Court File and Parties

COURT FILE NO.: CV-18-87-00 DATE: 2019-07-29 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

UNIQUE LIGHTING & CONTROL CORP. Plaintiff / Responding Party Moving Party on Cross-Motion

– and –

GREEN SERVICES CANADA LTD., JACK GREEN, JOHN GREEN, and PATRICIA GREEN Defendants / Moving Parties / Responding Parties on Cross-Motion

COUNSEL: Ms. Amrita Mann, for the Plaintiff Mr. Christopher Salazar, for the Defendants Green Services Canada Ltd., John Green and Patricia Green

HEARD: January 30, 2019

REASONS FOR DECISION ON MOTION FOR SUMMARY JUDGMENT

STRIBOPOULOS J:

Introduction

[1] This action arises from the failure of a lighting contractor to pay one of its suppliers.

[2] The plaintiff, Unique Lighting & Control Corp. (“Unique Lighting”), sells lighting supplies. The defendant, Green Services Canada Ltd. (“Green Services”), installs and maintains lighting equipment. Green Services was incorporated in Ontario on October 8, 1987. The defendants, John Green (a.k.a. Jack Green) and Patricia Green (“the Greens”), are both officers of Green Services.

[3] In April of 2016, Green Services entered into a contract with Metro Richelieu Inc. (“Metro”) to maintain and install lighting at a number of its stores in Ontario. Under the terms of that agreement, Green Services was required to purchase lighting supplies from Unique Lighting.

[4] In the spring of 2016, given its contract with Metro, Green Services began ordering supplies from Unique Lighting for the work it was undertaking at Metro stores. By early 2017, the business relationship had soured because Unique Lighting’s invoices to Green Services were going unpaid.

[5] Eventually, Unique Lighting initiated this action against Green Services and the Greens. It claims breach of contract against Green Services for failing to pay for $51,239.00 [1] worth of lighting supplies that it ordered and received. It also advances a variety of claims against the Greens in an effort to hold them jointly liable for the debt.

[6] The Greens move for summary judgment. They argue that the evidence on the motion fails to reveal any legal basis for holding them liable for Green Services’ outstanding account.

[7] Unique Lighting agrees that this is an appropriate case for summary judgment. However, it contends that summary judgment should be granted in its favour against both Green Services and John Green. During the hearing of the motion, it conceded that the evidence does not reveal a basis to hold Patricia Green liable for the debt. However, it maintains its claim against John Green and insists that he is jointly liable for the monies owed by Green Services to Unique Lighting.

[8] These reasons will proceed in three parts. In the first part, I will address whether or not it would be appropriate to consider ordering summary judgment against Green Services on this motion in the absence of a formal cross-motion. The second part will briefly outline the law governing summary judgment. Finally, the reasons will turn to a review of the evidence on the motion and assess whether or not this is an appropriate case for summary judgment.

I. Summary Judgment Against Green Services on this Motion

[9] Recall that the Greens, not the co-defendant Green Services, are the moving parties on this motion. The parties disagree as to whether or not Unique Lighting, the responding party, is entitled to seek summary judgment on this motion against Green Services, a co-defendant.

(a) The Positions of the Parties

[10] Mr. Salazar, who is counsel for all three co-defendants, the Greens and Green Services, objects to the court considering summary judgment against Green Services on this motion. He notes that he brought a motion for summary judgment on behalf of the Greens and not Green Services. Accordingly, Mr. Salazar argues, Green Services is not a party to this motion. It follows, he contends, that it would be inappropriate for the court to consider granting summary judgment against it on this motion. If Unique Lighting intended to seek summary judgment against Green Services, Mr. Salazar argues it should have brought its own motion.

[11] In contrast, Ms. Mann, counsel for Unique Lighting, argues that it is appropriate for the court to consider granting summary judgment against Green Services on this motion. She notes that a party responding to a motion for summary judgment is entitled to seek summary judgment against the moving party without bringing a cross-motion. Further, she emphasizes that Green Services had ample notice that Unique Lighting would be seeking summary judgment against it.

(b) The Procedural History

[12] To decide this preliminary procedural question, some understanding of the history of the action and the motion is necessary. The statement of claim issued on January 9, 2018. The Greens and Green Services jointly filed a statement of defence on March 1, 2018. The joint statement of defence was filed by Mr. Salazar, who is counsel in this action for both the Greens and Green Services.

