COURT FILE NO.: CV-16-545990

DATE: 20191008

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Central Lumber Limited operating as Central Fairbank Lumber

Plaintiff

– and –

Giorgio Gentile a.k.a. George Gentile & Associates Wealth and Estate Planning Group Inc., Gentile & Assoc. Paralegal Corporation, Leopoldo Gallo, also known as Peter Gallo, also known as Leo Gallo, Sergey Shtefanyuk, also known as Sergey Stefanyuk and 1846666 Ontario Inc.

Defendants

Jeffrey Long, for the Plaintiff

Lee Akazaki, for the Defendant Leopoldo Gallo

HEARD: May 14, 15, 16, 2019

O’Brien, J.

REASONS FOR DECISION

[1] The central issue in this action is whether a homeowner, the Defendant, Leopoldo Gallo, obscured his identity in dealings with the subcontractor providing lumber for the construction of his home. It is alleged that he did this in order to evade payment for the lumber. This subcontractor, the Plaintiff, Central Lumber Limited, operating as Central Fairbank Lumber (“Central Fairbank”) dealt only with an individual called “Peter,” who was acting on behalf of the contractor, 1846666 Ontario Inc. (“184”). Peter did not provide his last name and otherwise was not known to 184. The question is whether Mr. Gallo had set up 184 as a shell company and acted as “Peter” on behalf of the shell company in order to evade detection when 184 subsequently failed to make payment to Central Fairbank.

[2] There is no dispute that Central Fairbank provided lumber for the construction of Mr. Gallo’s home, nor that it did not receive payment for invoices in the amount of $128,895.39. Central Fairbank was provided with a copy of a bank draft for the amount it was owed (plus an amount said to be commission) by 184, but never received those funds. The copy of the bank draft was sent by “Peter.” Central Fairbank’s dealings were only with “Peter” at 184, though it submits that Mr. Gallo was actually the person masquerading as “Peter” on behalf of 184.

[3] Central Fairbank submits that Mr. Gallo was “Peter” and, in essence, “wore two hats,” both as homeowner and, surreptitiously, as the representative and controlling person at the contractor. Central Fairbank submits that the funds set out in the bank draft were received by Mr. Gallo qua representative of the shell company, 184, having been drawn on Mr. Gallo’s account qua homeowner and, therefore, subject to a trust under the Construction Act, R.S.O. 1990, c. C.30 (the “Act”). Section 8 of the Act creates a trust in favour of a subcontractor where amounts are received by a contractor for improvements to the property. Central Fairbank submits that 184 received funds from the owner for improvements. The funds were represented in the bank draft, which was drawn on Mr. Gallo’s bank account and in his control, both in that he had the bank draft drawn up and that he controlled the payment of the funds represented in the bank draft, which did not go to Central Fairbank.

[4] Central Fairbank further argues that Mr. Gallo is personally liable for breach of trust by 184, as he was a person with “effective control” of 184 and who caused the breach of trust, thereby meeting the requirements for liability under s. 13 of the Act.

[5] Mr. Gallo denies all of this. He submits he was only the homeowner in this project. He was not “Peter” and was not involved in 184, other than as its client. He states that he paid 184 for the amounts owed to Central Fairbank in cash and that the bank draft did not represent payment to 184. I note that this action has been discontinued against 184, presumably because it has no assets. Mr. Gallo submits he has no liability under the Act in this instance, as he is solely an owner and was not involved in the contracting company.

[6] The primary issues before me therefore are (1) whether Mr. Gallo was a controlling person at the contractor; and (2) if he was, whether a trust can result under s. 8 of the Act with respect to a payment from Mr. Gallo qua owner to Mr. Gallo qua controlling person at the contractor.

[7] After considering all of the evidence, I conclude that Mr. Gallo was “Peter” and was a controlling person at 184. In addition, the payment represented by the bank draft constitutes a payment from the owner to the contractor. It is subject to a trust under the Act and, pursuant to s. 13 of the Act, Mr. Gallo is liable for the amounts owed to Central Fairbank.

