Beaver Rock Roastery Inc. v. Saso, 2017 ONSC 740
BARRIE COURT FILE NO.: CV-16-1856
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Beaver Rock Roastery Inc. and Mark Nastasiuk Plaintiffs
– and –
Daniel M. Saso, Rosalind M. Saso, and The Canadian Imperial Bank of Commerce Defendants
A. Rogerson, Counsel for the Plaintiffs
J. Camp, Counsel for the Defendants, Daniel M. Saso and Rosalind M. Saso
AND BETWEEN:
BARRIE COURT FILE NO.: CV-17-0119
Merritt Holdings Ltd., Stuart Merritt and Kevin Nastasiuk Applicants
– and –
Mark Nastasiuk, Beaver Rock Roastery Inc., Daniel M. Saso and Rosalind M. Saso Respondents
L. Hansen, for the Applicants
Mark Natasiuk, Self-Represented
J. Camp, Counsel for the Respondents, Daniel M. Saso and Rosalind M. Saso
HEARD: January 24, 2017
REASONS FOR DECISION
Introduction
1Beaver Rock Roastery Inc. (BRR) is a coffee supplier specializing in fully recyclable coffee pods or “K-cups” for use in single serve coffee machines. On December 16, 2016 BRR and its president Mark Nastasiuk filed a Notice of Action against the defendants Daniel Saso and Rosalind Saso (the Sasos) claiming damages for breach of contract and the tort of interference with economic relations. The Sasos are investors who lent money totalling $500,000 to the corporation pursuant to loan agreements dated February 11, 2016 and September 1, 2016.
2Also on late Friday afternoon on December 16, 2016 the plaintiffs brought an ex parte motion for an interlocutory injunction against the Sasos to enjoin them from “immediately calling in a loan that they arranged” with BRR and from “calling in a General Security Agreement arranged” with BRR.
3Quinlan J. granted the order on an interim basis and adjourned the motion to December 20, 2016, when it could be heard on notice to the defendants.
4The December 16, 2016 order restrained the Sasos from, inter alia, :
i. Calling in or seeking to enforce the terms of the loan agreement and its schedules executed between the parties on September 1, 2016;
ii. Seeking to enforce the terms of any General Security Agreement executed between the parties; and
iii. Communicating with any bank, orally or in writing, with regard to bank accounts held in the name of the plaintiff.
5In her reasons Quinlan J. stated:
I am satisfied that the plaintiffs will suffer irreparable harm if the relief sought is not granted within a reasonable time… The irreparable harm in this case if the loan is called in is that the plaintiffs will be put out of business: as the plaintiff notes it would effectively force the company into bankruptcy. The balance of convenience favours the plaintiffs. The plaintiffs have provided an undertaking as to damages.
6When the matter returned on December 20, 2016 the defendants had insufficient time to prepare responding material and the matter was adjourned to January 17, 2017. The parties consented to an order that, inter alia, extended the interim injunction to January 17, 2017.
7The motion returned on January 17, 2017 but there was insufficient time to hear the motion because it was scheduled for only one hour. Accordingly, the matter was adjourned to a long motion on January 24, 2017, and the interim injunction was continued to that day.
8I heard the motion and at the end of the hearing I released a brief endorsement setting aside the interim injunction because of the plaintiffs’ failure to make full and fair disclosure of all material facts when the ex parte motion was brought (Rules of Civil Procedure, Rule 39.01(6)). I indicated that I would provide more detailed reason at a later date, and consider and decide on the relief requested by the defendants in a cross-motion to dismiss or stay the action on the ground that it was commenced without proper corporate authority.
9These are those reasons and decision.
Facts
10BRR is a closely held corporation incorporated on May 5, 2013 “for the purpose of carrying on the business of roasting, packaging and sales of coffee and tea, together with such other business as may be conviently carried on ancillary thereto”.
