Struik v. Dixie Lee et al, 2017 ONSC 551

COURT FILE NO.: 26862/15

DATE: 2017-01-23

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MARIA STRUIK

Plaintiff

– and –

DIXIE LEE FOOD SYSTEMS LTD., DIXIE LEE OF CANADA INC., DIXIE LEE CAPITAL CORPORATION, JOSEPH MURANO, NOELE MURANO AND DIXIE LEE ONTARIO LTD.

Defendants

Robert J. Reynolds, for the Plaintiff

Jonathon Poitras, for the Defendants Dixie Lee Ontario Ltd. and Noele Murano

Joseph Murano personally, and for the Defendants Dixie Lee Food Systems Ltd., Dixie Lee of Canada Inc., Dixie Lee Capital Corporation

HEARD: November 9, 2016

RASAIAH J.

reasons for ruling on summary judgment motion

OVERVIEW

[1] The plaintiff and her husband John Struik (until his death in 2008) were a Northern Ontario area franchisee and sub-franchisor for Dixie Lee Food Systems Ltd. (“Food Systems”), a fried chicken restaurant chain.

[2] In 2011, the plaintiff entered into Minutes of Settlement (“Minutes”) with Food Systems whereby the plaintiff agreed to sell to Food Systems, all of her area franchise interests for the sum of $1,300,000 payable over 25 years.

[3] Food Systems, however, stopped making payments in 2012. As a result, the plaintiff in 2012 and 2013, obtained judgments for what was owed to her; judgments against Food Systems, Dixie Lee of Canada Inc., and Dixie Lee Capital Corporation (“Capital”).

[4] By the time that the plaintiff obtained these judgments, the plaintiff claims there were two main exigible assets remaining with the judgment debtor corporations, namely:

(1) Dixie Lee franchises and franchisor rights and powers (collectively referred to as “franchisor rights and powers”), in particular: the franchises left operating in Ontario; the power to market and operate Dixie Lee franchises in Ontario, elsewhere in Canada and the world; and the actual and potential income streams connected with those rights and powers; and

(2) A 50% shareholding in 1462103 Ontario Inc. held by Capital.

[5] 1462103 Ontario Inc. is a corporation which owns the Dixie Lee trademarks used by the franchise system (“146”). 146 licenses the use of the trademarks. The other 50% shareholding in 146 is held and continues to be held by Mr. Gary Keeley’s company, Dixie Lee Maritimes Ltd., which essentially runs an independent Dixie Lee operation in Eastern Canada.

[6] The plaintiff expressed her intention to execute/enforce her judgments against these said two assets. When she expressed this intention, the Defendant Joseph Murano (“Joseph Murano”) stated that these two assets were not held by any of the judgment debtor corporations, but rather by the Defendant Noele Murano (“Noele Murano”), Joseph Murano’s son, and/or another corporation, namely the Defendant Dixie Lee Ontario Limited (“DLOL”) [I use “and/or” because the evidence of Joseph Murano varies]. DLOL is owned by Noele Murano, who is the sole shareholder.

[7] On the belief that the transfer of the assets was nothing more than a transparent attempt to obstruct enforcement of her judgments, the plaintiff brought an action against Food Systems, Dixie Lee of Canada Inc., Capital, Joseph Murano, Noele Murano and DLOL.

[8] The plaintiff’s claim includes a claim that the Minutes provide a guarantee obligation for payment of the purchase price which extends to related entities on the transfer of business to them by Food Systems or Dixie Lee of Canada Inc. In respect of guarantors, the guarantee obligation imposes all debts, liabilities and obligations of Food Systems on a guarantor.

[9] The plaintiff asserts that the situation before the court is a parallel situation to the one that was before Varpio J. in 2013. The plaintiff states that transfers of the business were made, by Food Systems and/or Capital, to a related entity, namely DLOL; and they are transfers that trigger paragraph 6(2) of the Minutes which triggers the guarantee, making DLOL liable on the guarantee obligation and for the plaintiff’s judgments.

[10] The plaintiff served a motion for summary judgment.

[11] DLOL opposes the motion. Its stepped position as I understand it is as follows:

a. The motion ought to have been a Rule 49.09 motion pursuant to the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, (“Rules”).

b. There are genuine issues for trial:

i. There was no valid guarantee obligation.

ii. If a valid guarantee obligation is found, this is not a parallel situation to the one before Varpio J. on the following basis:

1. The transfers complained of by the Plaintiff were not made prior to the Minutes being executed and/or judgments being obtained;

2. If the transfers are found to have occurred after the Minutes were executed/judgments obtained, the transactions were not transfers by Food Systems and/or Dixie Lee of Canada Inc. within the meaning of paragraph 6(2) of the Minutes; and further,

3. DLOL is not a “related entity” within the meaning of paragraph 6(2) of the Minutes.

iii. If there are findings of a valid guarantee obligation; that the transfers are transfers within the meaning of the Minutes; and DLOL is found to be a related entity, DLOL is not liable for payment based on alleged breaches/actions of the Plaintiff before and after the execution of the Minutes.

iv. Finally, DLOL argues that third party creditors of Capital (who has filed for bankruptcy) would be affected by the granting of the relief being requested by the Plaintiff; the order being requested would grant the Plaintiff a super priority over Capital’s creditors.

[12] The plaintiff states that the transfer of the franchisor rights and powers and shares in 146 did not take place as alleged or at all, and if they did occur, they were sham transactions intended to allow Joseph Murano to continue to control and receive the benefit of rights, powers, and revenues, free of the plaintiff’s judgments.

[13] The plaintiff further states, in respect of DLOL’s assertion that it has no liability as a result of the alleged actions of the plaintiff, that any such claim is: (a) not available based on the terms of the Minutes and guarantee; and (b) is res judicata.

THE MOTION OF THE PLAINTIFF

[14] The plaintiff, received notice on August 8, 2016 that Capital filed for bankruptcy effective July 29, 2016. In the circumstances, her action and motion, insofar as it sought relief against Capital, are stayed pending an order granting leave to the plaintiff to continue as against Capital. Accordingly, the plaintiff sought an adjournment of those aspects of the summary judgment motion pending leave being obtained.

[15] Accordingly, the plaintiff confirmed that she was seeking judgment only against DLOL and in particular:

a. a declaration that DLOL is liable on the guarantee obligation, the payment orders and the cost orders; and

b. she is seeking ancillary orders, including a prohibition order regarding the transfer or encumbrance of DLOL assets, and the appointment of a receiver to investigate and bring back to the court a proposal for a further order in respect of realizable assets.

[16] I ordered that the portion of the motion related to ancillary orders be adjourned pending the outcome of the summary judgment relief requested.

[17] Therefore the issues on this this motion were confined to determining:

1. Whether DLOL is liable on the guarantee of the obligations of Food Systems under the Minutes.

2. Whether DLOL is liable on the payment order of November/December, 2012, and on the costs orders of November 18, 2013 and May 23, 2014.