Background Facts

[8] The relationship between Central Fairbank and 184 was initiated when 184 made an application for credit to Central Fairbank. On June 27, 2013, 184 completed an application for credit to obtain lumber for the construction of Mr. Gallo’s home from Central Fairbank. The home was located at 2300 – 17th Side Road, King City (the “Property”). The purpose of the application was to allow Central Fairbank to conduct a credit check before accepting a new customer. Here, the application form indicated that 184 was a “start-up.” It was signed by Frank Malatesta, who claimed to be the President of the company. However, as discussed further below, Mr. Malatesta resigned from the company less than two weeks later. Nobody at Central Fairbank ever had any dealings with Frank Malatesta.

[9] The credit application was for credit in the amount of $150,000 to $200,000. The estimated value of the lumber purchase was $400,000.

[10] Central Fairbank did not have any dealings with Frank Malatesta. Instead, it was immediately clear that it would be dealing with Peter on behalf of 184. Within a day or two following receipt of the credit application, Central Fairbank’s credit manager, Mary Van Hee, received a phone call “Peter,” who did not provide a last name. Peter said he would be the person Central Fairbank would be dealing with at 184. Peter had called to ask when the credit application would be approved. The credit application subsequently was approved and the first shipment of materials was sent to the project in September, 2013. All of Ms. Van Hee’s dealings with Central Fairbank, at that time and subsequently, were with Peter.

[11] Central Fairbank received a payment by way of bank draft from 184 in October, 2013 for a little over $17,000. Ms. Van Hee then had numerous telephone conversations and other communications with Peter about payment from 184 through until April, 2014. However, the initial payment was the only payment ever received. By the conclusion of the parties’ dealings, it is not in dispute that the amount owed to Central Fairbank was $128,895.39.

[12] During Ms. Van Hee’s communications with Peter, he gave various explanations for non-payment or promises of payment, primarily on the basis that he purportedly was expecting payment from the homeowner. Most importantly, by mid to late March, 2014, Peter advised Ms. Van Hee that he had received funds from the homeowner. On April 3, 2014, Ms. Van Hee made a note that “Peter will call once the bank draft is ready.” Then, on April 8, 2014, Ms. Van Hee received a faxed copy of a bank draft in the amount of $132,762.25. Peter advised that the amount on the bank draft represented the $128,895.39 owed to Central Fairbank, plus Peter’s 3% commission. In other words, once the 3% commission was deducted, the bank draft was for the precise amount owed to Central Fairbank. However, the bank draft was made out to “Gentile and Associates in Trust,” a paralegal firm, which, as discussed further below, Mr. Gallo used regularly for various purposes. In spite of receiving the copy of the bank draft, Central Fairbank ultimately never received the funds. Central Fairbank submits that, pursuant to the Act, 184 was required to hold the funds as represented in the bank draft in trust for it.

Issues

[13] The factual issues I need to resolve in order to determine whether the funds are subject to a trust are as follows:

(a) Did Mr. Gallo have control of 184, and, in particular

(i) Did Mr. Gallo have a role at 184? That is, was he “Peter”?

(ii) If he was Peter, did Peter have control over 184?

(b) Did 184 receive funds on account of its contract for the project?

[14] In the course of determining the factual issue of whether 184 received the funds on account of its contract for the project, I will also need to determine the legal issue of whether those funds constituted a trust under the Act, and whether Mr. Gallo is liable to Central Fairbank under s. 13 of the Act.

Was Mr. Gallo the “Peter” who dealt with Central Fairbank?

Positions of the Parties

[15] Central Fairbank submits that the Peter it was dealing with at 184 was Mr. Gallo. It says that in addition to being the owner of the Property, Mr. Gallo was the controlling person at 184. Central Fairbank argues that Mr. Gallo was also known as Peter and that he dealt with Central Fairbank as Peter. Further, Mr. Gallo purposely used the name “Peter” and did not provide a last name to obscure his identity. Central Fairbank’s argument essentially is that Mr. Gallo was the principal of 184 and he used 184 as a shell company to protect him from having to pay Central Fairbank.

