CITATION: Boudreau Commercial Contracting Inc. v. Caruana, 2017 ONSC 451
COURT FILE NO.: CV-15-22948
DATE: 20170623
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BOUDREAU COMMERCIAL CONTRACTING INC.
Plaintiff
– and –
PAUL CARUANA and DENA CARUANA
Defendants
Rodney M. Godard and Colin Bondy, for the Plaintiff
Owen D. Thomas, for the Defendants
HEARD: December 8 and 13, 2016
KING J.
[1] This is a partial summary judgement motion brought by Boudreau Commercial Contracting Inc. (“Boudreau”) against the defendants, Paul Caruana (“Mr. Caruana”) and his spouse, Dena Caruana (“Mrs. Caruana”).
[2] Boudreau is a Windsor-area contracting business. The president and operating mind of Boudreau at all material times was Anthony Boudreau.
[3] Mr. and Mrs. Caruana were the shareholders of 1839563 Ontario Limited o/a Keystone General Contractors (“Keystone”). At all relevant times Mr. Caruana was the operating mind of Keystone. Mrs. Caruana is a named defendant because she was a shareholder of Keystone at all relevant times and is potentially affected by the decision on this motion. There is no evidence that she was otherwise involved with respect to the evidence in this matter.
BACKGROUND
[4] Keystone carried on business as a construction company in the Windsor-Essex area for a number of years and ceased construction operations on December 13, 2013. This occurred following significant issues relating to a project to build a new facility for a customer known as The Lighting Boutique. Keystone was the general contractor and Boudreau was a subcontractor on the Lighting Boutique project.
[5] In 2013, Boudreau made a claim against Keystone and Mr. Caruana personally with respect to unpaid subcontractor accounts. Boudreau obtained a default judgment against Keystone and Mr. Caruana in the amount of $160,612.53, plus costs of $1,058.00. That judgment was entered on September 10, 2013.
[6] On July 24, 2014, Boudreau brought an action for a bankruptcy order against Keystone with respect to that unpaid debt pursuant to the Bankruptcy and Insolvency Act.[^1]
[7] Keystone was adjudged bankrupt by Deputy Registrar Stevens of the Superior Court of Justice, Bankruptcy and Insolvency Court, on September 26, 2014 (the “Keystone bankruptcy date”).
[8] Mr. Stephen Funtig was appointed as Keystone’s Trustee in Bankruptcy (the “Trustee”) and carried out all appropriate steps pursuant to the BIA.
[9] Boudreau commenced this action, pursuant to s. 38 of the BIA, under an assignment from the Trustee dated August 27, 2015. Pursuant to that section, any benefit derived from this proceeding, to the extent of its claim and costs, belongs exclusively to Boudreau with the surplus, if any, belonging to the estate. Boudreau claims against Mr. Caruana as an alleged debtor to Keystone.
[10] The debts of Keystone as of the date of bankruptcy totalled $953,475.43 as against confirmed assets of $247,000, for a net deficiency of $706,475.43.
ISSUE
[11] The single issue on this partial summary judgment motion is whether Mr. Caruana owed Keystone money as of the date of bankruptcy on September 26, 2014. A determination of this issue requires an assessment of the evidence relating to the shareholder loan account of Mr. Caruana.
Shareholder Loan Account of Paul Caruana
[12] As of February 6, 2014, records showed that Mr. Caruana owed Keystone the sum of $219,315 on his shareholder loan account.
[13] As a result, Boudreau claims the following relief on its behalf, and on behalf of the other creditors of Keystone:
A declaration that the defendant, Mr. Caruana, has breached his obligation to repay his shareholder loan from Keystone.
An order for damages in the amount of $219,315, or such other amount as the court may determine Mr. Caruana owes Keystone, as a result of his failure to repay his shareholder loan to Keystone.
An order directing the payment of $219,315, or such other amount as the court may determine Mr. Caruana owes Keystone, to Boudreau.
Paul Caruana Disputes Entitlement
[14] Keystone’s fiscal year end was April 30. While Mr. Caruana does not dispute that as of February 6, 2014 he owed Keystone $219,315 on account of his shareholder loan, he disputes that he owed this amount (or any amount for that matter) on the date Keystone became bankrupt.
[15] Mr. Caruana asserts that on April 30, 2014, Keystone recorded various payment transactions totalling $622,405.35 to his shareholder loan account. The entries on April 30, 2014 are the first and only entries to the account following the February 6, 2014 entry. Specifically, there are approximately 20 entries, all dated April 30, 2014. They total $552,314.78. They all indicate “Pd by owner” or “Pd by owner to.” During the period from May 8, 2013 to April 30, 2014, these are the only entries marked “Pd by owner” in any regard.
[16] While counsel for Mr. Caruana concedes that not all of those payment transactions were properly credited to Mr. Caruana’s shareholder loan account, it is the position of the defendants that no monies are owing to Keystone for the following reasons:
(a) either Mr. Caruana or another related company owned by Mr. Caruana, 2388206 Ontario Inc. (“238”), made payments on behalf of Keystone to its creditors before the bankruptcy date totalling $215,304.99;
(b) either Mr. Caruana or 238 made payments on behalf of Keystone to its creditors totalling $41,660.97 after the bankruptcy date; and
(c) Mr. Caruana was owed $133,647 on account of his services performed as an employee of Keystone prior to the bankruptcy date, which remain unpaid.
[17] The defendants submit that these amounts totalling $390,612.63 were properly credited to Mr. Caruana’s shareholder loan account. If just $219,315 or more of the alleged credits referenced in para. [16] above are properly credited to the shareholder loan account, this will more than offset what the plaintiff claims is owing to Keystone.
[18] The plaintiff disputes the validity of the evidence presented by the defendants. If this evidence is not accepted as showing a proper credit to the benefit of Mr. Caruana’s shareholder loan account, the plaintiff submits there is no remaining triable issue and partial summary judgment should follow for an amount not to exceed $219,315.
