Court File and Parties

Court File No.: CV-13-115938-00 Date: 20190220 Ontario Superior Court of Justice

Between: BRANTFIELD MANAGEMENT LTD. Plaintiff – and – BENEVITO FOODS INC., FRANK BOZZO, SANDRA LUSK, MICHAEL TOPOLINSKI, LOREEN MITCHELL and PENNY EDWARDS Defendants

Counsel: Michael F. Cooper and Neil G. Wilson, for the Plaintiff Scott A. Rosen, for the Defendants Benevito Foods Inc., Frank Bozzo, Michael Topolinski and Loreen Mitchell

Heard: May 28-31, 2018 and June 1, 2018; Defendant’s Written Closing Submissions Received July 31, 2018; Plaintiff’s Written Closing Submissions Received August 15, 2018; Plaintiff’s Reply Written Submissions received August 15, 2018

Reasons for Decision

EDWARDS j. :

Overview

[1] It is well understood in a landlord and tenant relationship that where a tenant goes into default of its obligations to pay rent to the landlord, the landlord has the right to distrain on the tenant’s assets located at the demised premises. A less well-known concept in a commercial landlord and tenancy relationship, is the right of the landlord under ss. 48 and 50 of the Commercial Tenancies Act (“the Act”) to seek relief against a tenant and every person who “willingly and knowingly aids or assists” in “fraudulently or clandestinely” conveying away the tenants goods to prevent the landlord from distraining for arrears of rent reserved, due or made payable. Where a landlord can establish such liability, the penalty is double the value of the goods removed.

The Facts

[2] The Plaintiff, Brantfield Management Inc. (“Brantfield”), was the landlord of the premises municipally known as 40 Gaudaur Road, Unit 2, Vaughan, Ontario (“the premises”). A lease of the premises was entered into between Brantfield and Benevito Foods Inc. (“Benevito”) on July 31, 2009 (“the lease”). The lease was signed on behalf of Benevito by the Defendant Michael Topolinski (“Topolinski”) and the Defendant Loreen Mitchell (“Mitchell”). Mitchell signed in her capacity as a Director of Benevito. The lease was for a 10 year term and did not include any personal guarantees or indemnities.

[3] The lease provided in s. 13.03 that if the tenant Benevito failed to pay any “minimum rent, additional rent or other sums due”, or if the tenant Benevito took any steps by way of dissolution, winding up or liquidation of its assets, or made a sale of its assets in bulk, then the landlord had an immediate right of re-entry onto the premises with a further right to sell any assets of Benevito found on the premises.

[4] Article 3.01 of the lease provided for security deposits to be paid by Benevito. It was acknowledged by Brantfield that it was holding $7,000 as a security deposit. A further security deposit of $8,000 was due by June 30, 2010.

[5] The additional security deposit of $8,000 was never paid. Other than reminder notices sent by Brantfield to Benevito in November 2011 and March 2012, Brantfield took no further steps to collect on the outstanding $8,000 security deposit.

The Downturn in Benevito’s Business

[6] Benevito was in the business of making pasta. The underlying business had been in existence for a number of years, and a predecessor company to Benevito had gone out of business on or about 2009.

[7] During this earlier time period, Brantfield and Benevito’s predecessor company had been in a landlord and tenant relationship. Prior to the execution of the lease, therefore, Brantfield had been aware that the predecessor to Benevito had gone out of business and had resulted in the re-organization that ultimately resulted in the lease of the premises.

[8] In late 2012 into the early part of 2013, Benevito lost its biggest customer and ultimately it became a foregone conclusion that Benevito could not continue to operate as a viable business. Topolinski, who was the directing mind of Benevito, therefore began taking steps to find a buyer for Benevito who could take over the lease. When it became obvious by April 2013 that his efforts to sell Benevito as a going concern had failed, Topolinski then began looking into the sale of Benevito’s assets.

[9] The efforts to sell the business as a going concern included three potential purchasers: Rabba Fine Foods (“Rabba”), Meaty Meats Inc. (“Meaty Meats”) and Commercial Bakeries. Two of these potential purchasers were introduced to Topolinski by the Defendant Frank Bozzo (“Bozzo”). Bozzo had been the Director of Operations of Benevito’s predecessor Amore Food Corporation, A.F.C. Foods (“A.F.C.”). He had worked for Benevito and had been a five percent shareholder in A.F.C. Foods. By the time of his involvement in the sale of Benevito’s assets he was not a shareholder, nor was he a Director of Benevito.

[10] During the period of time when Topolinski was endeavouring to sell Benevito as a going concern (January through June 2013 inclusive), the rent payments for the premises were kept up to date. There were no rent arrears due from Benevito to Brantfield, with the possible exception of the outstanding $8,000 security deposit. At its earliest, Benevito failed in its obligation to pay the monthly rent due under the lease on July 1, 2013.

[11] Included in the efforts made by Topolinski to sell Benevito as a going concern were information packages that he directed Mitchell and Bozzo to deliver to Rabba. Included in the information packages was a copy of the lease and a list of employees.

The Auction and Sale of Benevito’s Assets

[12] After Rabba terminated discussions concerning the sale of Benevito, Topolinski signed an auction agreement with Rabin-Auctions on May 23, 2013. After the auction contract was signed, Benevito continued to have further discussions with Commercial Bakeries and Meaty Meats with respect to the potential purchase of Benevito’s equipment and the assignment of the lease.