[16] Mr. Gallo submits that he was not the “Peter” who had dealings with 184. He says that he was simply the owner in this project to build his home. He hired a contractor, Modern Green, to provide the labour and site supervision for the project. He says that his friend, Frank Malatesta, the principal of 184, offered to give him a good deal with respect to supplies and he therefore hired 184 for that purpose. Mr. Gallo claims that he only had the high-level involvement of an owner and was not involved in ordering lumber. Throughout the trial, counsel for Mr. Gallo suggested that an individual named Peter Melio might be the “Peter” who dealt with Central Fairbank on behalf of 184.

[17] I find that Mr. Gallo was the “Peter” who represented 184 in dealings with Central Fairbank. First, “Peter” was one of Mr. Gallo’s names and a name that he employed when it suited him. Second, the evidence supports a finding that Mr. Gallo was the Peter who dealt with Central Fairbank.

Preliminary Issues Addressing Credibility

[18] Before summarizing the evidence in support of Mr. Gallo being “Peter,” it is important to review two issues relevant to credibility. The first is to understand the roles of Frank Malatesta and Mark Entesary with respect to this action. The second is to emphasize Mr. Gallo’s failure to produce any documentation in this matter.

[19] The names of both Frank Malatesta and Mark Entesary arose repeatedly throughout the trial, including in that Mr. Entesary testified before me. The important point for present purposes is that I conclude that neither Mr. Malatesta nor Mr. Entesary had any substantive dealings on the matters in issue. However, their names were used to facilitate Mr. Gallo’s business dealings in a manner that obscured his identity.

[20] With respect to Mr. Malatesta, as set out above, his name was on the application for credit approval with Central Fairbank. At the time, he was the President and owner of 184. However, within two weeks of the date of the application, on July 10, 2013, he transferred all of his shares in 184 to an individual named Sergey Shtefanyuk. On the same day, he resigned as an officer of the corporation. The paralegal who assisted with the documentation for the share transfer and resignation, Giorgio Gentile, testified that he prepared the documentation at the direction of Mr. Gallo. In spite of Mr. Malatesta having resigned from the corporation at the outset of the relationship with Central Fairbank, in Mr. Gallo’s dealings with Central Fairbank, he continued to suggest that Mr. Malatesta was the representative of 184. As I set out below, I conclude that Mr. Gallo was actually in control of 184 and used Mr. Malatesta’s name to avoid personal responsibility.

[21] Mr. Entesary testified before me and acknowledged that his name was used repeatedly in situations where Mr. Gallo was the beneficial owner of property. For example, the legal title to the Property, where Mr. Gallo’s home was built, was held by Mr. Entesary. In addition, Mr. Entesary obtained a mortgage to finance the purchase of the Property. Mr. Entesary testified that his name is on title to the Property and the mortgage because Mr. Gallo did not have good credit at the time; however, he did not contribute any funds to the Property. Similarly, Mr. Entesary testified that he had a bank account at CIBC in his name, but the account held only Mr. Gallo’s funds. The funds for the bank draft in the amount of $132,762.25, a copy of which was provided to Central Fairbank, was drawn from this account. Even though the funds belonged to Mr. Gallo, the name on the account was Mark Entesary.

[22] Finally, Mr. Gallo did not produce any documentation in this action. Therefore, he has no proof in support of many of his assertions. For example, although, as further discussed below, he claims to have received invoices from and made payments to 184, there are no documents to substantiate this. Mr. Gallo also refused to answer numerous relevant questions on examination for discovery, or otherwise gave answers that were inconsistent with the evidence at trial. I will make reference to some of his answers below. The overall point is that Mr. Gallo’s obfuscation damages his credibility and, as discussed more specifically below, leads to adverse inferences against him.