[13] Soon after the action began, Mr. Salazar made clear that the Greens intended to bring a motion for summary judgment. The scheduling of the motion resulted in an exchange of correspondence between counsel. In a letter to Mr. Salazar, dated April 5, 2018, Ms. Mann, counsel for Unique Lighting, indicated that she believed “the Court should be able to decide the entire action under your motion” (emphasis added). Eventually, on October 25, 2018, Mr. Salazar filed a motion for summary judgment on behalf of the Greens but not Green Services.

[14] On December 19, 2018, during Mr. Green’s cross-examination on his affidavit filed in support of his motion, Ms. Mann told both Mr. Salazar and Mr. Green that Unique Lighting would be seeking summary judgment against Green Services on the hearing of the motion. Mr. Salazar responded by making his position equally clear; that Unique Lighting could not seek summary judgment against Green Services without bringing its own motion.

[15] Finally, in its factum filed on the motion, Unique Lighting reiterated its position that it was seeking summary judgment against Green Services on the hearing of the motion.

(c) Law and Analysis

[16] Rule 37, of the Rules of Civil Procedure, governs motions in civil proceedings. That rule provides direction regarding all aspects of civil motions, including matters of form, procedure and evidence.

[17] On a motion for summary judgment, the responding party may bring a motion for summary judgement against the moving party; in effect, a cross-motion. However, on a number of occasions the Court of Appeal has observed that the authority of the court to grant summary judgment in favour of a responding party on a motion for summary judgment does not depend on the bringing of a cross-motion: see Singh v. Trump, 2016 ONCA 747, at para. 147; Baig v. Meridian Credit Union, 2016 ONCA 150, at para. 17; King Lofts Toronto I Ltd. v. Emmons, 2014 ONCA 215, at paras. 14-16; Kassburg v. Sun Life Assurance Co. of Canada, 2014 ONCA 922, at paras. 50-52.

[18] This accords with Rule 37.01, which contemplates that a notice of motion is not always required. Rule 37.01 provides: “A motion shall be made by a notice of motion (Form 37A) unless the nature of the motion or the circumstances make a notice of motion unnecessary” (emphasis added). The moving party on a motion for summary judgment is effectively on notice that the motion may be unsuccessful, and that summary judgment could be ordered against it. As a result, it is usually unnecessary for the responding party to engage in the empty formalism of filing a notice of motion for summary judgment.

[19] This exception to the ordinary requirement to serve and file a notice of motion is not without limits. In Singh, the Court of Appeal cautioned that “a motion judge may not grant or dismiss a claim on a motion for summary judgment that is not within the scope of the motion before him or her. Doing so would deny procedural fairness and natural justice”: Singh, at para. 148. The Court explained that a fair hearing, “requires that a party have notice of the matters that will be at issue at the hearing and of how that party may be affected by the hearing's outcome”: Singh, at para. 149.

[20] These cautionary words from Singh suggest it could be inappropriate to consider ordering summary judgment against Green Services on this motion. After all, Green Services did not bring a motion for summary judgment, the Greens did. Arguably, granting summary judgment against Green Services would be unfair, as Green Services was not given formal notice that its interests would be at stake on this motion.

[21] Ultimately, I am of the view that acceding to such an argument, in the particular circumstances of this case, would place form over substance. Accordingly, I have concluded that as part of this motion it is appropriate for the court to also consider whether or not summary judgment should be ordered against Green Services. I have come to this conclusion for the following reasons.

[22] To begin, the Rules of Civil Procedure emphasize flexibility in their application to achieve the ends of justice. The court is to avoid interpreting the rules in an overly technical or formal manner. Instead, they are to be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”: Rule 1.04(1).

[23] Closely related to the need for a liberal interpretation, the rules contemplate that non-compliance is not necessarily fatal to a procedural step. Rather, the court has the authority to relieve a party from strict compliance with the rules, “to secure the just determination of the real matters in dispute” (Rule 2.01(1)(a)) unless doing so would be contrary to “the interest of justice” (Rule 2.01(1)(b)).

[24] The notice requirement found in Rule 37.01 deliberately incorporates flexibility. The rule provides that a notice of motion is not always a necessary precondition for hearing a motion. The court may dispense with this requirement where the nature of the motion or the circumstances make a notice of motion unnecessary.

[25] In short, the rules empower the court to relieve a party from formally complying with the notice requirement. To be sure, I would be disinclined to dispense with the usual requirement for a notice of motion had Green Services not been alerted to the fact that Unique Lighting would seek summary judgment against it on this motion, or if the failure to provide notice resulted in a less than complete evidentiary record. I am satisfied, however, that neither of these concerns is operative in the present circumstances.