[13] On June 20, 2013, Meaty Meats offered Benevito $250,000 for the equipment and an option to take over the lease. Benevito responded to this offer with a counteroffer of $400,000. The discussions between Benevito and Meaty Meats did not result in any binding agreement, and those discussions terminated on June 21, 2013.

[14] Topolinski’s efforts to enter into a transaction with Commercial Bakeries terminated on June 20, 2013, when Topolinski made a counteroffer to Commercial Bakeries of $300,000 which was never responded to.

[15] The auction agreement with Rabin-Auctions of May 23, 2013 was signed by Topolinski. Mitchell did assist in the setting up of the auction agreement as a result of a telephone call that she made to arrange a meeting between Topolinski and Rabin-Auctions. There is no other evidence linking Mitchell to the actual auction agreement, other than her having facilitated things by way of a telephone call. There is no evidence that Mitchell benefited from her participation in the sale of Benevito’s assets.

[16] The evidence at trial, in my view, is uncontradicted that the auction was not surreptitious. The auction was publicly advertised.

The Sale of Benevito’s Equipment

[17] The bulk of Benevito’s equipment was sold on or about June 21, 2013 to Canada Food Equipment; Wing’s Food Products; Custom Compactors Inc.; and S.P. Thermal Systems Inc. The total of the invoices for the equipment sold to these entities was approximately $146,000.

[18] The previously arranged auction was scheduled to take place between June 24 and 27, 2013. It will therefore be readily appreciated that the bulk of Benevito’s equipment had actually been sold to the aforesaid companies by June 21, 2013.

[19] As for the logistics of how the equipment was viewed by the respective companies who purchased the equipment, Bozzo admitted that he was involved in showing the equipment to various purchasers prior to purchase. The equipment, for the most part, was removed from the premises by the purchasers by June 28, 2013. While Bozzo was involved in the showing of the equipment to potential purchasers he did not set the price of the equipment; he did not negotiate the sale for the equipment; he did not participate in the actual removal of the equipment; and he did not receive any of the proceeds of sale for the equipment. There is no evidence Bozzo benefited from his participation in the sale of Benevito’s assets.

[20] The bulk of the equipment was removed from the premises and paid for prior to the end of June 2013. At the time of payment and removal, there were no arrears of rent owing by Benevito to Brantfield (with the exception of the security deposit of $8,000 that had been due in 2010).

[21] After July 1, 2013, there still remained some equipment on the premises. While this equipment was ultimately removed on or before July 10, 2013 and was sold for $30,000, Mr. Paul Zentil (Zentil) - the President of Brantfield, confirmed in cross-examination that as of July 5, 2013 when Brantfield formally distrained on Benevito there was nothing of value left on the premises. For unexplained reasons the $30,000 was not paid to Benevito, but rather was paid to a numbered company controlled by Topolinski.

[22] The auction of the equipment occurred between June 24 through June 27, 2013. The in- person auction generated sales of approximately $11,000, while an online auction generated sales of approximately $7,600. Bozzo was involved in the auction as an observer on directions from Topolinski. Bozzo testified that the in-person auction was open to the public during regular daytime business hours and was not conducted in a clandestine way.

[23] Mitchell was involved in the sale of the equipment and auction as a result of her having been in the premises during the auction. She was not directly involved in the auction, nor was she involved with the direct sale of the equipment. She was not involved in the removal of the equipment from the premises.

[24] As for the signing authority in connection with the auction and direct sale of Benevito’s equipment, there is no dispute on the evidence that Topolinski was the person with such signing authority on behalf of Benevito. In that regard, it is beyond dispute that during the auction and sale of the equipment neither Mitchell nor Bozzo were employees of Benevito.

The So-Called Clandestine Sale of Benevito’s Equipment

[25] Brantfield maintains that it was never advised by any of the Defendants of the shutdown of Benevito’s plant, and that it was never advised with respect to the liquidation of Brantfield’s assets nor the removal of Brantfield’s equipment from the premises. Brantfield further takes the position that Benevito deliberately sought to hide the shutdown and liquidation of Benevito’s assets from Brantfield. The essence of Brantfield’s argument is that everything was done by Benevito clandestinely so as to defeat Brantfield’s right and ability to distrain on Benevito’s assets.

[26] It is further argued on behalf of Brantfield that the liquidation and removal of the Benevito equipment from the premises and the deception of Benevito was orchestrated by the three named Defendants: specifically, Topolinski; Bozzo; and Mitchell. The claims as against the Defendants Sandra Lusk and Penny Edwards were abandoned at trial.

[27] In support of Brantfield’s allegations as against Bozzo and Mitchell, Brantfield acknowledges that Topolinski played a central role in orchestrating the liquidation but further notes that because Topolinski was only in Canada on the following dates: May 17-26; June 8-16; and July 5-14, 2013, that while Topolinski was away all of the actions on the ground with respect to the liquidation of Benevito’s assets were carried out by Bozzo and Mitchell.

[28] Benevito maintains that Brantfield was in no way misled with respect to what was going on at the premises in relation to the sale of equipment and auction. Giancarlo Tarsitano (“Tarsitano”) worked for Zentil Property Management Inc. Amongst his responsibilities was the management of the premises on behalf of Brantfield. Tarsitano received a complaint with respect to trailers parked in the rear of the premises and attended at the premises on June 27, 2013. At that time, Tarsitano testified that he walked into the premises and took photographs of the inside. He observed auction tags on the equipment throughout the premises, and his attendance on June 27, 2013 was in no way impeded by anyone acting on behalf of Benevito.