11In his affidavit dated January 12, 2017 Mr. Nastasiuk claims to be the “sole shareholder” of BRR. This is plainly incorrect. BRR currently has six shareholders: the plaintiff Mark Nastasiuk, Kevin Nastasiuk (Mark’s brother), Merritt Holdings Inc. and the defendants Daniel and Rosalind Saso.
12The parties have produced a shareholder agreement dated December 22, 2014 that states that Mark Nastasiuk, Kevin Nastasiuk and Merritt Holdings Inc. are the beneficial owners of shares as follows:
Mark Nastasiuk, 70,000 shares
Kevin Nastasiuk, 15,000 shares
Merritt Holdings Inc., 15,000 shares
13On February 11, 2016 BRR, Mark Nastasiuk, Kevin Nastasiuk, and Merritt Holdings Inc. (the borrowers) entered into a loan agreement with the Sasos by which the Sasos advanced $350,000 to the borrowers. Pursuant to this agreement the borrowers provide an undertaking to issue “voting common shares” of BRR “in the amount of not less than 5% of the current issued and outstanding common voting shares”.
14On September 1, 2016 the parties entered into a second loan agreement to permit the borrowers to borrow up to $750,000 from the Sasos. The plaintiff acknowledges that the Sasos lent $500,000 to BRR.
15This second loan agreement required the borrowers to issue “not less than 5,000 common voting shares representing 5% of the current issued and outstanding common voting shares of the corporation”. Clause 5 of the loan agreement also provided for the following additional security to the lender:
In addition, the Borrower will provide as additional security, a pledge of voting common shares, an amount of not less than 51% of voting control to the Lender at all times during the currency of the loan, including but not limited to any event of default. The Borrower acknowledges that the provision of ownership control, transfers those shares to the Lender to retain as ownership during the term of the loan and until full repayment including an event of default.
The Borrower agrees that the Lender shall maintain both voting control, act as a signing authority on all matters, including all financial matters of the corporation until the full repayment of the loan or by release or amendment of this condition at the sole discretion of the Lender.
The Borrower confirms that under the current structure, the corporation has issued and has outstanding 100,000 common voting shares and acknowledges that the pledge of shares for security purposes from the shareholder shall be as follows:
Mark Nastasiuk – 35,000 common and voting shares
Kevin Nastasiuk – 8,000 common and voting shares
Merritt Holdings Inc. – 8,000 common and voting shares
16I will refer to these provisions as the “additional security” clause throughout this decision.
17The shareholders, including the Sasos, all met at a shareholders meeting on December 6, 2016. This meeting was the catalyst that gave rise to the motion on December 16, 2016, and the parties have presented very different narratives of what transpired.
Position of the Plaintiff’s
18In his affidavit dated December 16, 2016 and filed in support of the motion heard that same day (the first Nastasiuk affidavit) the plaintiff states that a term of the September 1, 2016 loan agreement was that “a new shareholder agreement would be prepared in which Mr. Saso would receive a 5% stake in BRR”. The plaintiff alleges that although he and the other shareholders:
[W]ere prepared to negotiate the terms of a new shareholder agreement, Mr. Saso made no effort to facilitate the negotiation of a new agreement. Instead, on December 15, 2016 he sent an email to the shareholders calling for a meeting to be held the next day…at which meeting a new shareholder agreement would be presented.
19The plaintiff’s affidavit states that at the December 6, 2016 shareholder meeting Saso presented the terms of the shareholder agreement “as a fait accompli for the other shareholders to approve”, and that “this proposed agreement would give Mr. Saso a majority of the equity in BRR and control of all business operations.” The plaintiff states:
I concluded that the proposed shareholder agreement was not in the interests of the shareholders and that Mr. Saso had demonstrated that he would likely act in an oppressive manner were he to gain control of BRR. This proposed shareholder agreement, which Mr. Saso attempted to impose unilaterally on BRR, would have provided him with controlling interest in BRR and provided no protection to the other shareholders. In effect the proposed agreement amounts to a complete takeover of the company, in which he presently has no equity stake and is a mere creditor.
