Olympique CMCT Inc. v Les Industries Pancor Limitée, 2017 ONSC 1929

Court File and Parties

COURT FILE NO.: CV-13-489950 DATE: 20170327 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: OLYMPIQUE CMCT INC. Plaintiff – and – LES INDUSTRIES PANCOR LIMITÉE and LORENZO PANARESE Defendants

COUNSEL: Robert J. Kennaley, for the Plaintiff John Lo Faso and David Morawetz, for the Defendant Lorenzo Panarese

HEARD: November 14, 15 and 16, 2016

REASONS FOR DECISION

JUSTICE W. MATHESON

1The plaintiff seeks to enforce a default judgment obtained in Quebec. Only the personal defendant, Lorenzo Panarese, participated in this trial. The corporate defendant is in bankruptcy.

2The personal defendant challenges the jurisdiction of the Quebec court over him, and also submits that the judgment ought not to be enforced against him in any event because of a breach of natural justice or fraud. The plaintiff submits that the Quebec court had jurisdiction, to which the personal defendant has also attorned, and that there is no basis to refuse to enforce the judgment in Ontario.

3I conclude that the Quebec court had jurisdiction, which is not displaced by a defence to recognition and enforcement either based on natural justice or fraud. Although the default judgment against the corporate defendant is not enforceable due to its bankruptcy, the judgment against the personal defendant ought to be recognized and enforced here in Ontario.

Facts giving rise to the claim

4The plaintiff, Olympique CMCT Inc., is a Quebec company that contracted with the defendant company from time to time. The defendant, Les Industries Pancor Limitée, is an Ontario corporation and also has the name Pancor Industries Limited (“Pancor”). It was also registered in Quebec.

5Pancor carried on business as a general contractor. The defendant Lorenzo Panarese was at all material times the sole officer and director of Pancor. He became the President of the company after his father died in August 2008. At that time, he did not have business experience. He continued as President through to the time when Pancor declared bankruptcy.

6Pancor did business with Olympique for several years. Pancor contracted with Olympique to install tile work in the Laura Group of retail stores in and around Montreal (the “Projects”).

7Contracts between these companies were entered into as follows: Olympique would send quotations to Pancor for requested services, which, if accepted by Pancor, would be confirmed by Pancor sending a purchase order by fax to Olympique in Montreal. Olympique would then perform the tile installation services in Quebec. The Pancor purchase orders underlying the default judgment were for the period from March to May 2011. They were signed by Mr. Panarese on behalf of Pancor. Mr. Panarese was not, in his personal capacity, a separate party to these contracts.

8As of closing arguments at trial, the personal defendant accepts that these contracts were made in Quebec.

9For the purposes of the Projects, Pancor shipped fixtures and other construction materials from Ontario to Quebec. In accordance with its contracts with Pancor, Olympique installed tiles in the Laura Group stores in the Montreal area. Olympique fulfilled its obligations under the contracts. However, the invoices for Olympique’s work were not paid. Ordinarily, Pancor would pay the invoices from an Ontario bank account.

10Mr. Panarese resides in Ontario and did not himself go to Quebec for the purpose of the contracts with Olympique. To the extent that he was involved as an officer of Pancor, signing the contracts and addressing other matters, he undertook those tasks in and from Ontario.

11Pancor began having financial difficulties after the financial downturn in 2008. Pancor’s operating loan had been called in November 2010, before the above work was contracted for by Pancor. Pancor did not share this information about its operating loan with Olympique. Pancor hoped to re-finance.

12In June 2011, in response to an inquiry from Olympique about the unpaid amounts, Mr. Panarese wrote that they were working to arrange alternative financing and that he was hopeful that they would be able to come to a resolution.

13Despite injections of significant amounts of money from Mr. Panarese and his mother, Pancor became insolvent. Pancor filed a Notice of Intention to Make a Proposal on August 26, 2011 and made an assignment in bankruptcy in October 2011. Olympique was listed as an unsecured creditor on the statement of affairs.

14There is a dispute about when Olympique learned of the bankruptcy proceedings, although it did ultimately receive copies of a Notice of Intention and a Statement of Affairs regarding the bankruptcy.

15The full amount due was unpaid.