[26] First, although Green Services was not formally served with a notice of motion by Unique Lighting, on a number of occasions it was clearly put on notice that Unique Lighting would be seeking summary judgment against it on the hearing of the Greens’ motion for summary judgment. Mr. Salazar acts for both Green Services and the Greens in this action, the Greens are both officers of Green Services, which is a small privately held company. As a result, Green Services had ample warning that its interests were at stake on this motion and enjoyed a full opportunity to participate.

[27] Second, this is a straightforward case of a lighting contractor failing to pay a supplier. Given Unique Lighting’s effort to fix the Greens with liability, the material placed before the court is far more expansive than would ordinarily be the case when dealing with a claim of this nature. In short, the motion record includes the evidence necessary to decide all aspects of this action, not only the claim against the Greens personally.

[28] Finally, allowing the action against Green Services to continue because of technical non-compliance with the Rules of Civil Procedure would not be in keeping with the culture shift in civil practice that was encouraged by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7 [Hryniak]. To only decide the motion for summary judgment brought by the Greens, while not considering the motion for summary judgment by Unique Lighting against Green Services, would result in the bifurcation of this action. This would be inconsistent with the obligation on this court to encourage the proportionate, timely and affordable resolution of civil actions.

[29] For all of these reasons, I have concluded that this court should also decide the motion for summary judgment brought by Unique Lighting against Green Services at this time. That said, given that Green Services was not the moving party on the motion, it would undoubtedly have been a safer course of action for Unique Lighting to serve a notice of motion regarding its intention to seek summary judgment. If Unique Lighting had done so, it would have spared time and effort from being spent addressing a procedural question unrelated to the substance of the motions.

II. The Law Governing Motions for Summary Judgment

[30] There is no dispute between the parties, at least when it comes to the claim against the Greens, that this is an appropriate case for summary judgment. Accordingly, the court's authority on this motion relating to the claim against the Greens comes from Rule 20.04(2)(b). That rule permits the parties to move jointly for summary judgment.

[31] Under Rule 20.04(2)(b), notwithstanding the agreement of the parties, the court retains the discretion to refuse the motion “where the test for summary judgment is not met”: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, at para. 41 [Combined Air], affirmed by the Supreme Court of Canada on other grounds in Hryniak; 772067 Ontario Ltd. v. Victoria Strong Manufacturing Corp., 2017 ONSC 2719, at para. 18 [Victoria Strong]; Anjum v. John Doe and State Farm, 2016 ONSC 7784, at para. 21.

[32] Although the parties agree that it would be appropriate to decide the claim against the Greens by way of summary judgment, they disagree about resolving the claim against Green Services in the same way. (These reasons already addressed the procedural objection by Green Services to Unique Lighting's motion for summary judgment.) Given this lack of consensus, Rule 20.04(2)(a) is the basis for deciding Unique Lighting's motion for summary judgment against Green Services.

[33] Rules 20.04(a) and 20.04(b) use different language in describing the standard for granting summary judgment. Under Rule 20.04(a), the court shall grant summary judgment if "satisfied that there is no genuine issue requiring a trial," while under Rule 20.04(b), summary judgment shall be granted if the court is, "satisfied that it is appropriate" (emphasis added).

[34] To date, courts have not resolved whether the differences in wording between Rules 20.04(a) and 20.04(b) results in differing standards: see Victoria Strong, at para. 18; Pulcine v. BOT Construction (Ontario) Ltd., 2016 ONSC 4491, at para. 7. In this case, given the two motions for summary judgment before me, one contested under Rule 20.04(a), the other on consent under Rule 20.04(b), it appears necessary to decide this question.

[35] In my view, Rules 20.04(2)(a) and 20.04(2)(b) are best understood read together. There are two interwoven paths to summary judgment. Despite the agreement of the parties, Rule 20.04(2)(b) sensibly empowers the court to decline summary judgment if it is not satisfied "that it is appropriate." Of course, if there remains "a genuine issue for trial," even after recourse to the enhanced powers provided by Rule 20.04(2.1), it can never be "appropriate to grant summary judgment." In such circumstances, in the language of the Court of Appeal in Combined Air, at para. 41, "the test for summary judgment is not met" (emphasis added).

[36] Accordingly, although Rule 20.04(2)(b) provides an alternative route to summary judgment, it does not establish a different standard. It does not enable the parties to compel a summary judgment where there is a genuine issue that the interests of justice require the full procedural machinery of a trial to resolve: see 2249740 Ontario Inc. v. Morguard Elgin Ltd., 2015 ONSC 299, at para. 8, overturned on other grounds 2015 ONCA 605; Lagani v. Lagani Estate, 2013 ONCA 159, at para. 5.