BACKGROUND

[18] Food Systems and its predecessors have operated the Dixie Lee chain of franchised fried chicken restaurants in Ontario, and elsewhere since 1972.

[19] For many years, the plaintiff stated that she and her deceased husband functioned as the Northern Ontario area franchisee for Dixie Lee. She stated that she and her husband also functioned as a sub-franchisor, responsible for marketing new franchises in the area and administering and supervising those franchisees in return for a share of royalty income. Her deceased husband had a long standing working relationship with Dixie Lee since 1978.

[20] In 2006/2007, after a change in control at Food Systems during which time frame Joseph Murano took over, the relationship between the Struiks, and Food Systems deteriorated rapidly. The relationship between the Struiks, Food Systems and Joseph Murano was very acrimonious. Food Systems attempted to terminate the area franchise. The Struiks responded with court action in 2006 which led to an interlocutory injunction barring Food Systems from interfering with their operation pending trial. That litigation settled; the parties executed minutes of settlement dated May 31, 2010 which required a payment of $288,000 to be made to the plaintiff over time.

[21] The relationship between the plaintiff, Joseph Murano and Food Systems however continued to be acrimonious. In April of 2011, pursuant to paragraph 18 of the May 31, 2010 minutes of settlement (the dispute resolution provision), further negotiations and arbitration took place. These negotiations and the arbitration led to the subject Minutes, whereby the plaintiff sold all of her area franchise interests to Food Systems for $1.3 million payable over time.

[22] An arbitration award was made August 10, 2011 by arbitrator Stephen Waqué declaring the Minutes in full force and effect as of April 7, 2011.

[23] The Minutes included the following terms:

(1) In the event that Food Systems transferred any part of the business to a related entity, that entity would be subject to the guarantee obligation of Food Systems to make the payments required by the Minutes.

(2) In the event of default, Mrs. Struik would have available to her a range of remedies, including an order requiring that payments be made, and an order vesting in her, Food Systems’ position as Franchisor in respect of her former Northern Ontario area.

[24] January 31, 2012, Food Systems, 146 and Capital issued a statement of claim in Toronto, Ontario (“Toronto action”) against the plaintiff and two corporations she held interests in that were carrying on business as Roosters Diner for breach of the Minutes and other relief. (This action was eventually dismissed for delay after the plaintiffs in that action failed to comply with an order requiring them to post security for costs.)

[25] October 15, 2012 Food Systems defaulted on payment required by the Minutes. It failed to make the payment due on this date.

[26] On November 15, 2012 (amended for clerical error, December 11, 2012), pursuant to the Minutes, the plaintiff obtained an order requiring Food Systems to pay to the plaintiff $6,839.01 on the first day of each month and $1,895.57 on the 15th day of each month.

[27] Food Systems and Joseph Murano responded to the payment order by indicating to the plaintiff that: Food Systems had transferred all of its assets to Capital, Food Systems had no assets with which to satisfy its obligations to the plaintiff and Capital was not liable to make the payments.

[28] The plaintiff’s position was that Capital had become liable for the debt under the Minutes on the basis that Capital was a related entity, and Food Systems transferred part of the business to Capital, thus triggering liability on the guarantee obligation pursuant to paragraph 6(2) of the Minutes.

[29] As a result, on December 11, 2012, an action was brought by the plaintiff in Sault Ste. Marie against Food Systems, Capital, Joseph Murano and Dixie Lee of Canada Inc.

[30] On January 22, 2013, Mrs. Struik obtained an order vesting in her, Food System’s position as franchisor in her former area, including the right to receive all payments under the franchise agreements.

[31] Subsequently, in the Sault Ste. Marie action, the plaintiff brought a summary judgment motion, seeking an order extending the guarantee obligations under the Minutes to Capital. Further, the defendants in the action brought a motion to set aside the November 12/December 11, 2012 order.

[32] On September 30, 2013 Varpio J. granted summary judgment finding Capital subject to the guarantee obligation and the payment orders. He dismissed the defendants’ motion to set aside the November12/December 11, 2012 order.

[33] The defendants appealed to the Court of Appeal. The appeal was dismissed on May 23, 2014.

[34] At an examination in aid of execution conducted on October 31, 2014, the defendant Joseph Murano advised that Food Systems, Dixie Lee Canada Inc. and Capital had no bank accounts and no income; the franchisor rights and powers were held by DLOL; and that Capital had transferred its 50% of the shares of 146 to DLOL and/or Noele Murano (the intended beneficiary since day one [2007]).

[35] Until on or about October 31, 2014, the plaintiff claims there appeared to be no question that the franchisor rights and powers, and the shares in 146 were held/owned by Food Systems and/or Capital. The pleadings in all of the actions and affidavits filed prior to October 31, 2014 did not mention any ownership in any of the assets by Noele Murano and/or DLOL.

LAW

Summary Judgment

[36] The rules regarding summary judgment are set out in Rule 20 of the Rules.

[37] Rule 20.02(2) of the Rules provides that in response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.

[38] Rule 20.04(2) (a) of the Rules states that the court shall grant summary judgment if “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[39] Rule 20.04(2.1) of the Rules states that in determining under clause (2) whether there is a genuine issue requiring a trial, the judge may exercise any of the following powers:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[40] The Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, at para. 4 has held that a trial is not required where:

A summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the judge to make the necessary findings of fact, apply the law to those facts, and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.

[41] In Hryniak, supra, the Supreme Court of Canada set out at paragraphs 49 and 50:

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.

These principles are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

[42] In Hryniak, supra, the Supreme Court of Canada set out at paragraphs 66, 67 and 68:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use 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.

Inquiring first as to whether the use of the powers under Rule 20.04(2.1) will allow the dispute to be resolved by way of summary judgment, before asking whether the interest of justice requires that those powers be exercised only at trial, emphasizes that these powers are presumptively available, rather than exceptional, in line with the goal of proportionate, cost-effective and timely dispute resolution. As well, by first determining the consequences of using the new powers, the benefit of their use is clearer. This will assist in determining whether it is in the interest of justice that they be exercised only at trial.

While summary judgment must be granted if there is no genuine issue requiring a trial, the decision to use either the expanded fact-finding powers or to call oral evidence is discretionary. The discretionary nature of this power gives the judge some flexibility in deciding the appropriate course of action. This discretion can act as a safety valve in cases where the use of such powers would clearly be inappropriate…

[43] In Ferrara v. Lorenzetti, 2012 ONCA 851 at paras. 49 to 51, the court wrote:

In Combined Air, at para. 56, this court reinforced the warning previously expressed in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423, [1996] O.J. No. 1568 (Gen. Div.), at p. 434 O.R., that a party is not entitled to sit back and rely on the possibility that more favourable facts may develop at trial. 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: 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 1995 1686 (ON CA), 21 O.R. (3d) 547, [1995] O.J. No. 132 (C.A.) and Dawson v. Rexcraft Storage and Warehouse Inc., 1998 4831 (ON CA), [1998] O.J. No. 3240, 164 D.L.R. (4th) 257 (C.A.), at p. 265 D.L.R.