ANALYSIS
1. Is this matter properly decided on a Summary Judgment Motion pursuant to Rule 20 of The Rules of Civil Procedure?[^2]
[19] Since the decision of the Supreme Court of Canada in Hryniak v. Maudlin it has become accepted law that a court must grant summary judgment when it is satisfied, based on the evidence before the court, that there is no genuine issue requiring a trial.[^3]
[20] More specifically, the court can resolve a summary judgment motion if the process,
(a) allows the judge to make the necessary findings of fact;
(b) allows the judge to apply the law to those facts; and
(c) is a proportionate, more expeditious, and less expensive means to achieve a just result.[^4]
[21] As well, pursuant to r. 20.04(2.1), the court may exercise the following powers for the purpose of making a determination, unless it is in the interest of justice for such powers to be exercised only at a trial,
(a) weighing the evidence;
(b) evaluating the credibility of a deponent; and
(c) drawing any reasonable inference from the evidence.
(a) Evidentiary obligations on parties to summary judgment motions
[22] I have considered the following documentary evidence on this partial summary judgement motion:
Notice of Motion, dated May 25, 2016.
Affidavit of Anthony Boudreau, sworn May 24, 2016, with exhibits.
Affidavit of Jim Tracey, sworn May 24, 2016, with exhibits.
Affidavit of Stephen Funtig, the Trustee in Bankruptcy of Keystone, sworn May 25, 2016, with exhibits.
Affidavit of Paul Caruana, sworn August 5, 2016.
Reply Affidavit of Anthony Boudreau, sworn August 25, 2016, with exhibits.
Reply Affidavit of Stephen Funtig, sworn August 25, 2016, with exhibits.
Affidavit of Paul Caruana, sworn September 26, 2016, attaching a report prepared by Federica Nazzani of Capital Assist Valuation Inc., dated September 23, 2016 (the “Nazzani Report”).
Transcript of the cross-examination of Paul Caruana, dated May 30, 2016.
Affidavit of Paul Caruana, sworn on November 23, 2016, with exhibits.
(b) Best evidence before the court
[23] In Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., at pp. 434-35, Sharpe J. made the following comments:
Transamerica has had the fullest possible opportunity to advance its case. It is clearly established that on a motion for summary judgment, a party is no longer entitled to sit back and rely on the possibility that more favourable facts may develop at trial. To avoid summary judgment, a party is required to put its best foot forward. The onus remains on the moving party to show that there is no genuine issue for trial, but the responding party must “lead trump or risk losing”: Pizza Pizza Ltd. v. Gillespie (1990) 1990 CanLII 4023 (ON SC), 75 O.R. (2d) 225, 33 C.P.R. (3d) 515 (Gen. Div.); 1061590 Ontario Ltd., v. Ontario Jockey Club (1995), 1995 CanLII 1686 (ON CA), 21 O.R. (3d) 547, 43 R.P.R. (2d) 161 (C.A.).[^5]
[24] There is no suggestion by the parties that they were precluded or prohibited from putting all the necessary evidence before the court on this motion.
[25] Based on the evidence before me, I can determine whether or not there is a genuine issue requiring a trial. The record is sufficient to permit a fair and just determination of the matter.
[26] Furthermore, the amount to which the plaintiff may be entitled can be ascertained by a calculation through review of the relevant documents.[^6]
(c) Does the reliance on expert opinions by the parties require a trial?
[27] In addition to the affidavits of Mr. Boudreau, the principal of the plaintiff, and Mr. Funtig, the Trustee, the plaintiff relied on the expert opinion of Mr. Jim Tracey to explain that Mr. Caruana owed his shareholder loan account between $162,675.39 and $219,315. In his affidavit, Mr. Tracey included an Acknowledgment of Expert’s Duty.
[28] To refute the claim of the plaintiff that Mr. Caruana owed his shareholder loan account any amount, the defendants relied on Mr. Caruana’s statements in his affidavits that he had personally (or through 238) either paid these accounts, or “satisfied” same, and various documentary evidence, including the Nazzani Report referenced in paragraph [22] above. In her report, Ms. Nazzani also included an Acknowledgement of Expert’s Duty.
[29] Defendants’ counsel, Mr. Thomas, relied on the general principle that since there are conflicting expert opinions a summary judgment motion cannot serve as an adequate substitute for the trial process. He cited the cases of Paul v. Oliver Fuels Ltd.,[^7] Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Co.,[^8] and Warga (Litigation Guardian of) v. Rivard Estate.[^9]
[30] While I agree with the general principle espoused in these three cases, I am not persuaded that the existence of duelling expert reports a priori automatically prohibits the court from determining the issue on a summary judgment motion.
[31] In these three cases, the expert opinions related to, respectively, the appropriate standard of care with respect to the installation of gas tanks, the appropriate duty of care owed by an insurance broker, and the reasonable state of repair of a road intersection. These are all issues where the court may well need to rely on the opinion of an expert to properly determine the issues being litigated.
[32] That is not the type of decision I am required to make in this case. The issue before the court is essentially an accounting exercise to determine what amount, if any, was owed by Mr. Caruana to his shareholder loan account at the relevant time.
[33] I do not need to assess evidence from cross-examinations of Mr. Tracey and/or Ms. Nazzani to determine whether the entries on the shareholder loan account of Mr. Caruana, post-February 6, 2014, were properly made based on the evidence. There is sufficient information (or lack thereof) before the court to properly determine this matter without regard to the conflicting opinions of Mr. Tracey and/or Ms. Nazzani. Furthermore, and in any event, for the reasons that follow, I am able to fully assess the information contained in the Nazzani Report and, for reasons that follow, do not accept the conclusions she reached on any of the issues.
