Court File and Parties
COURT FILE NO.: CV-16-549645 DATE: 201601020 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CARL DINIS Plaintiff – and – DUARTO NOBREGA, THE RENO PRO LTD. and RENO PRO CONSTRUCTION INC. Defendants
Counsel: Antony Niksich, for the Plaintiff Howard L. Shankman, for the Defendants
HEARD: September 16, 2016
G. DOW, J
REASONS FOR DECISION
[1] The defendants seek dismissal of the action as against them pursuant to Rule 20 and the principle set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87. Not only does the plaintiff oppose the motion but seeks the opposite result, that is judgment against particularly the defendant Nobrega relying on the laws of oppression and Section 248 of the Ontario Business Corporations Act R.S.O. 1990 c. B.16.
Background
[2] On or before July 4, 2010, the plaintiff sought and obtained a quotation from Mr. Nobrega as a general contractor for the construction of a luxury home in Etobicoke in the amount of $503,300.00. The quotation does not make reference to Mr. Nobrega’s corporate entity at that time, The Reno Pro Ltd. (of which Mr. Nobrega is the sole director). The renovation contract executed by the parties based on the quotation is clear. The contractor was The Reno Pro Ltd., with the work to be completed between July 15, 2010 to May 31, 2011 and signed by the plaintiff and Mr. Nobrega on behalf of the corporation. The agreement also provided if the work was not performed, ultimately the contractor would pay the plaintiff after an accounting for what additional expense was incurred to complete the work as outlined in the contract.
[3] Although work progressed slowly and an additional $40,000.00 of additional work agreed to, 27 cash advances were requested and paid regularly such that by May, 2011, the plaintiff had paid Mr. Nobrega $483,300.00 but, by Mr. Nobrega’s admission, the work was only 60% complete. The plaintiff became frustrated with the lack of progress, and switched to a different contractor to complete the work. An action was commenced February 6, 2012 against Mr. Nobrega and The Reno Pro Ltd. for the additional costs, later quantified to be $156,975.60.
[4] The action was defended and production of The Reno Pro Ltd. bank records showed it to be an active and operating business in 2010 and 2011. The claims against Mr. Nobrega were personal and by February 14, 2014, the plaintiff accepted an offer to settle by Mr. Nobrega dated April 3, 2013 to discontinue the action as against him. The letter also states, the (self-serving) position of the plaintiff that he expected “Mr. Nobrega will continue to operate The Reno Pro Ltd. as he has in the past”.
[5] Subsequently, after the action was set down for trial, and before the mediation (scheduled to proceed on November 6, 2014), counsel for The Reno Pro Ltd. advised by letter dated October 20, 2014 that it had been instructed not to continue defending the action. On February 12, 2015, the plaintiff obtained default judgment for the above amount plus interest and costs. Enforcement proceedings were commenced (a judgment debtor examination of Mr. Nobrega) and it was learned The Real Pro Ltd. had stopped carrying on business as of March, 2014 (aside from finishing two jobs by June, 2014).
[6] At the judgment debtor examination, Mr. Nobrega refused to answer questions regarding his current business activity. It was subsequently learned in January, 2016 Mr. Nobrega (again as the sole director) had incorporated the defendant, Reno Pro Construction Inc., March 7, 2014 and was actively working in that business using the same address (Mr. Nobrega’s home address), the same telephone number (Mr. Nobrega’s cell phone number) and the same “Real Pro” logo as had been used by The Real Pro Ltd. in advertising the business.
[7] The evidence of Mr. Nobrega on behalf of The Real Pro Ltd indicates his profit margin was 12% and on projects such as the plaintiffs, this amounted to a fee of $53,150.00. Mr. Nobrega admits taking this amount from advances received from the plaintiff and, when questioned under oath testified actually keeping it “under my pillow” (as opposed to depositing it in a bank account).