Quebec proceedings

16In or around July 2011, Olympique commenced legal proceedings against Pancor in Quebec regarding the amounts unpaid under the contracts between these two companies. The unpaid invoices covered the period from March 25, 2011 to May 27, 2011, totaling $228,003.15. There was also an amendment to the legal proceedings at around that time.

17Mr. Panarese recalls being served with the Quebec proceedings in the summer of 2011. He spoke with the Quebec lawyer who had previously acted for Pancor and decided that since Pancor had no assets in Quebec, and could be moving into insolvency proceedings, it was not worth defending the Quebec legal proceedings.

18In or around December 2011, Olympique re-amended its originating process in the Quebec proceedings to add Mr. Panarese as a personal defendant. He was clearly shown as a new defendant on the first page of the re-amended court document, with underlining emphasizing the new party and the other amendments.

19Olympique had already alleged that Mr. Panarese was the President of Pancor, and now alleged that he was jointly and severally liable for the payment owed to Olympique. The new amendments included allegations that Mr. Panarese knew that when Pancor contracted with Olympique for the services at issue, Pancor would not make payment. The amendments alleged that Mr. Panarese used the business as a vehicle to conceal an “abuse of right” and “fraud” against Olympique since he knew that the services were ordered at a time when Pancor was insolvent, among other allegations.

20The re-amended proceedings were served on Pancor by service at the office of its Quebec lawyer on or about December 28, 2011. The Quebec lawyer sought and obtained instructions regarding the re-amended proceeding. He obtained instructions from Mr. Panarese.

21Mr. Panarese testified that he did not recall this discussion with the Quebec lawyer. He also testified that he did not recall being served, in Ontario, with the re-amended Quebec proceedings that named him as a personal defendant. He testified that he was receiving numerous legal documents at that time, mainly regarding the corporate bankruptcy. As put in final submissions, he may have received it but does not recall it.

22Neither Pancor nor Mr. Panarese defended the Quebec action.

23By affidavit in the Quebec default proceedings dated February 2, 2012, the President of Olympique attested, among other things, that he had contacted Ontario counsel and was told that Pancor had not made a proposal or filed for bankruptcy in Ontario. The information from the Ontario counsel turned out to be incorrect.

24On March 14, 2012, Mr. Panarese’s Quebec lawyers in various unrelated matters accessed the docket system in the Quebec court and discovered that Olympique was about to note Mr. Panarese in default in the Quebec action. Mr. Panarese was noted in default on that day. Mr. Panarese was unable to explain why his Quebec lawyers were searching his name in the court docket system if not because they knew that he had been named as a defendant in the Quebec proceedings brought by Olympique.

25Mr. Panarese instructed Quebec counsel to move to set aside the noting in default. Five days later, on March 19, 2012, Mr. Panarese’s Quebec lawyer brought a motion in Quebec to have the noting in default set aside.

26In support of the motion, Mr. Panarese swore an affidavit in which he indicated, among other things, that he did not recall having been served with the re-amended proceedings. In that regard, he referred to the affidavit of service on him, from a process server in Toronto, which had been filed in the Quebec court when Mr. Panarese was noted in default.

27In his affidavit, Mr. Panarese also said that because the proceedings were in French he would not have been able to determine whether or not the documents would have an impact on him personally. However, Mr. Panarese had seen the original proceedings, knew what they related to and gave instructions regarding the claim. Further, the re-amended proceedings clearly showed him named as a personal defendant underlined on page 1. No facility in French was required to recognize that he had been sued personally.

28In his affidavit, Mr. Panarese attested that Olympique was “looking to lift the corporate veil” and claim from him any and all sums owing by Pancor by alleging that he committed fraud. He put forward, in detail, the reasons why he had a valid defence against this claim. He did not, however, indicate any challenge to the jurisdiction of the Quebec court, or reserve his position on jurisdiction. He attested that he had the right to put forward a full defence and therefore asked that the noting in default be set aside.

29The motion was heard by Special Clerk Daniele Besner of the Quebec Superior Court. The motion to set aside was dismissed on March 26, 2012.