In my view, 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.

Here, the respondents had the burden of "leading trump or risk losing"...

Interpretation of Minutes

[44] It is well settled law that settlement agreements/minutes of settlement are contracts subject to the general law of contract.

[45] The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created: Dumbrell v Regional Group of Cos. 2007 ONCA 59 at para. 53.

[46] The Court of Appeal in Ottawa (City) v. Coliseum Inc. 2016 CarswellOnt 7641, 2016 ONCA 363, 265 A.C.W.S. (3d) 606, 352 O.A.C. 199, 398 D.L.R. (4th) 34, 85 C.P.C. (7th) 213 at para. 43 wrote:

[I]t is important to keep in mind some of the principles of contractual interpretation discussed in Sattva [Creston Moly Corp. v. Sattva Capital Corp. 2014 SCC 53, 2014 CSC 53]. Of particular relevance to this appeal is what Rothstein J. said, at para. 47:

[T]he interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding". To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. [Citations omitted.]

[47] In Creston Moly Corp. v. Sattva Capital Corp. 2014 SCC 53, 2014 CSC 53, at paras 47 and 48, the court wrote:

[C]onsideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed.... In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

(Reardon Smith Line, at p. 574, per Lord Wilberforce)

The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Geoffrey L. Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300 (Man. C.A.), at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society (1997), [1998] 1 All E.R. 98 (U.K. H.L.):

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115]

[48] The Court of Appeal in Salah v. Timothy's Coffees of the World Inc. 2010 CarswellOnt 7643, 2010 ONCA 673, [2010] O.J. No. 4336, 193 A.C.W.S. (3d) 1151, 268 O.A.C. 279, 74 B.L.R. (4th) 161 wrote:

The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity.

[49] Perell J. in Simpson v. Canada (Attorney General) 2011 ONSC 5637 wrote at paragraph 67 and 70:

Although, with a few exceptions for situations of ambiguity, evidence of negotiations and of the parties' subjective intent is not admissible, in interpreting a commercial contract, the court may have regard to the surrounding circumstances; that is, the factual background and the commercial purpose of the contract: Prenn v. Simmonds, [1971] 3 All E.R. 237 (U.K. H.L.); Reardon Smith Line v. Hansen-Tangen, [1976] 3 All E.R. 570(U.K. H.L.); Canada Square Corp. v. Versafood Services Ltd. (1981), 1981 1893 (ON CA), 34 O.R. (2d) 250 (Ont. C.A.). The admissibility of evidence of surrounding circumstances does not depend upon finding that the contract is ambiguous: Ahluwalia v. Richmond Cabs Ltd. (1995), 1995 1440 (BC CA), [1996] 1 W.W.R. 656 (B.C. C.A.); ACLI Ltd. v. Cominco Ltd./Cominco Ltée (1985), 1985 389 (BC CA), 61 B.C.L.R. 177 (B.C. C.A.).

Extrinsic evidence is also admissible to resolve latent ambiguities, i.e., interpretative problems which arise when in seeking to interpret the contract for a particular circumstance more than one meaning is possible. In these circumstances, the court should first attempt to interpret the contract without any extrinsic evidence, apart from evidence of the surrounding circumstances, and extrinsic evidence should not be admitted for the purpose of showing a latent ambiguity. If, however, without extrinsic evidence, there is a latent ambiguity, then extrinsic evidence may be introduced to show that: (a) there is in truth no ambiguity, so the literal meaning of the language governs; (b) there is ambiguity, but the literal meaning governs because it is the best choice of the competing alternatives; (c) there is ambiguity, but a non-literal meaning that is consistent with the wording of the document governs because it is the best choice of the competing alternatives; (d) there is ambiguity revealing a case of mistake; or (e) there is ambiguity revealing that the parties had not reached a consensus ad item, in which case the contract fails for uncertainty. See: TransCanada Pipelines Ltd. v. Northern & Central Gas Corp. (1983), 1983 1617 (ON CA), 41 O.R. (2d) 447 (Ont. C.A.); Leitch Gold Mines Ltd. v. Texas Gulf Sulphur Co. (1968), 1968 405 (ON SC), [1969] 1 O.R. 469 (Ont. H.C.); Leitch Transport Ltd. v. Neonex International Ltd., [1979] O.J. No. 1093 (Ont. C.A.).

ISSUES AND ANALYSIS

General

[50] I find that there is no genuine issue requiring a trial on any of the issues presented in this motion. I am able to reach a fair and just determination of the issues based on the law, on the merits of the record, and in applying and exercising the powers set by Rule 20 where required. I am not satisfied that there are material facts arising that require a trial to assess credibility, weigh evidence or draw factual inferences.

[51] DLOL did not establish in affidavit material or other evidence filed, specific facts demonstrating there is a genuine issue requiring a trial of this issue.

[52] The parties have had ample opportunity to file affidavit material, conduct cross-examinations, and put their best foot forward on these issues as required by the Rules and authorities.

[53] Of note, Joseph Murano gave a number of undertakings to provide documents to confirm his evidence/position, which he failed to complete. One of the undertakings included providing a copy of the shareholder register for 146.

[54] Noele Murano did not attend for cross-examinations, despite prolonged concessions and scheduling to provide him the opportunity to attend. He provided an affidavit that states that his progress through the company in the last many years being a fabrication is far from the truth but provides no information about transfers to him and/or DLOL of shares, trademarks, trademark licences and/or franchise rights and powers to support the evidence of Joseph Murano.

[55] An opportunity was provided by this court to bring a motion to address outstanding cross-examinations. DLOL did not avail itself of that opportunity.

Issue One: Should this motion have been a Rule 49.09 motion?

[56] The Defendant argues that the plaintiff’s motion ought to have been a motion under Rule 49.09 of the Rules and not Rule 20. I do not agree.

[57] Rule 49.09 applies to a failure to comply with the terms of an accepted offer to settle after an initiated proceeding; and permits a party to seek a judgment in the terms of the accepted offer to settle: see Donaghy v. Scotia Capital Inc./Scotia Capitaux Inc., 2009 ONCA 40, para. 15.

[58] The Minutes are not an “accepted offer to settle” made after the within proceeding was initiated. The Minutes reflect a negotiated settlement reached during a prior arbitration process; already declared to be in full force and effect as of April 7, 2011 by an arbitrator’s award dated August 10, 2011.