20On December 7, 2016 the Sasos sent the shareholders of BRR a demand notice, requiring repayment in full of the loan with additional claims amounting to $533,834.35 by no later than January 6, 2017. On December 12, 2016 the Sasos sent the shareholders of BRR an accelerated demand notice requiring repayment of the loan in full by no later than December 16, 2016.
21Since BRR did not have sufficient liquidity to repay the loan immediately, the plaintiff brought the motion for an interlocutory injunction, arguing that the demand for repayment will result in “either bankruptcy or an agreement of the shareholders to transfer controlling interest” to Saso.
22The plaintiff also indicated that he required the interlocutory injunction “to allow us time to obtain alternative financing and to satisfy the terms of the loan agreement.”
Failure to Make Full Disclosure
23What is immediately striking about the plaintiff’s position with regard to the December 6, 2016 shareholders meeting and the events that followed over the next ten days is that he made no reference to the additional security clause in the September 1, 2016 loan agreement. On its face, the additional security clause appears to grant the Sasos the majority equity and control over BRR that the plaintiff was trying to forestall with the motion for an interlocutory injunction. The additional security clause is of central significance to the respective rights of the borrowers and lenders in this case.
24The September 1, 2016 loan agreement is 5 pages and 26 paragraphs long. The pages are not numbered, but most of the paragraphs are. Paragraph 5 ends on the bottom of the first page, and the additional security clause begins at the top of the second page of the agreement. Page five of the agreement is the signature page and has no paragraph numbers on it.
25The copy of the September 1, 2016 loan agreement appended as Exhibit “C” to the plaintiff’s affidavit in support of the December 16, 2016 motion contains only the first page and the signature page of the agreement. Pages two to four of the agreement – which contain the additional security clause – are not part of the exhibit, but there would be no way to know this by looking at the two pages that were provided. Accordingly, Quinlan J. did not have the benefit of seeing the entire loan agreement or the additional security clause when she issued her ex parte order on December 16, 2016. Nor would she have had any way of knowing that she was not provided with the whole agreement.
26The plaintiff does not deny that the additional security clause is material to the issues on the injunction. In a subsequent affidavit dated December 30, 2016 the plaintiff stated that the missing pages were a “clerical mistake made in the rush to get material ready and before the court”.
27I do not believe the plaintiff. Even apart from the exhibits to his affidavit, his affidavit is silent with respect to the additional security clause. The plaintiff’s failure to reference the additional security clause in his narrative of the events from December 6 to 16, 2016 was deliberate. I infer that he deliberately excluded pages two to four of the agreement from his affidavit because disclosure of the additional security clause would have undermined the position that he was taking on the motion for an interim injunction. Once he excluded page two he also had to exclude pages three and four or the paragraph numbering would make it obvious that the document was not complete.
Position of the Defendants
28The Sasos take the position that by virtue of the express terms of the September 1, 2016 loan agreements they hold ownership of 56 per cent of the shares of BRR, comprised of 5 per cent that they own outright and 55 per cent that they retain as security during the term of the loan and until full repayment is made. By virtue of this agreement the Sasos maintain voting control and act as signing authority on all matters, including all financial matters, until full repayment of the loan.
29The September 1, 2016 loan agreement required the borrowers to amend the Shareholder Agreement to include these provisions by October 1, 2016. On September 16, 2016 Daniel Saso attended with the borrowers at the BRR’s bank and he was given signing authority and BRR implemented a requirement of dual signatures on all banking transactions.
30Saso’s affidavit states that the shareholders’ meeting of December 6, 2016 to deal with the revised shareholder agreement as required by the September 1, 2016 loan agreement had been postponed on several occasions as the materials were not perfected. All directors and shareholders agreed to this date. At the meeting Kevin Nastasiuk and Merritt indicated that further negotiations were not necessary and the revised shareholder agreement proposed by Saso was consistent with the provisions outlined in the September 1, 2016 loan agreement. Mark Nastasiuk refused to agree to the revised shareholder agreement. The meeting adjourned and the shareholders continued the meeting on December 7, 2016.