30In the reasons for decision, the Special Clerk noted that it was Mr. Panarese who had given instructions to Quebec counsel regarding the original proceedings against Pancor. The Special Clerk also noted that the re-amended proceedings had been served in December 2011. The Special Clerk found that Mr. Panarese had been capable of giving instructions for his company in response to the Quebec proceedings and his excuses for not doing so for himself were insufficient.

31Mr. Panarese appealed this decision to a judge of the Quebec Superior Court. The appeal was heard by the Hon. Justice Jean-Yves Lalonde J.S.C. and was dismissed on April 24, 2012. A transcript of the oral reasons for decision does not form part of the record before me.

32There was no attempt to appeal the decision of Justice Lalonde. Mr. Panarese acknowledged at trial that there would have been a strategy discussion on that subject, but he had no recollection of it.

33On May 30, 2012, default judgment was granted against Pancor and Mr. Panarese, jointly and severally, for the sum of $228,003.15 plus 5% interest per year. The reasons for decision specifically refer to the decision of Justice Lalonde, among other things.

34Although Mr. Panarese’s affidavit on his motion had indicated that Pancor was in bankruptcy, this status does not seem to have been drawn to the court’s attention at the default judgment stage. Given the automatic stay arising from the bankruptcy, default judgment against Pancor ought not to have been granted. In that regard, Olympique has not sought an order before me regarding the default judgment against Pancor. The trial before me proceeded as against Mr. Panarese only.

35In the course of the Quebec court proceedings, Mr. Panarese did not deny the jurisdiction of the Quebec courts, nor did he reserve his position on jurisdiction. The subject was not raised.

Analysis

36Mr. Panarese challenges the recognition and enforcement of the Quebec judgment as against him, giving rise to the following issues:

(1) whether or not the Quebec court had jurisdiction over Mr. Panarese personally and, if not, whether Mr. Panarese attorned to the jurisdiction of the Quebec court; and

(2) whether or not the Ontario court should refuse to recognize and enforce the Quebec judgment because it was procured by fraud or a lack of natural justice.

General principles

37Canadian courts have adopted a “generous and liberal approach to the recognition and enforcement of foreign judgments”: Chevron Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 S.C.R. 69, at para. 27. “Foreign” judgments encompass any judgment rendered outside the jurisdiction in which enforcement is sought.

38The issue of enforcement of foreign judgments arose in the interprovincial context in Morguard Investments Ltd. v. De Savole, [1990] 3 S.C.R. 1077, which is the context applicable here. The underlying principles have since been extended to the international context and have been repeatedly reaffirmed: Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416; Pro Swing Inc. v. ELTA Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612; Chevron.

39The personal defendant placed some reliance on Van Breda v. Village Resorts Ltd., 2012 SCC 17, [2012] 1 S.C.R. 572. However, in the more recent decision in Chevron, the Supreme Court clarified that Van Breda does not alter the jurisdictional inquiry for actions to recognize and enforce foreign judgments, as previously established in Morguard, Beals and Pro Swing: Chevron, at paras. 38 and 41.

40To recognize and enforce a foreign judgment, “the only prerequisite is that the foreign court had a real and substantial connection with the litigants or with the subject matter of the dispute, or that the traditional bases of jurisdiction were satisfied”: Chevron, at para. 27.

41A recognition and enforcement action is based on the obligation created by the foreign judgment: Chevron, at para. 43. The “purpose of an action for recognition and enforcement is not to evaluate the underlying claim that gave rise to the original dispute, but rather to assist in enforcing an already-adjudicated obligation”: Chevron, at para. 44. The underlying merits are not relevant.

42Where there was no real and substantial connection between the foreign jurisdiction and the dispute, or the defendant was not present in or did not attorn to the foreign jurisdiction, the resulting judgment will not be recognized and enforced: Chevron, at para. 54.

43Where the requisite real and substantial connection has been established, there are still potential defences to enforcement, specifically fraud, public policy and lack of natural justice: Beals, at para. 40. The onus is on the defendant to establish a defence to enforcement.

Jurisdiction

44Pancor did have a presence in Quebec. Pancor was registered in Quebec. It carried on business in Quebec. It entered into the contracts with Olympique in Quebec. The services were provided in Quebec. However, no relief is sought before me regarding Pancor.