[8] Mr. Nobrega cites various reasons for the delays in the construction and the inability to complete more of the required work. He also cites non-profitability as the reason The Real Pro Ltd. ended operation. The financial figures produced show the following and selected expenses. The scheduled expenses totaled by me are the sum of management salaries/fees and CPP expense, advertising and promotion, meals and entertainment, telephone, office expenses and travel. I chose these expenses as each provides an opportunity for revenue of the corporation to be legitimately expended in a manner that some benefit to Mr. Nobrega on a personal level could occur in his day to day life while working in this business.
| Year | Revenue | Selected Expenses | Net Income (Loss) |
|---|---|---|---|
| 2009 | $333,036 | $30,134 | (51,629) |
| 2010 | $294,997 | $28,792 | (40,615) |
| 2011 | $404,393 | $37,166 | $871 |
| 2012 | $796,777 | $109,106 | $1,516 |
| 2013 | $405,535 | $91,823 | $3,930 |
| 2014 | $82,393 | $6,772 | $4,402 |
[9] Mr. Nobrega admits Real Pro Construction Inc. “carries on a business similar to Reno Pro” (paragraph 41 of his affidavit) including landscaping and commercial construction in addition to residential construction.
[10] It should also being noted that the only physical asset of The Reno Pro Ltd. appears to have been a pick-up truck traded in for $10,000 in March of 2015, with those funds going to pay an outstanding debt of The Real Pro Ltd. to the Receiver General for HST. It appears the defendants use subcontractors to perform the work and I was not made aware of any other creditors of The Real Pro Ltd.
Analysis
[11] The basis of the defendants’ motion is that there is no guanine issue for trial. With regard to the defendant, The Real Pro Ltd. The plaintiff already has the default judgment granted by Justice Mew February 12, 2015 in the amount of $208,131.19 inclusive of damages, interest and costs. Thus, this action against it is a duplication and should be dismissed. With regard to the defendants, Mr. Nobrega and Reno Pro Construction Inc., there is no legal nexus or cause of action between them and the plaintiff. In my view, this is correct, subject to the plaintiff’s motion for judgment against these defendants using the statutory remedy of oppression as provided for in section 248 of the Ontario Business Corporations Act.
[12] Both parties accepted and relied on the direction given by Justice Karakatsanis in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87 that the material before me provided for making the necessary findings of fact, to which the law could be applied and result in fair and just determination in a proportionate, more expeditious and less expensive manner.
[13] As a result, does the evidence support the plaintiff’s request for judgment against the defendants, Mr. Nobrega and Reno Pro Construction Inc. on the basis of oppression? The remedy of oppression is contained in section 248 of the Ontario Business Corporations Act and requires a “complainant”. A complainant is defined under “Part XVII, Remedies, Offences and Penalties” and particularly in section 245 of the legislation to include, in subparagraph (c), “any other person who, in the discretion of the court, is a proper person to make an application under this Part”. As a result, the definition is clearly broad enough to include virtually anyone, including the plaintiff. However, the case law clearly indicates the courts have been cautious in extending the complainant definition and entitlement to the oppression remedy to a creditor of a corporation. It is more likely to be permitted where there is a direct link by the entity seeking the remedy to the corporation, such as a (former) employee or shareholder. The situations that have permitted this type of relief to a creditor has been where the creditor had a “reasonable expectation that a company’s affairs will be conducted with a view to protecting his interest” Downtown Eatery (1997) Ltd. v. Ontario, 2001 ONCA 8538 at paragraph 56.
[14] The remedy of oppression is set out in Section 48 and provides for a complainant to apply to the court for “any interim or final order it thinks fit” including “compensating an aggrieved person” where the court is satisfied the corporation, any of its affiliates or the powers of the director have unfairly disregarded the interest of a creditor.
[15] On its face, it appears to be a broad remedy capable of wide interpretation. I am reinforced in this interpretation by the quotation from BCE Inc. v. 1976 Debenture Holder, 2008 SCC 69, [2008] S.C.J. No. 37 recently quoted with approval by the Divisional Court in Wood Estate v. Arius3D Corp., 2016 ONSC 36 at paragraph 27 stating:
“In each case, the question is whether in all the circumstances the directors acted in the best interest of the corporation, having regard to all relevant considerations, including, but not confined to, the need to treat affected stakeholders in a fair manner, commensurate with the corporation’s duties as a responsible corporate citizen”.
