Court File and Parties
COURT FILE NO.: 15-65422 DATE: 2017/04/28 ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
NAHED EL-HAWARY Plaintiff/Moving Party
– and –
STANLEY TAM aka STANLEY BOR TAM, 1202827 ONTARIO INC., RTM RESOURCES INC. and 1041376 ONTARIO INC. Defendants/Respondents
Counsel: Manou Ranaivoson, for the Plaintiff/Moving Party Martin Diegel, for the Defendants/Respondents
HEARD: April 11, 2017
DECISION ON SUMMARY JUDGMENT MOTION
RATUSHNY J.
1The plaintiff/moving party claims the defendant/respondent, Mr. Tam, has transferred monies among all of the defendants so as to defeat, hinder, delay or prejudice payment to the plaintiff as a creditor of 1202827 Ontario Inc. (the “Pharmacy”). She asks for summary judgment on her claims.
1. BACKGROUND FACTS
The Parties
2The plaintiff’s present status is as an unpaid judgment creditor of the Pharmacy pursuant to Reasons for Judgment released September 12, 2014 and Judgment dated December 17, 2014 (the “Judgment”) from T.D. Ray J. in connection with the plaintiff’s wrongful dismissal claim.
3The defendant Mr. Tam has been the sole director and sole shareholder of the Pharmacy since June 2011. He is also the sole director of the defendant 1041376 Ontario Inc. (“104”), one of the directors of the defendant RTM Resources Inc. (“RTM”) and he agreed during an examination in aid of execution that RTM is a company he controls. He said in that examination that he is also a shareholder of 104 and RTM, although the Pharmacy’s corporate tax returns for the taxation years 2013 and 2014 appear to suggest it is the Pharmacy that owns 100% of the common shares for 104 and RTM and not Mr. Tam.
4It is clear that Mr. Tam controls all the other defendants.
The Original Lawsuit
5Beginning in 1997 or 1998 the plaintiff was employed by the Pharmacy as a pharmacist. She was also one of its shareholders. The Pharmacy terminated her employment effective June 11, 2011 and also a shareholders agreement with her. An agreement dated May 30, 2011 (the “Severance Agreement”) was negotiated with both parties represented by counsel.
6The plaintiff’s termination of employment and the subsequent Severance Agreement had coincided with the Pharmacy selling all of its assets to a third party in June 2011. The net sale proceeds of $904,224.65 were deposited into the Pharmacy’s bank account on June 16, 2011.
7The Pharmacy paid the first instalment of the negotiated severance package in the amount of $30,000.00. The Pharmacy failed to pay the second instalment of the agreed upon severance amount, a further $30,000.00 payment, and the plaintiff sent a demand letter (the Demand Letter”) to Mr. Tam in July 2011 without any result. She then commenced a legal action against the Pharmacy on May 9, 2012 (the “Original Lawsuit”).
8In the three weeks leading to the Original Lawsuit, $24,000.00 was taken out of the Pharmacy’s bank account and transferred to Mr. Tam or to RTM.
9After the Reasons for Judgment were released on September 12, 2014, $22,500.00 was paid by the Pharmacy to Mr. Tam.
10In 2014 the plaintiff was successful in the Original Lawsuit and awarded damages for wrongful dismissal as set out in the Judgment.
11In April and May 2015 the plaintiff garnished approximately $31,365.77 from the Pharmacy’s bank account and received that sum around July 17, 2015.
12The plaintiff remains an unpaid judgment creditor of the Pharmacy.
Examination in Aid of Execution
13On July 7, 2015 an Examination in Aid of Execution was conducted of Mr. Tam (the “Examination”) in his capacity as president, shareholder and sole director of the Pharmacy. Mr. Tam produced documents (the “Documents”) as required for the Examination.
14Mr. Tam said the Pharmacy had not made efforts to pay the plaintiff pursuant to the Judgment because “it has no money” as it had ceased carrying on business as a pharmacy when its assets were sold in June 2011. He said the Pharmacy owes money to other secured creditors, namely himself and RTM pursuant to loans made to fund the operation of the Pharmacy before it was sold and also pursuant to further loans made by RTM to the Pharmacy after the Pharmacy ceased carrying on business, to pay taxes and lawyer fees.
15In 2011 after the sale, the Pharmacy declared a $315,000.00 dividend (the “Dividend”) in favour of Mr. Tam and paid it in instalments using the net proceeds of the sale. The Dividend was paid out in 2012, 2013 and 2014. It was the only dividend he received and he agreed he authorized the Pharmacy to pay the Dividend to himself with knowledge of that company’s potential liability to the plaintiff.
