COURT FILE NO.: CV-16-2333-00
DATE: 2019 01 18
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ADVANCED INTERIORS INC.
Michael Cooper, for the Plaintiff
Plaintiff
- and -
PRESTIGE STEEL BUILDINGS LTD., FSU STEEL BULDINGS LTD. and JASON GULLETT
David Thompson, for the Defendants
Defendants
HEARD: November 14, 2018
REASONS FOR JUDGMENT
Fowler Byrne J.
Background
[1] The defendant Jason Gullett has brought a motion for summary judgment seeking an order dismissing this action as against him in his personal capacity only. The two other defendants, both corporations, have been dissolved. Accordingly, Gullett is the only remaining defendant against whom Advanced Interiors Inc. may seek relief.
Preliminary Issue
[2] Gullett sought leave to file his supplementary affidavit, sworn November 12, 2018, after the completion of the cross-examinations conducted in anticipation of this motion. The plaintiff Advanced Interiors Inc. (“Advanced”) objects to this affidavit being considered and asks that the court disregard it. I asked for submissions on this issue during the course of the motion and indicated that I would give my ruling when my judgment was rendered.
[3] Rule 39.02(2) of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states that if a party has cross-examined on an affidavit delivered by an adverse party, that party shall not subsequently deliver an affidavit for use at the hearing without leave or consent. The court should grant leave, on terms that are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination.
[4] Perell J. in Shah v. LG Chem, Ltd., 2015 ONSC 776, 124 O.R. (3d) 570, at para. 23, set forth a detailed analysis of when leave to file a subsequent affidavit should be granted. The jurisprudence indicated that: (a) leave should be “granted sparingly”; (b) the moving party has “a very high threshold” to meet; (c) the rule about the delivery of subsequent affidavits should not be used as a “mechanism for correcting deficiencies in the motion materials”; and (d) the rule is designed to fairly regulate and provide closure to the evidence gathering process for motions and applications.
[5] In addition, Perrell J. stated that the court should also consider whether the evidence contained in the affidavit was available or could have been made available prior to the cross-examinations, and whether any explanation was given as to why the evidence was not provided earlier: at para. 34.
[6] In the 2017 case of 2083927 Ontario Inc. v. Eleven Superior Ltd., 2017 ONSC 5881, Favreau J. set out four criteria to consider: (1) Is the evidence relevant? (2) Does the evidence respond to a matter raised on cross-examination, not necesarily raised for the first time? (3) Would leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms, or an ajournment? and (4) Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?
[7] In the case at hand, no explanation was provided in the affidavit to explain why this evidence had not been provided prior to cross-examination. The documents attached as exhibits predate the cross-examination. Some of the evidence in the affidavit is repetitive of earlier evidence or seeks to clarify earlier evidence. Accordingly, the request for leave is dismissed, and the supplementary affidavit of Jason Gullett, sworn November 12, 2018, shall not be considered in this motion.
Facts
[8] In or around 2014, Advanced entered into a contract with Prestige Steel Building Ltd. (“Prestige”) wherein Prestige would provide foundation work, structural steel installation and exterior cladding work for Advanced at a commercial building located at 55/75 Auction Lane, Brampton, Ontario (“the Contract”). Sometime thereafter, Prestige was replaced by FSU Steel Buildings Ltd. (“FSU”), which continued the work of Prestige on the Contract. At all material times, Gullett was a director of Prestige and FSU and acted as the representative of Prestige and/or FSU in his dealings with Advanced.
[9] The change in companies – from Prestige to FSU – coincided with Gullett’s separation from his wife in or around 2015. Prestige and/or FSU continued to work pursuant to the Contract until the summer of 2015, with both Prestige and FSU rendering invoices to Advanced. The parties dispute whether the work was complete or deficient.
[10] Prestige became inactive in May 2015 and was dissolved on August 10, 2017. FSU ceased operations in October 2016 and was dissolved in May 2017. On May 30, 2016, Gullett incorporated a further company – Prestige Steel Buildings 2016 Ltd. (“Prestige 2016”).