31At the December 7, 2016 shareholders meeting the Sasos issued a demand letter noting that interest payments for the months of October 2016 and November 2016 were due.
32On December 9, 2016 the bank invited Mark Nastasiuk, Kevin Nastasiuk and Merritt to a meeting at which the bank raised concerns that Mark Nastasiuk had attempted to sell equipment and a new product that was in development and owned by BRR, and advised Mark Nastasiuk that he could not do so without the bank’s prior written consent. Mark Nastasiuk denied that he had attempted to sell these properties.
33The Sasos were advised of this meeting by Merritt, and were concerned that there was an elevated risk associated with Mark Nastasiuk refusing to deliver the security documents and the borrowers’ default of interest on the loan. The Sasos therefore triggered the acceleration of the demand to protect their financial interests and sent out a second demand letter on December 12, 2016.
34The Sasos allege that the acceleration of the demand was triggered by Mark Nastasiuk’s refusal to deliver the security and amend the shareholder agreement in accordance with the September 1, 2016 loan agreement. BRR was already insolvent without additional loans from the Sasos, and so Sosa was acting to avoid the potential for bankruptcy.
35The Sasos also allege that on or before December 8, 2016 Mark Nastasiuk locked the Sasos and all other directors and shareholders out of the BRR premises, accounting systems and e-mail system.
36Daniel Saso’s affidavit is corroborated by the affidavit of Stuart Merritt, the owner of Merritt Holdings Inc., who is not a party to this proceeding but is a shareholder, director and employee of BRR. BRR is Merritt’s principal source of income. Merritt and his wife have invested approximately $320,000 into BRR in cash payments and by permitting his credit card to be used to purchase supplies for BRR. According to Merritt, Kevin Nastasiuk has invested approximately $175,000 in BRR and has provided a personal guarantee of approximately $100,000 in respect of bank loans to purchase equipment. Mark Nastasiuk has invested approximately $27,000 in BRR.
37Merritt’s affidavit confirms that BRR has had a chronic cash flow problem, and that the shareholders negotiated a loan of $350,000 from the Sasos in February 2016, and that following that agreement the Sasos were shareholders of BRR even though shares were never formally issued.
38Merritt also confirms that all of the shareholders were involved in the negotiation of the second loan agreement in September 2016, and that the Sasos advanced further funds to BRR such that their total investment was just over $500,000. Between September 2016 and December 2016 Merritt states that “there was a substantial amount of back and forth between Mark [Nastasiuk] and Mr. Saso about implementing the terms of the September loan agreement”.
39According to Merritt, the purpose of the December 6, 2016 shareholder agreement “was to give effect to what had already been agreed to in the September loan agreement” including amending the shareholder agreement and the issuance of shares to the Sasos. The intention was that when these obligations were fulfilled the Sasos would inject more money into BRR. Merritt states:
All of the people at the meeting agreed with the terms of the amended agreement except for Mark, who seemed to want to renege on the September loan agreement.
40When the meeting reconvened on December 7, 2016 all of the people except Mark Nastasiuk were prepared to agree to the proposed amendments to the shareholder agreement.
41Merritt also states that Mark Nastasiuk told him that he intended to come up with the funds to pay the loan by selling equipment owned by BRR. Merritt advised Mark Nastasiuk that he could not do this because the bank held security over the corporation’s assets by virtue of a General Security Agreement. This discussion led to the meeting with the bank on December 9, 2016.
42Merritt expresses concern over Mark Nastasiuk’s “rogue actions” which he states have put the existence of BRR and his $320,000 investment in the company in jeopardy and exposed him to personal liability since the shareholders guaranteed repayment of the loan under the terms of the September 1, 2016 loan agreement.