45Mr. Panarese lived in Ontario and took the steps that he took regarding Olympique from Ontario. He was not present in Quebec. The real and substantial connection test must therefore be applied – if met, it extends jurisdiction to out-of-province defendants: Incorporated Broadcasters Limited v. Canwest Global Communications Corp. (2003), 63 O.R. (3d) 431 (C.A.) (“Canwest”), at paras. 29-30, leave to appeal refused, [2003] S.C.C.A. No. 186.

46Mr. Panarese seeks to separate the dispute with him personally from the dispute with his company, but he has not successfully done so. Mr. Panarese was the sole officer and director of Pancor. It is in that capacity that he took the steps he took. He signed each of the purchase orders that was transmitted to Olympique in Quebec and gave rise the contracts at issue. The contracts were made in Quebec. Olympique was in Quebec. The services that were contracted for were performed in Quebec. The contracts form the basis of the claim against Mr. Panarese as well as his company. The allegations against him gave rise to a request that the Quebec court pierce the corporate veil and hold Mr. Panarese personally responsible for those contracts. In essence, the claim against him personally was that he used Pancor for a fraudulent purpose, knowing that the services were being ordered from Olympique at a time when his company was insolvent.

47Although Mr. Panarese had less personal connections to Quebec than did his company, I find the record more than ample to demonstrate that there was a real and substantial connection between the subject matter of the dispute with Mr. Panarese and the province of Quebec. Although no single factor is determinative, carrying on business in Quebec through a corporation registered to do so in Quebec strengthens the connection to Quebec as does the interprovincial nature of this dispute: Canwest, at paras. 46 and 48; see also Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.), at para. 76.

48Although Mr. Panarese lived in Ontario and Pancor was primarily located in Ontario with its staff and bank accounts here, this does not displace the real and substantial connection between this dispute and Quebec. The test requires “a” real and substantial connection, not “the most” real and substantial connection: Canwest, at para. 38.

49Further, it is sufficient that Quebec had a real and substantial connection with the subject matter of the action even in the absence of such a connection with the personal defendant: Beals, at para. 23.

50Mr. Panarese relies on Morrissette v. Performax Systems Ltd. (1997), 115 Man. R. (2d) 55 (C.A.), a case where the Court did not find the requisite real and substantial connection to enforce a Quebec judgment against three officers of a corporate defendant. However, the pleadings in that case were different, as was the factual context, and the Court found the facts needed to establish jurisdiction insufficient. Similarly, in Zimmerman Inc. v. Barer, 2014 QCCS 3404, aff’d 2016 QCCA 260, the Quebec Court found that jurisdiction was not established against a corporate officer. The jurisdictional determinations in these cases were dependent on their specific context, and do not decide the issue in the case before me.

51The parties also put forward considerable law from Quebec on the subject of piercing the corporate veil and on other issues, but put forward no expert evidence regarding Quebec law. As observed in Morrissette, in the absence of expert evidence it is presumed that the law of Quebec is the same as Ontario: at para. 11. In any event, the defendant concedes that the law in Ontario regarding piercing the corporate veil is “virtually identical” to Quebec. And the claim does fall within the Ontario basis for piercing the corporate veil: 642947 Ontario Limited v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.), at para. 68.

52There is what may seem like a fine line between proving jurisdiction, which requires a consideration of the nature of the cause of action and some facts, and not re-examining the merits of a claim in an enforcement proceeding such as this. Bearing this in mind, I nonetheless find that the defendant is inviting a reconsideration of the merits, which is not part of the jurisdictional inquiry in a proceeding for recognition and enforcement.

53Considering all factors, the plaintiff has demonstrated that the Quebec court had the requisite real and substantial connection to found its jurisdiction over the personal defendant.

54There is then the question of whether the Quebec court properly exercised its jurisdiction by bringing the personal defendant before it as an extra-provincial defendant. Mr. Panarese submits that this too must be proved by the plaintiff, and that it has failed to do so.

55The plaintiff submits that it is not obliged to prove proper service outside the jurisdiction. The plaintiff first relies on Morguard, in which the Supreme Court held that “fair process is not an issue” between Canadian provinces: at para. 43, see also Muscutt, at para. 96. In accordance with Morguard, the plaintiff submits that it does not need to prove that Quebec employed a fair process; it is presumed that it did so.