[11] The within action was commenced by Advanced on May 18, 2016, wherein it sought damages for breach of contract, negligence, negligent misrepresentation, breach of trust, deceit and unjust enrichment. Advanced has claimed not only against the companies who worked pursuant to the Contract, but also against Gullet in his personal capacity. All the defendants, including Gullett, counterclaimed for monies they allege are outstanding for their work at the Property.
[12] The allegations made as against Gullett in his personal capacity include the following: (a) he induced a breach of contract between Prestige and/or FSU and Advanced; (b) he made negligent misrepresentations; (c) he committed the tort of deceit; and (d) he committed a breach of trust.
[13] In addition to these specific torts, Advanced also alleges that Gullett acted outside of his scope of his authority as a director of Prestige and/or FSU. Accordingly, Advanced alleges that this is an appropriate circumstance in which to pierce the corporate veil of Prestige and FSU and find liability as against Gullett in his personal capacity.
[14] The specific conduct by Gullett with which Advanced takes issue and believes warrants a finding of personal liability include: (a) changing corporations mid-project for personal reasons; (b) directing Prestige and/or FSU to double invoice and refusing to rectify the matter; (c) directing Prestige and/or FSU to deliberately overcharge for administrative work, contrary to their agreement; (d) directing Prestige and/or FSU to deliberately overcharge for a roof that was not yet complete; and (e) directing Prestige and/or FSU to deliberately charge for garage doors that were not delivered.
Issues
[15] The following issues must be determined:
a) Does the written record before me allow me to grant summary judgment?
b) When is a director or officer of a company personally liable for the actions of the corporation over which they have control?
A. Summary Judgment
[16] Rules 20.04(2)(a) and 20.04(2.1) of the Ontario Rules of Civil Procedure state that a court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. This determination shall be made upon considering the evidence submitted by the parties. When considering the evidence, the court may exercise any of the following powers, unless it is in the interests of justice for these powers to be exercised only at trial: (1) weighing the evidence; (2) evaluating the credibility of the deponent; and (3) drawing any reasonable inference from the evidence.
[17] In the Supreme Court of Canada case of Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the court stated that a trial is not required if a summary judgment motion can achieve a fair and just adjudication. To do so, the motion materials must allow the judge to make the necessary findings of fact and apply the law to those facts in a manner that is proportionate, more expeditious and less expensive than going to trial: at para. 4. The principal goal, though, remains the same: a fair process that results in a just adjudication of disputes. Unless a judge is confident in his or her conclusions, summary judgment can never be a proportionate way to resolve the dispute.
[18] The issue of summary judgment was recently reviewed by the Ontario Court of Appeal in the decision of Mason v. Perras Mongenais, 2018 ONCA 978. While this case dealt with a motion for partial summary judgment, of particular note are the final comments of Nordheimer J.A., at para. 44, regarding the “culture shift” referred to in Hryniak. He states that the culture shift is away from the very restrictive use of summary judgment that had developed to a more expansive application of summary judgment procedure. However, nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to a fair process and a just adjudication. Simply put, summary judgment remains the exception, not the rule.
B. Piercing the Corporate Veil
[19] The Ontario Court of Appeal has provided guidance on the circumstances in which it would be appropriate to attach personal liability to an officer or director of a corporation.
[20] In the 2001 Ontario Court of Appeal case of 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (C.A.), Laskin J.A. indicated that, typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. Quoting Clarkson Co. v. Zhelka, 1967 CanLII 189 (ON SC), [1967] 2 O.R. 565 (H.C.), it can also be pierced if those in control expressly directed a wrongful thing to be done when the company was incorporated: at para. 68. The decision of whether to pierce the corporate veil will depend on the context, but the separate legal personality of the corporation cannot be lightly set aside: Fleischer, at para. 69.
[21] In 2014, the Ontario Court of Appeal confirmed that Fleischer is the appropriate case to apply when determining whether to pierce the corporate veil in Ontario: Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85, 372 D.L.R. (4th) 90, at para. 43. Following the reasoning of Fleischer, the court stated that only exceptional cases resulting in flagrant injustice warrant going behind the corporate veil. The veil can be pierced if those in control expressly direct a wrongful act to be done.