[16] In opposing the plaintiff’s request for the relief, counsel for the defendants points to authority that the oppression remedy is not appropriate where a simple breach of contract has occurred which, in this instance, would be the failure of The Real Pro Ltd. to complete the plaintiff’s home for the agreed upon price and for which judgment has been issued. At the core of this submission is the reliance on the statement by Justice D. Brown (as he then was) in Brookfield Financial Real Estate Group Ltd. v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818 where, at paragraph 52, “it is not appropriate to resort to the statutory oppression remedy where a simple breach of contract has occurred”. However, both before and after that statement, Justice D. Brown acknowledges decisions in oppression cases are very fact specific. While I would agree with the defendants that the plaintiff clearly had a contract with the defendant, The Reno Pro Ltd. and the plaintiff was exposed to it not being completed as well as unable to pay the subsequent judgment obtained, it seems clear Mr. Nobrega, as a contractor, was utilizing his skills to earn a living and priced his quotations such that he received a 12% profit on the quoted price. It is also clear he was entitled to do so through a corporation. When faced with a potential debt arising from a contract he signed on behalf of the corporation, he chose to end the commercial activity of that corporation. Had that been the end of the factual matrix, I would have concluded the action should be dismissed.
[17] However, Mr. Nobrega chose not only to end the commercial activity of The Real Reno Pro Ltd., but supplanted it with a new corporation that utilized the essence of the prior corporation, that is, Mr. Nobrega’s personal reputation and ability as a contractor to attract and complete business for a financial gain. In my view, what has occurred is that the “good will” of The Reno Pro Ltd. (along with other tangible assets such as the address, telephone number and the logo) were transferred for no apparent value or cost to Reno Pro Construction Inc.
[18] As a result, I conclude the plaintiff is entitled to an order from this court granting judgment against the new corporation Reno Pro Construction Inc. for the amount of the judgment the plaintiff obtained against The Reno Pro Ltd., or $208,131.19 inclusive of damages, interests and costs. In addition, the plaintiff will also be granted judgment against Mr. Nobrega for the same amount on a joint and several basis because:
- the essence of what makes either Reno Pro Corporation profitable is the reputation, contacts and skill of a successful contractor such as Mr. Nobrega;
- there is nothing that would otherwise prevent Mr. Nobrega from repeating what he did in 2014, that is, ending the commercial activity of the existing corporation and transferring it to a new or subsequent corporation;
- my conclusion that Mr. Nobrega chose to abandon the previous corporation is a conclusion that he abandoned the best interests of the previous corporation in favour of his own interests contrary to his duty as the director of The Reno Pro Ltd.
[19] I am reinforced in this conclusion by the case law which supports the oppression remedy being utilized when the controlling mind of the judgment debtor proceeds in a manner that strips the judgment debtor of its assets. In my view, this is what has occurred in this factually distinct situation. I would also conclude it was a reasonable expectation of the plaintiff that Mr. Nobrega, as the directing mind of The Real Reno Ltd., would honour its financial commitments and not engage in this type of conduct so as to hinder satisfaction of the judgment.
Costs
[20] The Costs Outline of the (unsuccessful) defendants was in the amount of $34,253.43 on a full indemnity basis. Counsel used an hourly rate of $450.00 and claimed 58.6 hours was required to respond, prepare and attend on this motion. The claim on a partial indemnity basis is $25,153.80 excluding disbursements.
[21] The Costs Outline of the plaintiff was modestly higher, $37,349.74 on a substantial indemnity basis but modestly lower on a partial indemnity basis, $21,594.30 for fees inclusive of HST. Similarly, the plaintiff’s disbursements were modestly lower than the defendants, $1,359.24 vs. $1,912.83.
[22] As a result, I am prepared to award the plaintiff his partial indemnity costs fixed in the total amount of $22,953.54 inclusive of fees, HST and disbursements payable by the defendants, Duarto Nobrega and Reno Pro Construction Inc. forthwith. While this action is to be dismissed as against the defendant, The Reno Pro Ltd., there are no costs payable in the circumstances as virtually no additional effort was required (by counsel defending all defendants) to put forward its successful position.