Analysis
43The December 16, 2016 order was made without notice to the defendants because the plaintiff claimed that it was urgent. Rule 39.01(6) provides:
Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.
44As indicated above, the plaintiff failed to disclose the terms of the September 1, 2016 loan agreement, and, in particular, failed to disclose the additional security clause that was agreed to by all of the shareholders and which gave the Sasos majority equity and control over BRR months before the plaintiff brought his motion for an interlocutory injunction.
45In R. A. Fox v. R.S. Fox, 2014 ONSC 1135 the Divisional Court outlined the reason for Rule 39.01(6) (at paras. 11-13):
The reason for requiring such disclosure is based on the recognition that the judicial officer hearing a motion has only the moving party or their counsel before him. There is usually no opponent present who can file opposing evidence and make opposing submissions. Accordingly, there is a heavy burden on a moving party to tender evidence that he might prefer not to tender so the judicial officer can obtain a reasonably balanced view of those facts that might reasonably affect the outcome of the motion.
The burden that rests on the moving party is not to make full and fair disclosure of every fact relevant to the motion. That would be an undue burden that would require the moving party to disclose an unnecessarily large volume of facts of likely little to no probative value. The obligation to make disclosure of “all material facts” should be interpreted to mean only “all facts that might reasonably affect the outcome of the motion”.
If the judicial officer hearing a motion is deprived of an opportunity to know about all of the material facts known to the moving party because the moving party fails to comply with rule 39.01 (6), the same rule creates a consequence for that moving party. It provides that his failure to comply, in itself, is sufficient ground for setting aside any order made on the motion. “In itself”, in this context means that the other party does not necessarily have to establish anything more than the moving party’s failure to comply.
46In other words, the failure to fairly disclose can result in the setting aside of the order even if disclosure would not have changed the result (Royal Bank of Canada v. Kaveh, 2014 ONSC 2582 at para. 10).
47The failure to disclose the whole of the September 1, 2016 loan agreement was the most significant of the plaintiffs’ failures to make full and fair disclosure. It is in itself sufficient grounds for setting aside the order made that day. The facts relating to the terms of the additional security clause were material and could have, and in my view probably would have, affected the outcome of the motion. The terms of the agreement changed the nature of the status quo that existed when the motion was brought and would have resulted in a different weighing of the balance of convenience and irreparable harm. The judge hearing the motion was entitled to be made aware of these facts. As it was, the plaintiff deliberately misrepresented the terms of the agreement.
48As indicated, knowing the terms of the additional security clause in the September 1, 2016 loan agreement leads me to conclude that the plaintiff will not suffer irreparable harm if the injunction is not granted. If the BRR is forced into bankruptcy it is because the plaintiff has refused to honour the terms of a loan agreement that he made three months before bringing the motion. He could have avoided this situation simply by signing the new shareholder agreement and providing the lender with the additional security as per the terms of the September 1, 2016 loan agreement. The evidence indicates that he was the sole holdout among the shareholders (another material point that was not disclosed in his motion material). Interlocutory injunctions should not be used to simply release borrowers from meeting their contractual or financial obligations.
49In addition, the balance of convenience now favours the defendants who lent BRR $500,000 and who stand to lose their entire investment if they are denied both the security promised in the loan agreement (majority equity and control) and the right to enforce repayment of the loan according to its terms. The Court now has evidence and must also consider the interests of the other shareholders – Merritt and Kevin Nastasiuk – whose interests were not represented (or disclosed) when the motion was heard on December 16, 2016. They have also expressed concern that the interim injunction and the actions of the plaintiff may jeopardize their significant investments in BRR.
50Finally, the plaintiff sought this interim injunction on December 16, 2016 to give him time to “obtain alternative financing and to satisfy the terms of the loan agreement”. While he claims that he is “actively seeking…replacement financing” there was no evidence when I heard the motion on January 24, 2017 that he had actually made any progress in this regard.