[37] The ultimate question the court must decide remains the same whether the route to summary judgment is Rule 20.04(2)(a) or Rule 20.04(2)(b). That being, whether or not there is a genuine issue requiring a trial: see Victoria Strong, at para. 18; Pulcine v. BOT Construction (Ontario) Ltd., 2016 ONSC 4491, at para. 7. In this case, both motions for summary judgment turn on that very same question.

[38] Therefore, I will consider whether the summary judgment process provides the court with the evidence required to fairly and justly adjudicate the respective claims of the parties and is a timely, affordable and proportionate procedure. Further, if there appears to be a genuine issue requiring a trial, I will then exercise my discretion to determine if the need for a trial can be avoided by using the powers conferred under Rules 20.04(2.1) and (2.2). If that proves necessary, I will only resort to these powers if their use would lead to “a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole”: see Hryniak, at para. 66; Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, at para. 22.

[39] Finally, it deserves mention that on a motion for summary judgment, the parties are expected to marshal the evidence capable of supporting their respective pleadings. The court is “entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial”: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 27, affirmed 2014 ONCA 878, leave to appeal refused [2015] SCCA No 97; see also Da Silva v. Gomes, 2018 ONCA 610, at para. 18 [Da Silva]. In other words, each side is expected to “put its best foot forward”: 2212886 Ontario Inc. v. Obsidian Group Inc., 2018 ONCA 670, at para. 49. The case law routinely cautions that a party responding to a motion for summary judgment must, “lead trump or risk losing”: see e.g. Da Silva, at para. 18.

[40] With the benefit of this brief overview of the governing principles, I will turn next to consider the evidence on the motions and whether or not this is an appropriate case for summary judgment.

III. Is this an Appropriate Case for Summary Judgment?

[41] There is little controversy regarding the evidence on these motions. Rather, the dispute relates primarily to how that evidence should be interpreted and what legal conclusions should result. I will begin with Unique Lighting’s claims against Mr. Green, before turning to the claim by Unique Lighting against Green Services.

(a) The Claim Against John Green

[42] Unique Lighting advances two principal alternative claims by which it seeks to hold John Green liable for what Green Services owes to Unique Lighting.

[43] Unique Lighting claims that Green Services is the alter ego of Mr. Green and that he used the corporate veil provided by Green Services to defraud Unique Lighting of lighting supplies. It follows, Unique Lighting claims, that the court should pierce the corporate veil of Green Services and hold Mr. Green liable for the outstanding accounts.

[44] Alternatively, Unique Lighting claims that the funds paid by Metro to Green Services were subject to a trust in favour of Unique Lighting equivalent to what Green Services owes Unique Lighting. It claims that Mr. Green was the trustee of these funds and that he breached his fiduciary duty by failing to preserve these funds for the benefit of Unique Lighting.

[45] In contrast, Mr. Green denies that there is any legal basis to hold him liable for the debt owed by Green Services to Unique Lighting. He argues that there is simply no evidence of fraud or any other type of improper conduct that would justify piercing the corporate veil. He also contends that the evidence fails to establish any of the essential preconditions for a trust, making a breach of trust claim untenable.

Is There a Genuine Issue for Trial to Justify Piercing the Corporate Veil?

[46] Unique Lighting provided lighting supplies to Green Services, under terms that initially required payment of its invoices within 30 days, but eventually were extended to 45 days. Almost from the beginning of their business relationship, Green Services did not provide timely payment to Unique Lighting. Despite this, Unique Lighting continued providing lighting supplies to Green Services. In time, Green Services became indebted to Unique Lighting for $51,239.00.

[47] On January 20, 2017, Nikhil Bhatia, president of Unique Lighting, wrote Mr. Green advising that because of the amount then owing, going forward Green Services would need to pay for any supplies it ordered upon delivery. Also, as a precondition for furnishing additional lighting supplies, Mr. Bhatia took the position that Green Services would need to pay its outstanding account. Mr. Green, on behalf of Green Services, agreed to provide a post-dated cheque for the amount owing.

[48] On January 31, 2017, Green Services furnished Unique Lighting with a cheque for $51,239.00, post-dated for March 15, 2017. Unfortunately, between the date that cheque was issued and the date it was payable, the financial position of Green Services worsened.

[49] At that time, the Government of Canada was one of Green Services’ creditors. The company owed $105,798.00 for Harmonized Sales Tax that it had collected but failed to remit. Not surprisingly, the Canada Revenue Agency (“CRA”) took enforcement action against Green Services.