16Mr. Tam also agreed that the Pharmacy paid capital gains tax and legal fees incurred on the sale of its business as well as legal fees and his personal expenses incurred in respect of the plaintiff’s attempts to enforce the Judgment including the Examination.
17In May or June 2015, Mr. Tam and RTM commenced actions against the Pharmacy. Mr. Tam, as the controlling mind of the Pharmacy, agreed he let these actions go undefended so that he and RTM as the plaintiffs in those actions obtained default judgment against the Pharmacy.
18Mr. Tam said he closed the Pharmacy’s only bank account the week before the Examination and one of the reasons was because the plaintiff had garnished it, leaving it overdrawn.
19Mr. Tam said he does not intend to have the Pharmacy pay the plaintiff pursuant to the Judgment.
The Second Lawsuit
20After the Examination, the plaintiff immediately commenced a second lawsuit (the “Second Lawsuit”) against the Pharmacy and this time also against Mr. Tam, RTM and 104, by a statement of claim dated August 18, 2015.
21In this Second Lawsuit the plaintiff seeks, against all defendants, certain declaratory relief pursuant to the Fraudulent Conveyances Act, R.S.O. 1990, C. F-29 (the “FCA”), the Assignments and Preferences Act, R.S.O. 1990, c. A.33 (the “APA”) and the Business Corporations Act, R.S.O 1990, c. B.16 (the “OBCA”), as well as damages for the unpaid sums owing pursuant to the Judgment amounting to approximately $105,000.00 plus interest at this time.
[22] The plaintiff claims: (1) One or more of the transfers from the Pharmacy to RTM, 104 or Mr. Tam is void against her pursuant to s. 2 of the FCA because each is a conveyance “made with intent to defeat, hinder, delay or defraud creditors and others” of the amounts owed to her as an unpaid judgment creditor; (2) One or more of those transfers is void against her pursuant to s. 4(1) of the APA because each is a conveyance or transfer “made by a person when insolvent or unable to pay the person’s debts in full or when the person knows that he, she or it is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice creditors, or any one or more of them”; (3) The Dividend or part of it was illegally declared by the Pharmacy, pursuant to s. 38(3) of the OBCA, because it was declared when there were reasonable grounds for believing that after the payment of the Dividend the Pharmacy “would be unable to pay its liabilities as they become due”, rendering Mr. Tam liable as a director pursuant to s. 130(2) of the OBCA to repay the Pharmacy; and (4) The actions of the Pharmacy and more particularly of its director, Mr. Tam, were exercised in such a way, as stated in s. 248(2) of the OBCA, that was “oppressive or unfairly prejudicial to or that unfairly disregards the interests” of the plaintiff as an unpaid judgment creditor, allowing “the court to make an order to rectify the matters complained of”. The plaintiff seeks an order compensating her, pursuant to s. 248 (3) (j) of the OBCA.
2. MOTION FOR SUMMARY JUDGMENT ON THE SECOND LAWSUIT
The Parties’ Positions
23The plaintiff says the various conveyances among the defendants, as those conveyances are referred to in the Examination, the Documents and in the affidavits from the plaintiff and Mr. Tam (collectively, the “Affidavits”) and filed on this motion, amount to sufficient evidence at this time for the Court to consider the plaintiff’s claims as set out above, without the necessity of a trial.
24It is a “document heavy” motion, the plaintiff submits, so that the Documents together with the Examination and the Affidavits can be considered in respect of her claims, leaving no genuine issues requiring a trial.
25The defendants disagree.
26The defendants have filed copies of two General Security Agreements from the Pharmacy, one in favour of Mr. Tam given after the plaintiff had commenced the Original Lawsuit and dated October 18, 2011 and the other in favour of RTM dated January 28, 1997 (collectively, the “GSAs”), as evidence of loans made to the Pharmacy. These GSAs were registered under the Personal Property Security Act, R.S.O. 1990, c. P.10 (”PPSA”) in June 2015.
27Mr. Tam says in his Affidavit that he did not receive the Demand Letter and that the Original Litigation was commenced after the Pharmacy’s proceeds of sale had been dispersed among bills associated with the sale and the business, repayment of loans to himself and RTM, and the Dividend. He says further, that he strongly believed the plaintiff had interfered with the timely closing of the sale, such that the Pharmacy did not owe the plaintiff any money, or at most, it owed her only the $30,000.00 being the balance of the agreed upon severance amount. He concedes he was wrong in this belief, as indicated by the Reasons for Judgment.