[34] Accordingly, I am satisfied that the issues before the court on this matter can and should be decided on a summary judgment basis pursuant to Rule 20. Therefore, the issue is whether the plaintiff has established that there is no genuine issue requiring a trial in relation to the alleged amount owing by Mr. Caruana to Keystone. The evidence shows, and the parties agree, that as of February 6, 2014, Mr. Caruana owed Keystone $219,315. This is a prima facie case for summary judgment. As such, in the absence of evidence establishing that the amount owing was reduced or eliminated, or raising a genuine issue requiring a trial in that regard, summary judgment will follow.
2. Have the defendants established that amounts should be credited to Paul Caruana’s Shareholder Loan Account post-February 6, 2014?
(a) Payments before Keystone became bankrupt ($168,247.33)
[35] The defendants claim that the payments listed were made by Mr. Caruana (or by 238 on behalf of Mr. Caruana) on or before the entries were made to Mr. Caruana’s shareholder loan account on April 30, 2014:
J. Santarossa $ 6,472.92
Purolator Incorporated 22.76
Robertson Building Systems 91,663.12
Reclassification of 238 Expenses 70,088.53
TOTAL $168,247.33
i) J. Santarossa and Purolator Incorporated (total $6,495.68)
[36] The plaintiff acknowledges that given the nature of the evidence, these two amounts totalling $6,495.68 are not properly the subject matter of a summary judgment motion. Accordingly, the determination of whether these payments had been made is a genuine issue requiring a trial. As such, the maximum amount the plaintiff can potentially recover on this partial summary judgment motion is reduced by $6,495.68 from $219,315 to $212,819.32.
ii) Robertson Building Systems ($91,663.12)
[37] The defendants submit that the sum of $91,663.12 was paid in satisfaction of the account of Robertson Building Systems (“Roberston”) prior to the bankruptcy date. As such, $91,663.12 should properly be credited to Mr. Caruana’s shareholder loan account.
[38] In addition to the evidence of Mr. Caruana, the defendants rely on the Nazzani Report. The defendants submit that the Nazzani Report supports a conclusion that Mr. Caruana (or 238) paid Robertson the sum of $91,663.12 on March 6, 2014.
Judgment dated March 6, 2014 for $57,360.81 (U.S. funds)
[39] In reaching this conclusion, Ms. Nazzani relies on a default judgment in the amount of $57,360.81 (U.S. funds) obtained by Robertson dated March 6, 2014 against Keystone as evidence that the claim was “satisfied”. Notably, the report does not state that Robertson was paid $91,663.12 (Canadian) prior to the April 30, 2014 date noted on the shareholder loan account, or that it was paid on or even before the Keystone bankruptcy date.
[40] I do not accept that this judgment provides any probative evidence that any portion of the Robertson debt was paid. Would that it were so simple that attaining a judgment guaranteed a creditor payment of that debt. A judgment is simply a statement of an amount found by the court owing from one party to another. A judgment provides a judgment creditor with the right to seek enforcement of that debt by judicial enforcement and nothing more. In and of itself, the fact that Robertson obtained a judgment provides no evidence that the debt was actually paid.
Emails dated August 29, 2016 and August 30, 2016
[41] The Nazzani Report also references three emails in support of the assertion that the sum of $91,663.12 was paid by Mr. Caruana or 238 to Robertson. The first two emails are dated August 29, 2016 and the third is from August 30, 2016.
[42] The first email from Mr. Glenn Morren, of Robertson, was sent at 3:50 p.m. on August 29, 2016 to a Stacey-Jo M. Ferrante and copied to Mr. Paul Caruana. The email references “Keystone Construction, Windsor, Ontario” and states the following:
Hi Stacey.
Back in 2013, two Express Plus Buildings were sold to Keystone Construction in Windsor, Ontario.
W.O. 10203
W.O. 10450
Paul Caruana of Keystone is asking if we have any outstanding claims on these two orders. Apparently there is some litigation going on at the moment for other trades involved in the projects.
Can you confirm that we have been paid in full for both and that there are no outstanding issues?
Thanks,
Glenn Morren
Robertson Building Systems
[43] The second email is also dated August 29, 2016 and was sent at 6:59 p.m. from Stacey-Jo M. Ferrante to Glenn Morren and copied to Mr. Caruana:
Glenn,
Everything was paid.
Thanks,
STACEY FERRANTE
Credit Analyst
[44] The third and final email is dated August 30, 2016, at 9:04 a.m. It was sent from Mr. Caruana to Frederica Nazzani with a copy to counsel for the defendants, Mr. Owen Thomas. It encloses the previous two emails and states the following:
FW: Keystone Construction, Windsor, Ontario RE: Robertson Building Systems
Please see below in regards to Robertson Building Systems invoices.
Thanks,
Paul Caruana
Keystone Construction
4405 7th Concession Road
Windsor, Ontario
N9A 6J3
[45] I conclude that these three emails are of no probative weight with respect to the defendants establishing that Mr. Caruana and/or 238 made payment on the Robertson account in the amount of $91,663.12, or raising an issue requiring a trial in that regard, for the following reasons:
The emails do not make clear reference to the specific outstanding account, or the amount owed.
There is no evidence to establish that work orders #10203 and #10450 are related to the $91,663.12 debt. There are no copies of these invoices, no amounts specified, no date of payment, and no indication of the amounts of the payments or the method of payment.
There is no evidence that Mr. Caruana (or 238) obtained a receipt, or given that there was a judgment, a full and final release or an order of dismissal from the court upon payment to establish that the claim had been “satisfied.”
Additional documentation
[46] While the defendants have failed to provide evidence of cancelled cheques or other banking records to establish that Robertson was paid $91,663.12, there is other evidence before the court that supports a finding that no such payment occurred.
[47] In this regard, to find that Mr. Caruana or 238 paid Robertson $91,663.12 the court would have to ignore the following evidence:
On September 26, 2014, Robertson filed a Proof of Claim on the bankruptcy of Keystone alleging it was owed $91,663.12.
On September 26, 2014, Mr. Caruana personally executed a sworn Statement of Affairs that Robertson was owed this amount.