[29] After Tarsitano had attended at the premises on June 27, 2013, he spoke to Zentil and told him that there appeared to be an ongoing auction at the premises. He showed Zentil the pictures that he had taken at the premises, which pictures would have included pictures of auction tags on the equipment at the premises. Zentil confirmed that from the information Tarsitano supplied him he knew there was no production going on at the premises and no people on site.

[30] Given the information available to Tarsitano that was communicated to Zentil, Benevito takes the position that nothing that was occurring at the premises was clandestine nor was it hidden from Brantfield. As such, Benevito argues that Brantfield could not have been deceived and that nothing that was done by any of the individual Defendants was fraudulent.

The Evidence Post-June 27, 2013

[31] After Tarsitano had visited the premises on June 27, 2013, Brantfield instructed its lawyers Brattys LLP (“Brattys”) to draft a demand letter dated June 28, 2013, which was received by registered mail by Benevito on or about July 2, 2013. Noteworthy is the fact that Brattys letter does not make any mention of any rent arrears or accelerated rent owed by Benevito to Brantfield.

[32] At the same time as Brantfield is instructing Brattys to draft a demand letter to Benevito, Zentil in his evidence admitted that he drove around the premises but did not make any attempt to enter the premises.

[33] The rent for July 2013 was not paid by Benevito. Ironically and unfortunately, during the July 1, 2013 long weekend Topolinski – who normally resided in Romania, was in Toronto and was involved in a bicycle accident which resulted in the fracture of his collarbone and some ribs. He was hospitalized at St. Michael’s Hospital for a number of days and ultimately was discharged home. This did not end the ramifications of his injuries, as he suffered a collapsed lung and was re-admitted to hospital in Richmond Hill for approximately two weeks.

[34] After the auction additional equipment known as the Line 3 equipment was purchased from Benevito by Wing’s Food Products, as evidenced by an invoice dated June 28, 2013 in the amount of $30,284.00. The invoice was paid to a company controlled by Topolinski, 1679547 Ontario Inc. While I ultimately found that this equipment remained on the premises up until at least July 10, 2013, having been sold to Wing’s Foods it no longer was equipment that belonged to Benevito.

[35] The Line 3 equipment, as evidenced in the invoice to Wing’s Food Products, was equipment used for pasta forming and cooking. Part of this equipment was item 118, which was still located at the premises on July 5, 2013 as evidenced by a photograph that was taken by Tarsitano on July 5, 2013 (Exhibit 1, Tab 53).

[36] Benevito engaged the services of a bailiff who attended at the premises on July 8 and 9, 2013. Counsel for Benevito argues that when the bailiff attended on July 8 and 9, 2013 the Line 3 equipment was still located at the premises, and that when the bailiff did attend he was blocked from accessing the premises by Bozzo.

The Evidence of Loreen Mitchell and Frank Bozzo

[37] In its written submissions, counsel for Brantfield argues that Mitchell was Topolinski’s “right-hand woman” with respect to Benevito’s affairs and liquidation. Fundamental to this assertion is the suggestion that Mitchell was involved extensively in Topolinski’s businesses, and that she signed key documents such as the lease on behalf of Benevito. It is also noted that Mitchell was a Director of Benevito and that she was a Senior Officer of Benevito. On its face, therefore, given the seniority of her position as a Director and Senior Officer, it is argued that Mitchell was in fact Topolinski’s right-hand woman.

[38] While on paper Mitchell was in fact a Director of Benevito, her actual involvement with the company did not involve any independent decision making. Her role was that of acting as Topolinski’s assistant with respect to his various business affairs and family matters. She was not employed by Benevito. The salary that she received in its entirety in her role as Topolinski’s assistant was approximately $3,000 per month.

[39] There is no dispute that Mitchell signed the lease on behalf of Benevito. There is, however, no evidence whatsoever that Mitchell had any financial stake in Benevito, and certainly was in no way involved in the financial affairs as it relates to the lease.

[40] As for her involvement in the shutdown and liquidation of Benevito, it is argued on behalf of Brantfield that Mitchell was directly involved in the sale process, which included making arrangements with the auction company, pulling information from the auction company website, setting up meetings and sending the auction company documents, gathering information on potential purchasers by doing such things as conducting credit score checks, and providing Topolinski with updates concerning the auction process and items that had been sold and for how much.

[41] It is argued that Mitchell participated in the liquidation with full knowledge that it was being hidden from Brantfield, and executed so as to avoid the landlord being able to seize Benevito’s equipment. As such, it is argued that Mitchell wilfully aided Benevito’s fraudulent or clandestine removal of goods and is thus liable under ss. 48 and 50 of the Act.

[42] If Mitchell cannot be found to have been involved in the fraudulent and clandestine removal and sale of Benevito’s equipment up to July 1, 2013, it is argued in the alternative by Brantfield that Mitchell should be found liable for double the value of the Line 3 equipment which remained on the premises up to and including July 8, 2013. The Line 3 equipment was sold for approximately $30,000, and as such given the application of s. 50 of the Act Mitchell would be liable for $60,000.