Mr. Gallo was known as Peter

[23] Although throughout most of the trial, Mr. Gallo claimed that he only used his first name, and was known as “Leo,” his full name is in fact Leopoldo Pietro Gallo. In addition, several witnesses provided evidence that support the finding that Mr. Gallo was known as or represented himself as Peter.

[24] The evidence showing that Mr. Gallo was known, at least on some occasions, as “Peter” includes the testimony of Bruno Baldassara. Mr. Baldassara was Mr. Gallo’s commercial landlord at a property on Langstaff Road where Mr. Gallo had what he has described as a “corporate centre.” Mr. Baldassara testified that he first had dealings with Mr. Gallo when he leased space to a numbered company in 2011. Mr. Gallo claimed to be a consultant or to work on behalf of the numbered company. At that time, he referred to himself as Peter Gallo. After some issues between them, Mr. Baldassara subsequently was contacted by “Leo Gallo,” but testified that it was clear to him that Leo Gallo and Peter Gallo were the same person. Mr. Baldassara testified that he now is leasing space at the location to a new numbered company. He was contacted by Mark Entesary about renting the space. However, now that the lease is in place, only Leo Gallo contacts him on behalf of the new tenant.

[25] On cross-examination, although initially stating that he did not know why Mr. Baldassara referred to him as “Peter,” Mr. Gallo subsequently admitted that he gave his name to Mr. Baldassara as “Peter,” admitting that “it’s my name.”

[26] The pattern that emerged in the evidence was that Mr. Gallo would provide the name “Peter” in situations in which he did not want to be identified. For example, initially, Central Fairbank was represented in its dispute with 184 by a law firm called Drudi Alexiou Kuchar LLP. That firm started a claim against 184 on behalf of Central Fairbank. Counsel from that firm, Ann Hatsios, who assisted with a motion in court in that case, testified before me. Ms. Hatsios testified that Mr. Gallo initially introduced himself to her in court as only “Peter.” According to Ms. Hatsios’ notes, when Mr. Gallo stood up in court, he initially started talking, without introducing himself to the court. He eventually introduced himself in court as “Leo Peter Gallo.” Ms. Hatsios also testified that “Peter” had been calling their office repeatedly, though not leaving any information, including his last name or relationship to the case.

[27] It also is significant that Mr. Gallo appeared in court at that motion on behalf of 184. He claimed at the time that he did so because Mr. Malatesta was ill. However, the court attendance was on January 13, 2015, approximately a year and a half after Mr. Malatesta sold all his shares and resigned from his position at 184.

[28] The testimony of Javier (Tony) Atlagic also confirmed that Mr. Gallo referred to himself as Peter, but in a manner that was evasive. Mr. Atlagic was hired as the framer on the project to build Mr. Gallo’s home. Mr. Atlagic’s evidence was that Mr. Gallo told him that when he was dealing with Central Fairbank, he should never give Mr. Gallo’s name. Mr. Atlagic was told to provide the name “Peter” only to Central Fairbank. He was told not to give Mr. Gallo’s last name and not to ask why.

[29] Finally, Mr. Gallo’s own evasiveness about his name impugns his credibility and confirms my conclusion that he is known as Peter. On examination for discovery, Mr. Gallo denied going by the name of “Peter Gallo” in the following exchange:

Q. Okay. Do you not also go by the name Peter Gallo, sir?

A. No I do not.

Q. Not at all?

A. Not at all.

Q. So when I have people tell me that they speak to you and you go by Leo and Peter Gallo ---

A. Who are these people? Not at all.

Q. You deny that?

A. Who are these people?

[30] I do not accept this evidence, and consider it to impugn Mr. Gallo’s credibility, in view of the evidence set out above, including Mr. Gallo’s admission that he has referred to himself as Peter, and that it is his name.