Issue Two: The Guarantee Obligation

[59] DLOL argues that Joseph Murano did not sign a guarantee after the Minutes were signed and the plaintiff has not produced one, failing to put her best foot forward. Joseph Murano stated he had refused to sign the guarantee due to his view that the plaintiff was breaching/breached the Minutes.

[60] I give no effect to this argument. There was in fact reliable evidence of the guarantee before the court.

[61] First, the Minutes included a term that the payments to the plaintiff shall be secured by a guarantee of the debt from Dixie Lee of Canada Inc. and further that in the event that Food Systems or Dixie Lee of Canada Inc. transfer any part of the business to a related entity, that entity will be subject to the guarantee obligation. In particular, paragraph 6(2) of the Minutes states:

(6) The purchase price shall be secured by:

(1) A purchase money security interest in Struik’s favour over the assets transferred in form reasonably satisfactory to counsel for Struik.

(2) A guarantee by Dixie Lee of Canada Inc. of the debt in form reasonably satisfactory to counsel for Struik. In the event that Dixie Lee Food Systems Ltd. or Dixie Lee of Canada Inc. transfer any part of the business to a related entity, that entity will be subject to the guarantee obligation.

[62] The Minutes were executed by Joseph Murano on behalf of Food Systems.

[63] After the Minutes were executed, on June 14, 2011, the plaintiff brought a motion to the arbitrator for an award in accordance with terms of the settlement as set out in the Minutes.

[64] The motion hearing date was August 10, 2011.

[65] Following the hearing, the arbitrator sent a letter, dated August 15, 2011, to the parties’ respective counsel, advising that he made the award in the form of the signed award (which he enclosed). In the letter, the arbitrator noted that there was general agreement as to the content of the award that would be made.

[66] Joseph Murano was at the hearing on behalf of Food Systems. The arbitrator in the said letter notes that at the hearing, Joseph Murano explained that it was never his intention to avoid concluding the settlement. He only wished to explore additional options to implement the settlement and was also deflected by family concerns from bringing this matter rapidly to a conclusion. At the hearing, both Mr. Reynolds and Mr. Murano agreed that the issuing of an award was preferred as the most efficient means of implementing the settlement that had been reached.

[67] The arbitration award, on consent, added Dixie Lee of Canada Inc. as a party to the arbitration for purposes of the award.

[68] Paragraph nine of the arbitration award deemed Dixie Lee Canada Inc. to have executed the guarantee as contemplated by paragraph 6 of the Minutes as reflected by the guarantee attached as Schedule E to the award (which was filed in volume 5 of the voluminous document briefs).

[69] Accordingly, the guarantee referred to in the Minutes is the guarantee attached to the arbitration award.

[70] By the wording of the Minutes, “a guarantee” was to be given and liability was created on “the guarantee obligation”. It is the only guarantee created by and in the context of the Minutes and is binding by the arbitration award, deeming it to have been signed. There was no evidence establishing otherwise.

[71] Further, the exact issue of the application of the guarantee obligation was directly before Varpio J. in relation to a transfer from Food Systems to Capital.

[72] A copy of Varpio J.’s reasons dated September 30, 2013 was filed. Varpio J. was satisfied and found that the plaintiff was entitled to certain remedies pursuant to the Minutes including a guarantee; and that Capital was liable on the guarantee obligation, along with Food Systems, for the payment stream as described in the Minutes as a result of transfers made by Food Systems to Capital. In coming to this conclusion he emphasized in his reasons, the words of paragraph 6 of the Minutes, namely, “In the event that Dixie Lee Food Systems Ltd. or Dixie Lee of Canada Inc. transfer any part of the business to a related entity, that entity will be subject to the guarantee obligation.”

[73] Varpio J.’s decision was appealed. In his affidavit sworn October 20, 2014, Joseph Murano states that in the appeal he sought an order that Capital was not liable on the guarantee payments of Food Systems. The appeal was dismissed.

[74] Accordingly, the bottom line is that whether or not Joseph Murano physically executed a guarantee document: 1) an arbitration award was made that Joseph Murano is recorded as having agreed to, which deems a guarantee to be signed, Schedule E; and 2) a finding was made, that the remedies as against Food Systems included that guarantee obligation as indicated by the Minutes.

Issue Three: DLOL asserts that the transfers complained of by the plaintiff were not made prior to the Minutes being executed/judgments being obtained

General

[75] Joseph Murano stated he had a plan in 2007 and he was executing it, a plan to go public and a plan for his estate. That being said, Joseph Murano was often inconsistent and somewhat “evolving” with his evidence as to who owned what and when.

[76] The plaintiff suggests that Joseph Murano’s evidence was “cobbled up” to interfere with enforcement of her judgments.

[77] What I do find at the very least, is that Joseph Murano, as the owner, officer and/or director of these companies, for whatever reasons, did not take or cause to be taken and to be completed, the proper steps to effect the plan he wished to achieve for the intended public offering and/or his estate plan. His evidence, in my view, demonstrated a lack of knowledge or understanding or recall as to:

a. what was factually transpiring or what had factually transpired;

b. the meaning and validity of the documents being prepared to execute his plan; and

c. the rights and obligations imposed on transfers and the interpretation thereof, that would apply to or affect achieving his plan.

He often put forth interpretations of documents that were just not supported by the documents themselves.

[78] Noele Murano did not provide evidence to support Joseph Murano’s evidence on this critical issue and failed to put his best foot forward on behalf of himself and DLOL.

[79] The evidence of Jehuda Kaminer, counsel, who assisted Joseph Murano in 2007, is not supported by the evidence filed. It is missing key evidence:

a. as to the basis on which he states that Capital had authority to effect transfers in 2007;

b. as to the basis on which he states Capital held the shareholding in 146 (matters one would expect he would have ensured prior to preparing the documents he prepared); and

c. that the recording of 2007 transfers was obstructed by Mr. Keeley (citing no source for that statement and how Mr. Keeley was obstructing Joseph Murano and why).