[43] In contrast to the position taken by Brantfield in its written submissions, counsel for Mitchell suggests that Mitchell’s involvement in the liquidation of Benevito’s assets was limited to the assistance that she provided by way of the telephone call that she made to the auction company, as well as setting up a meeting between Rabin-Auctions and Topolinski. The evidence does not support any finding – according to the written submissions filed on behalf of Mitchell, that she had any actual involvement in the pickup of equipment from the premises after the auction, nor did she have any involvement in the direct sales of any equipment.

[44] The written submissions filed by Brantfield draw heavily on the status that Bozzo had with respect to Benevito’s predecessor company, A.F.C. In that regard it is noted that Bozzo was a Director, Officer and shareholder of A.F.C., and that while employed at A.F.C. Bozzo was involved in consulting, research and development work, and also was involved in bringing in new business to A.F.C. His annual compensation while employed at A.F.C. was in the order of $120,000 per annum. Included in Bozzo’s responsibilities while employed at A.F.C. was his involvement in attending at an Ontario Labour Relation Board hearing, this during the time period when Topolinski was in Romania.

[45] It is argued on behalf of Brantfield that after the reorganization of A.F.C. into Benevito in 2009, that Bozzo’s role with Benevito remained the same. In point of fact Bozzo’s evidence, which was not challenged in cross-examination, was that his role in fact had changed. Where he had an ownership position in A.F.C., he no longer had any ownership in Benevito. Most significantly, his evidence was that he was part-time and only paid $3,000 per month. He had no cheque signing authority at Benevito, and was not privy to Benevito’s financial statements or bank statements.

[46] As far as his involvement in the liquidation of Benevito’s assets, it is important to note that there is no evidence that Bozzo was aware of any arrears of rent that was allegedly owing by Benevito to Brantfield. In its written submissions, counsel for Brantfield argues that Bozzo was wilfully blind to the fact that Benevito was liquidating all of its assets to avoid the landlord’s right of distraint.

[47] It is not disputed by Benevito that Bozzo knew that Topolinski wanted to find a buyer for Benevito’s business. It is not disputed that Bozzo was involved in showing prospective equipment purchasers Benevito’s equipment and that this was done at Topolinski’s request. It is also not disputed that Bozzo delivered information packages to various prospective purchasers of the business, and that included in the packages was a copy of the lease.

[48] What is central to Bozzo’s evidence is the uncontradicted assertion by Bozzo in-chief that he did not know what Benevito did with the money that it received from the sale of Benevito’s equipment, and most fundamentally that he did not receive any of that money from the sale of Benevito’s equipment.

[49] Counsel for Brantfield in its closing submissions argues that Bozzo was lacking in credibility, and in particular references a conversation that Mary Frascino (“Frascino”) testified as having taken place on June 27, 2013 when she attended at the Benevito premises and met with Bozzo and Penny Edwards. It is argued on behalf of Brantfield that Bozzo told Frascino that Benevito in fact was moving equipment into the premises. Significantly, in an email dated June 27, 2013 at Tab 43 of Exhibit 1, there is no mention made by Frascino about this conversation with Bozzo.

[50] When confronted in cross-examination about the suggestion that Bozzo had told Frascino that Benevito was in fact moving equipment into the premises (as opposed to the sale of equipment out of the premises), Bozzo believed that he was simply telling the truth. Given the absence of any suggestion in Frascino’s email at Tab 43 suggesting that equipment was being moved into the premises, I accept the evidence of Bozzo over the evidence of Frascino as it relates directly to the suggestion that Bozzo was attempting to mislead representatives of Brantfield into believing that equipment was being moved into the premises as opposed to out of the premises. As well, I accept the evidence of Bozzo that he in fact had never met Frascino.

Position of the Plaintiff Regarding Topolinski, Bozzo and Mitchell

[51] Brantfield argues that the totality of the evidence should leave this court with no doubt that all three individual Defendants, i.e. Bozzo, Topolinski and Mitchell, should be held liable under ss. 48 and 50 of the Act. Specifically, it is argued that the removal of the equipment from the leased premises was planned and directed by Topolinski from Romania at the relevant time, and that his plan was executed by Bozzo and Mitchell and concealed from the landlord Brantfield.

[52] Brantfield argues that the evidence at trial establishes that there was a “web of deception” between June 20 and July 11, 2015, a time period during which Topolinski was not at the leased premises but Bozzo and Mitchell were. The deception, it is argued, includes untruths to the landlord’s representatives and an email sent by a former employee, or Benevito who was no longer an employee but which email provided reassurance to Brantfield that the July rent payment would be shortly forthcoming. As well, the deception included numerous pieces of correspondence sent to Benevito from Brantfield in late June and early July, addressing concerns about the non-payment of rent on the part of the landlord. The deception also included the bailiff retained by Brantfield being blocked from entering the premises on two occasions in early July 2013, one of which was at 5:45 a.m.

[53] By inference, counsel for the Plaintiff argues that there can be only one logical conclusion to be drawn from the evidence, and that is that each of the individual Defendants either knew or that they were wilfully blind about the rent arrears. It is suggested that the three named individual Defendants hid the liquidation and removal of equipment from Brantfield, and that the only reason for these Defendants to have done so is that they knew that Brantfield had a right to the equipment, and that Brantfield would have objected to the liquidation and removal of the assets from the leased premises.