On October 8, 2014, Mr. Caruana emailed the Trustee in Bankruptcy, Mr. Stephen Funtig, showing Robertson as a vendor in that same amount on a list of unsecured creditors totalling $935,961.34.
[48] If the Robertson debt had been paid, or as the defendants assert “satisfied” before the date of bankruptcy, there would have been no reason for Robertson to have completed a proof of claim unless it was attempting to commit a fraud on the Trustee by seeking double payment on an account that had already been satisfied.
[49] There is no evidence that Robertson was attempting to commit a fraud. That conclusion is supported by the fact that Mr. Caruana’s sworn statement on the bankruptcy listed the Robertson debt.
[50] As well, while the Nazzani Report concludes that the Robertson debt was paid in full to the credit of Mr. Caruana or 238, the documents listed in the Scope of Review make no reference to Robertson filing a claim for that amount on the bankruptcy of Keystone. There is no explanation provided to explain why this claim was purportedly paid in full, yet still claimed on the bankruptcy.
November 23, 2016 affidavit of Paul Caruana
[51] In this affidavit, Mr. Caruana declares the Robertson debt was “settled” prior to bankruptcy “through set-off and monies owed by Robertson to Keystone.” There is no documentation or other evidence to support such a conclusion.
[52] The Nazzani Report makes no reference to set-off. Had there been monies owing by Roberston to Keystone, this would have reduced or eliminated the claim made by Robertson on the bankruptcy or, at a minimum, been listed as an asset of Keystone on bankruptcy as an account receivable.
Conclusion regarding Robertson account
[53] Not only does the evidence fail to establish that the Robertson account of $91,663.12 was paid by Mr. Caruana or 238, I conclude that the evidence clearly and unequivocally establishes that the Robertson debt was not paid by April 30, 2014, or even before the Keystone bankruptcy.
[54] For all of these reasons, I conclude that Robertson was owed $91,663.12 as of the bankruptcy date. Accordingly, this amount should not be credited or set off to Mr. Caruana’s shareholder loan account. The amount of the shareholder loan remains at $212,819.32, to this point in the analysis.
iii) Reclassification of 238 Expenses ($70,088.53)
The Bobcat ($18,993.95)
[55] A component of the purported reclassification of expenses to 238 relates to a Bobcat vehicle Keystone purchased and financed from Kubota Canada Inc.
[56] The outstanding amount of this debt was $18,993.96. The vehicle was originally seized by the Trustee to satisfy creditors following the Keystone bankruptcy. Mr. Caruana opposed this action and took the position that the vehicle had been purchased by 238 in January of 2014 for the sum of $19,000.
[57] Following these representations, Deputy Registrar Stevens found that 238 had purchased this vehicle in good faith for valuable consideration and took over legal responsibility for making the payments to Kubota. The vehicle was determined to be the property of 238.
[58] Notwithstanding the fact that 238 took over payments of the loan from Kubuota, Mr. Caruana submits, on the basis of equity, that this “does not change the fact that Keystone owed a debt, 238 made payments on that debt at the direction of Keystone and the appropriate credit is reflected in the shareholder debt.” In other words, Mr. Thomas suggests that while 238 took over the payments and obtained legal title to the Bobcat, Mr. Caruana should get credit for this amount on his shareholder loan account.
[59] I disagree. It is clear on the evidence that the Bobcat was sold to 238. On the sale, the purchaser received title to the vehicle and acquired the obligation to pay the loan owing to Kubota. The vehicle was no longer the property of Keystone, nor was there any debt obligation owing by Keystone to 238 or Kubota.
[60] The listing of this amount in Appendix II of the Nazzani Report as “a transfer loan to 238 for the Bobcat” is erroneous. The vehicle was acquired by 238 in a bona fide purchase for value. On that sale, the debt attached to the vehicle was transferred to 238 and extinguished vis-a-vis Keystone. It would be a double credit in the circumstances to have Keystone relieved of this debt obligation and also give credit to Mr. Caruana against his shareholder loan.
[61] The amount of the shareholder loan of Mr. Caruana potentially subject to be claimed on this summary judgment motion remains at $212,819.32.
Balance of $51,094.57 transferred to 238
[62] Mr. Godard concedes that issues related to the claim asserted by Mr. Caruana that 238 paid various sums totalling $51,094.57, which could potentially be credited to Mr. Caruana’s shareholder loan account, cannot be properly determined on this partial summary judgment motion. As such, the determination of whether there payments had been made is a genuine issue requiring a trial.
[63] Accordingly, the maximum amount of Mr. Caruana’s shareholder loan potentially subject to be claimed on this partial summary judgment motion is reduced by $51,094.57 from $212,819.32 to $161,724.75.
(b) Other payments made before Keystone became bankrupt ($47,057.66)
Border City Landscaping $23,730.00
Clarke Surveyors Incorporated 832.02
Survco 1,497.25
Minnis Millwork Incorporated 14,050.42
BTA Concrete 6,947.97
TOTAL $ 47,057.66
[64] Mr. Caruana claims that the accounts listed above totalling $47,057.66 were paid by himself and/or 238 before the date of bankruptcy and as such should be applied to the credit of his shareholder account.
i) Were payments made on these accounts before the Keystone bankruptcy?
[65] While the entries for these transactions were recorded on the shareholder loan account as of April 30, 2014, Appendix 1 of the Nazzani Report indicates that these payments were made between August 4, 2016 and August 26, 2016. This date is almost two years following the date of the bankruptcy.
[66] Mr. Caruana was cross-examined on his affidavit of September 26, 2016. The Nazzani Report is an exhibit to that affidavit. During questioning, Mr. Caruana adopted the statements in that affidavit over his earlier affidavit dated August 5, 2016, except for some amendments. Mr. Thomas then advised,
“With a couple of amendments that just picked up recently. I can bring those – bring them to your attention.”
[67] Mr. Thomas then advised (and Mr. Caruana adopted his statement) that the BTA Concrete, Clarke Surveyors Incorporated, Minnis Millwork Incorporated and Survco accounts were all paid prior to the bankruptcy.