The Transfers of the Shares and Franchisor Rights and Powers

[80] Chronologically as it was given, the information from Joseph Murano as to the ownership of the shares in 146 and the rights to licence the trademarks, and the franchisor rights and powers, was as follows:

a. Pleading: Statement of Claim in the Toronto Action January 31, 2012: the claim states that Food Systems carries on business as the franchisor of Dixie Lee; that 146 is the registered owner and holder of the trademarks; that Capital owns 50% of the shareholdings in 146; and 146 has and continues to licence the trademarks to Food Systems. There is no mention of Noele Murano and/or DLOL.

b. Pleading: Statement of Defence dated January 8, 2013, filed by Joseph Murano in the Sault Ste. Marie Action: in the statement the defendants admit by paragraph 1 that Food Systems carries on business as the franchisor of Dixie Lee; that 146 is the registered owner and holder of the trademarks; that Capital owns 50% of the shareholdings in 146; 146 has and continues to licence the trademarks to Food Systems. By paragraphs 6 and 7 the defendants state that Food Systems operated the franchise system until June 6, 2007 and that all franchisees were given notice of same on the basis of a reorganization with a view to taking the business public (but that was in abeyance). There is no mention of Noele Murano and/or DLOL. Interestingly, Mr. Murano is asserting in this statement of defence that the Minutes were draft minutes and were unsigned and not binding. The arbitration award confirming they were in full force and effect was made August 10, 2011, approximately a year and a half earlier.

c. Affidavit of Joseph Murano sworn July 25, 2013: Joseph Murano states: that Food Systems operates the franchise chain; that he had a vision in 2007 to take Dixie Lee public so he assigned the income and the franchise agreements to Capital (June of 2007); that the existence of Capital was known to the Struiks; that the plaintiff and Foods Systems entered into the Minutes; that the parties attended arbitration that resulted in an arbitration award. There is no mention of Noele Murano and/or DLOL. His evidence on the transfer of franchise agreements was contrary to the timing of the two transfers that were before Varpio J. which were transfers that occurred on January 16, 2012.

d. Affidavit of Joseph Murano sworn October 20, 2014: Joseph Murano states: that Food Systems operates the Dixie Lee franchise chain; that 146 is the registered owner and holder of the trademarks; that Capital owns 50% of the shareholdings in 146; that the Minutes were entered into April 7, 2011; that Food Systems and Capital and 146 have sufficient assets in Ontario consisting of the franchises, franchise agreements, and the trademarks owned by 146; and that prejudice and irreparable harm would come to them if they were required to sell assets to satisfy security for costs. There is no mention of Noele Murano and/or DLOL.

e. Examination in aid of execution October 31, 2014: ten days after swearing the above affidavit Joseph Murano started out by saying he did not know what the assets were of DLOL, but then went on later in the examination to describe DLOL as the operating company set up for the Dixie Lee trademarks to operate the franchises and that it had been doing so for approximately a year. He then went on to say that Noele Murano owned the trademarks, owned the shares and that he set up DLOL to operate franchises in Ontario and Canada; he stated that Noele Murano was the beneficiary of the shares from day one when he planned to go public and protect the revenue stream and trademarks. He relied on a 2007 declaration of trust and a 2007 resolution.

f. Affidavit of Joseph Murano sworn March 28, 2016: Joseph Murano states: that there was a process undertaken to vest protection of the trademark interests in Noele Murano, as a separate and defined interest, and claims that Noele Murano was made sole owner of the corporation (which he does not name), consistent with his desire to have the family interest controlled by a family member and protected from any outside interest.

g. Affidavit of Joseph Murano sworn March 29, 2016: Joseph Murano asserts that the Northern franchise area has been revoked for cause and that it is his intent to ensure that existing or new franchises for Dixie Lee receive the proper disclosure documents including the fact that the plaintiff is not entitled to issue or maintain franchises at present. (Assumingly he is stating this in his capacity as controlling officer and director of DLOL because at this date, according to his evidence, everything outside the Northern area and Mr. Keeley’s area, is owned and/or being operated by DLOL or Noele Murano.)

h. Cross-examination of Joseph Murano May 30, 2016: Joseph Murano states that DLOL owns every power, every right, every asset of the franchisor, of any value or importance as far as the trade name is concerned, and DLOL owns the shares; he also said that the company gave the trademarks to Noele Murano July 10, 2007 and then 146 gave the trademarks to DLOL as the licensee. He stated that Capital transferred the franchisor position to DLOL April 30, 2012. Then later he went on to state that the operation of Dixie Lee went from Food Systems to Capital to DLOL He also stated that Capital had held the shares in trust (referring to the Declaration of Trust) but then went on to say that the shares were transferred from 146 to DLOL and not Noele Murano. The May 30, 2014 cross-examination evidence of Joseph Murano to say the least demonstrated issues with recall, knowledge and his interpretation of relevant documents.

2007 Declaration of Trust

[81] As for the Declaration of Trust dated July 11, 2007, it states “Dixie Lee Capital Corporation acknowledges that it holds in Trust all the Canadian Trademarks and associated intellectual property of Dixie Lee Chicken, as set out in the schedule attached hereto, for the benefit of Noele Murano”.

[82] Based on the record, the Declaration of Trust is problematic and contradictory to other undisputed validly executed documents filed. Further, I find that the evidence does not support that the trust was or could have been valid.

[83] Capital could not hold “all the Canadian trademarks” and/or create a trust for something it does not own, legally and/or beneficially in 2007. According to the documents filed, without question, in 2007, the trademarks were owned (and are still owned at this date) by 146. This Declaration of Trust mentions nothing about 146 and/or the fact that the trademarks are owned by this company.

[84] Given the foregoing, at best, a trust could only be created for the 50% shareholding interest if Capital owned same. This is not what the document states.

The Shares in 2007

[85] Food Systems would have to have transferred the shares to Capital before July 10, 2007 for Capital to be able to deal with them and the rights that attach to them in 2007.

[86] At July 10, 2007, the documentary evidence suggests that Capital was not a shareholder of 146. I find that DLOL did not meet its onus to establish otherwise.

[87] The original shareholder agreement governing the shares of 146, dated March 22, 2004, was filed (“2004 shareholder agreement”). It prohibits the transfer of shares unless expressly provided for in the agreement, or as may otherwise be unanimously agreed by the shareholders. When this was brought to his attention, Joseph Murano proposed that a “right of first refusal” exception in the shareholder agreement translated to an ability to transfer the shares without shareholders agreeing to the transfer. Having reviewed the right of first refusal terms, I disagree and find this is another example of Joseph Murano misinterpreting documents, rights and obligations.

[88] The right of first refusal terms set out that in the event a shareholder wishes to sell its shares that they shall first be offered to the other shareholders. The exception simply indicates that there is no right of first refusal if the sale is to family. It does not nullify the provisions requiring shareholders’ agreement for the transfer of shares as stated above.

[89] Joseph Murano ultimately agreed that even if his interpretation was possible, this right of first refusal did not apply to a transfer between Food Systems and Capital because it was not a “transfer to family”. While Joseph Murano ultimately agreed to this point he stood steadfast when it came to Capital’s transfer to Noele Murano and that shareholders’ agreement was not required, again relying on the right of first refusal provision. I disagree and consider this another example of misinterpretation.

Assignment by Food Systems to Capital in 2007

[90] Joseph Murano also suggested during cross-examination May 30, 2016 that an assignment given by Food Systems to Capital dated June 6, 2007 (“2007 assignment”), effected a transfer of the shares by Food Systems to Capital. Joseph Murano’s view/interpretation is not supported by the evidence. It is clear in my view that the 2007 assignment only assigns all revenues and income to Capital. It does not deal with shares.