[50] On February 23, 2017, the CRA issued a Requirement to Pay notice to Metro, which obligated it to send to the Receiver General 50% of any amounts it would otherwise be required to pay Green Services. On March 10, 2017, the CRA issued a second Requirement to Pay notice to Metro, which directed that it send 100% of any amounts it would otherwise pay to Green Services to the Receiver General. Understandably, Metro complied and redirected funds owing to Green Services to the CRA.

[51] By March of 2017, in the aftermath of the enforcement action by the CRA, Green Services was experiencing rather significant cashflow difficulties. On March 14, 2017, Mr. Green e-mailed Mr. Bhatia, asking him to "hold off cashing the check (sic) for a few days" and indicating "I do not want it to be returned to you NSF." Nevertheless, Unique Lighting deposited the cheque which did not clear because of insufficient funds in the bank account of Green Services. Since then, Green Services has failed to pay Unique Lighting what it owes.

[52] The motion record establishes that in March 2017, funds flowed in and out of Green Services' bank account. In terms of outgoing funds, this included a payment of $50,000 to Mr. Green on March 9, 2017. In his affidavit, filed on the motion, Mr. Green deposed that these funds represented a partial repayment of monies he deposited into the company's bank account in January 2017. To corroborate this claim, Mr. Green produced a statement from his personal bank account showing a cheque drawn against that account on January 19, 2017, in the amount of $66,000. The bank statement for Green Services from January 2017 shows a corresponding deposit into the company’s bank account. During cross-examination, Mr. Green testified that the source of these funds was a loan he received from his daughter for $76,000.00, which he eventually repaid from his personal funds.

[53] To verify his status as a bona fide creditor of Green Services, Mr. Green also produced a Security Agreement and a Revolving Promissory Note, each dated June 30, 2012. These documents show a debt from Green Services to Mr. Green totalling $208,000.00. He also produced a Verification Statement to show registration of these same debt instruments under the Personal Property Security Act, R.S.O. 1990, c. P.10.

[54] The financial challenges that Green Services was experiencing were not limited to its outstanding tax debt. It is noteworthy, for example, that by the end of March 2017, Green Services was indebted to its bank for $74,909.98 on a line of credit that had a limit of $75,000.00.

[55] By June 2017, Green Services had effectively stopped conducting business. To date, however, the company has not been dissolved. It would appear that Green Services has left many of its creditors unpaid. Including Unique Lighting, Green Services owes over 75 different creditors $231,622.83. This does not include any debt it owes to Mr. Green. Although Unique Lighting is Green Services’ largest creditor, other creditors are also owed substantial amounts of money.

[56] In seeking to pierce the corporate veil and to hold Mr. Green personally liable for the balance outstanding on Green Services’ account, Unique Lighting pleaded fraud in its Statement of Claim. During argument on the motion, however, counsel for Unique Lighting, Ms. Mann, retreated from that claim.

[57] Unique Lighting’s claim now focusses on Mr. Green’s decision, on March 9, 2017, to transfer $50,000.00 from the company’s bank account to himself, to ostensibly pay back a debt the company owed him. According to Ms. Mann, it was improper for Mr. Green, in his role as president of Green Services, to prefer his financial interests over those of Unique Lighting, an arms-length third-party creditor.

[58] Based on this record, the question is whether or not there is a genuine issue requiring a trial regarding Mr. Green’s liability for the debt owed by Green Services to Unique Lighting. Mr. Green argues there is no triable issue, that the evidence discloses no legal basis for piercing the corporate veil and holding him liable for the debt. Although Unique Lighting agrees that there is no triable issue, it contends that the evidence on the motion demonstrates that the test for piercing the corporate veil is met and that Mr. Green should be held liable for the debt.

[59] The law establishes that a court should only pierce the corporate veil in exceptional circumstances. The Court of Appeal has repeatedly affirmed the governing test stated by Laskin J.A. in 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.), at para. 68:

Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if, when incorporated, "those in control expressly direct a wrongful thing to be done": Clarkson v. Zhelka, at 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Ont. Gen. Div.), at 433-434, affd [1997] O.J. No. 3754 (Ont. C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."

See also: Pita Royale Inc (cob Aroma Taste of the Middle East) v Buckingham Properties Inc, 2019 ONCA 439, at paras. 32-33; Mitchell v. Lewis, 2016 ONCA 903, at para. 18; Terra Farm Ltd v Park Stud Inc, 2010 ONCA 422, at para. 34.