[68] While Mr. Thomas did not have those dates readily available, he undertook to obtain that evidence. Mr. Thomas did not ultimately provide those dates to the court.
[69] Mr. Caruana then swore a further affidavit, dated November 23, 2016, wherein he explained that Ms. Nazzani erred because she referenced the dates of email correspondence between Mr. Caruana and these creditors on August 4, 25 and 26, 2016, not the dates he asserted the accounts were paid.
The Nazzani error regarding dates of payment
[70] I agree with Mr. Caruana that Ms. Nazzani erred with respect to the dates she concluded the payments were made. An elementary review of these emails clearly reveals that the dates listed in her report as the dates of payment were not the dates of payment but the dates of the emails Mr. Caruana sent and received in his effort to obtain proof that these accounts were paid.
[71] Notwithstanding that obvious correction and the general concern it raises regarding the reliability of the Nazzani Report, the issue remains whether the defendants have established whether any amounts were actually paid by Mr. Caruana and/or 238 before April 30, 2014 or even before the Keystone bankruptcy date.
Border City Landscaping ($23,730.00)
[72] The evidence the defendants rely on as proof that this account was paid in full consists of an email from Sonia Seguin at Border City Landscaping, dated August 4, 2016. The email simply says, “This invoice has been resolved by Paul Caruana”. It references “Invoice 104” and then states, “See attached and below”. Curiously there is no “attached” information or documentation in the material filed by the defendants.
[73] This is troubling for two reasons. Firstly, and obviously, why was the attached document not provided in the production of the defendants?
[74] Secondly, and significantly, I do not understand how Ms. Nazzani could reasonably conclude this payment was made in the absence of the attached document. There is no indication as to what this account actually relates to, when this account was paid, or what amount was paid. I am also troubled by the wording “this invoice has been resolved by Paul Caruana.” The use of the word “resolved” is not proof that the account was paid in full, or even paid at all. Outstanding and disputed accounts and claims are often “resolved” by a debtor party paying a fraction of the amount in issue in full satisfaction of the claim.
[75] This information provides no proof that the account was paid, in what amount it was paid, who paid it, or when it was paid.
[76] Following the issuance of the Nazzani Report on September 23, 2016, Mr. Caruana filed a third affidavit in this matter. It was sworn on November 23, 2016. In this affidavit, he states that the Border City debt was settled “prior to the bankruptcy by giving a tractor I owned personally to Border City which cleared the debt.” There is no documentary evidence such as a receipt, bill of sale, title transfer document or registration to support this assertion.
[77] I am baffled that Ms. Nazzani could conclude that either Mr. Caruana or 238 paid Border City Landscaping the sum of $23,730 prior to the bankruptcy. There is no cancelled cheque or other banking information that could easily confirm any such payment and no indication of when such payment or payments were made. She does not even specify which of these entities made the payment or provide any information as to when this amount was actually paid. Additionally, she makes no reference to any transfer of a tractor as stated by Mr. Caruana.
[78] In these circumstances I do not accept the evidence offered by the defendants that this amount was paid on or before April 30, 2014 or even on or before the Keystone bankruptcy date.
Clarke Surveyors Incorporated ($832.02)
[79] In this instance, there is an account from Clarke Surveyors dated August 27, 2013 in the amount of $832.02, for invoice #34696-01. There is also the following email dated August 26, 2016 from an “Amie” at Clarke Surveyors referencing the account:
“Good morning Paul. Please find attached the paid invoice and cheque for job
#34696-01.
Thanks,
Amie”
[80] While the account is attached, the cheque is not.
[81] The best evidence of payment (the cheque) is referenced by Amie as attached but not included in the production of the defendants. Whether this document was deliberately removed is uncertain.
[82] Furthermore, the reference by Amie to a cheque is directly contradicted by information in the third affidavit of Mr. Caruana, dated November 23, 2016, where he states the debt was “settled by 238 under the direction of Keystone by a cash payment.”
[83] In these circumstances, I am unable to accept this incomplete and conflicting documentation as proof that the sum of $832.02 was paid, and, in any event, there is no evidence that any such payment was made prior to April 30, 2014 or even on or before the bankruptcy of Keystone.
Survco ($1,497.25)
[84] The evidence offered by the defendants and relied on by Ms. Nazzani contains an email dated August 26, 2016, which states the following:
“Can you please confirm that the outstanding invoices from this company were resolved by Paul Caruana?”
[85] The reply was,
“Yes they were resolved.
Thanks,
Phil”
[86] Again, there is no indication of what specific invoices were outstanding, what the amounts of the invoices were, whether they were paid in full and when payment purportedly occurred. I also note that the use of the word “resolved” is not confirmation of payment in full of the amount Mr. Caruana claims his shareholder loan account should be credited. I do not accept that Ms. Nazzani could draw any reasonable conclusion in this regard on the information provided, particularly when she erroneously concluded the payments were made in August 2016 and did not provide an amended date or any explanation for when she claims the payment was made.
[87] I do not accept this email correspondence, or any of the evidence presented by the defendants in this regard, as proof that the Survco invoices were paid in full by Paul Caruana or 238 before the date of bankruptcy.
Minnis Millwork Incorporated ($14,050.42)
[88] The evidence of the defendants consists of an email exchange dated August 26, 2016. It commenced with Mr. Caruana emailing Joe Minnis of Minnis Millwork Incorporated and asking the following question:
“Joe,
Can you please confirm that the balance of the outstanding invoices to Minnis Millwork Incorporated were resolved by Paul Caruana.”
[89] The response is:
“Hi Paul. Yes those invoices were paid in full.”
[90] I do not accept this email exchange as proving that the account of Minnis Millwork Incorporated in issue totalling $14,050.42 was paid by Paul Caruana (or 238) prior to the bankruptcy date.
