Calo Holdings Ltd. et al. v. 2347186 Ontario Inc.

[Indexed as: Calo Holdings Ltd. v. 2347186 Ontario Inc.]

Ontario Reports Ontario Superior Court of Justice Pattillo J. August 13, 2019 147 O.R. (3d) 15 | 2019 ONSC 4222

Case Summary

Corporations — Oppression — Parties entering into joint venture to carry on business on property through two corporations — Respondent's failure to pay applicants for contributions made to property not being oppressive as respondent did not owe money to applicants.

Corporations — Shareholders — Equalization of shareholders' accounts — Parties entering into joint venture to carry on business on property through two corporations — Application for order equalizing shareholder accounts being dismissed — Evidence not establishing that parties agreed that there would be equalization between applicant and respondent on account of work done or materials supplied to property.

The applicant Calo and the respondent 234 agreed to enter into a joint venture to carry on a precast business on the property through two companies, 205 (which owned the property) and Northern (which carried on the precast business). Calo purchased 50 per cent of 205, the parties caused Northern to be incorporated, and the shareholders of both Northern and 205 entered into the Northern and 205 shareholder agreements. The applicant Imperial did work for 205. The property was subsequently sold by court order and 205 was wound up. The applicants applied for, among other things, an order equalizing the shareholders' accounts between themselves and 234, along with 205 and Northern.

Held, the application should be dismissed.

The evidence did not establish that the parties agreed that there would be an overall equalization between Calo and 234 on account of work done or materials supplied to the property in respect of the precast business. Rather, the provision for equalization between the shareholders was contained in each of the 205 and Northern shareholder agreements. For the same reason, 234's refusal to pay Calo for the contributions made to the property by Calo and Imperial did not amount to oppressive conduct within the meaning of s. 248(2) of the Business Corporations Act, R.S.O. 1990, c. B.16. 234 did not owe any money to Calo or Imperial.

Cases and Statutes Referred To

Cases referred to Canlan Investment Corp. v. Gettling, [1997] B.C.J. No. 1647, [1998] 2 W.W.R. 431, 95 B.C.A.C. 16, 37 B.C.L.R. (3d) 140, 36 B.L.R. (2d) 117, 10 R.P.R. (3d) 180, 72 A.C.W.S. (3d) 668 (C.A.), affg [1996] B.C.J. No. 1803 (S.C.)

Statutes referred to Business Corporations Act, R.S.O. 1990, c. B.16, ss. 1(4), 248 [as am.], (2)

APPLICATION for an order equalizing the shareholders' accounts and other remedies.

Counsel: Monique Jilesen and Scott Azzopardi, for applicant. Ronald B. Moldaver, Q.C., for respondent. [page16]

PATTILLO J. : —

Introduction

[1] This is an application (the "application") by Calo Holdings Ltd. ("Calo") and Imperial Precast Corp. ("Imperial") (together the "applicants") for, among other things, an order equalizing the shareholders' accounts between themselves and the respondent 2347186 Ontario Inc. ("234") along with 2057461 Ontario Inc. ("205"), 2403282 Ontario Inc. ("240") and Northern Precast Corp. ("Northern"), who are non-parties listed on Schedule "A" of the notice of application in order to be bound by the result.

[2] The application was brought as a counter-application to 234's application (CV-17-574853) for an order that lands known municipally as 111, 121 and 131 Bales Drive East, Newmarket, Ontario (the "Bales Property"), owned by 205, be sold and that 205 be wound up.

[3] On May 14, 2018, Dunphy J. ordered that the Bales Property be listed for sale for $16 million and set the conditions of sale. The Bales Property has since been sold and the sale proceeds are being held in trust for 205 pending further order of the court.

[4] On August 28, 2018, Hainey J. placed Northern in receivership.

Background

[5] Calo and Imperial are owned 50 per cent by Sciullo Holdings Ltd. ("Sciullo Holdings") and Mavone Holdings Inc. ("Mavone").

[6] 234 is owned by the Tiberini Group.

[7] In or around early 2013, Emilio Sciullo ("Emilio") and Galliano Tiberini ("Galliano") agreed to enter the precast business at the Bales Property. Imperial, which was owned by Sciullo Holdings and Mavone, were already in the precast business and 234, through 205, owned the Bales Property on which a precast business had previously been operated.

[8] In furtherance of the agreement, on July 1, 2013, Calo purchased 50 per cent of the shares of 205 and the parties caused Northern and 240 to be incorporated.

[9] 205 is owned 50 per cent by Calo and 50 per cent by 234. Northern is owned 50 per cent by Scone Holdings Ltd. (Sciullo Holdings and Mavone) and 50 per cent by 234. 240 is a wholly owned subsidiary of 205.

[10] Attached as Schedule "A" is a corporate chart showing the relationship between the various corporations, together with their officers and directors.