[54] As an alternative position as against Bozzo and Mitchell, counsel for Brantfield argues that if these Defendants cannot be held responsible for the removal of the equipment prior to July 1, 2013, that they should be responsible for the removal of the equipment sold by Benevito to Wings Food Products that was removed from the premises in July 2013. Specifically, it is argued that these Defendants should be found responsible for twice the value of the Line 3 equipment that was valued at $26,800, given that both Bozzo and Mitchell must have known that rent was outstanding as of July 4, 2013 and that Bozzo obstructed Brantfield’s bailiff from accessing the premises on July 8 and 9, 2013. Mitchell should be found responsible in this regard because she also was aware that rent was outstanding when she instructed Bozzo to secure the premises, which Bozzo did by preventing access to the bailiff.

Position of the Defendants Benevito, Bozzo, Topolinski and Mitchell

[55] It is argued on behalf of these Defendants that Brantfield has not established that any of these Defendants were involved in the fraudulent conveyance of assets while Benevito was in arrears of rent, with the intention of defeating Brantfield’s rights of distress for those arrears of rent.

[56] As against the individual Defendants remaining in this action, it is argued that Brantfield has failed to meet its onus to establish that any of the individual Defendants knew of and intended to assist Benevito with fraudulent activity in order to defeat Brantfield’s claimed distress rights. As it relates to Mitchell, it is argued that the evidence establishes that she had no knowledge or information about Benevito’s rent payments, and that Bozzo only knew from Topolinski that the rent was up to date. Regardless, the vast majority if not all of Benevito’s assets were sold before the end of June 2013 - a point in time when Zentil confirmed in his cross-examination there was no arrears of rent.

[57] As it relates to the issue of wilful blindness, it is argued that there were no suspicious circumstances which would have caused either Mitchell or Bozzo to have made any inquiries of Topolinski, and that even if they had up until at least June 30, 2013 Topolinski would have correctly advised them that the rent with Brantfield was up to date.

[58] As it relates to the issue of arrears of rent, counsel for Benevito and the remaining individual Defendants in my view correctly note that as of June 30 2013, there were no arrears of rent owing to Brantfield. As it relates to July 2013, counsel for Benevito also argues that there was no arrears of rent in July 2013; a point in time when Benevito’s equipment had already been sold.

[59] Fundamentally, counsel for Benevito argues that this litigation on the part of Brantfield was nothing more than an ex post facto attempt by Brantfield to go after the individual Defendants in an attempt to recover its alleged losses, where Brantfield had made a business decision back in 2009/2010 not to obtain any personal covenants or guarantees from Topolinski or anyone else associated with Benevito. This is particularly significant given Zentil’s concession in cross-examination that when he negotiated the lease, he always understood that Benevito could “go under” given that Benevito’s predecessor’s corporation had “gone under”.

Analysis

Onus of Proof

[60] Brantfield has the onus to prove that the Defendants fraudulently removed and sold assets belonging to Benevito in order to prevent Brantfield from destraining for arrears of rent due or reserved, and that the individual Defendants wilfully and knowingly aided or assisted Benevito in removing Benevito’s equipment.

[61] Counsel for Benevito and the individual named Defendants argues on the basis of the Court of Appeal decision in 1268227 Ontario Ltd. v. 1178605 Ontario Inc., 2003 ONCA 44935, that there is a higher burden on Brantfield to prove the required elements under s. 50 of the Act than the usual civil standard of proof on a balance of probabilities. Counsel for Brantfield argues on the basis of the decision of the Supreme Court of Canada in F.H. v. McDougall, 2008 SCC 53, that even in situations where, as in an action framed under s. 50 of the Act, there are allegations of dishonesty and/or fraud, there still remains only one standard of proof in civil cases and that is the balance of probabilities.

[62] In 1268227 Ontario Ltd., the Court of Appeal dealt specifically with an action under s. 50 of the Act, and at para. 1 stated:

… In making those findings, the trial judge properly recognized that because of the penal nature of s. 50 and the stigma of dishonesty flowing from a finding under that section, she would apply an increased degree of probability for findings of fact that would be commensurate with all the circumstances.

[63] The Court of Appeal decision 1268227 Ontario Ltd. was released in May 2003. The decision of the Supreme Court of Canada in F.H. was released in 2008. F.H. involved a civil claim for sexual assault. The Court of Appeal decision in F.H. overturned the trial judge on grounds that she had failed to consider the serious inconsistencies in the evidence of the Plaintiff, in determining whether the alleged sexual assaults had been proven to the standard of proof that was commensurate with that allegation.

[64] In the Supreme Court of Canada the decision of the Court of Appeal in F.H. was overturned, and in so doing the Supreme Court of Canada endorsed that there was only one standard of proof in a civil case and that was proof on a balance of probabilities. In coming to the conclusion that it did, the Supreme Court of Canada reviewed jurisprudence both in Canada and in England and noted that there were various approaches in civil cases where criminal or moral blameworthy conduct was alleged. In that regard, the Supreme Court of Canada observed that there was one school of thought which reflected situations where the criminal standard of proof would apply in civil cases depending upon the seriousness of the allegation. Alternatively, there was another school of thought reflected in the case law that there was an intermediate standard of proof between the civil standard and the criminal standard which was commensurate with the occasion.