[22] Most recently, this issue has been canvassed by the Ontario Court of Appeal in the decision of Yaiguaje v. Chevron Corporation, 2018 ONCA 472, 423 D.L.R. (4th) 687. In this decision, Hourigan J.A., when speaking for two of the three members of the panel, indicated that the test set out in Transamerica is consistent with the principle reflected in the various business corporation statutes in Canada: that corporate separateness is the rule. Where the corporate form is being abused to the point that the corporation is not a truly separate corporation and is being used to facilitate fraudulent or improper conduct, the law recognizes an exception to this rule. It is important that courts be rigorous in their application of the Transamerica test because the rule is provided for in statute and the stakeholders of corporations have a right to believe that, absent extraordinary circumstances, we may deal with the corporation as a natural person: at para. 70.
[23] Accordingly, the law is clear is that one should start with the presumption that the corporation is a separate legal entity, and that no liability should attach to the officers, directors or shareholders of this corporation. The exceptions to this rule include when a company is incorporated for an illegal, fraudulent or improper purpose; when those in control of the company, once incorporated, expressly direct a wrongful thing to be done; or if the corporation is being used to facilitate fraudulent or improper conduct.
C. Tortious Conduct
[24] It is also recognized that a director or officer can be liable for tortious conduct of their own, if this conduct exhibits a separate identity or interest from that of the corporation and causes the plaintiff to suffer damages. If this tortious conduct is such that it causes the corporation to be used for fraudulent or wrongful conduct, the result is the same – the corporate veil is pierced, and the individual directing this conduct may be found liable: Lexington Holdings Ltd. v. Cartier Place Apartments Ltd., 2011 ONSC 2766, at para. 7, citing Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481 (C.A.), at paras. 25-26.
Analysis
[25] It is uncontested that Gullett had three different corporations during the duration of this lawsuit – two of which had direct involvement in the project with Advanced. During Gullett’s cross-examination, he stated that he started FSU as a fresh start after his separation. He stated that his separation had nothing to do with the business and refused to answer whether there was an agreement or court order that his ex-spouse was entitled to ownership or monies from Prestige.
[26] Clearly, on Gullett’s own evidence, the change in corporation mid‑contract with Advanced was done for personal reasons, which exhibits a separate interest from that of the corporations. The result was that the company which Advanced originally contracted with had in essence disappeared and was replaced by FSU, with little or no notice to Advanced. An abrupt change in corporate structure, for no business-related purpose, would not be a step taken to further the financial viability and survival of Prestige and thus bears further scrutiny.
[27] It also appeared that for a short period of time, it was within Gullet’s discretion to determine which company was to invoice or be paid for the Contract. There was confusion about what monies were owed to which company, and Prestige and/or FSU alleges it is the fault of Advanced for not paying the correct company that was invoiced.
[28] It is clear that the initial corporate restructuring was not done in the normal course of business, but for reasons beneficial to Gullett. On the written record before me, though, it is not clear whether the intent of this and subsequent restructuring, or the billing practices complained of, were done so as to undermine the defendants’ obligations to Advanced. While the steps Gullett took were clear, the motivation and intent behind them is not clear throughout. Gullett is vague in his materials on this issue. There is insufficient evidence provided to explain the effect of his actions on all the parties involved. A trial is required to review the actions of Gullett in the context of the entire Contract and determine whether these actions constitute a separate tort or evidence of improper conduct on the part of the corporate defendants, at his direction.
Conclusion
[29] Accordingly, I make the following orders:
a) Gullett’s motion for summary judgment is dismissed.
b) If counsel are not able to agree on costs, Advanced shall serve and file its written costs submissions, limited to two pages, single sided, double spaced, exclusive of a Costs Outline and case law, no later than 4:30 p.m. on February 1, 2019; Gullett shall serve and file his responding materials, with the same restrictions as to length and content, no later than 4:30 p.m. on February 15, 2019; any Reply submissions, with the same length and content restrictions, shall be served and filed no later than 4:30 p.m. on February 22, 2019.
Fowler Byrne J.
Released: January 18, 2019
COURT FILE NO.: CV-16-2333-00
DATE: 2019 01 18
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ADVANCED INTERIORS INC.
Plaintiff
- and -
PRESTIGE STEEL BUILDINGS LTD., FSU STEEL BUILDINGS LTD. and JASON GULLETT
Defendants
REASONS FOR JUDGMENT
Fowler Byrne J.
Released: January 18, 2019