projects.

[24] The project at issue was the project entered into by 992 operating as All Pro Equipment with Fallsview Casino (“Fallsview”). Mr. Louras indicated that 992 entered into the project with Fallsview because 1006 did not have proper clearance. It appears that Mr. Louras has indicated that the actual corporation doing the work was 1006, but 992 was the corporation who entered into the contract with Fallsview because 992 had clearance to do the work for the casino and 1006 did not.

[25] However, the contract that the applicant entered into was with 992 corporation and 992 defended the lawsuit.

[26] However, it was 1006 corporation that acknowledged that the $14,763.33 was being held in a separate trust account for PRW in its correspondence of November 2, 2005. All of the above, it is noted, creates confusion which is quite frankly irreconcilable.

[27] This intermingling of 992 and 1006 by Mr. Louras did not become evident until the examinations of Nicholas Louras on May 28, 2015.

[28] This leaves confusion and lack of clarity as to which corporation the applicant was really dealing with. Further, there has been no explanation as to what occurred with the $14,763.33 that was originally held in trust for PRW.

[29] Further, the applicant submits that there are a number of outstanding undertakings of the defendants that include the following:

• An undertaking to locate the financial statements of 992 for the time period in question remains outstanding;
• An undertaking to provide an answer as to whether any monies were transferred or assets transferred between 114 and 1006 and 992 remains outstanding;
• An undertaking to provide bank statements for 992 and 1006 for 2006/2007 and then expanded to the years in which the litigation was ongoing remains outstanding;
• Documents with respect to the change of directors from Sylvana Louras to Nicholas Louras on May 4, 2004 for 1006;
• Access to the Minute Book for 1006;
• Best efforts to provide the financial statements for 1006 during the course of the litigation;
• Documents to show whether or not any shareholders had been paid any profit from 1006;
• Best efforts to provide an inventory list, including dates of acquisition and dates of disposition of equipment for 992;
• Best efforts to provide the corporate return and the compiled corporate tax return for 992;
• Best efforts to ascertain when 992 ceased carrying on active business;
• Best efforts to ascertain whether 992 was owed any money at the time it ceased doing active business;
• Best efforts to provide financial statements of 992 from the year 2003 to the most recent financial statement;
• Best efforts to ascertain when 114 ceased operations;

[30] Many of the undertakings remain outstanding with no evidence, or little evidence, presented of best efforts made to obtain disclosure other than the respondents indicating that they have been unable to locate financial statements, financial records, corporation records, corporate tax returns, or bank statements.

[31] The intermingling of 992 and 1006 at the direction of Mr. Louras, together with the lack of critical disclosure, is concerning. For the respondents to simply say that documents are unavailable is insufficient and inappropriate, particularly where there is no evidence of best efforts to locate documents, make inquiries at banks or inquires of Canada Revenue Agency. It is, therefore, appropriate to draw an adverse inference from this conduct. The conclusion is that the result is unfairly prejudicial and oppressive to PRW. The conduct completely disregards the interests of PRW and the court judgment of May 8, 2007.

[32] In the case of Downtown Eatery (1993) Ltd. v. Ontario, 54 O.R. (3d) 161, the Court held as follows in para. 59:

In s. 248 (2) (c) of the OBCA, the legislature has included the exercise of the powers of a company’s directors in targeting the kinds of conduct encompassed by an oppression remedy. In this regard, Blair J. stated, at pp. 405-06 D.L.R.:

Courts have made orders against directors personally, in oppression remedy cases: see, for example, Canadian Opera Co. v. Euro-American Motor Cars, supra; Prime Computer of Canada Ltd. v. Jeffrey, supra; Tropxe Investments Inc. v. Ursus Securities Corp., [1993] O.J. No. 1736 (QL) (Gen. Div.) [summarized 41 A.C.W.S. (3d) 1140]. These cases, in particular, have involved small, closely held corporations, where the director whose conduct was attacked has been the sole controlling owner of the corporation and its sole and directing mind; and where the conduct in question has redounded directly to the benefit of that person.

[33] The Court further noted in para. 62 as follows:

… It was the reasonable expectation of Alouche that Grad and Grosman, in terminating the operations of Best Beaver and leaving it without assets to respond to a possible judgment, should have retained a reserve to meet the very contingency that resulted. In failing to do so, the benefit to Grad and Grosman, as the shareholders and sole controlling owners of this small, closely held company, is clear. By diverting the accumulated profits of Best Beaver to other companies they owned, they were able to insulate these funds from being available to satisfy Alouche’s judgment.

[34] In the instant case, there is no accounting of what happened to the $14,763 in trust. As of November 2, 2005, this money was being held in trust for the applicant. There is the intermingling of 992 and 1006 for the casino project which only became evident on the examinations of Mr. Louras on May 28, 2015. There is also complete lack of disclosure with many outstanding undertakings. Further, there is the issue of really when did 992 cease operations? Was it in 2005, as then counsel for 992 stated in his letter of November 8, 2006, or is it in 2008 as Mr. Louras stated in his affidavit to the court?

[35] Where the court is satisfied that an oppression claim is evident, the court has broad discretion to rectify matters complained of.