Mr. Gallo was the Peter who dealt with Central Fairbank

[31] In addition to accepting that Mr. Gallo refers to himself in some situations as “Peter,” I also find that Mr. Gallo was the Peter who had dealings with Central Fairbank on behalf of 184. I rely on evidence including the following to arrive at this conclusion:

(a) None of the witnesses involved in the project to build Mr. Gallo’s home had any dealings with Frank Malatesta, the person who supposedly was the original principal of 184. This includes Ms. Van Hee (from Central Fairbank), who only dealt with Peter, and Dominic Meleca, the sales representative for Central Fairbank assigned to this project, who dealt with Peter and never dealt with Frank Malatesta. Mr. Meleca did have communications with others with respect to the lumber, but none of these were representatives of 184. Instead, they were the site supervisor, Julian Dawes, and Tony Atlagic, the framer. Mr. Meleca understood that Peter was in charge of ordering the lumber and thought that Peter was an owner at 184. He was not directed to speak to anybody else from 184. Mr. Atlagic met and had some dealings with Mr. Gallo, but did not have any dealings with Mr. Malatesta. In an email from the email address used by “Peter” (which was gplinvestments@gmail.com, discussed below) to Central Fairbank dated April 17, 2014, Peter wrote: “…do not bother Frank Malatesta because he’s not involved in this company anymore. I told you we all split up. But if you feel compelled to call him then he will only direct you to me.”

(b) As set out above, Mr. Malatesta transferred his shares in 184 and resigned as an officer in July, 2013. The person to whom he officially transferred his shares was Sergey Shtefanyuk. None of the witnesses on behalf of Central Fairbank had any dealings with Sergey Shtefanyuk. In addition, Mr. Gallo, and not Mr. Malatesta or Mr. Shtefanyuk, directed the paralegal, Giorgio Gentile, to arrange the transfer of shares.

(c) Mr. Gallo told Mr. Atlagic to refer to him in dealings with Central Fairbank only as “Peter,” and not to provide a last name.

(d) “Peter” advised Ms. Van Hee to send the 184 invoices to an e-mail address for GPL Investments: gplinvestments@gmail.com. This is also the e-mail address at which Mr. Meleca dealt with “Peter.” As a result of this, GPL Investments appeared on some Central Fairbank documents as the “customer.” The address for GPL Investments was the same as Mr. Gallo’s business address on Langstaff Road. Mr. Gallo claimed this was because he rented space to GPL Investments. However, he did not produce a lease or any other documentation to substantiate this claim.

(e) Mr. Gallo claimed he was invoiced by 184 for the lumber for his home. He states that he was in a dispute with 184 over the amount it claimed he owed. However, he says that he ultimately paid 184. Mr. Gallo did not produce any of the alleged invoices from 184. In addition, he claims that 184 insisted that he pay it in cash, which he did. He has not produced any bank documentation to show relevant cash withdrawals, nor any other documentation or evidence to substantiate this claim.

(f) Mr. Gallo appeared at a court hearing on behalf of Mr. Malatesta and 184. This was the appearance in motions court, as described above, when Ms. Hatsios appeared on behalf of Central Fairbank.

(g) Avoiding disclosure of his identity was entirely consistent with Mr. Gallo’s manner of doing business, as evidenced by Mr. Entesary’s name being on title on the Property and mortgage, as well as Mr. Entesary’s name being the only one associated with Mr. Gallo’s bank account.

(h) Ms. Van Hee testified that Peter promised her and then provided her with a copy of the bank draft, in the amount of $132,762.25. Mr. Gentile testified that the bank draft was provided to him by Mr. Gallo. Mr. Gallo testified that the bank draft was drawn on his funds, that the funds came from his account (the CIBC account in Mr. Entesary’s name), and that he provided the bank draft to Mr. Gentile. The question in these circumstances was how any other Peter could have obtained the bank draft to fax to Ms. Van Hee. When asked this on cross-examination, Mr. Gallo claimed that he gave a copy of it to another Peter, although he did not have any proof to support having done so and did not even know the last name of the alleged other Peter. There is no ring of truth to this and I do not accept this explanation. The only realistic explanation is that Mr. Gallo, acting as Peter, faxed the bank draft to Ms. Van Hee.