Motion to dismiss or stay the action in respect of BRR
51The defendants have brought a motion to dismiss the action of BRR on the ground that it was commenced without proper corporate authority. While the defendants do not dispute the authority of Mark Nastasiuk to bring this action in his personal capacity, they take the position that approval of the BRR directors was required to authorize the commencement of the claim in BRR’s name. No such approval or resolution was passed to authorize this action.
52BRRs by-laws require both of its directors to be present to constitute a quorum for a directors’ meeting. Mark Nastasiuk and Stuart Merritt are the two directors of BRR. It was not open to Mark Nastasiuk to hold a directors’ meeting without Merritt.
53Merritt has confirmed in his affidavit that he did not authorize this action or the retainer or payment of Rogerson Law Group to act on behalf of BRR.
54Clause 1.2 of the Shareholder Agreement of December 22, 2014 requires written consent of both Mark Nastasiuk and Stuart Merritt in order to enter “into any transaction other than in the ordinary course of business referred to above, including entering into any contracts…not in the regular course of routine business”.
55As indicated above, the Shareholder Agreement specifies that the business of the company is “roasting, packaging and sales of coffee and tea, together with such other business as may be conviently carried on ancillary thereto”.
56On December 23, 2016 counsel for the Sasos delivered a Rule 15.02 request to the plaintiffs’ counsel requesting “a copy of the Board Resolution authorizing the action” failing which the Sasos intended to bring a motion to have the action dismissed pursuant to Rule 15.02(4), which provides:
If a lawyer has commenced a proceeding without the authority of his or her client, the court may, on motion, stay or dismiss the proceeding and order the lawyer to pay the costs of the proceeding.
57There is no evidence that the Board of Directors of BRR authorized counsel to commence this litigation. Indeed, it is clear from the evidence that no such resolution was passed.
58The plaintiff Mark Nastasiuk takes the position that as President/Secretary and Treasurer of BRR he has the authority to commence this litigation on behalf of BRR and retain counsel without a Board resolution because conducting this litigation is part of the ordinary course of BRR’s business. He also relies on clause 1.2 of the Shareholder Agreement that authorizes him to incur BRR indebtedness or obligation up to $66,000.
59Pursuant to rule 15.02 an opposing party is entitled to require disclosure of whether the client authorized the solicitor to commence the proceeding and require disclosure of whether a corporate plaintiff was properly authorized to instruct counsel to commence the proceeding: see Caribbean Cultural Committee v. Toronto (City), [2002] O.J. No. 2022 (S.C.J.) at para. 8 and Curle et al v Gustafson et al, 2014 ONSC 5865 at para. 57.
60If the law suit is not properly authorized by a resolution passed by the board of directors the action must be stayed until a resolution is properly ratified: Mega Blow Moulding Ltd. v. Sarantos, 2001 28374 (ON SC) at paras. 2 and 3.
61I adopt the following statement form the case of Kappa v. Chan and Sandink, 2011 ONSC 1986 (at para. 46) as directly applicable in this case:
Given the nature of the proposed litigation, the stakes and the internal strife within the Company, the application should not have been commenced unless under the authority of a properly obtained resolution of the board of directors.
62This internecine litigation between shareholders cannot be described as the “ordinary course” of BRR’s business. While litigation involving simple collection actions or trade debts brought in the ordinary course of business do not require formal authorization (Superior Material Handling Equipment Inc. v. Gerry Michael Erwin, 2003 15504 at para. 4 (ON SC)), the claims brought in this case do not fall under those categories. In the case of Rosalee Holdings v. Mariton Holdings, [2000] O.J. No. 2950, Master Haberman stated (at para. 43):
Where and action is commenced by a corporation, barring the application of the indoor management rule, counsel is required to demonstrate that he has authority to act on behalf of the corporation when asked to do so. That is usually done by providing a resolution passed by the corporation’s board of directors, which authorizes the litigation.