Resolution of Directors dated July 10, 2007

[91] This resolution is equally problematic. It purports to assign all rights to the Dixie Lee trademarks to Noele Murano.

[92] By the terms of the 2004 shareholder agreement for 146, the board consists of two directors, one of which includes Mr. Keeley, and Mr. Keely is the president.

[93] The resolution is not signed by Mr. Keeley so as to deem it consented to pursuant to the 2004 shareholder agreement terms.

[94] Further, the 2004 shareholder agreement provides that no action can be taken without written approval of the shareholders with respect to the transfer any of rights pursuant to the trademark agreements. No written approval was filed.

[95] Further, this resolution also refers to a shareholder agreement that did not yet exist. While there may have been intention for one to be entered into, it just did not legally exist.

[96] Finally, Capital signed a 2011 amending trademark agreement. There is no mention of Noele Murano as the beneficial licence holder and there is no mention of the 2007 amended trademark “resolution” agreement with Noele Murano referred to in the July 10, 2007 resolution.

When were the shares transferred from Food Systems to Capital?

[97] The undisputed executed documents filed suggest that a transfer of the shares by Capital could not have happened until after October 27, 2011.

[98] An amending shareholder agreement was executed October 27, 2011 (“2011 amending shareholder agreement”). In the 2011 amending shareholder agreement, Capital warrants and represents that it is both the legal and beneficial owner of the 50% shareholding of 146. There is no mention of Noele Murano or any trust.

[99] The share certificate from certifying Capital as registered holder of the shares is dated October 25, 2011, not 2007 or any earlier date.

[100] Joseph Murano indicated that the transfer was agreed to long before 2011 but that it took some time to get Mr. Keeley to sign, however, DLOL did not establish this with satisfactory evidence or explain the contradictions with the 2011 amending shareholder agreement representations and warranties given by Capital.

When were the shares transferred to DLOL?

[101] DLOL was not in existence until April 25, 2012 (date of incorporation).

[102] The September 2, 2014 shareholder agreement does not provide a date of the transfer but confirms that DLOL replaces Capital as shareholder.

[103] There was no evidence led by DLOL to establish a specific date but based on the above I find that it was after April 25, 2012.

When were the franchisor rights and powers transferred to DLOL or Noele Murano?

[104] The 2004 shareholder agreement requires written approval of the shareholders to transfer any of rights pursuant to the trademark agreements. Further, the 2004 trademark licence agreement, paragraph 6 (to which Capital became bound by the 2011 amending agreement) confirms that there shall be no transfer of rights and obligations without the written consent of 146.

[105] I did not receive a copy of any approval in respect of Noele Murano.

[106] In respect of DLOL, an amended trademark licence agreement dated April 30, 2012, was filed. Joseph Murano indicated the trademark licences were received by DLOL April 30, 2012. It was not signed by the rest of the shareholders of 146 however.

[107] Given the date of incorporation of DLOL, I find that it was after April 25, 2012.

Summary on this issue

[108] I find that the transfers of the business in question, the remaining franchisor rights and powers and the shareholdings, occurred after the Minutes were executed (April 7, 2011) and after Capital became a guarantor.

[109] Based on the record and my findings above, I find that Capital became a guarantor when the 50% shareholding in 146 was transferred by Food Systems to Capital, October 25, 2011.

[110] I find that Capital was the legal and beneficial owner of the shareholdings to October 27, 2011, at the very least based on the 2011 amending shareholder agreement.

[111] I find DLOL did not meet its onus of establishing that Capital legally transferred the remaining franchisor rights and obligations (outside of the Northern area and Mr. Keeley’s area) to either Noele Murano or DLOL before April 7, 2011. There was no satisfactory evidence establishing a transfer to Noele Murano at any time. The earliest DLOL could have received transfer is April 25, 2012 (date of incorporation).

Issue Four: if the transfers are found to have occurred after the Minutes were executed/judgments obtained, were the transfers “transfers” within the meaning of paragraph 6(2) of the Minutes?

[112] The competing arguments are:

a. “transfer” in these Minutes means direct and/or indirect transfer and that the transfers in question could be categorized as and include a “two-step” transfer within the meaning of the Minutes, versus

b. “transfer” as used in these Minutes means direct transfer, and even if the meaning of this term is not so confined, the transfers in question were not indirect transfers within the meaning of the Minutes.

[113] Based on the contextual background on the whole of the Minutes, and the ordinary meaning of “transfer”, the interpretation by the courts of “transfer”, and the evidence filed, I find that there was a planned circuitous transfer of the shareholdings in 146 and other rights: from Food Systems to Capital and then from Capital to DLOL. The transfers constitute “transfer” within the meaning of the Minutes.

[114] “Transfer” is not defined by the Minutes.

[115] Black’s Law Dictionary, 10th ed. (Carswell, 2014) defines “transfer” as follows:

Transfer, n. (14c) 1. Any mode of disposing of or parting with an asset or an interest in an asset, including a gift, the payment of money, release, lease, or creation of a lien or other encumbrance. The term embraces every method – direct or indirect, absolute or conditional, voluntary or involuntary – of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption. 2. Negotiation of an instrument according to the forms of law. The four methods of transfer are by indorsement, by delivery, by assignment and by operation of law. 3. A conveyance of property or title from one person to another.

[116] In Fasken v. Canada (Minister of National Revenue) (1948), 1948 626 (CA EXC), [1949] 1 D.L.R. 810 () at para. 12, Thorson P. interpreted the term “transfer” broadly:

The word “transfer” is not a term of art and has not a technical meaning…all that is required is that [party A] should so deal with the property as to divest [him/herself] of it and vest it in [party B], that is to say, pass the property from [A] to [B]. The means by which [she/he] accomplishes this result, whether direct or circuitous, may properly be called a transfer.

[117] It is clear, in my view, given the wording of paragraph 6 of the Minutes that security for and protection of payment of the purchase price were purposes of the paragraph and the plaintiff was seeking to, and Food Systems and Dixie Lee of Canada Inc. agreed, that the guarantee would extend to any part of the business of Food Systems and Dixie Lee of Canada Inc. that was transferred to a related entity.

[118] The setting resulting in the Minutes was a serious breakdown in the relationship between the plaintiff, Joseph Murano, and Food Systems. The relationship was acrimonious to say the least.

[119] As reflected by the opening preamble paragraph of the Minutes and the body of the Minutes, the purpose, scope and intent of the Minutes was to settle all issues in the arbitration proceeding and in the entire relationship between the parties as area franchisee and franchisor, and to do so, on the terms as set out in the Minutes.

[120] In respect of the sale by the plaintiff of her area franchise interests, the Minutes and arbitration award created a debtor-creditor relationship between the plaintiff, Food Systems and Dixie Lee of Canada Inc.

[121] The obligations included a guarantee. A guarantee by its nature is a promise to answer for another’s obligation as set by the guarantee.