(i) I am not convinced by Mr. Gallo’s submission that he could not have been the Peter who ordered the lumber, as Mr. Meleca admitted that the Peter he dealt with was knowledgeable and experienced about the lumber business, whereas Mr. Gallo was not. Given my conclusions about Mr. Gallo’s credibility, I am not convinced that he had as little experience in the construction business as he suggests. Moreover, even on his own evidence, Mr. Gallo acknowledges that he hired Modern Green only for labour and site supervision and not to provide materials. He states that he retained 184 because they were able to provide a good deal on materials. However, until they offered the deal, Mr. Gallo had been planning to source materials himself. Moreover, Mr. Gallo’s involvement in the project was not as remote as he suggests. For example, when Mr. Atlagic decided to withdraw from the project as the framer, far from allowing others to address the issue, Mr. Gallo visited Mr. Atlagic personally at his apartment. Mr Gallo attempted to convince Mr. Atlagic (or, in Mr. Atlagic’s version of events, threaten him) to stay on the project.

(j) I also reject the defence’s suggestion that a separate Peter (for example, a Peter Melio) was in contact with Central Fairbank. There is no document or other independent evidence to support the existence of Peter Melio, nor his connection to the matters at issue. Mr. Atlagic, the framer on the project, had never heard of Peter Melio, but did deal with Mr. Gallo, who told him to provide the name “Peter” to Central Fairbank. Although a witness for Mr. Gallo, John Visaretis, made reference to a “Peter,” his evidence is not sufficient to support the involvement of a Peter Melio. Mr. Visateris was a tenant of Mr. Gallo at his Langstaff Road location. He stated that there was a “Peter” at the same location, though he did not know a last name and was not able to provide any other details of who the alleged “Peter” was. Even if such a Peter did work at the Langstaff Road location, there is insufficient evidence to connect this person with the events in issue, particularly given the weight of evidence, as set out above, connecting Mr. Gallo.

Did Mr. Gallo have control over 184?

[32] I find that Mr. Gallo had control over 184. I agree with the submissions of Central Fairbank that Mr. Gallo set 184 up as a shell company, and that this provided coverage for him when he failed to pay Central Fairbank. I rely on all the factual context as described above and, specifically, on the following facts in support of this conclusion:

(a) Mr. Gallo arranged the sale of Mr. Malatesta’s shares. This occurred very quickly after the application for credit approval to Central Fairbank. Mr. Malatesta resigned well before the first shipment of lumber.

(b) None of the witnesses involved in the project had any dealings with Sergei Shtefanyuk.

(c) In the e-mail to Central Fairbank dated April 17, 2014 (excerpted above), Mr. Gallo told Ms. Van Hee not to contact Frank Malatesta, as he was not involved in the company anymore, and would only direct her to him (Mr. Gallo).

(d) Central Fairbank dealt only with Mr. Gallo in communications about the funds owed to it.

(e) Mr. Gallo appeared at the court hearing on behalf of 184 and Mr. Malatesta.

(f) The e-mail communication from 184 to Central Fairbank came only from GPL Investments, which was located at Mr. Gallo’s business location on Langstaff Road.

(g) Mr. Gallo drew on his own funds to prepare the bank draft that he faxed to Ms. Van Hee. He also deposited those funds with Mr. Gentile’s firm. In addition, he subsequently directed payment of those funds, at least in part, back to his own numbered company.

[33] In short, Mr. Gallo was the only person acting on behalf of 184. He had control over payments for 184 and, in particular, he controlled the specific payment owing to Central Fairbank.

Did 184 receive funds that were subject to a trust under the Act?

[34] Mr. Gallo submits that even if I find he was the “Peter” who dealt with Central Fairbank, there was no receipt of funds by 184 on account of the project. That is, Central Fairbank relies on the funds represented in the bank draft as payment owed to it. However, those funds belonged to Mr. Gallo, who was the homeowner. According to Mr. Gallo, there was no transfer of those funds to the contractor, as would be required under the Act.