[91] On the evidence relied on by Ms. Nazzani, there is no reference to the specific outstanding account, the amount paid, or by whom the payment was made. Furthermore, while it is clear that any purported payment did not happen in August 2016, as erroneously concluded by Ms. Nazzani, there is no other evidence before the court as to when the payment was allegedly made.
[92] As well, strangely, Mr. Caruana’s email makes reference of invoices “to Minnis Millwork”, not “from Minnis Millwork.”
[93] Accordingly, I do not accept this email correspondence, or any of the evidence presented by the defendants in this regard, as establishing that the Minnis Millwork Incorporated invoices totalling $14,050.42 were paid in full by Paul Caruana or 238 before the date of bankruptcy.
BTA Concrete ($6,947.97)
[94] The defendants’ evidence is that on August 26, 2016 Paul Caruana emailed Anthony Barraco of BTA Concrete and stated the following:
“Anthony,
Can you please confirm that the outstanding invoices from 1839563 Ontario o/a Keystone General Contractors were resolved by Paul Caruana.
Thanks,
Paul Caruana”
[95] The same day response from Anthony Barraco states,
“Yes, outstanding invoices were resolved.”
[96] I do not accept this email exchange as establishing that the account of BTA Concrete was paid by Paul Caruana or 238 before the Keystone bankruptcy date. Confusingly, there is reference to invoices “from Keystone”, not invoices of BTA to Keystone. Furthermore, there is no reference to the specific outstanding account, the amount paid, by whom the payment was made and when this payment purportedly occurred.
[97] Aside from the fact that Ms. Nazzani erroneously concluded that the payments were made in August 2016, there is no evidence upon which Ms. Nazzani could reasonably conclude that Paul Caruana or 238 paid BTA Concrete the sum of $6,947.97 prior to the Keystone bankruptcy date.
[98] Additionally following the Nazzani Report, in the November 23, 2016 affidavit, Mr. Caruana states that the BTA debt was “settled” by Keystone directing 238 to hire BTA on a project.
[99] In addition to there being no details of this purported agreement provided, there are no circumstances under which the awarding of a contract by 238 to a creditor of Keystone could legally constitute a credit to the shareholder loan account of Mr. Caruana with Keystone.
[100] If this actually occurred, at best it amounts to forgiveness of the Keystone debt by BTA. Such forgiveness cannot and should not trigger a credit to the shareholder loan account of Mr. Caruana. It constitutes a fraudulent preference on the Keystone creditors.
[101] I do not accept this email correspondence or any of the evidence presented by the defendants as establishing that the BTA invoices were paid in full by Paul Caruana or 238 before April 30, 2014 or even on or before the date of bankruptcy.
ii) The Tracey Report
[102] Mr. Thomas repeatedly emphasized in his submissions that the court should not accept the finding of the expert retained by the plaintiff because Mr. Tracey ignored “over 1,400 pieces of documents reviewed” by the defendants’ expert.
[103] I start by noting that having prima facie established on the evidence that as of February 6, 2014 Mr. Caruana owed his Keystone shareholder loan account the sum of $219,350.00, the plaintiff is not required to disprove the defence raised by the defendants with respect to the various entries added to the shareholder loan account ledger on April 30, 2014. Rather, the defendants have the onus of satisfying the court that the amount owed by Mr. Caruana to his shareholder loan account as of February 6, 2014 should be eliminated or reduced, or that the determinations of those amounts represent genuine issues requiring a trial.
[104] Having accepted the evidence of Mr. Boudreau and Mr. Funtig with respect to the amount owing to the shareholder loan account, I draw no negative conclusion with respect to whether Mr. Tracey examined all 1,400 of those documents as the onus is not on the plaintiffs to disprove the defence of the defendants.
[105] Furthermore, there is no evidence before the court that Mr. Tracey failed to review any relevant documents in reaching his conclusion. I make this finding particularly given the failure of the defendants to produce any documents such as cancelled cheques, banking records and/or receipts that could have readily established that payments were made to these creditors by Mr. Caruana and/or 238 and made before the Keystone bankruptcy. Had such documents been available to Mr. Tracey and had he failed to consider same, I might have some doubt regarding his conclusions. Had such documents existed I am certain they would have been a centrepiece in the defendants’ document production and relied on by counsel for the defendants in the factum and argument for this partial summary judgement motion. They were not.
[106] In reaching this conclusion I draw an adverse inference against the defendants based on the following:
(a) the failure of the defendants to produce receipts, cheques, banking records or other documentation that would have clearly been in their possession to show that such payments were made;
(b) the failure of the defendants to produce the “attached documents” clearly referenced in some of the emails from the creditors in August, 2016; and
(c) the failure of the defendants to provide evidence as to any date when these payments were purportedly made, even though the shareholder loan account indicates these payments were made on or before April 30, 2014.
(iii) The Nazzani Report
[107] In her report, Ms. Nazzani identifies the financial hardship facing Keystone. She then states the following in paragraph 4.9 of her report:
As at April 30, 2014, certain amounts were recovered and posted in the Company’s accounts payable or booked directly to Paul’s shareholder and 2388206 accounts. At the year end, the related party advanced from 2388206 to the Company was consolidated with Paul’s shareholder loan account.
[108] Ms. Nazzani then concludes on the issue with the following statement:
In our analysis, we have reviewed the Tracey Affidavit, Affidavit of Mr. Caruana dated August 5, 2016 and have generally discussed the transactions with the Company’s controller, Kathy Hewitt. We have verified those debt obligations of the Company that have been satisfied by Paul and/or 2388206 as set out in Appendix I and II and summarized below.
[109] Ms. Nazzani makes the following errors in reaching her conclusion that the debt obligations “have been satisfied”:
She incorrectly concludes that some of the alleged payments were made in August 2016. These were simply the dates various emails were sent to and received from creditors.
She tries to correct these errors in payment dates and then provides no further corrected evidence to support a finding that the purported payments were made before the Keystone bankruptcy.
