Court File and Parties
Court File No.: CV-19-615855 Date: 2019/12/03 Ontario Superior Court of Justice
Between: FERRO CANADA INC. Plaintiff
- and - YORK ABATEMENT Inc., RUBBEN MENDEZ, and MANUEL HERNANDEZ-MORALES Defendants
Counsel: Louis Vittas for the Plaintiff
Heard: November 29, 2019
Perell J.
Reasons for Decision
[1] The Defendants, Rubben Mendez and Manuel Hernandez-Morales, were noted in default on April 9, 2019 and pursuant to Rule 19 of the Rules of Civil Procedure, R.R.O. 1990, c. 43, the Plaintiff, Ferro Canada Inc., moves for a default judgment.
[2] As revealed by the affidavits of Peter Ferrante, who is Ferro Canada's President, dated August 9, 2019 and November 27, 2019 and as revealed by the material facts pleaded in the Statement of Claim, the facts of the immediate case are as follows:
a. Ferro Canada carries on business as an environmental remediation contractor that assesses environmental risks and disposes of hazardous materials.
b. From 2014 to 2016, Ferro Canada hired the Defendant York Abatement Inc. to remove asbestos from several properties. The Defendant Manuel Hernandez-Morales was the director and president of York Abatement and the Defendant Rubben Mendez was a director, officer and agent of York Abatement.
c. York Abatement represented that it held a valid GST/HST registration number under the Excise Tax Act and that York Abatement would remit to the Minister of National Revenue all amounts of GST/HST it received from Ferro Canada in compliance with the Act.
d. It was a term of the parties’ contract that York Abatement was registered to receive GST/HST and would remit amounts received in trust for GST/HST to the Minister of National Revenue.
e. However, York Abatement falsely represented to Ferro Canada that it was a GST/HST registrant at the time the parties contracted for services.
f. York Abatement provided Ferro Canada with a false or invalid GST/HST number to induce it to pay the GST/HST with no intention of remitting the funds to the Minister of National Revenue.
g. York Abatement knew that the information provided to Ferro Canada was false or it was reckless in providing such information or representation to Ferro Canada.
h. Ferro Canada relied on York Abatement’s false representations. From 2014 to 2016, Ferro paid GST/HST on the fees York Abatement billed as detailed in its invoices. Ferro Canada claimed corresponding GST/HST input tax credits pursuant to the Excise Tax Act.
i. On July 20, 2017, the Minister of National Revenue denied Ferro Canada’s input tax credits because York Abatement’s GST/HST registration number on its invoices was invalid.
j. In breach of contract, York Abatement had not remitted the GST/HST payments to the Minister of National Revenue. Mr. Hernandez-Morales and Mr. Mendez had misappropriated the GST/HST payments for their own personal gain. They had directed York Abatement not to remit the GST/HST funds received from Ferro Canada and had misappropriated the funds for their own personal use and gain.
k. At no time during the parties’ contractual relationship did any of York Abatement, Mr. Hernandez-Morales, or Mr. Mendez notify Ferro Canada that York Abatement was no longer registered under the Excise Tax Act or that its GST/HST registration number was invalid.
l. Ferro Canada pleads that Mr. Hernandez-Morales and Mr. Mendez’s conduct constituted an independent, unlawful wrongdoing that warrants the piercing of the corporate veil making them personal liable to Ferro Canada.
m. Ferro Canada pleads that Mr. Hernandez-Morales and Mr. Mendez were unjustly enriched as a result of misappropriating the GST/HST payments.
n. York Abatement is no longer an active corporation, and its corporate status has been cancelled.
o. As a result of a reassessment, Ferro Canada paid the Canada Revenue Agency $360,000, but on a reassessment appeal, Ferro Canada was reimbursed $355,503.86 in additional input tax credits.