56It does appear that the question of proper service falls within a defence to recognition and enforcement – natural justice – rather than part of the initial jurisdictional inquiry: Beals, at para. 65. Even if that were not so, I conclude that the above principle from Morguard creates a presumption in favour of a proper process for cases involving interprovincial enforcement.

57The process server’s affidavit of service was tendered before me and marked as a lettered exhibit, but was not ultimately the subject of a request that it be entered as trial evidence. Further, plaintiff’s counsel indicated that the process server cannot now be found.

58Mr. Panarese does not say that he was not served. In his affidavit in the Quebec proceedings, filed in this trial, Mr. Panarese specifically referred to the affidavit from the process server, which was filed in the Quebec proceedings, and attested that he did not recall being served. At trial, he testified that he was receiving many legal documents at the time and does not recall being served.

59Bearing all the trial evidence in mind, I conclude that the personal defendant has not displaced the presumption of a fair process in Quebec.

60There is a second basis upon which the question of adequate notice should not be an issue. As submitted by the plaintiff, that issue has been finally determined by the Quebec court.

61This is not a case where a defendant comes forward and says he or she heard nothing about the foreign proceedings until the enforcement stage. Here, Mr. Panarese knew about the Quebec proceedings and sought to set aside the noting in default in Quebec. On his motion, Mr. Panarese referenced the process server’s affidavit of service and attested that he did not recall being served. The process issue was considered by the Quebec court and ruled upon. Mr. Panarese appealed that decision in Quebec. The decision was upheld on appeal. He cannot now require that the plaintiff re-litigate the question of proper process, already addressed on his own motion to set aside the noting in default in Quebec.

62In addition, the personal defendant attorned to the jurisdiction of the Quebec court. He moved to set aside the noting in default in Quebec on the basis that he had the right to defend the proceedings on the merits. He set out his defence on the merits. He neither raised nor reserved his position on jurisdiction. He pursued his sought-after relief on appeal, albeit unsuccessfully. In doing so, he attorned: Amopharm Inc. v. Harris Computer Corp. (1992), 10 O.R. (3d) 27 (C.A.). The personal defendant relies upon an earlier decision of the Saskatchewan Court of Appeal in Carrick Estates Ltd. v. Young (1987), 43 D.L.R. (4th) 161, which in turn cited the decision in McLean v. Shields and Leacock (1885), 9 O.R. 699 (C.A.). I have considered these cases, and conclude that they arise in different factual contexts and McLean is more reflective of the approach to reciprocal enforcement of that century than today.

63The Quebec court had jurisdiction over the personal defendant. The Quebec default judgment should therefore be recognized and enforced in Ontario subject only to Mr. Panarese demonstrating a defence to recognition and enforcement.

Defences to recognition and enforcement

64The personal defendant relies on the defences of breach of natural justice and fraud.

65With respect to natural justice, the personal defendant makes a number of submissions. He again submits that proper service was required. I have addressed this argument. Since the defendant bears the burden of proof under the defences, his position on service is, if anything, weaker at this stage.

66The personal defendant also submits that the Quebec court denied him the right to be heard by failing to set aside his noting in default. However, this very issue was litigated and finally decided in Quebec on his own motion and appeal, and will not be re-litigated here. Mr. Panarese also submits that there was no judicial assessment of damages or of jurisdiction by the Quebec court. On damages, that goes to the merits and is therefore not properly challenged in this proceeding. On jurisdiction, that issue was never raised by Mr. Panarese in Quebec and that court did, in any event, have jurisdiction.

67The personal defendant also submits that his lack of facility in French is a factor under this defence, though not the most significant one. I do not accept this as a failure of natural justice. If Mr. Panarese needed assistance with the language, it was for him to get assistance, which would have been a simple matter. He had already received the Quebec court document before it was amended to name him as a party. He had discussed the case with Quebec counsel and given instructions regarding Pancor. That document was also in French. And he agreed at trial that no French was required to recognize that he had been added as a party on the front page. Further, this was also an issue unsuccessfully raised by him in his motion to set aside in Quebec.