28The defendants dispute that any payments, whether in respect of loans, dividends or repayment of debt, result in a violation of any of the three statutes pleaded by the plaintiff.
29The defendants make the corollary arguments that the various payments to Mr. Tam and the other defendants do not, as such, result in a violation of any of the statutes pleaded, particularly in light of the fact that the GSA from the Pharmacy to RTM has been in existence since 1997, that there is no analysis put forward by the plaintiff that any of the payments were otherwise than to satisfy debt under the GSAs, and perfection and thereby priority for the GSAs’ secured creditors under the PPSA can occur otherwise than by registration.
30The defendants also raise the issue of the Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4, applying to any remedy in favour of the plaintiff and that the appropriate remedy would not be to pay sums to her but to have them remitted to the Pharmacy so that its creditors generally would be paid rateably.
[31] Overall, the defendants submit the following are genuine issues for trial that cannot be determined on this motion: (a) The applicable date of discoverability of the claim resulting in the Original Lawsuit; (b) Whether the plaintiff has proven a violation of any of the three statutes relied upon on this motion; and (c) Whether the relief/remedy sought by the plaintiff is available at law.
Hryniak and Rules 20.01, 20.02, 20.04 of the Rules of Civil Procedure
32It is well traversed law at this time that in accordance with the “culture shift” in the civil justice system, the current test for a summary judgment motion is as outlined in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87 (S.C.C.), at para. 49:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
33Hryniak, at para. 66, also makes it clear that in determining whether or not there is a genuine issue requiring a trial, the motion judge is to engage in a two-step process. The first step involves a determination if there is a genuine issue requiring trial based only on the evidence submitted without using the fact-finding powers in Rule 20.04(2.1) and (2.2) of the Rules of Civil Procedure. The fact-finding powers can be used, as part of a discretionary second step, if the need for a trial is avoided and it is not against the interest of justice. “Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.”
34It is accepted, in accordance with Rule 20.02(2) of the Rules of Civil Procedure, that on a motion for summary judgment the respondents must put their best forward. As stated in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, at paras. 49-51:
Each side must advance their best case and put forward the evidence on which they rely with respect to the material issues to be tried. The court is entitled to assume that the parties have met this obligation. (para. 49)
…a bald assertion, even one that remains unchallenged, made in circumstances such as this where supporting evidence must be presumed to be readily available, cannot defeat a motion for summary judgment. The parties must lead evidence that the court can weigh and from which it can draw inferences. (para. 50)
3. ANALYSIS
35The evidence on this motion clearly shows an emptying out by the defendant Mr. Tam of the Pharmacy’s bank account of its net sale proceeds in the amount of $904,224.65 deposited in June 2011. That emptying out amounted to a total of $858,000.00 received by Mr. Tam between June 2011 and February 2015. Of that total amount, Mr. Tam received $423,000.00 by August 24, 2011, $309,500.00 characterized as part of the Dividend and paid between October 2012 and April 2013, $5000.00 paid in September 2014 just prior to the original lawsuit as the final part of the Dividend and $120,500.00 paid out between September 2012 and February 15, 2015.
36The evidence also indicates that 104 received a total of $536,227.62 from the Pharmacy between June 2011 and November 2013, and RTM received a total of $248,898.00 from the Pharmacy between June 2011 and September 2014. The majority of these payments to RTM were made after the Original Lawsuit was commenced.
37Mr. Tam explained these transfers as being payment of the proceeds of sale toward various bills associated with the sale, repayment of loans to the Pharmacy made by him, RTM and 104, and payment of the Dividend. He said any monies paid to 104 were payments that 104 was entitled to receive as “creditor/Landlord” of the Pharmacy.
38At the Examination he could not remember if there were any loan agreements between any of the defendants. On this motion, except for the GSAs and brief notations in the Documents including in the ledger for the Pharmacy, there is no other corporate documentation such as loan agreements, rental or corporate agreements to support Mr. Tam’s assertions at the Examination that loans were made by him, 104 or RTM to the Pharmacy requiring payment.
39Mr. Tam agreed at the Examination that even though since the asset sale in June 2011 the Pharmacy had ceased carrying on business and no longer had a bank account, he would nonetheless ensure the Pharmacy paid expenses incurred by him in respect of the plaintiff’s attempts to enforce the Judgment including the Examination.
40He also agreed, as indicated previously, that he did not intend to have the Pharmacy pay the plaintiff pursuant to the Judgment.