[122] The purchase price/principal debt was substantial, $1,300,000, payable over a lengthy period, 25 years. The guarantee was intended for this purchase price, plus (based on the Minutes and the guarantee) the interest called for by the Minutes and costs incurred to enforce right to payment.

[123] The plaintiff’s concern was to ensure that she was covered if assets were moved to other related entities. The plaintiff was aware there were related entities.

[124] Given all of this foregoing context, the purpose of extending the guarantee obligation to transfers of the business or any part thereof to related entities can be reasonably be interpreted as intention to protect the payment of the purchase price and the strength of the guarantee to fulfill the pledge; to protect the plaintiff against the moving of assets to related entities and diluting same. I am of the view that to determine otherwise would render the provision ineffective. Against this background I am of the view that this meaning was or ought to have been reasonably understood by the parties to the Minutes. DLOL did not advance any other reason for having this provision as it is worded. DLOL did not lead evidence Food Systems and/or Dixie Lee of Canada Inc.’s understanding of the words against the background.

[125] Joseph Murano’s evidence was not consistent and was contradictory to documents filed as to what was owned and transferred, when and by whom. As stated, it does not appear that he really understood, at times seemed to be confused (because of the number of companies involved and he had others like accountants and employees handling certain matters) and/or he misinterpreted rights and obligations, documents and states of affairs.

[126] What Joseph Murano, was insistent on however, confirmed by his then counsel, was that Joseph Murano had a plan, from day one (2007); a plan that would involve the eventual transfer of assets to Noele Murano for protection related to an intended public offering and for estate planning. Mr. Kaminer described it as “a transition of the corporation to Noele Murano”. The 2007 resolution indicated an intention to transfer to Capital to accommodate estate planning. With his plan, there was a planned series of transactions, including stops along the way at Capital for certain assets; Capital was clearly the vehicle for this transfer plan. Joseph Murano intended for Capital to hold assets in trust for Noele Murano until he arranged for a company to be set up for Noele Murano and/or Noele Murano was ready. Capital was merely an intended intermediary for the property in question (and he in fact thought they had been transferred to Noele Murano as soon as Capital received them). DLOL, in terms of the intent of the transfers, did not establish otherwise, namely that the transfers in question from Food Systems to Capital were separate and distinct transfers with distinct intent that the property would remain with Capital as Capital’s sole and exclusive property. These indirect transfers are within the meaning of the Minutes.

[127] Even if the transfer could not be said to be caught by paragraph 6(2) of the Minutes as an indirect transfer to realize Joseph Murano’s plan, as I have found, in my view, the transferred property is still caught.

[128] Paragraph 8 of the guarantee is titled “Liability as Principal Debtor”. The provision sets out that all debts, liabilities and obligations purporting to be incurred by the debtor and owing to the creditor shall form part of the guaranteed obligations and are recoverable from the guarantor as principal debtor. Considering the context and background of the Minutes, in agreeing to secure the purchase price as set out by the Minutes, security obligations were incurred and are owed to the plaintiff. This included agreement that, on a transfer of any part of the business to a related entity, the related entity would be subject to the guarantee obligation; effectively encumbering the debtor and guarantors with payment and security obligations, and the passing on of them to other related entities that received such property. A related company could refuse the encumbered transfer if it did not want to take on such obligations that came with accepting the particular business property.

[129] When Capital received the property in question, Joseph Murano was in control and the Minutes and guarantee obligations to the plaintiff were known and set. Joseph Murano was also the officer and director who effected the transfer from Capital to DLOL, thus giving DLOL the knowledge. While it was left unstated by DLOL as to how much Noele Murano actually knew, according to Joseph Murano, Noele Murano knew about the obligations owing to the plaintiff.

[130] I find that Capital in the stead of the principal debtor took on the payment and security obligations by accepting the transfer of Food Systems business (shareholdings, trademark licence and franchise rights and powers) and so did DLOL by accepting same from Capital.

[131] In addition to the payment obligations, the guarantee provides that the guarantor agrees to pay to the creditor, all out-of-pocket costs and expenses, including without limitation thereof, legal fees on a full indemnity basis, incurred by the creditor in connection with enforcing any of its rights against the debtor in respect of the guaranteed obligations or as against the guarantor. Accordingly I find the cost awards made to date in favour of the plaintiff are payable by the debtor and all guarantors. These orders arise in connection with the plaintiff enforcing her rights against the debtor, Food Systems, and guarantor, Capital.

Issue Five: Is DLOL a “related company”

[132] Varpio J. found the companies Food Systems and Capital to be related.

[133] DLOL asserts it is not a related entity.

[134] “Related entity” is not defined in the Minutes.

[135] Black’s Law Dictionary,10th ed. (Carswell, 2014) defines:

a. “related” as connected in some way; having relationship to or with something else – a closely related subject; and

b. “entity” as an organization (such as a business or a governmental unit) that has a legal identity apart from its members or owners.

[136] Having regard for: the terms used; the context of the Minutes as a whole, the intention and purpose of paragraph 6, as indicated by the specific wording of the paragraph, namely, securing payment of the purchase price, and the guarantee, “related entity” is reasonably and objectively interpreted to mean, an entity sufficiently connected in some way to Food Systems or Capital and their Dixie Lee operations.

[137] The only real difference in my view in this case from the one before Varpio J. is that Noele Murano is the sole shareholder of DLOL. In my view, this fact, does not automatically make these companies unrelated entities.

[138] I find:

a. The corporation profile reports filed confirm that Joseph Murano is an officer and director of all three of the corporations in question, Food Systems, Capital and DLOL.

b. All three corporations share the same head office address.

c. Joseph Murano at all material times was in a controlling role in all three corporations.

d. Joseph Murano acknowledged that he, even though Noele Murano is the shareholder of DLOL, made the decision to obtain DLOL and to put DLOL to use as a vehicle to operate Dixie Lee business.

e. Joseph Murano made the decision to allocate the shares to Noele Murano. He further acknowledged that Noele Murano provided no consideration for the shares, maybe a nominal amount.

f. Joseph Murano has always been the sole director and President of DLOL.

g. The family relationship is close, Noele Murano, being Joseph Murano’s son.

h. Joseph Murano expressed more than once, that DLOL and Noele Murano were essentially part of his master plan (since day one (2007)) for the Dixie Lee operations, to keep it in the family and to keep Dixie Lee assets protected.

i. Joseph Murano confirmed that DLOL essentially continued with common purposes, the operation of the same business (as Food Systems and Capital), on a smaller scale.

j. DLOL is by the shareholder agreement dated September 2, 2014, the represented and warranted legal and beneficial owner of 50% of the shareholdings of 146, which owns the Dixie Lee trademarks. The trademarks are a key part of Dixie Lee and its operations.