[60] There is no evidence to suggest that Green Services was incorporated for an illegal, fraudulent or improper purpose. To the contrary, the evidence establishes that Green Services was incorporated in 1987 to carry on business as a lighting contractor. This is the business that Green Services engaged in for over three decades, and it is that business that resulted in it purchasing lighting supplies from Unique Lighting.

[61] Further, the evidence also falls far short of supporting an inference that when Green Services was ordering lighting supplies from Unique Lighting, it was doing so without any intention of paying for the supplies it ordered. The fact that it paid many of Unique Lighting’s invoices, though often late, before eventually falling into arrears, does not support a finding of fraud. No doubt, it was because of this that Ms. Mann sensibly abandoned that claim during oral argument.

[62] The evidence establishes that in recent years, Green Services was struggling. It was having difficulty meeting its financial obligations, not only to the Government of Canada and Unique Lighting but also to many of its other unsecured creditors. Further, Mr. Green, like many officers of small family-owned, privately-held companies experiencing financial difficulties, was injecting capital into the business to keep it afloat and then repaying himself whenever he could. Despite these efforts, the company was in serious financial trouble. As a result, many of Green Services’ creditors were going unpaid.

[63] To be sure, it is apparent from the evidence that Green Services repaid the debt it owed to Mr. Green as a secured lender in preference to the debts owed by Green Services to unsecured creditors, including Unique Lighting. However, in my view, this is far from a sufficient basis to find the sort of improper conduct that would justify piercing the corporate veil to find Mr. Green liable for the debt owed by Green Services to Unique Lighting.

[64] Although Unique Lighting has not pleaded oppression under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16, the case law interpreting that provision is instructive on the sort of improper conduct falling short of fraud that will justify piercing the corporate veil.

[65] Under s. 248(2) of the Business Corporations Act, a claim of oppression by a creditor can result in a piercing of the corporate veil and the officers of a company being held liable for the debt owed to creditor. Importantly, courts have only taken that step when it is shown that the officers of a company depleted its assets to render it immune from judgment in favour of a creditor: see Far East Food Products Ltd v 1104742 Ontario Ltd, [2009] O.J. No. 1153 (Sup. Ct.); Gignac, Sutts and Woodall Construction Co. v. Harris, [1997] O.J. No. 3084 (Gen. Div.); SCI Systems, Inc v. Gornitzki Thompson & Little Co, [1997] O.J. No. 2115 (Gen. Div.), varied on other grounds , [1998] O.J. No. 2299 (Div. Ct.); Downtown Eatery (1993) Ltd. v. Ontario (2001), 54 O.R. (3d) 161 (C.A.); Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 40 O.R. (3d) 563 (C.A.).

[66] Similarly, in cases where a creditor has not claimed oppression under the Business Corporations Act, but demonstrates that the officers of a company depleted its assets to defeat the creditor’s claim, courts have characterized this as the type of improper conduct that will justify piercing the corporate veil: see Chan v. City Commercial Realty Group Ltd., 2011 ONSC 2854, at paras. 55-57. In Chan, the court found the behaviour “improper” even though it was neither fraudulent nor illegal.

[67] The evidence marshalled by the parties on this motion is incapable of reasonably supporting an inference that Mr. Green depleted the assets of Green Services to avoid paying Unique Lighting or any other of the company’s many creditors.

[68] At its highest, the evidence demonstrates that Mr. Green, who undoubtedly controlled Green Services in his role as president of the company, prioritized the repayment of loans he made to the company, in preference to paying Unique Lighting or other unsecured creditors. Importantly, at the time, Mr. Green was a secured lender, whereas Unique Lighting was an unsecured creditor.

[69] In my view, it would set the bar for piercing the corporate veil far too low to allow a single unsecured creditor to collect from a company’s officers just because it can show that the company’s finances could have been organized differently to prioritize paying the creditor.

[70] Many large and small companies experience financial difficulties. When this happens, its officers are forced to make difficult choices when it comes to paying the company’s expenses. For example, it seems entirely reasonable for a company to give preference to paying taxes owing to government, wages to employees, rent to the landlord, and secured creditors before unsecured creditors. Officers of a struggling corporation acting in good faith should be free to exercise their best judgment in deciding which of the company’s creditors should be paid first. Accordingly, there is nothing improper in a struggling company’s officers relegating debts owed to unsecured creditors to the very bottom of the list of the company’s financial priorities.

[71] Based on all of the evidence, there is no genuine issue requiring a trial on the question of whether or not to pierce the corporate veil. Unique Lighting is an unsecured creditor of Green Services. Although it is most unfortunate that it has not been fully paid, that alone does not justify piercing the corporate veil and holding Mr. Green personally liable for the debt.