68The personal defendant has failed to establish the defence of a breach of natural justice.

69With respect to fraud, the personal defendant submits that there was “extrinsic fraud” – in other words, fraud going to the jurisdiction of the issuing court: Beals, at para. 45. Mr. Panarese relies on the default judgment being obtained against Pancor when it was already in bankruptcy. He submits that Olympique ought to have drawn the bankruptcy to the Quebec court’s attention. He claims that, instead, the plaintiff misled the Quebec court to obtain the judgment against Pancor. Notably, this alleged misconduct relates to judgment being granted against the bankrupt corporate defendant, not the personal defendant.

70Pancor was in bankruptcy at the relevant time and there was, therefore, an automatic stay of proceedings. It is apparent that it was a mistake to grant judgment against Pancor. Two questions arise regarding the defence of fraud: (1) was the mistake due to fraud; and (2) what impact does it have on Mr. Panarese, who was not in bankruptcy?

71Olympique’s affidavit filed in Quebec does not demonstrate any deliberate action to mislead on the part of Olympique. The affiant provided information about Pancor’s bankruptcy status, albeit incorrect, on information and belief from his Ontario counsel. The defendant did not call Ontario counsel as a witness, nor was Ontario counsel confronted with the allegations now made about fraud on the court. The defendant bears the onus to prove fraud.

72As for the Notice of Intention and Statement of Affairs regarding the bankruptcy, they are earlier dated, but the defendant has not proved that they were received by the plaintiff prior to the plaintiff’s affidavit being delivered in Quebec.

73The affidavit of the personal defendant, referring to the bankruptcy, was not delivered until after the plaintiff’s affidavit had been filed in the Quebec proceedings. As of the defendant’s affidavit, Olympique certainly knew about the bankruptcy.

74The default judgment post-dated both affidavits. The judgment refers to examining the “evidence and exhibits on record”. The judgment also refers to the “affidavit for judgment”, which may be the plaintiff’s affidavit, but that is not necessarily the case. The decision maker was the same on both the motion to set aside (in which the evidence referenced the bankruptcy) and in the default judgment proceedings. I do not have evidence before me showing what evidence was actually before the court when default judgment was granted or what written or oral submissions (if any) were made at that time. That evidence is needed for a finding of fraud: Beals, at para. 56.

75The personal defendant relies on a discovery refusal to answer the question of whether the plaintiff’s lawyers knew Pancor was bankrupt before default judgment was obtained. Obviously, Olympique’s counsel who acted on the motion to set aside the noting in default did know, since that information was part of the defendant’s evidence on that motion. But that lawyer may or may not have been involved in obtaining the default judgment. Even if I were to draw an adverse inference from the refusal, it does not fill in the gaps in the evidence sufficiently given the dearth of evidence about what transpired in relation to obtaining the May 30, 2012 default judgment.

76Perpetrating a fraud on the court is a very serious matter. The evidence before me falls short of demonstrating that level of misconduct, even on the civil burden of proof on a balance of probabilities. The evidence just as readily supports the conclusion that the default judgment was obtained by administrative requisition with no submissions at all and counsel overlooked the need to update the old information in the original affidavit. While this is unfortunate, mistakes happen.

77More significantly, there was no alleged fraud or misrepresentation with respect to judgment against the personal defendant. He was not in bankruptcy. There was no stay precluding Olympique from proceeding to obtain judgment against him.

78The personal defendant submits that judgment is fatally flawed because it ordered joint and several liability for the damages and, as such, included the bankrupt company. However, since the Quebec court’s order expressly included several liability, there is no fatal defect.

79The personal defendant has therefore failed to prove a defence to recognition and enforcement.

Judgment

80I therefore grant the requested order for recognition and enforcement of the Quebec judgment as against the personal defendant. If the parties are unable to agree on the form of the order, drafts shall be submitted on the schedule set out below.

81If the parties are unable to agree on costs, the plaintiff shall make its costs submissions by delivering brief written submissions together with a costs outline by April 18, 2017. The personal defendant may respond by delivering brief written submissions by May 9, 2017. This timetable may be modified on agreement between the parties provided that I am notified of the new timetable by April 18, 2017.