She accepts the vague, inconclusive and sometimes incomplete email exchanges between Mr. Caruana and the various creditors in August 2016.
She accepts the word of Mr. Caruana and Keystone controller Kathy Hewitt that amounts were paid without providing any documentary support for this conclusion such as cancelled cheques, receipts or bank records.
She does not independently verify the purported payment information with the creditors.
She accepts the information in the shareholder loan account ledger as accurate even though it contained no objective evidence that the invoices were actually paid, or when such payments were made.
She fails to provide, or reference in her report, any documentation such as cancelled cheques, receipts of payment and/or or bank records that could objectively support a conclusion that the amounts claimed were paid.
[110] Ms. Nazzani ignored, disregarded or failed to understand the significance of the fact that if payments were made by Mr. Caruana or 238 after the date of the Keystone bankruptcy, such amounts could not be legally be credited to Mr. Caruana’s shareholder loan account.
[111] In fairness, I am also troubled by the contents of the November 23, 2016 affidavit of Mr. Caruana. In the circumstances, I conclude that Mr. Caruana did not provide, or make available to Ms. Nazzani, all of the information she required to make an objective assessment of the relevant accounting information.
[112] For all of these reasons I find that the defendants have not established that any of these accounts were even paid by Paul Caruana or 238 before the Keystone bankruptcy date and have not raised any issues requiring a trial in relation to those amounts. Having made this finding, I am not prepared to give Mr. Caruana any credit to his Keystone shareholder loan account with respect to any of these invoices he claims were paid by him or 238 prior to the date of the Keystone bankruptcy.
(c) If some of the outstanding Keystone accounts were paid by Paul Caruana and/or 238 after the Keystone bankruptcy, can these amounts be credited to Mr. Caruana’s Shareholder Loan Account?
[113] While he concedes the accounts listed below totalling $41,660.97 were paid after the date of bankruptcy, Mr. Caruana claims that his shareholder loan account should still be credited for these amounts because of the payments.
Great Northern Insulation $ 2,500.00
Murray Drywall 6,252.00
Tilbury Concrete 18,000.00
Lakeshore Concrete Supply 6,880.88
Cesar Construction 6,329.93
AlphaKor 1,410.00
Insane Motor Sports 288.16
TOTAL $41,660.97
[114] Can these amounts be credited to Mr. Caruana’s shareholder loan account? In a word, no.
[115] Firstly, there is no satisfactory evidence that these specific accounts were ever paid. Tellingly, there are no cancelled cheques, receipts or any documentation before the court providing proof that any such payments were made.
[116] As well, these entries were logged on the shareholder account as of April 30, 2014, yet the defendants state in their materials that the payments did not occur until after the Keystone bankruptcy in September 2016. I conclude that, at best, this is specious accounting. Mr. Caruana clearly added entries to the shareholder loan account to his credit as of April 30, 2014 and then in August of 2016 tried to retroactively, but woefully inadequately, validate same. I reject this evidence.
[117] Following the rationale of Transamerica Life, Pizza Pizza Ltd. v. Gillespie,[^10] and 1061590 Ontario Ltd. v. Ontario Jockey Club,[^11] I conclude that the defendants have not established on the evidence that the accounts listed above were paid, or that the evidence before the court demonstrates that a trial must be held to adequately determine that evidentiary issue.
[118] Furthermore, and in any event, even if the defendants had satisfied the court that some or all of these accounts had been paid in full by Mr. Caruana or 238 following the date of bankruptcy, any such amounts paid cannot be credited to Mr. Caruana’s shareholder loan account.
Bankruptcy and Insolvency Act
[119] Section 71 of the BIA has application in these circumstances. That section provides the following:
- On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the trustee named in the bankruptcy order or assignment, and in any case of change of trustee the property shall pass from trustee to trustee without any assignment or transfer.
[120] The wording of this section makes it unequivocally clear that once the bankruptcy occurred, Keystone had no legal authority to deal with its property. There would be no valid legal reason for Mr. Caruana or 238 to make payments to Keystone creditors once the bankruptcy occurred. As such any payments made by Mr. Caruana or 238 after that day would have no bearing on the bankruptcy matter and would clearly constitute a “fraudulent preference” to the benefit of those creditors purportedly paid, while preferentially reducing the amount available for distribution to creditors owing by Mr. Caruana to his shareholder loan account.
[121] Further, ss. 30(1)(h) and (i) of the BIA provides,
30(1) The trustee may, with the permission of the inspectors, do all or any of the following things:
(h) compromise and settle any debts owing to the bankrupt;
(i) compromise any claim made by or against the estate.
[122] Based on the evidence in this matter, I find that the trustee did not compromise or settle Mr. Caruana’s shareholder loan due to Keystone.
[123] For these reasons, I do not accept that the sum of $41,660.97 set out above should be credited to Mr. Caruana’s shareholder loan account.
(d) Unpaid Wages owing to Mr. Caruana ($133,647)
[124] Mr. Caruana relies on the Nazzani Report to claim that his shareholder loan should be credited in the amount of $133,647 on accont of “incremental wages owing to Paul” for the years 2012, 2013 and 2014 to the date of bankruptcy.
[125] This claim is based on income advances that were made to him, or should have been made to him, in his capacity as Construction Manager and President of Keystone.
[126] In paragraph 4:15 of her report, Ms. Nazzani advises that Mr. Caruana received wages of $29,000 and $37,500 for 2012 and 2013, respectively. As well, in 2014 an advance to Mr. Caruana was recorded on the books in the amount of $53,186 as a shareholder adjustment. As a result, Mr. Caruana was paid $66,500 of income and received a credit of $53,186 for a total of $119,686 over this nearly three-year period.
[127] Ms. Nazzani also states that based on market comparisons for persons in similar construction positions in the area, Mr. Caruana should have been paid an annual salary of $95,000. According to her analysis, for the 2.67 years in issue, he should have been paid $253,333 ($95,000 + $95,000 + $63,333).