[35] I reject this argument. In my view, Mr. Gallo’s actions in obtaining the funds from his account and providing them to Mr. Gentile in order to show Central Fairbank that 184 had the funds constituted a receipt of funds by 184 for the benefit of Central Fairbank.

Statutory Provisions and Legal Test

[36] Central Fairbank submits that the funds set out in the bank draft provided to Ms. Van Hee were received by 184 and subject to a trust for the benefit of Central Fairbank pursuant to s. 8 of the Act. Section 8 provides:

8.(1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.

[37] 184 itself was noted in default in this action, but was not pursued further, presumably on the basis that it did not have any funds or other assets. However, Central Fairbank submits that Mr. Gallo is liable for the funds held in trust by 184, relying on s. 13 of the Act. Section 13 provides in part:

13. (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for breach of trust.

(2) The question of whether a person has effective control of a corporation or its relevant activities is one of fact and in determining this the court may disregard the form of any transaction and the separate corporate existence of any participant.

[38] According to 1705371 Ontario Ltd. v. Leeds Contracting Restoration Inc., 2018 ONSC 7423, at para 78, the test under s. 8 of the Act is as follows: The party alleging the breach of trust has the initial onus to prove the existence of a trust under s. 8. In order to discharge this onus, the party must show:

(a) The contractor received monies on account of its contract or subcontract price for a particular project.

(b) The party alleging breach of trust supplied services and materials for that project.

(c) The contractor owes money to the party alleging breach of trust for those services and materials.

[39] If these elements are proven, the trust provisions of section 8 are triggered and the onus then shifts to the contractor to show that its payment out of the trust funds complied with s. 8 of the Act.

Application of Legal Test to this Case

[40] The issue in dispute in this case is whether the contractor, 184, “received monies” on account of its contract price for a particular project, as set out in the first step of the Leeds Contracting case above. It is uncontested that Central Fairbank provided lumber for the project, as required by the second step of the test, nor that, if 184 received the monies, it would owe payment to Central Fairbank, as required by the third step. The parties are also in agreement as to the amount due to Central Fairbank, that is, $128,895.39. Therefore, the only issue in dispute is, whether 184 received the monies on account of the contract.

[41] I find that the funds provided to Mr. Gentile for deposit in his trust account constituted monies received by 184 on account of its contract price related to the construction of Mr. Gallo’s home.

[42] Mr. Gallo acknowledged in his communications with Ms. Van Hee that 184 had funds for Central Fairbank. According to Ms. Van Hee’s contemporaneous notes, on March 17, 2014, Peter told her that “fund were received on Friday from the homeowner.” On April 3, 2014, Ms. Van Hee noted that “Peter will call once the bank draft is ready.” On April 8, 2014, Ms. Van Hee noted: “Received a copy of the bank draft… Banking is holding for 10 days our draft will be ready Monday/Tuesday at the lastest [sic].”

[43] Ms. Van Hee actually received two bank drafts dated March 24, 2014, both for $132,762.25. The first bank draft was made out to “Gentile & Assoc., Paralegal Corp. In Trust.” The second bank draft was made out to Gentile and Associates In Trust. Peter explained to Ms. Van Hee that the first bank draft was endorsed incorrectly and that there was a delay in releasing the bank draft because of it. Peter also explained to Ms. Van Hee that the amount set out in the bank draft, $132,762.25, represented the exact amount owing to Central Fairbank ($128,895.39) plus a 3% commission for Peter, in the amount of $3,866.87.

[44] Therefore, Mr. Gallo represented to Central Fairbank that he had received funds from the homeowner for Central Fairbank. He put the precise amount of those funds (plus 3% commission) into Mr. Gentile’s trust account and he represented to Central Fairbank that the bank draft funds were the funds owing to it. Given that Mr. Gallo was the principal of and a controlling person at 184, I accept that he received the funds on behalf of 184 as contractor, even if the funds originated with himself as the owner.