41The evidence clearly indicates that Mr. Tam in his capacity as the controlling mind of all the other defendants has moved money between himself and them quite freely and without supporting corporate documentation, which I presume is not that unusual for such closely held corporate defendants. Many of the large transfers of money from the Pharmacy and involving Mr. Tam, 104 and RTM as summarized above are circular in that they are all to the benefit of Mr. Tam. The not-so-simple issue on this motion is his intent in so doing.
[42] It is in this context that the plaintiff alleges certain “badges of fraud” are present from which an improper intent can be inferred: (a) Many of the transfers were to non-arm’s length persons; (b) Mr. Tam either directly or indirectly benefitted from all the transfers; (c) From the outset, there was a potential liability to the plaintiff after the sale of the Pharmacy’s assets in June 2011 because the plaintiff had been terminated, severance package was negotiated which a Court subsequently found to be enforceable and Mr. Tam paid one installment, but withheld the second; (d) The dividend payments to Mr. Tam were all made after the litigation with the plaintiff commenced, with one dividend payment being made less than three weeks prior to trial; (e) Most payments made to RTM (except $100,000.00 in June 2011) were made after the litigation with the plaintiff commenced; (f) The bank statements show that several of the transfers were made with unusual haste where deposits were being made into the Pharmacy’s account and withdrawals would be made sometimes on the same day or a few days later. This pattern was very evident as of September 2012 to August 2013, and then again in September 2014, November 2014 and February 2015; (g) The transfers concerned substantially all of the Pharmacy’s assets; (h) Some of the transfers (from either 2014 or 2015) occurred on the eve of trial and subsequent to trial when the Pharmacy declared that its assets were less than its declared liabilities; and (i) The cumulative effect of all of these transfers is that it left the Pharmacy without any assets to pay the plaintiff’s judgment after the reasons were released on September 2014.
43The plaintiff submits that from these “badges of fraud”, I can infer that the transfers were done with the intent to defeat, hinder, delay or defraud the plaintiff’s rights as a creditor, and as a consequence under the FCA and the APA, have those transfers declared void and able to be traced.
44The problem with this assertion is that Mr. Tam could well have had other intentions regarding the transfers that were not directed against the plaintiff’s rights as a creditor. Mr. Tam acknowledges as stated in the Examination and his Affidavit that after the Pharmacy sold its assets and ceased carrying on business in June 2011, he depleted the net sale proceeds by paying the Pharmacy’s bills, loans and then himself through the Dividend. There may well have been nothing wrong with any of this. He explains that he had set up 104 as a property holding company, RTM had been a secured creditor with a GSA from the Pharmacy since 1997 and he became the sole director and shareholder of the Pharmacy in June 2011.
45I do not understand the fuller financial context of the defendants’ business between 2011 and 2015. The defendants do have the onus on this motion to “lead evidence that the court can weigh and from which it can draw inferences” (Ferrara, supra, at para. 50). The defendants point to Mr. Tam’s assertions on the Examination, in his Affidavit and in the Documents as satisfying their onus to “advance their best case and put forward the evidence on which they rely with respect to the material issues to be tried” (Ferrara, supra, at para. 49). I cannot fault the defendants as having fallen short of its onus on this motion, although it is at least clear that Mr. Tam was not concerned with “papering” the transfers he effected among himself and his defendant corporations.
46I can understand that when viewed from the plaintiff’s perspective and according to the “badges of fraud”, that the defendants’ actions can be regarded as suspicious and directed towards depleting the Pharmacy’s ability to pay her as a judgment creditor. However, that viewpoint is counterbalanced when considered from the defendants’ perspective as Mr. Tam has indicated, that the Pharmacy’s business had been sold and Mr. Tam and his companies were simply repaying themselves according to law.
47I conclude I am not satisfied on the requisite balance of probabilities that the plaintiff’s motion for summary judgment on her claims under the FPA and the APA involving the issue of Mr. Tam’s intent has been made out. The motion on these two causes of action is, therefore, dismissed as there are genuine issues for trial under those statutes involving the alleged violations and the appropriate relief or remedy.
48This leaves the plaintiff’s claims under the OBCA, firstly, that the Dividend was illegal and secondly, the oppression claim.