[139] Based on the above, I find that DLOL is an organization closely connected to both Food Systems and Capital in respect of the operation of Dixie Lee chicken restaurants and business activities related to licencing the trademarks for the purpose of operating the Dixie Lee business, hence, a related entity for purposes of paragraph 6(2) of the Minutes to both Food Systems and Capital.

Issue Six: DLOL’s defences and claims against liability for the guarantee obligation

[140] I have found above that there is a valid guarantee and that DLOL is a guarantor in this case.

[141] DLOL argues that if there was a valid guarantee and DLOL was found to be subject to the guarantee obligation, that DLOL is released from any liability, and that the issue of this release (DLOL’s defences and claims) is a genuine issue for trial. In particular, DLOL argues that the plaintiff breached the principal contract. DLOL asserts against the plaintiff: misrepresentations; breach of duty of good faith; breach of duty to perform the contract honestly; and actions undertaken by the plaintiff that DLOL states amounted to repudiation. DLOL asserts that a guarantor is not liable to a creditor for more than the principal is liable to the creditor.

[142] Even if the breaches occurred as alleged (which allegations I am not deciding), the plaintiff’s alleged breaches must entitle the principal, to be released from the obligation to perform.

[143] In this case, Food Systems, specifically and unequivocally agreed that the alleged breaches as raised by DLOL would not entitle Food Systems to be released and that Food Systems would continue to be liable. Paragraph 3 of the Minutes provides:

(3) Dixie Lee Food Systems Ltd.’s obligation to make the payments called for by para. (2) [of the Minutes], and para. 1 of the Minutes of Settlement dated May 31, 2010 is absolute and unconditional. In particular, and without limiting the generality of the foregoing, Dixie Lee Food Systems Ltd. may not reduce any payment on the basis of any allegation of misrepresentation or any other circumstance said to affect the validity or enforceability of this settlement, or on the basis of an offsetting or other claim or entitlement against Mrs. Struik of any kind. In the event that Dixie Lee Food Systems Ltd. asserts any such circumstances or claim, it is at liberty (subject to para. (6) below and the Releases which it has executed under the Minutes of Settlement dated May 31, 2010 and which it will execute under this settlement) to pursue the claim in the courts or by arbitration, but neither the assertion nor the existence of such claim will excuse Dixie Lee Food Systems Ltd. from its payment obligation.

[144] By paragraph 3 of the Minutes, Food Systems is liable. As such, if the principal debtor, Food Systems may not avail itself of such defences and claims, then it follows that, the surety, DLOL cannot avail itself of such defences and claims. In fact, the guarantee confirms this and precludes such defences and claims.

[145] The guarantee provides that the guarantor irrevocably and unconditionally guarantees the due and punctual payment and performance of the debt of Food Systems to the creditor under the Minutes, including interest thereon and any ultimate unpaid balance there of collectively the guaranteed obligations

[146] The guarantee provides that the liability is absolute irrespective of the invalidity, unenforceability or illegality, in whole or in part, of any agreements, instruments or other documents held by the creditor to create, represent or evidence any guaranteed obligations, any defense, counter claim or right of set off available to the debtor and any other circumstance which might otherwise constitute, in whole or in part, a defense available to, or to discharge, the guarantor, the debtor or any other persons, firms or corporations in respect to the guaranteed obligations or the liability of the guarantor.

[147] Paragraph 13 of the guarantee provides no rights of set off. All amounts payable by the guarantor shall be paid without set off or counterclaim and without any deduction or withholding whatsoever unless and to the extent that the guarantor shall be prohibited by law from doing so.

[148] Therefore, I find that there is no genuine issue for trial regarding DLOL’s alleged defences and claims that it is not liable on the guarantee obligation.

[149] Given my findings above, it is unnecessary to address the issue of whether or not DLOL’s defences and claims are subject to the doctrine of res judicata.

Issue Seven: Third Party Creditors

[150] DLOL submits that third party creditors of Capital (who has filed for bankruptcy) would be affected by the granting of the relief being requested by the Plaintiff; the order being requested would grant the Plaintiff a super priority over Capital’s creditors.

[151] I give no effect to this argument. The relief being requested is as against DLOL, not Capital. The crux of DLOL’s argument has been that it and/or Noele Murano are the owners of the remaining assets (outside the Northern area and Mr. Keeley’s area). DLOL, by the shareholder agreement dated September 2, 2014, is the represented and warranted legal and beneficial owner of 50% of the shareholdings of 146, which owns the Dixie Lee trademarks. Joseph Murano as the officer and director of DLOL confirmed that DLOL took over these remaining operations from Capital effective April 30, 2012.

[152] Further, no evidence has been filed by DLOL establishing that any of Capital’s creditors, and/or the Trustee in Bankruptcy, have actually come forward or intend to make a claim against DLOL and/or Capital with respect to any of the transfers of business between DLOL and Capital prior to Capital filing for bankruptcy. Capital filed for bankruptcy effective July 29, 2016.

CONCLUSION

[153] Based on all of the above:

1. The Defendant Dixie Lee Ontario Ltd. is hereby declared to be subject to and liable as guarantor on the guarantee obligations set by paragraph 6(2) of the Minutes of Settlement dated April 7, 2011 and the arbitration award of Stephen Waqué, dated August 10, 2011.

2. The Defendant Dixie Lee Ontario shall pay to the plaintiff the following payments required by the guarantee obligations:

(a) $1,895.57 on the 15th day of each month, commencing October 15, 2012;

(b) $6,839.01 on the 1st day of each month, commencing November 1, 2012;

(c) interest on the payments set out in (a) and (b) that remain unpaid at the date of this order, and defaulted on thereafter (“defaulted on” means failure to make a payment called for in (a) and (b) which is not rectified within 21 days of written notice of default by the Plaintiff), in accordance with the rate payable by the terms of the Minutes of Settlement dated April 7, 2011;

(d) $30,000 representing costs ordered by Varpio J. November 18, 2013; incurred by the Plaintiff in connection with enforcing any its rights against Food Systems and Capital in respect of the guaranteed obligations; and

(e) $12,500 representing costs ordered by the Court of Appeal May 23, 2014; incurred by the Plaintiff in connection with enforcing any its rights against Food Systems and Capital in respect of the guaranteed obligations.

[154] If not resolved, the balance of the relief claimed in the Plaintiff’s motion is adjourned to March 2, 2017, at 10:00 a.m. to set the next step.

Rasaiah J.

Released: January 23, 2017

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MARIA STRUIK

• and –

DIXIE LEE FOOD SYSTEMS LTD., DIXIE LEE OF CANADA INC., DIXIE LEE CAPITAL CORPORATION, JOSEPH MURANO, NOELE MURANO AND DIXIE LEE ONTARIO LTD.

REASONS FOR ruling on summary judgment motion

Rasaiah J.

Released: January 23, 2017