63As there has been no such resolution in this case, there is no authority to commence the action in the name of the corporation, and the action in respect of BRR is dismissed, although it may be continued by Mark Nastasiuk in his personal capacity.
64When the defendants raised the issue of Mark Nastasiuk’s authority to commence this action on behalf of BRR and retain Rogerson Law Group, Mr. Rogerson agreed to keep the retainer he had been paid from BRR funds in trust until Mark Nastasiuk’s authority to commence the claim on behalf of BRR and authorize payment from BRR’s bank account was resolved. Mark Nastasiuk has sought an order that he be permitted to pay BRR’s legal fees from BRR’s bank account, that Andrew Rogerson Professional Corporation be permitted to transfer the BRR funds from its trust account to make payment for the plaintiffs’ legal fees, or, in the alternative, that Mark Nastasiuk be permitted to represent BRR in lieu of Andrew Rogerson Professional Corporation. Given my conclusions above that Mark Nastasiuk had no authority to commence this action in the name of the corporation and that the action in respect of BRR is dismissed, all of these claims are also dismissed.
65The defendants’ Notice of Motion also seeks a declaration that there is a conflict of interest between the interests of the plaintiffs Mark Nastasiuk and BRR and that Rogerson Law Group, counsel for both plaintiffs, is in a conflict of interest and that Rogerson Law Group should be removed as lawyers of record for BRR. The defendants indicated that they would adjourn this aspect of the motion. I agree that this portion of the motion should be adjourned to a later date, and can be brought back before the court if necessary.
66The Order of December 20, 2016 provided that the signatures of both Mark Nastasiuk and Stuart Merritt shall be required on all cheques and banking transactions and any other financial transactions. The plaintiffs’ Notice of Motion seeks an order that the order of December 20, 2016 be varied to provide that Mark Nastasiuk shall be the sole signatory on the BRR bank account. The plaintiff did not serve Merritt with this motion, Merritt found out about it from counsel for the Sasos.
67The plaintiff indicated that he wanted to adjourn this aspect of the motion. I will adjourn this portion of the motion to a later date to be brought back before the court if necessary. If the plaintiff chooses to proceed with this aspect of the motion, Stuart Merritt must be given notice in accordance with the Rules of Civil Procedure. I note that Mr. Merritt is not a party to the action as presently constituted, and I leave to the court hearing this aspect of the motion (should it proceed) whether such relief can be claimed against a non-party to the proceeding.
Merritt Application
68Four days before this motion was heard Stuart Merritt, Kevin Nastasiuk and Merritt Holdings Ltd. commenced and served an application under s. 241 of the Canada Business Corporation Act, R.S.C. 1985, c. C-44 against Mark Nastasiuk, BRR and the Sasos (Court File # 17-19). This Application sought various relief including a declaration that Mark Nastasiuk has exercised his powers in an oppressive and unfairly prejudicial manner. They ask that service of the Notice of Application be abridged due to the urgency of the situation.
69The applicants’ request for relief includes a request for interim orders to ensure the ongoing viability and proper management of BRR, including orders relating to who has control of the day-to-day management of BRR and who are the signing officers. They also seek an order that Mark Nastasiuk comply with the terms of the September 1, 2016 loan agreement and provide an accounting of any and all funds received by BRR since December 7, 2016.
70At the commencement of these proceedings, Mr. Rogerson, who acted as counsel for Mark Nastasiuk and BRR for the purposes of the interlocutory injunction motion, advised the court that due to the uncertainty of his retainer he could not represent these parties with respect to the s. 241 application, and asked to be excused when this part of the case was argued. He also advised that due to the late service of the application record, he was not, in any event, in a position to respond to the application. I permitted Mr. Rogerson to be excused when the s. 241 application was argued.
71Mr. Nastasiuk took the somewhat ironic position that the applicants’ request for an interim order should be adjourned to provide him with a fair opportunity to retain counsel and file a response.
