COURT FILE NO.: CV-13-5389-00 DATE: 2020 02 18
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: CONCETTA COSENTINO, TERESA MORETTI and CAESAR COSENTINO Plaintiffs/Moving Parties
- and -
MARY ALILOVIC. VINCENZO (AKA JIMMY) COSENTINO, FRANK COSENTINO, ANTHONY aka TONY COSENTINO, ANNA COSENTINO, DOMENIC COSENTINO AND COMPANY LIMITED and DOMINACO DEVELOPMENTS INC. Defendants/Responding Parties
BEFORE: Trimble J.
COUNSEL: Michael Beeforth and Dennis Wong, Counsel for Plaintiffs/Moving Parties Michael Handler and Evangelista, E., Counsel for Mary Alilovic, Anthony aka Tony Cosentino and Domenic Cosentino and Company Limited
ENDORSEMENT
[1] This action is one of a number of which I have taken over case managing under rule 37.15 of the Rules of Civil Procedure, effective January 1, 2020. As case management judge, my responsibilities include shepherding these actions procedurally, and hearing all motions.
THE PARTIES
[2] The moving parties are the Plaintiffs: Concetta Cosentino (Connie), Teresa Moretti (Teresa, nee Cosentino), and Cesare Cosentino (Cesare). The Defendants are the Respondents: Mary Alilovic (Mary, nee Cosentino) Vincenzo Cosentino (Jimmy), Frank Cosentino (Frank), Anthony Cosentino (Tony), the late Anna Cosentino, Domenic Cosentino and Co. Limited (DCCL), and Dominaco Developments Inc.
[3] Connie, Teresa, Cesare, Mary, Jimmy, Tony, and Frank are all children of the late Anna in the late Domenic Cosentino. Sam, another sibling is not part of this action.
[4] In these reasons I refer to the litigants by their first names to avoid confusion.
[5] DCCL is the corporation through which the late Domenic operated his construction business. DCCL owns two parcels of land which, together, are known municipally as 3473 Wolfedale Road, Mississauga. Originally, Domenic owned one of the parcels directly. DCCL owned the other.
[6] The Wolfedale Road property is the focus of this motion.
[7] When Domenic died, his shares in DCCL and personal ownership of one of the parcels comprising the Wolfedale Road property passed to Anna. During a reorganization as part of her estate planning, Anna transferred her parcel of the Wolfedale property to DCCL, effecting a merger of the two parcels into one. She also divested herself of all shares in DCCL. A reorganized shareholding plan was put in place wherein her children held shares in DCCL, with Mary having about 95% of shareholder voting rights. This estate plan was created and put in place while Mary operated as power of attorney for property for Anna.
THE MOTION
[8] On October 28, 2019, Tony, as a director of DCCL, entered into an Agreement of Purchase and Sale (APS) with an individual in trust for an undisclosed principal, to sell the Wolfedale Road property. The sale is due to close on February 28, 2020.
[9] Based on a number of legal bases, the Plaintiffs seek to halt this sale.
THE ACTION
[10] In this action, Connie, Teresa, and Cesare seek a) to undo the corporate reorganization, b) undo the estate planning Mary undertook as attorney for Anna, c) obtain an order declaring that the late Anna is the sole shareholder of DCCL, and d) set aside all mortgages that DCCL gave. They require Mary to disclose financial information concerning the property and provide an accounting as attorney, and later executrix for Anna.
[11] The Plaintiffs also seek an order setting aside the transfer from Anna to DCCL the parcel that Anna owned personally, or an order that DCCL holds the property in trust for Anna, and that all corporate transactions that were conducted after the transfer were contrary to the best interests of Anna and are of no force and effect.
[12] Among the other relief the Plaintiffs seek is a certificate of pending litigation on a number of properties including the Wolfedale Road property.
BACKGROUND
1. The Beginning
[13] Domenic Cosentino ran a construction company, DCCL. In 1967, the company began operations out of 3473 Wolfedale Road in Mississauga. This municipal address comprised two parcels, one owned by DCCL and the other by Domenic. Domenic was the sole shareholder and DCCL.
2. Domenic’s Death and Anna’s Reorganization
[14] After Domenic’s death, his personal interest in one of the parcels comprising the Wolfedale Road property and his 100% interest in DCCL passed to Anna.
[15] In or about January, 2006, Mary became Anna’s attorney for financial and property matters. As Anna’s attorney Mary appointed herself a director, President and Secretary of DCCL. As detailed below, the Plaintiffs allege that Mary used her position as Anna’s attorney, and with DCCL to enrich herself and Tony.
[16] In September 2010, Mary, as attorney for Anna, reorganized Anna’s affairs as part of an estate planning program. This program and the estate planning consultant, Ms. Zinardo, had been recommended to Anna by Mary and/or Tony. Ms. Zinardo reported to Mary and Tony, not Anna.
[17] As part of the reorganization and estate plan, each of the children obtained an equal preferred share in DCCL. Anna retained no interest in the company. Mary received an additional 10 shares of a different class the main effect of which was that she had approximately 95% of the voting shares in DCCL. In addition, the portion of Wolfedale Road property that Anna held personally was transferred to the Corporation such that DCCL owned the whole of the property.