Is there a Genuine Issue for Trial for Breach of Trust?

[72] Unique Lighting also pleads a breach of trust. This claim is prefaced upon the monies received by Green Services from Metro being subject to a trust in favour of Unique Lighting. Unique Lighting contends that in his role as president of Green Services — a small, privately-held company that Mr. Green essentially controlled in his position as president — he was the constructive trustee of these funds. Unique Lighting claims that as such, Mr. Green was required to safeguard that portion of the funds received from Metro that related to the cost of lighting supplies provided by Unique Lighting. It follows that Mr. Green is liable to account to Unique Lighting for the funds earmarked to pay its invoices.

[73] Canadian courts have repeatedly recognized three essential preconditions for the creation of an express trust. As explained by Donovan W.M. Waters, Mark R. Gillen, & Lionel D. Smith, eds., Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), at p. 140:

For a trust to come into existence, it must have three essential characteristics … considered fundamental in common law Canada, (1) the language of the alleged settlor must be imperative; (2) the subject-matter or trust property must be certain; (3) the objects of the trust must be certain. This means that the alleged settlor, whether he is giving the property on the terms of a trust or is transferring property on trust in exchange for consideration, must employ language which clearly shows his intention that the recipient should hold on trust. No trust exists if the recipient is to take absolutely, but he is merely put under a moral obligation as to what is to be done with the property. If such imperative language exists, it must, second, be shown that the settlor has so clearly described the property which is to be subject to the trust that it can be definitively ascertained. Third, the objects of the trust must be equally and clearly delineated. There must be no uncertainty as to whether a person is, in fact, a beneficiary. If any one of these three certainties does not exist, the trust fails to come into existence or, to put it differently, is void. [Footnotes omitted.]

In this case, there is absolutely no evidence to support a finding that any party involved intended to create a trust in favour of Unique Lighting in relation to funds received by Green Services from Metro.

[74] The agreement between Metro and Green Services did not serve to create a trust in favour of Unique Lighting. To the extent that that agreement references Unique Lighting, it provides that Green Services is “required to procure the lamps from … Unique Lighting & Control”. The agreement does not, either expressly or by implication, require Green Services to hold any funds received from Metro in trust for Unique Lighting.

[75] Nor was there an agreement between Green Services and Unique Lighting that would give rise to a trust. In advancing its breach of trust claim, Unique Lighting makes much of the arrangement between Green Services and Unique Lighting when it came to the payment of Unique Lighting’s invoices. The evidence establishes that there was an understanding that Green Services would invoice Metro, receive payment from them, and then pay Unique Lighting. In order to facilitate this arrangement, Unique Lighting agreed to extend its usual terms for payment from 30 days to 45 days. Given all of this, Unique Lighting argues that there was an implicit agreement that Green Services would hold funds received from Metro in trust.

[76] Unique Lighting’s argument ignores that for an express trust to come into existence the law requires a clear expression of intention that the recipient of the property hold it in trust for the beneficiary. In that regard, Unique Lighting’s reliance on the Supreme Court of Canada’s decision in Air Canada v. M & L Travel Ltd. is misplaced. In that case, there was an express agreement between Air Canada and the travel agency that funds received by it for airline tickets issued on behalf of Air Canada, less any applicable commission, “shall be held in trust by the Agent until satisfactorily accounted for to the airline”: see Air Canada v. M & L Travel Ltd., at p. 796. There was no comparable agreement between the parties in this case.

[77] At its highest, Unique Lighting agreed to extend to Green Services slightly more favourable terms of payment for its invoices than it ordinarily required from its customers. This falls far short of establishing a clear intention that Green Service would treat the funds it received from Metro as being subject to a trust in favour of Unique Lighting. Accordingly, there is no genuine issue requiring a trial with respect to Unique Lighting’s breach of trust claim.

Is there a Genuine Issue for Trial for Unjust Enrichment?

[78] In its Statement of Claim, as a further alternative basis for seeking recovery from John Green personally, Unique Lighting also claims unjust enrichment. Unique Lighting did not elaborate upon the basis for this claim in its factum, nor did its counsel meaningfully address it during oral argument. Nevertheless, given that it was pleaded, out of an abundance of caution, I will briefly explain why I have concluded that this claim also appears to be devoid of merit.

[79] To establish unjust enrichment, a plaintiff must establish that the defendant was enriched, that the plaintiff suffered a corresponding deprivation, and an absence of a juristic reason for the enrichment: see Pettkus v. Becker, at p. 848; Moore v. Sweet, 2018 SCC 52, at para. 37.