72I reserved my decision on the Notice of Application.
73Given the fact that I have just dismissed Mr. Nastasiuk’s motion to extend the injunction contained in the Order of December 16, 2016 (as extended on December 20, 2016), I am hopeful that the parties can negotiate some way to resolve their outstanding dispute without bankrupting the company or taking further precipitous action. Accordingly, I am not prepared to decide the complex issues and factual disputes raised in the Notice of Application on an urgent basis without giving Mr. Nastasiuk an opportunity to retain counsel and file a response.
74That being said, the applicants are entitled to an accounting of all funds received on behalf of or payments made by BRR since December 7, 2016 regardless of the outcome of the application, and I will make the order requested by the applicants with regard to such an accounting and ancillary information.
75The balance of the Application is adjourned to a day to be fixed.
Conclusion
76This Court orders:
77With respect to Court File # CV-16-1856
i. Paragraph 1 of the Order of Quinlan J. dated December 16, 2016 (interim injunction) is set aside as of January 24, 2017.
ii. Paragraphs 1, 2 and 3 of the Order of DiTomaso J. dated December 20, 2016 are continued.
iii. The action in respect of the plaintiff Beaver Rock Roastery Inc. is dismissed, although it may be continued by Mark Nastasiuk in his personal capacity.
iv. The plaintiff Mark Nastasiuk’s claim to commence the claim on behalf of BRR and authorize payment of legal fees from BRR’s bank account is dismissed.
v. The plaintiff Mark Nastasiuk’s claim to permit Andrew Rogerson Professional Corporation to transfer the BRR funds from its trust account to make payment for the plaintiffs’ legal fees, or, in the alternative, that Mark Nastasiuk be permitted to represent BRR in lieu of Andrew Rogerson Professional Corporation is dismissed.
vi. All other relief requested by the plaintiff or respondent on their motion and cross-motion is adjourned, to be scheduled by either party on ten days notice.
78With respect to Court File # CV-17-0119
i. The respondent Mr. Nastasiuk is to prepare and provide to the other parties by February 17, 2017:
(a) an accounting of any and all funds received on behalf of or payments made by Beaver Rock Roastery Inc. since December 7, 2016;
(b) an accounting of purchase orders issued, contracts entered into as well as existing clients contacted or approached by BRR since December 7, 2016;
(c) details of any bank accounts, including in whose name the accounts are held, into which payments directed to BRR have been deposited;
(d) a list of BRR payables in order of urgency and by due date;
(e) a list of outstanding orders and when and how they are to be filled; and
(f) the details of any proposed additional financing for BRR, including all documents relating thereto.
ii. The balance of the application is adjourned on a day to be fixed.
79If the parties are unable to settle the costs of this motion the defendants Daniel Saso and Rosalind Saso and the applicants Merritt Holdings Ltd., Stuart Merritt and Kevin Nastasiuk may file submissions within 20 days of the release of these reasons. The defendants and applicants submissions shall each be limited to 3 pages plus cost outline and any offers to settle. The plaintiff Mark Nastasiuk may file reply submissions within 15 days thereafter. The plaintiff’s submissions are limited to 4 pages plus cost outline and any offers to settle.
Justice R.E. Charney
Released: February 1, 2017
CITATION: Beaver Rock Roastery Inc. v. Saso, 2017 ONSC 740
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Beaver Rock Roastery Inc. and Mark Nastasiuk Plaintiffs
– and –
Daniel M. Saso, Rosalind M. Saso, and The Canadian Imperial Bank of Commerce Defendants
AND BETWEEN:
Merritt Holdings Ltd., Stuart Merritt and Kevin Nastasiuk Applicants
– and –
Mark Nastasiuk, Beaver Rock Roastery Inc., Daniel M. Saso and Rosalind M. Saso Respondents
REASONS FOR DECISION
Justice R.E. Charney
Released: February 1, 2017