[45] I reject Mr. Gallo’s evidence that the funds in the bank draft were provided to Mr. Gentile’s firm to be held in trust for potential payment into court in the event 184 sought to put a lien on the Property. To accept this evidence, I would need to accept that Mr. Gallo did not control 184, a proposition that I have already rejected. In addition, given that the money never was paid into court, I would need to accept Mr. Gallo’s evidence that he ultimately settled with 184 on an amount that he paid in cash. Mr. Gallo has not provided any evidence to support this claim. I draw an adverse inference from his failure to provide any evidence of invoices or other documents from his dealings with 184 and do not accept that this occurred.

[46] I also reject Mr. Gallo’s submission that 184 did not “receive” the monies, as required by the statute, since the funds belonged to Mr. Gallo and, therefore, were always the funds of the owner and not of any contractor. In the circumstances of this case, Mr. Gallo played two roles: he was the owner, but he also was the principal of 184. The funds were “received” by Mr. Gallo on behalf of 184 when he drew on his bank account to provide a bank draft to Mr. Gentile in the precise amount owing to Central Fairbank (plus 3% commission) and represented to Central Fairbank that the bank draft constituted the funds owed to them. Given that Mr. Gallo was holding two roles, this transaction was sufficient to constitute “receipt” of funds for the purposes of the Act.

[47] To find otherwise would allow an owner to circumvent paying a subcontractor by setting up a shell company, precisely as Mr. Gallo attempted to do. In my view, this was not the intention of s. 8 of the Act. Subsection 13(2) specifically provides that the question of whether a person has effective control of a corporation is a question of fact, and that the “court may disregard the form of any transaction and the separate corporate existence of any participant.” Although that subsection applies to a determination of the individual’s liability, and not of the corporation’s liability, it is an indication of the legislature’s intention that substance should govern over form. The Act should not be interpreted to permit owners to set up separate corporate entities but then claim that the owner and contractor are the same and therefore no transaction occurred.

[48] Therefore, Central Fairbank has met its onus with respect to the creation of a trust under s. 8. Mr. Gallo has not shown that 184 then made payment of the funds in compliance with s. 8 of the Act. Rather, Mr. Gallo’s evidence was that he directed Mr. Gentile to make payments out of the funds for his own business purposes. Therefore, I find that 184 is liable for breach of trust.

[49] Finally, I find that Mr. Gallo is personally liable for breach of trust pursuant to s. 13 of the Act. As set out above, Mr. Gallo was a person with effective control of 184 or its relevant activities. In providing the copy of the bank draft to Central Fairbank representing the funds owed to it, but then failing to ever provide Central Fairbank with those funds, Mr. Gallo engaged in conduct that he knew or reasonably ought to have known amounted to a breach of trust by 184. This amounts to a breach of trust under the Act.

Disposition

[50] The action is allowed against Mr. Gallo. I order Mr. Gallo to pay the sum of $128,895.39 to Central Fairbank, in addition to pre-judgment and post-judgment interest at the rate provided for in the Courts of Justice Act, R.S.O. 1990, c. C-43.

[51] If the parties are not able to reach agreement with respect to the appropriate costs, they may provide me with written costs submissions. Central Fairbank will have 30 days from the date of this decision to provide its submissions, which should be no more than four pages, not including the Bill of Costs and other attachments. Mr. Gallo then will have 15 days to provide responding submissions with the same restrictions. Costs submissions may be e-mailed to my judicial assistant, Anna Maria Tiberio, at annamaria.tiberio@ontario.ca.

O’Brien, J.

Released: October 8, 2019

COURT FILE NO.: CV-16-545990

DATE: 20191008

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Central Lumber Limited operating as Central Fairbank Lumber

Plaintiff

– and –

Giorgio Gentile a.k.a. George Gentile & Associates Wealth and Estate Planning Group Inc., Gentile & Assoc. Paralegal Corporation, Leopoldo Gallo, also known as Peter Gallo, also known as Leo Gallo, Sergey Shtefanyuk, also known as Sergey Stefanyuk and 1846666 Ontario Inc.

Defendants

REASONS FOR DECISION

O’Brien, J.

Released: October 8, 2019