p. Ferro Canada’s claim for damages is $66,863.38 calculated as follows:
| Payments made to Canada Revenue Agency | $360,000.00 |
|---|---|
| Reimbursement | ($355,503.86) |
| Interest paid Canada Revenue Agency | $14,212.72 |
| Legal Expenses for Appeal | $48,154.52 |
| Total | $66,863.38 |
[3] Under rule 19.02(1)(a), a defendant who has been noted in default is deemed to admit the truth of all allegations made in the statement of claim. However, a plaintiff is not entitled to judgment merely because the facts are deemed to be admitted; the pleaded facts must entitle the plaintiff to the judgment sought. Because the defendant is deemed to have admitted the allegations of fact made in the statement of claim, if the deemed admissions are sufficient to establish liability, it is not proper for the court to enter into an inquiry about liability; the judge should confine himself or herself to determining the quantum of damages. (Nikore v. Jarmain Investment Management Inc., 2009 ONSC 46655, [2009] O.J. No. 3717 at paras. 4-20 (S.C.J.); Salimijazi v. Pakjou, 2009 ONSC 17354, [2009] O.J. No. 1538 at paras. 9-17 (S.C.J.); Umlauf v. Umlauf (2001), 2001 ONCA 24068, 53 O.R. (3d) 355 (C.A.)).
[4] In the immediate case, accepting the facts set out in Ferro Canada’s Statement of Claim are proven, it has established a case of fraudulent misrepresentation or deceit by York Abatement. Ferro Canada has also established a case for piercing the corporate veil and making the principals or officers of York Abatement personally liable for the misconduct of York Abatement.
[5] In order to pierce the corporate veil, two factors must be established: (1) the alter ego must exercise complete control over the corporation or corporations whose separate legal identity is to be ignored; and (2) the corporation whose separate legal identity is to be ignored must be instruments of fraud or a mechanism to shield the alter ego from its liability for illegal activity. (Pita Royale Inc. (Aroma Taste of the Middle East) v. Buckingham Properties Inc., 2019 ONCA 439; Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (Energy Shop Consulting Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85; Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256; 642947 Ontario Ltd. v. Fleischer (2001), 2001 ONCA 8623, 56 O.R. (3d) 417 (C.A.); Transamerica Life Insurance Co. v. Canada Life Assurance Co. (1996), 1996 ONSC 7979, 28 O.R. (3d) 423 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.); Gregorio v. Intrans-Corp. (1994), 1994 ONCA 2241, 18 O.R. (3d) 527 (C.A.)).
[6] Personal liability is not engaged solely because a corporation acts through human agency. (Scotia McLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 ONCA 1301, 26 O.R. (3d) 481 (C.A.), leave to appeal to S.C.C. refd [1996] S.C.C.A. No. 40). Directors, officers, and employees, however, may be liable for their own tortious conduct. (Adga Systems International Ltd. v. Valcom Ltd., 1999 ONCA 1527, [1999] O.J. No. 27, 43 O.R. (3d) 101 (Ont. C.A.)). To properly plead a case of personal liability of a director, officer, or employee, the plaintiff must specifically plead a cause of action against the individual in his or her personal capacity. (TSSC Corporation No. 2123 v. Times Group Corporation, 2018 ONSC 4799; Lobo v. Carleton University, 2012 ONSC 254; 460635 Ontario Ltd. v. 1002953 Ontario Inc., 1999 ONCA 789, [1999] O.J. No. 4071 (C.A.)). In the immediate case, Mr. Hernandez-Morales and Mr. Mendez are liable for fraudulent misrepresentation, deceit and unjust enrichment.
[7] In the immediate case, based on accepting the pleaded facts as true, it is appropriate to pierce the corporate veil or to make Mr. Hernandez-Morales or Mr. Mendez personally liable for their discrete acts of misconduct which was for their own interest and benefit.
[8] This is an appropriate case to award costs on a substantial indemnity basis, which, after reviewing the Bill of Costs, I assess at $22,000, all inclusive.
[9] Costs on a substantial indemnity scale or full indemnity scale are reserved for rare and exceptional cases, where the conduct of the party against whom costs is ordered is reprehensible or where there are other special circumstances that justify costs on the higher scale. (Whitfield v. Whitfield, 2016 ONCA 720; Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.)).
[10] Therefore, I award Ferro Canada a judgment of $66,863.38 plus costs of $22,000, all inclusive. The judgment shall bear post-judgment interest at the rate of 3% per annum.