[65] Having noted the discrepancy in the jurisprudence with respect to the different standards of proof where there were allegations of criminal or morally blameworthy conduct, the Supreme Court in F.H. ultimately came to the conclusion that there was only one standard of proof in a civil case, and that was the well-known standard of proof on a balance of probabilities.

[66] While the Court of Appeal decision in 1268227 Ontario Ltd. was not specifically discussed by the Supreme Court of Canada in F.H., and while F.H. does not specifically deal with the onus of proof under s. 50 of the Act as was the case in 1268227 Ontario Ltd., I am nonetheless of the view that the decision of the Supreme Court of Canada in F.H. is binding on me. The onus of proof where an action is framed under s. 50 of the Act remains the civil onus of proof on a balance of probabilities.

Proof of Fraud/Clandestine Activity

[67] In order for Brantfield to be successful in its action against the named Defendants, Brantfield must prove on a balance of probabilities that:

a) Benevito was in arrears of rent;

b) the Defendants fraudulently removed, conveyed or carried off Benevito’s goods or chattels;

c) the Defendants did so in order to prevent Brantfield from distraining for arrears of rent;

d) the Defendants wilfully and knowingly aided or assisted Benevito in fraudulently removing or concealing the goods and chattels with the intent of preventing Brantfield from distraining against them.

[68] Sections 48 and 50 of the Act need to be read together. They are complementary, but as the Court of Appeal observed in Cowie Industrial Developments Limited v. National Clearance Warehouse Ltd., [1997] O.J. No. 1855, affd [1999] O.J. No. 1386 (Ont. C.A.), they are not identical:

The former preserves the landlord’s right of distraint and enables the landlord to follow the tenant’s goods off the premises within 30 days and to seize them for arrears. Section 50 of the Act is in the nature of a fine or penalty, imposed on persons who knowingly and willfully aid the tenant in the fraudulent removal.

[69] It is sometimes difficult to define fraudulent in simple terms. Some might say that one knows fraud when one sees it. The meaning of fraudulent as it is used in s. 50 was considered by Campbell J. in Nebete Inc. v. Sanelli Foods Ltd., [1999] O.J. No. 525, where Campbell J. endorsed the definition of fraud from Kerr on the Law of Fraud and Mistake at para. 58 as follows:

…Fraud, in the contemplation of a civil court of justice, may be said to include properly all acts, omissions and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat anyone is considered as fraud. Fraud in all cases implies a wilful act on the part of anyone, whereby another is sought to be deprived, by illegal or inequitable means, of what he is entitled to.

[70] As it relates to the issue of clandestine removal, this issue was addressed in Cowie Industrial Developments at para. 2, where it is observed that the manner in which the goods were removed is of importance as clandestine conduct may be evidence of fraudulent intent.

[71] The word clandestine is not defined in the Act. The word clandestine is defined in the Cambridge English dictionary as follows:

Planned or done in secret, especially describing something that is not officially allowed.

The definition of clandestine in the Cambridge English dictionary refers to a number of synonyms as follows:

Cloak-and-dagger, hush-hush, secret, surreptitious, undercover, underground.

[72] A helpful review of the case law in terms of the types of cases where the courts have found a fraudulent intent can be found in an article prepared by John Chapman in Fraudulent Removal of Tenant’s Goods: Section 50 of the Landlord and Tenant Act, 15 ADV.Q 490 1993, at p. 504. Those cases where the courts have found fraud have included the following:

a) removal of the tenant’s goods and chattels late at night, on weekends or on holidays and without advance notice to the landlord;

b) securing indulgences from the landlord by promising payment or providing worthless cheques;

c) concealing the goods after removal;

d) an intent to run up arrears; and

e) the confusing use of more than one legal entity so as to lead the landlord into believing that the lessor was the operating entity and hence had some substance to it.

[73] As Mr. Chapman reviews in his article there are a number of factors which the courts have found inconsistent with a fraudulent intent, and these have included the following:

a) payment of rent during the time period when the tenant’s goods and chattels are being removed out of the demised premises;

b) the open removal or sale of the tenant’s assets;

c) the removal and sale of the tenant’s assets being done gradually as part of an orderly process to pay creditors; and

d) a bona fide belief on the part of the tenant that the landlord was consenting to the removal;

e) a bona fide belief that the landlord had agreed that the tenant could receive the proceeds of sale from the goods in priority to the landlord.

[74] In Amexon Property Managements Inc. v. Unique Benefits Group Corp., 2006 ONSC 21316 at paras. 69 and 70, Fuerst J., as she then was, dealt with a motion for summary judgment under Rule 76.07(9) of the Rules of Civil Procedure (“the Rules”), and whether amongst other things the landlord was entitled to damages equivalent to double the value of the property removed. In this case, there was no dispute that the tenant was in arrears of rent at the time when the Defendants removed the goods and chattels from the demised premises, and that by removing the property the landlord was prevented from distraining for the arrears.

[75] While accepting that the tenant had moved out of the premises without prior notice to the landlord, Fuerst J. at para. 69 concluded on the evidence:

…I am unable to agree on the materials before me, however, that the move was clandestine. The defendants removed the property from the leased premises on a Saturday, but it was done during daylight hours. The defendants used the two elevators for the building to carry out the move. The plaintiff’s property superintendent watched the move, and it appears that it was captured on videotape. It obviously came to Amexon’s attention very soon after it occurred.