[11] Northern was incorporated on June 28, 2013. On July 1, 2013, 234, Scone Holdings, Emilio and Northern entered into [page17] a shareholders agreement in respect of Northern. The relevant provisions of the Northern shareholders agreement are as follows:

(a) Article 2.05(b) provides that all shareholders and directors shall co-operate fully to ensure the successful operation of the business.

(b) Article 4 deals with financing and provides, among other things, that each of the shareholders shall contribute $500,000 as working capital and any additional working capital required from time to time shall come from Northern's bank, failing which by shareholder loan in proportion to their respective shareholdings.

(c) Article 6.02 provides that the shareholders shall cause Northern to enter into a lease with 205 for the Bales Property and the use of all fixtures and equipment thereon for a term of not less than ten years.

(d) Article 6.03 provides that Scone Holdings agrees that contracts entered into by Imperial and attached as Schedule "A" to the agreement, which are all the work contracts of Imperial for which production has not commenced, shall be transferred, assigned or subcontracted to Northern and Northern agrees to indemnity Imperial from all obligations, liabilities, costs and claims that may arise from such assigned contracts.

[12] On August 14, 2013, 234, Calo and 205 entered into a shareholders agreement in respect of 205 which was more extensive than the Northern shareholders agreement but contained similar provisions to it, including a reciprocal requirement to lease the Bales Property to Northern.

[13] Similar to the Northern shareholders agreement, art. 4.01(c) of the 205 shareholders agreement provides that all capital requirements which exceed 205's own resources and cannot be borrowed from 205's bank, shall be provided by way of shareholder loans in proportion to their respective shareholdings.

Position of the Parties

[14] Calo submits that Emilio and Galliano agreed at the outset of the relationship that since Imperial was already in the precast business, it would transfer contracts and equipment to Northern, provide the necessary materials and labour for production at the Bales Property and provide trailers to 240 in order to get Northern started. Northern would commence production on the Bales Property and 234 would provide exterior clean-up of the Bales Property. [page18]

[15] Emilio's evidence is that the agreement with Guilliano, which was verbal, was that Imperial would provide contracts and move equipment and materials to Northern on behalf of both 205 and Northern on the basis that it would be reimbursed by 205 and Northern for its costs and expenses.

[16] The applicants further submit that the carrying on of the precast business at the Bales Property was an equal joint venture between Calo and its affiliates and 234 and its affiliates. Further, as part of the joint venture, any shareholder advance/expense would be subject to equalization of the shareholder accounts.

[17] The applicants submit that Imperial, an affiliate of Calo, is owed $802,133.82 on account of work done or equipment supplied to the joint venture, and therefore should be paid that amount by 205 from the moneys currently held by it from the sale of the Bales Property as part of the equalization of the whole enterprise. In the alternative, the applicants submit that Imperial should be paid that amount by 234 because of its oppressive conduct of 234 in refusing to pay Calo or Imperial for work done on the Bales Property.

[18] In response, 234 denies that its agreement with Calo was a joint venture. Rather, the relationship between the parties, including the right to equalization of shareholder accounts for work and materials supplied to 205, 240 or Northern is governed by the 205 and Northern shareholders agreements. Imperial is not a shareholder of 205 or Northern. At best, it is an unsecured creditor. Further, while 234 does not dispute that Imperial is owed $802,133.82, it submits that it is owed that amount from three distinct corporations: $130,269 from 205; $226,823 from 240; and $445,042 from Northern.

Discussion

[19] In Canlan Investment Corp. v. Gettling, [1996] B.C.J. No. 1803 (S.C.), affd, [1997] B.C.J. No. 1647, 37 B.C.L.R. (3d) 140 (C.A.), Tysoe J. (as he then was), at para. 59, adopted the following definition from Williston on Contracts of a "joint venture":

A joint venture is an association of persons, natural or corporate, who agree by contract to engage in some common, usually ad hoc undertaking for joint profit by combining their respective resources, without however, forming a partnership in the legal sense (of creating that status) or corporation; their agreement also provides for a community of interest among the joint venturers each of whom is both principal and agent as to the others within the scope of the venture over which each venture exercises some degree of control.

[20] Whether an association between parties amounts to a joint venture therefore is, first and foremost, a question of contract. In my view, the evidence establishes that the parties (Emilio and [page19] Guilliano) agreed to enter a joint venture by combining their resources to carry on a precast business on the Bales Property. They further agreed that the business would be carried on through two corporations, 205 which owned the Bales Property and Northern which would carry on the precast business on the Bales Property. In furtherance of that agreement, Calo purchased 50 per cent of 205, the parties caused Northern to be incorporated and the shareholders of both 205 and Northern entered into the 205 and Northern shareholders agreements which governed the relationship between them in respect of carrying on the precast business at the Bales Property including how each corporation would be financed and operated.