[128] This leaves a shortfall of $133,647. The defendants submit that amount should be credited to Mr. Caruana’s shareholder loan account. That would reduce the amount potentially owing to his shareholder loan account to $28,077.75.
$95,000 per annum salary
[129] There is no basis to accept this theoretical salary as a bona fide amount legally owing to Mr. Caruana and, by extension, the argument that it should form the basis of a credit to his shareholder loan account. The defendants did not establish on the evidence that it was a term and condition of his employment with Keystone that Mr. Caruana be paid $95,000 per annum or, for that matter, any specific salary.
[130] I do not accept that income should be attributed or legally owing to any employee based on the purported fair market value of the work performed. The salary of an employee, even a shareholder employee, is a matter of contract law. Employees are paid wages and benefits based on the terms and conditions of their respective employment agreements with their employers, not some Disney-like expression of what they should be paid in a perfect world.
No claim for unpaid wages at the time of bankruptcy
[131] Furthermore, I accept the affidavit evidence of the Trustee, Mr. Stephen Funtig, dated August 25, 2016, that there was no claim made by Mr. Caruana on the bankruptcy for unpaid wages.
[132] In his affidavit, sworn November 23, 2016, Mr. Caruana claims that he did not file for unpaid wages as Keystone “did not have any funds or assets to divide amongst its creditors.”
[133] I do not accept this explanation. Firstly, unsecured creditors often file proof of claims on bankruptcies without knowing whether they will ever receive any amount towards those claims. If this was a bona fide wage claim, Mr. Caruana should have filed a proof of claim for wages as a preferred creditor for wages. He elected not to do so and I find that he did this at his peril.
[134] He now retroactively seeks to claim at least $133,647 in alleged unpaid wages beyond the bankruptcy and filing deadlines for claims. I do not accept the bona fides of this claim.
Revenue Canada
[135] Mr. Caruana provided no evidence that he reported this purported “income” to the Canada Revenue Agency (CRA), or paid tax on that amount.
[136] Had this been a bona fide wage claim, there should have and would have been a full and proper accounting in a timely manner of the amounts owed on the records of the company including, but not limited to,
(a) payroll records;
(b) personnel records; and
(c) CRA records.
[137] There is no evidence before the court from these records showing, or even attributing, this income to Mr. Caruana for the period of time in issue.
[138] Furthermore, crediting the amount claimed by Mr. Caruana towards his shareholder loan account based solely on what he should have been paid, not what he was actually paid, would amount to a fraudulent preference on the unsecured creditors.
[139] For all of these reasons I conclude that the defendants have not established that Mr. Caruana’s shareholder loan account should be credited with any amount for unpaid wages of any kind, including, but not limited to, market conditions, nor have they raised a genuine issue requiring a trial in that regard. The defendants have failed to provide satisfactory evidence that there is a genuine issue requiring a trial regarding the wages of Mr. Caruana for the reasons set out above.
CONCLUSION
[140] The amount of the shareholder loan account that can be adjudicated on this partial summary judgment motion is reduced from $219,315 to $161,724.75. A determination of the remaining amount, $57,590.25, requires a trial.
JUDGMENT
[141] Accordingly, the plaintiff is awarded judgment as follows:
With respect to the amounts equalling $161,724.75, as there is no genuine issue requiring a trial as prescribed in Rule 20.02, the plaintiff is entitled to a declaration that the defendant, Paul Caruana has breached his obligation to satisfy his shareholder loan from the bankrupt 1839563 Ontario Ltd. o/a Keystone General Contractors in the amount of $161,724.75
An order for damages in the amount of $161,724.75 payable to Boudreau Commercial Contracting Inc., subject to distribution to Boudreau Commercial Contracting Inc. and other creditors of Keystone in accordance with the provisions of the Bankruptcy and Insolvency Act.
Costs of this motion.
Submissions Regarding Costs
[142] In the event that the parties are unable to agree on costs within thirty (30) days, then costs submissions shall be in writing on the following basis:
[143] The plaintiff’s counsel shall serve costs submissions and a “Cost Outline” as provided for in r. 57.01(6) (using Form 57(b)) upon the defendants’ counsel within thirty (30) days of this decision. Such written argument shall be no more than two (2) pages in length, excluding Bill of Costs. In the event the foregoing is not complied with within that time period, the plaintiff shall be deemed to have waived its right to do so.
[144] The defendants’ counsel shall have a further ten (10) days to provide a response to counsel for the plaintiff. Such response is to be no more than two (2) pages in length. In the event the same is not complied with within that time period, the defendants shall be deemed to have waived their right to do so.
[145] Counsel for the plaintiff shall have five (5) further days to provide a reply to counsel for the defendants. Such reply is to be no more than one (1) page in length. In the event the same is not complied with within that time period, the plaintiff shall be deemed to have waived its right to do so.
[146] Once all of those steps have been completed, counsel for the plaintiff shall provide all the submissions to the court through Trial Co-ordination.
“original signed and released by King J.”
George W. King
Justice
Released: June 23, 2017
[^1]: R.S.C. 1985, c. B-3, as amended (the “BIA”).
[^2]: R.R.O. 1990, Reg. 194.
[^3]: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 47.
[^4]: Ibid., at para. 49.
[^5]: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), at pp. 434-35. See also, Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 26, aff’d 2014 ONCA 878.
[^6]: A. & E. Capital Funding Inc. v. Maplex General Insurance (1999), 1999 CanLII 1094 (ON CA), 122 O.A.C. 53 (C.A.).
[^7]: 2012 ONSC 978.
[^8]: 2016 ONSC 6258, at para. 18.
[^9]: 2012 ONSC 5287, at para. 55.
[^10]: (1990), 1990 CanLII 4023 (ON SC), 75 O.R. (2d) 225 (Gen. Div.).
[^11]: (1995), 1995 CanLII 1686 (ON CA), 21 O.R. (3d) 547 (C.A.).