While the move by the tenant in Amexon may have been seen as wilful and in breach of the leased contract, Fuerst J. at para. 70 went on to observe: “…[ I]t does not necessarily follow that the removal of the property was fraudulent”. In the end result the landlord’s motion for summary judgment was granted in part, but as it relates to the claim under s. 50 it was dismissed and that issue was left to proceed to trial.

[76] As for the suggestion that Benevito and the named Defendants were involved in a clandestine or covert operation to remove Benevito’s assets from the leased premises, it is entirely conceivable that this court could conclude that Benevito was in breach of the lease but that the conduct of the Defendants does not amount to fraud. In Cadillac Fairview Corp. v. Kenmain Investments Ltd., [1990] CarswellMan 82, Monnin J. at para. 22 concluded:

The actions of the respondents were clearly and wilfully a breach of a provision of the lease but that conduct does not, in the circumstances of this case, in itself render the actions fraudulent.

[77] With the definition of clandestine referred to above quoted from the Cambridge English dictionary, it is extremely difficult in my view to conclude, and I do not conclude, that any of the Defendants’ actions leading up to July 1, 2013 were fraudulent or clandestine. The evidence clearly establishes that Tarsitano, who was representing Brantfield, was well aware of the auction that was ongoing at the leased premises, and in fact took photographs of Benevito’s equipment which had attached to it auction tags. It is also worth pointing out that at that point in time when the auction was ongoing and known to Brantfield through Tarsitano’s knowledge and photographs, that there was no rent owing by Benevito with the possible exception of the remaining security deposit that had been unpaid since 2009 and for which there had been no follow-up by Brantfield since 2010.

[78] As far as the issue of fraud is concerned, there are many factors which are absent in this case but were found in other cases framed under s. 50 of the Act. In this case, there was no removal of Benevito’s equipment at night or non-business days of the week, and as previously observed Brantfield was aware of the auction as of June 27, 2013. Even with the knowledge that Zentil had as of June 27, 2013, he did nothing on behalf of Brantfield to protect his position other than have his lawyers write a demand letter to Benevito.

[79] Unlike other cases where s. 50 was successfully invoked, there is no evidence that Brantfield had sought any rental indulgences from Brantfield and no evidence that Benevito had provided bad cheques in support of its monthly rental obligations, and in fact the rent as previously noted was up to date as of June 30, 2013.

[80] As far as the actual removal of the equipment from the leased premises, there is nothing to suggest that the removal of the equipment was done in a manner other than in the open, and certainly was far from being concealed. There is no suggestion in this case that Benevito had run up arrears of rent during the time period when it was formulating its plan to sell Benevito as a going concern, including an assignment of the lease.

[81] The evidence in this case in my view leads to one conclusion, and that is the Plaintiff has been entirely unsuccessful in establishing fraudulent intent on the part of the Defendants. It is hard to conceive of how this court can arrive at a finding of fraudulent intent and a clandestine removal of Benevito’s equipment, where the sale and removal of the equipment was done openly at a point in time when Benevito’s monthly rental payments were up to date.

[82] In this case, the mere fact that Benevito did not seek Brantfield’s permission nor did it give any direct notice of its intention to sell and remove its equipment from the leased premises does not, in and of itself, result in a finding of fraudulent intent. This is particularly so in a situation where Benevito was not in arrears of rent until at its earliest July 1, 2013, nor was there any history of Benevito being repeatedly late with rent and providing cheques that ultimately proved to have non-sufficient funds in the bank (“NSF”). The evidence, in fact, points in a completely different direction, and that is up until June 2013 Benevito had assiduously kept its rent obligations up to date.

Post-July 2013 Sale and Removal of Benevito’s Assets

[83] While the auction and sale of Benevito’s assets was largely completed by June 30, 2013, at a point in time when Benevito was not in arrears in rent, there remains the issue of whether any of the Defendants can be found liable under s. 50 of the Act for the removal of equipment after July 1, 2013. It is argued by counsel for Benevito that even if equipment was removed from the premises after July 1, 2013, there is still no liability under s. 50 as Benevito still was not in arrears of rent. The argument flows from the suggestion that the lease does not mandate payment of the monthly rent at the beginning of the month, and thus arrears only accumulate for a month’s rent when it is not paid by the end of the month.

[84] If there was evidence that Benevito paid its monthly rent at the end of the month, there would be merit to that argument. However, the course of conduct between the parties conforms to what most people involved in a landlord and tenant relationship would expect, and that is rent was paid by Benevito at the beginning of the month. That being the history between the parties, once the July rent was not paid by Benevito s. 50 is engaged. There still remains the question of whether the conduct of any of the individual Defendants was clandestine or fraudulent.

[85] As for Mitchell and Bozzo, for there to be any possible liability as it relates to the events post- June 30, 2013, this court must first of all make a finding that one or other of them knew that Benevito had not paid the rent due to Brantfield on July 1, 2013. While it is open to this court to draw inferences from the evidence, those inferences must be reasonable. There is a big difference between a reasonable inference and pure speculation. The suggestions made on behalf of Brantfield in its written submissions, really amount to nothing more than speculation that either Bozzo or Mitchell knew that Benevito had not paid its July rent. As such, neither Bozzo nor Mitchell can be said to have participated in conduct that prevented Brantfield distraining for unpaid rent - this particularly so in a situation where they did not know Benevito was in arrears of rent.