[21] I also find that it was agreed by the parties that any contributions by the shareholders or their affiliates to 205 or Northern, either in the form of work or equipment, would be reimbursed by the receiving corporation once approved by the shareholders to the extent that corporation had the resources to pay. If the corporation did not have the resources, the respective shareholders agreed to provide the money to the corporation by way of shareholder loan as per the shareholder agreements.

i. Equalization

[22] I do not accept and the evidence does not support that the parties agreed that there would be an overall equalization between Calo and 234 on account of work done or materials supplied to the Bales Property in respect of the precast business. Rather, the provision for equalization between the shareholders is contained in each of the 205 and Northern shareholder agreements and arises in circumstances where the shareholder accounts of the shareholders are not equal. In such circumstances, the shareholder whose loan account is less than the other shareholder can be required to equalize its shareholder account by a payment to the corporation.

[23] The above explanation of how the parties dealt with equalization can be seen from 205's first cash call on 205's shareholders in December 2013. At the November 27, 2013 shareholders meetings for both 205 and Northern, at which representatives of all shareholders were present, invoices addressed to 205 from ARG Group Inc. ("ARG"), totalling $409,209.16 for work done on the Bales Property were presented to all shareholders. ARG is a company affiliated with 234. There was no objection to the work done or the amount of the invoices from representatives of Calo and Scone Holdings.

[24] As at November 30, 2013, 234's 205 shareholders' account was at $665,499.20 which was comprised of an opening balance of [page20] $122,334.21; cash advances from 234 or its affiliates to 205 in the amount of $135,000; and the above ARG invoices totalling $409,209.16. By contrast, Calo's 205 shareholder account was at $18,116.16.

[25] Following the meeting, on December 2, 2013, 205 issued its first cash call to the shareholders pursuant to which Calo was required to pay 205 $323,691.52 in order to equalize the shareholder accounts.

[26] Given the terms of both the 205 and Northern shareholders agreements, as evidenced by the way in which the shareholders treated work done for 205 by 234's affiliate, any work done, or equipment provided to 205, its subsidiary 240 or Northern by any of their respective shareholders (or affiliates) would, once approved, be paid by the receiving corporation.

[27] Further, and to the extent that 205, 240 or Northern did not have the resources to pay for the work done or equipment supplied by its respective shareholder or affiliate, the shareholders of the receiving corporation would be required to pay their proportionate share of the amount owing to the receiving corporation in the form of a shareholder loan to satisfy the obligation. Any such payment by a shareholder would then be added to the shareholder's loan account. Further, if the shareholder loan accounts were not equal between shareholders, they were subject to equalization as provided for in the shareholder agreements.

[28] Based on the above, I am satisfied that the applicants claim against 234 for equalization for the work and equipment supplied by Imperial must be dismissed. In my view, no issue of equalization arises, either in respect of 205 or Northern. As noted, equalization occurs within the corporation in respect of the respective shareholder accounts. The applicants seek payment of the full amount owing to Imperial from 205. There is no basis in the evidence to support that claim.

[29] I accept that Imperial is an affiliate of both Calo and Scone Holdings (s. 1(4) of the Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA")). As such, it is entitled to be paid for work done or materials supplied to 205, 240 or Northern. In that regard, it is an unsecured creditor of those corporations. 234's evidence (and it is not contested) is that Imperial is owed money from each of 205, 240 and Northern. 205 has the resources to ensure that its obligation to Imperial is paid together with that of 240. 205 does not require shareholder loans in order to pay those amounts.

[30] The amount owing to Imperial from Northern raises different considerations. As noted, Northern is in receivership. As an unsecured creditor, it is likely Imperial will not be paid by [page21] Northern. In the absence of payment by Northern, however, no issue of equalization arises. Equalization takes place within Northern as part of the shareholder accounts, not outside, directly between shareholders, even if Calo was a shareholder of Northern, which it is not.

[31] Accordingly, the applicants have no claim against 234 for the amounts owing to Imperial from 205, 240 and Northern.

ii. Oppression

[32] The applicants also rely on the oppression remedy pursuant to s. 248 of the OBCA to obtain payment of Imperial's invoices. They submit that 234's refusal to pay Calo for the contributions made to the Bales Property (which include I presume contributions to Northern) by Calo and its affiliates, amounts to oppressive conduct.

[33] For the reasons already discussed, I do not consider that 234's alleged conduct in refusing to pay Calo or Imperial is improper let alone oppressive within the meaning of s. 248(2) of the OBCA. 234 does not owe any money to Calo or Imperial. Rather, Imperial is entitled to payment for work done or equipment supplied to each of 205, 240 and Northern from each of those respect corporations.

[34] The applicants' oppression claim is therefore dismissed.

Conclusion

[35] For the above reasons, therefore, the application is dismissed.

[36] At the conclusion of the argument, counsel agreed that a reasonable amount in respect of costs for the application on a partial indemnity basis would be $15,000. I agree. Given the issues and the argument, I consider that amount to be both fair and reasonable. Costs to 234, fixed in the total amount of $15,000, payable forthwith.

Application dismissed.

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