[36] Therefore, I conclude that the applicant is entitled to judgment against all respondents jointly and severally pursuant to s. 248(2) of the OBCA. The respondents are jointly and severally liable to pay the judgment dated May 8, 2007 in favour of PRW.

The Limitation Issue

[37] The respondents submit that even if the applicant is successful with regard to the oppression remedy, it is now statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[38] The respondents state, therefore, that the applicant is subject to the two-year limitation period as outlined in s. 4 of the Limitations Act, 2002, which applies to the application of the oppression remedy.

[39] Section16(1) of the Limitations Act of Ontario states as follows:

16.(1) There is no limitation period in respect of,

(b) a proceeding to enforce an order of a court, or any other order that may be enforced in the same way as an order of a court;

[40] In s. 15(2) of the Limitations Act, 2002, there is reference to a 15 year ultimate limitation period. Sections 15(1) and 15(2) state as follows:

15. (1) Even if the limitation period established by any other section of this Act in respect of a claim has not expired, no proceeding shall be commenced in respect of the claim after the expiry of a limitation period established by this section.

(2) No proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place.

[41] In Maurice v. Alles, 2016 ONCA 287, the Court states in para. 43 as follows:

In my view, an oppression remedy claim under the OBCA is subject to the general two-year limitation period prescribed by s. 4 of the Limitations Act, 2002. Oppression is not listed under s. 16 as a claim to which no limitation period applies, nor is it exempted under s. 19 of the legislation. Special circumstances are also not available to extend the limitation period.

[42] The applicant states they are seeking to enforce a judgment granted by the court in 2007 under the provisions of the OBCA.

[43] In the case of Davidson Estate v. Martel, [2013] O.J. No. 1109, the court held in para. 21 as follows (quoting from Master Dash in Adelaide Capital Corporation v. 412259 Ontario Limited et al, [2006] O.J. No. 4175):

… Under the new Limitations Act 2002, S.O. 2002, c. 24 Schedule B Section 16(1)(b) there is no limitation period to enforce an order of the court. Pursuant to section 24(4) the new “no limitation” provision applies provided that the earlier limitation period had not expired as of the date that the new act came into force. On the other hand, it appears that sections 15(1 and (2) of the new Limitations Act applies and there is an ultimate limitation period of 15 years despite any other limitation period established by the new act. It is not necessary for me to decide whether the limitation period is 15 years or 20 years or if there is no limitation period since it has been less than 15 years since the judgment. The limitation period for action on this judgment has not expired.

[44] The respondents submit, however, that the request by PRW is more than an enforcement of a judgment. In fact, it is an oppression remedy to which the limitation period applies.

[45] I conclude that this is an enforcement of a judgment and not a new cause of action to which the two-year limitation period applies. Thus, the plaintiff is not barred from bringing an action on the judgment to obtain a fresh judgment, provided the overall 15-year limitation period has not expired, as is the case here.

[46] Further, there is no evidence here that the applicant acquiesced in nonpayment or otherwise waived its rights under the judgment. In fact, it has been actively seeking to collect.

[47] In the alternative, I also agree with the applicant’s position on discoverability which submits that the last oppressive conduct/act of the respondents, discovered on the May 28, 2015 examination of Mr. Louras, was the free intermingling of 1006 and 992 for the casino project.

Piercing the Corporate Veil

[48] There is a high threshold test for piercing the corporate veil.

[49] In the case of Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (Energyshop Consulting Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85, at para. 43 the Court held as follows:

[43] I agree with Shoppers that the motions judge did not refer to Fleischer. Fleischer is the appropriate test to apply to piercing the corporate veil in Ontario. In Fleischer, Laskin J.A. stated that only exceptional cases that result in flagrant injustice warrant going behind the corporate veil. It can be pierced if those in control expressly direct a wrongful act to be done. At para. 68, he stated:

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), 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.”

[50] In the instant case, Mr. Louras was the operating mind of 992, 1006 and, indeed, even 114. It was Mr. Louras who entered into the contract with PRW. Mr. Louras, on the letterhead of All Pro Rentals (1006), advised that monies were held in trust for PRW. No explanation of where those monies were appropriated has been provided, despite the plaintiff requesting same. It is not clear when 992 ceased to operate as there were at least two different dates provided to PRW as to the cessation of operations for 992. In addition, there are many undertakings that are relevant to the claim before the court that have not been fulfilled by the respondents.

[51] The insufficient disclosure by the respondents prevents the verification of illegal, fraudulent or improper actions which would justify the piercing of the corporate veil. In the instant case, one simply does not know.

[52] Therefore, given the high threshold set by the courts for the piercing of the corporate veil, I am unable to conclude illegal or fraudulent conduct.

[53] Therefore, the application to pierce the corporate veil is dismissed.

Summary of Orders Made

[54] Orders made:

1. PRW is entitled to enforce its judgment dated May 8, 2007 by use of the oppression remedy as against the respondents jointly and severally.
2. The respondents’ limitation act claim is dismissed.
3. The applicant’s claim to pierce the corporate veil is dismissed.

Costs

[55] Unless otherwise agreed upon, costs submissions may be made in writing limited to three pages, plus a bill of costs and any offers to settle. Costs submissions of the applicant are due by September 23, 2016. Costs submissions by the respondents are due by October 7, 2016.

Maddalena J.

Released: September 9, 2016