[80] On the facts, it can be argued that Mr. Green was “enriched” in the sense of being repaid part of the debt that Green Services owed him. At the same time, Unique Lighting undoubtedly suffered a deprivation, in that it was not paid for $51,239.00 in lighting supplies that it furnished to Green Services. Nevertheless, Unique Lighting is hard pressed to establish that Mr. Green’s enrichment corresponded with its deprivation. It seems likely that the partial repayment of Mr. Green’s secured debt resulted not only from Unique Lighting’s deprivation but also came at the expense of Green Services’ many other unsecured creditors. Putting that obstacle to one side, the final requirement would appear to foreclose a successful claim by Unique Lighting for unjust enrichment against Mr. Green.

[81] As explained above, Mr. Green was a secured lender of Green Services. As a result, this is not a situation where there was an absence of a juristic reason for his enrichment. In Mosaic Group Inc (Re), [2004] O.J. No. 2323 (Sup. Ct.), at para. 39, Hoy J., as she then was, concluded that a secured lender’s valid security interest constitutes a juristic reason for the lender’s enrichment and an unsecured creditor’s corresponding deprivation. Given this, Unique Lighting’s claim of unjust enrichment does not raise a genuine issue requiring a trial.

Conclusion

[82] Unfortunately, Unique Lighting decided to continue extending credit to Green Services even after there were delays in receiving payment. To be sure, Unique Lighting had other options. It could have refused to extend Green Services credit, or as much credit as it ultimately did. Alternatively, as a precondition for extending credit to Green Services, it could have insisted on a personal guarantee from Mr. Green.

[83] By extending credit to Green Services without taking any steps to limit its potential exposure should the company become insolvent, Unique Lighting assumed the risk that it might not be paid. No doubt, it had good reasons for doing so, like, for example, its existing relationship with Metro, the fact that Green Services had been in business for decades, or some other reasonable business rationale.

[84] Although the court is sympathetic to Unique Lighting’s predicament, it cannot facilitate payment of the debt by lowering the bar for piercing the corporate veil, or by recognizing a trust where none was intended. Further, given that Mr. Green was a secured lender of Green Services, the partial repayment of the debt he was owed did not result in his unjust enrichment.

[85] In short, there is no legal basis for this court to relieve Unique Lighting from the costs associated with the risk it voluntarily assumed by becoming one of Green Services’ many unsecured creditors.

[86] For all of these reasons, I have concluded that there is no genuine issue requiring a trial regarding the claim against John Green (a.k.a. Jack Green) and Patricia Green. Accordingly, summary judgment is granted in their favour and the claim against each of them is dismissed.

(b) The Claim Against Green Services

[87] The claim against Green Services is of a different nature. The evidence on the motion makes clear that Unique Lighting provided Green Services with lighting supplies for which it submitted invoices. The amount outstanding is $51,239.00. There is no dispute that the supplies ordered were delivered and the amount is owed. At a certain point, Green Services furnished a post-dated cheque to Unique Lighting for that amount; a cheque that ultimately did not clear due to insufficient funds.

[88] Concerning Unique Lighting’s motion for summary judgment against Green Services, Mr. Salazar’s only argument in opposition was his procedural objection; Unique Lighting’s failure to formally serve and file a cross-motion. The court’s reasons for rejecting that argument are set out above.

[89] In the circumstances, there is no genuine issue requiring a trial regarding the debt owed by Green Services to Unique Lighting. As a result, summary judgment is also granted in favour of Unique Lighting against Green Services, in the amount of $51,239.00.

Conclusion

[90] For all of these reasons, summary judgment is granted in favour of John Green (a.k.a. Jack Green) and Patricia Green. The action against each of them is dismissed.

[91] Summary judgment is also granted in favour of Unique Lighting against Green Services. Unique Lighting shall have judgment in its favour in the amount of $51,239.00. Although in its Statement of Claim Unique Lighting sought both pre-judgment and post-judgment interest at a rate of 24% per annum, counsel conceded during argument that Unique Lighting’s invoices failed to specify that any interest was payable on overdue accounts. As a result, Ms. Mann abandoned that claim during argument of the motion.

[92] Nevertheless, Unique Lighting pleaded in the alternative for both pre-judgment and post-judgment interest, in accordance with ss. 128(1) and 129(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. Unique Lighting is entitled to prejudgment interest payable from December 8, 2017, and post-judgment interest payable from today’s date.

[93] In all of the circumstances, especially in light of the mixed results, I am of the view that none of the parties are entitled to costs relating to their respective actions or motions.

Justice James Stribopoulos Released: July 29, 2019