[86] The same conclusion, however, cannot be made as it relates to Topolinski. Topolinski was the directing mind of Benevito. He had a plan and that was to sell Benevito as a going concern, including an assignment of the lease. When that plan did not materialize, he set out to liquidate Benevito’s assets through a public auction. All of this occurred in public and was done in a manner that does not attract liability for what occurred up to June 30, 2013. There were no arrears of rent until July 1, 2013, and what occurred leading up to July was neither done in a clandestine manner nor was it done with a fraudulent intent.

[87] Topolinski was the only person with control over when, if at all, Benevito would pay the rent due for July, 2013. There is no evidence that Topolinski had given directions to anyone to make the July rental payment. It is a fair inference from all of the evidence that even before July 1, 2013 Topolinski made a conscious choice not to make the July rental payment to Brantfield. Even with the unfortunate injuries that he suffered and his subsequent hospitalization, which in different circumstances may have excused the late payment of rent, the only reasonable conclusion this court can make is that Topolinski had designed not to pay the July rent due on July 1, 2013.

[88] It is worth repeating that just because a tenant is in breach of its monthly rent obligations, does not equate with a finding of fraudulent intent. As summarized by Kristjanson J. in 1694879 Ontario Inc. v. Krilavicius, 2017 ONSC 2396, in order to succeed in its claim under ss. 48 and 50 of the Act Brantfield has the onus of proving on a balance of probabilities that:

1. the tenant was in arrears of rent;

2. the tenant fraudulently removed, conveyed or carried off the tenant’s goods or chattels;

3. the tenant did so to prevent the landlord from distraining for the arrears of rent; and

4. the third parties (i.e. Topolinski, Bozzo and or Mitchell) wilfully and knowingly aided or assisted the tenant in fraudulently removing or concealing the goods and chattels with the intent of preventing the landlord from distraining against them.

[89] Fraudulent intent, even in the civil context, connotes moral wrongdoing on the part of the fraudster. Section 50 has attached to it penal consequences that arise from the dishonesty of the party associated with the removal of the tenant’s assets. In this case, what has been described as the Line 3 equipment was removed from the premises on or about July 10, 2013. The equipment was paid for by way of an invoice to a numbered company controlled by Topolinski. No explanation was offered to explain why the monies were paid in this fashion as opposed to Benevito. On its face, some may argue that such conduct connotes dishonesty reaching the level of fraud. Before reaching such a conclusion, however, I choose to look at all of the evidence as it relates to the conduct of Topolinski.

[90] If Topolinski had the intent to benefit himself at the expense of his landlord, one would have expected that there would have been evidence that he benefited himself at the expense of Brantfield throughout the sale of Benevito’s assets. While monies for the Line 3 equipment may have been paid to a numbered company controlled by Topolinski, this is the only evidence he may have preferred his interests over those of the landlord. I am not prepared to conclude that such conduct was fraudulent, where Topolinski could have benefited himself to a much greater extent in connection with the auction of the bulk of Benevito’s assets.

[91] In the result, while the removal of the Line 3 equipment could have attracted s. 50 liability in favour of Brantfield against Topolinski, it would be wrong not to look at all of the evidence before making a finding of fraud. I accept Topolinski’s evidence and decline to make any findings of fraud as against him or any of the Defendants.

[92] The Plaintiff’s action against Topolinski, Mitchell and Bozzo, is dismissed. As it relates to the action against Benevito for arrears of rent, there is no real dispute that Benevito abandoned the premises and defaulted on the lease. Benevito is liable to Brantfield for the total rent owing over the balance of the lease, minus amounts received by Brantfield in rental income that it received from its new tenant. Benevito did not seriously contest the total of that loss at trial, which totals $196,794.00. Brantfield suggests that with the application of ss. 48 and 50 of the Act, that Brantfield is entitled to double the value of the goods removed from the leased premises. Having rejected Brantfield’s arguments that the named individual Defendants did not participate in fraudulent or clandestine activity, it would be impossible to ascribe fraudulent or clandestine activity to Benevito. Brantfield’s claim for s. 50 relief is dismissed. Brantfield is entitled to damages for Benevito’s breach of the lease in the amount of $196,794.00.

[93] The vast majority of the time spent at trial related to Brantfield’s claim against the named Defendants - Topolinski, Bozzo and Mitchell. The reason for this is obvious. Without a finding against one or other of these individuals, would likely leave Brantfield with no ability to execute on its judgement. Brantfield could have protected its position back in 2009, when it entertained leasing the premises to Benevito at a point in time when Benevito’s predecessor had gone out of business.

[94] Brantfield was and is an experienced landlord, and could have protected itself by requiring a personal covenant from Topolinski and/or insisted on a personal guarantee from Topolinski or others associated with Topolinski. Brantfield chose not to obtain that protection. Brantfield chose in this litigation to make unfounded allegations of fraud. These are all considerations that may need to be addressed in costs. The parties are, however, encouraged to resolve the issue of costs. If those issues cannot be resolved, the court will receive the parties’ submissions limited to five pages in length, to be received within 30 days from the date of receipt of these Reasons. If submissions are not received within the aforesaid 30 days, the court will assume the issue of costs has been resolved.

Justice M.L. Edwards Released: February 20, 2019