49With respect to the Dividend and for reasons similar to those causing the dismissal of the plaintiff’s summary judgment motion under the FPA and APA, I am satisfied there are genuine issues for trial regarding the Pharmacy’s financial status at the time of the declaration of the Dividend and over the years of its payment in instalments. I am not able to conclude from the evidence before me whether there were the requisite “reasonable grounds for believing”, as stated in s. 38(3) of the OBCA, so that the Pharmacy was not able to declare and pay the Dividend.
50It is with respect to the plaintiff’s oppression claim under the OBCA that her motion succeeds. The applicable OBCA sections are the following:
s. 245 In this Part,
“action” means an action under this Act; (“action”)
“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.
s. 248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.
Idem
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) 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 are 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 are threatened 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.
(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,
(j) an order compensating an aggrieved person;
51In an oppression claim, it is the effect of the “acts or omissions” referred to in s. 248 of the OBCA rather than the intention of the directors that is key: Downtown Eatery (1993) Ltd. v. Ontario, (2001), 54 O.R. (3d) 161 (Ont. C.A.), at para. 57, referring to Sidaplex–Plastic Suppliers Inc. v. Elta Group Inc. (1995), 131 D.L.R. (4th) 399, varied Sidaplex–Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563 (Ont. C.A.).
52The plaintiff was dismissed without cause in June 2011 and the Severance Agreement was negotiated. Particularly in light of the negotiation of the Severance Agreement with the assistance of counsel and the payment of the first installment under it, the Pharmacy and Mr. Tam can be presumed to have understood then that as a long-standing employee, the plaintiff was entitled to receive some amount of payment in lieu of reasonable notice of termination.
53It can also be definitively said that beginning May 2012 when the Original Lawsuit was commenced, Mr. Tam knew the plaintiff was pursuing not only her second instalment under the Severance Agreement but also a claim for damages for wrongful dismissal.
54I find the plaintiff has established that she is a “complainant” pursuant to s. 245 (a) and (c) of the OBCA. Not only is she a former shareholder of the Pharmacy, she also became its creditor in June 2011 in respect of unpaid wages upon her termination of employment and in May 2012, Mr. Tam knew her claim was also for wrongful dismissal, notwithstanding that he believed she would not succeed. Of course, she became a judgment creditor in September 2014.
55As stated in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560 (S.C.C.), at paras. 45, 58 and 68, the oppression remedy is remedial and is focussed on “the harm to the legal and equitable interest of stakeholders affected by oppressive acts of a corporation or its directors” (para. 45). It “gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair” (para. 58). When presented with an oppression claim, the court must decide if the claimant had a reasonable expectation and if that expectation was violated by conduct which is “oppressive, “unfairly prejudicial” or that “unfairly disregards” the claimant’s interest (para. 68).
56After the sale in June 2011 and certainly after May 2012 when Mr. Tam had clear notice of the plaintiff’s Original Lawsuit, Mr. Tam was careful to continue to pay the Pharmacy’s creditors, including himself.
57In the context of the evidence as summarized before, I conclude firstly, that the plaintiff reasonably expected the Pharmacy to pay her wages in lieu of notice, and secondly, that at the very least as stated in s. 248 (2) of the OBCA, the actions of the Pharmacy and its sole director and shareholder Mr. Tam were exercised in such a way that, with knowledge of the plaintiff’s claims, unfairly prejudiced and unfairly disregarded her interests, initially as an unpaid creditor and then as an unpaid judgment creditor. Once her employment and shareholding had been terminated, I agree with the plaintiff’s assertions that there was nothing she could do to receive her payments from the Pharmacy except to start her lawsuit, as she did – a costly and difficult process. Mr. Tam’s transfers of substantial amounts of money out of the Pharmacy’s bank account and particularly his declaration and payments of the Dividend operated to leave nothing in respect of her claims.
58I agree with the plaintiff that this end result unfairly prejudiced and unfairly disregarded her interests in light of all of the circumstances.
59I conclude by finding that the actions or omissions of Mr. Tam, as director of the Pharmacy and as the controlling mind of the other defendants, were unfairly prejudicial and unfairly disregarded the interests of the plaintiff.
60I grant the plaintiff’s motion for her oppression claim under the OBCA. There is no genuine issue requiring a trial in this respect.
61I order that the defendants jointly and severally, as in [Pillar Sausages & Delicatessens Limited c. Cobb International Corporation, 2003), pay the plaintiff the outstanding amounts owing under the Original Lawsuit (Court File No. 12-54323) and Judgment, together with costs of this action.
62Brief written costs submissions, a total of 3 pages from each party exclusive of attachments, may be forwarded to me by May 19, 2017.
Justice L. Ratushny
Released: April 28, 2017