[18] Since Tony was in charge of the day-to-day running of DCCL, Tony and Mary had de facto control over the Corporation.
3. Mortgages Are Given
[19] According to the records of a lawyer’s trust account given as part of Mary’s evidence in the action against her for passing of accounts, between 2006 and 2012, DCCL gave the following four mortgages:
- July 18, 2006, mortgage to Treefield holdings of $130,000.
- January 26, 2007, mortgage to Treefield holdings Limited a $425,000 (which discharged the July 18, 2006 mortgage).
- July 3, 2008 mortgage to TD of $725,000 (which discharged the January 26, 2007 mortgage to tree Field)
- December 4, 2009 second mortgage to Domenic Scoleri of $350,000.
[20] In the course of this action, the Plaintiffs also learned that in December 2014, DCCL gave a third mortgage of $425,000. In February, 2017, all mortgages were rolled into one mortgage to Owemanco. At that time, the indebtedness was increased by a further $250,000, for a total indebtedness by February, 2017 of $1.75 million. In December 2018, DCCL gave another mortgage of $550,000, bringing the total indebtedness by that time to $2.3 million.
[21] With respect to the mortgages given between December 2014 December 2018, the Defendants have given little detail including why they were needed, and what happened with the proceeds of those mortgages.
4. The Sale of the Wolfedale Road Property
[22] There have been two attempts to sell the Wolfedale Road property, both arranged by Tony without openly marketing the property. The first attempt to sell was in 2019 when DCCL entered into an agreement of purchase and sale on January 29, 2019 with the Region of Peel, which was to close in September, 2019.
[23] Originally, the Defendants did not disclose the APS to the Plaintiffs until it was referred to in a May 17, 2019 notice of a shareholders meeting to approve the sale. The APS attached to that notice redacted the name of the purchaser. The name of the purchaser was disclosed only at the meeting. Notwithstanding that all of the Plaintiffs voted against sale, because of Mary’s voting rights, the APS was approved. The Defendants never provided details, despite requests, with respect to why the sale was necessary.
[24] The APS contained a misrepresentation that DCCL was not aware of any litigation relating to the property. Such litigation existed as this action was commenced in 2013.
[25] For reasons which are disputed between the parties to this action, Peel did not close on the sale.
[26] DCCL entered into a second APS on October 28, 2019 whereby it sold the property to an individual in trust for an undisclosed purchaser. That APS is to close on February 28, 2020. The second APS is virtually identical to the earlier APS, including the same misrepresentation.
[27] Tony takes the position that the inclusion of the misrepresentation in the October, 2019 APS was an error on his part. Tony said he had forgotten about it. The Plaintiffs find this incredulous.
[28] The fact of the second APS was not disclosed to the Plaintiffs until November 14, through counsel. Between November 18 and 25, the Plaintiffs requested additional information regarding the finances of DCCL in order to determine why the sale was necessary, and, whether the terms of the sale were adequate. Further, the identity of the individual purchaser was not disclosed.
[29] On November 26, DCCL issued a notice of a special meeting of shareholders for December 2, to approve the APS. The APS that was attached to the notice redacted the purchaser’s name. Because of Mary’s shares, the APS was approved.
[30] Tony was to receive a 1% commission ($85,000) for arranging the second APS. That fact, however, was not disclosed until he averred to it in his January 15, 2020 affidavit for this motion.
THE POSITIONS OF THE PARTIES
The Plaintiffs
[31] The Plaintiffs’ position is that if the sale of the property proceeds they will be significantly prejudiced. The Wolfedale property is the only revenue producing asset that DCCL has. The risk is high, neigh certain, that Tony and Mary will divert the funds to their own use. They cannot be trusted. They say this for the reasons that follow:
1. The APS to Peel
[32] Mary and Tony were duplicitous with respect to the APS to Peel Region. They included a deliberate misrepresentation that the land was not subject to any litigation that might affect the land. They refused to disclose the identity of the purchaser. They refused to disclose details as to why the sale was required. Mary used her super-voting status to oppress the remaining shareholders. Mary and Tony’s approach to the requests for information by the other shareholders was dismissive.
2. Mary’s Actions as Attorney for Anna
[33] After Domenic died in 2003, his shares in DCCL and his sole ownership of one of the two parcels comprising the property passed to Anna. Beginning in 2006, Mary became Anna’s sole attorney for property. Using her status as Anna’s attorney, and without any notice to the other siblings, Mary appointed herself as a director, and the president and secretary of DCCL. She did not disclose this to her siblings. Mary did not disclose to her siblings her status as Anna’s attorney.
3. The Mortgages
[34] Between 2006 and December 2014, Mary and Tony placed $1.075 million in mortgages on the property. Mary and Tony made no disclosure to anyone about why these mortgages were necessary and what was done with the money. Disclosure concerning what was done with the money was not made until Mary was forced to pass accounts for her time as Anna’s attorney, and after Anna’s death, as the Executrix of Anna’s estate.
[35] The indebtedness was increased again in December 2014 by a further $425,000, taking the total indebtedness to $1.5 million. In February 2017 the indebtedness was increased by another $250,000 and in December 2018 by another $550,000 for total current indebtedness of $2.3 million. Notwithstanding the Plaintiffs’ requests, Mary and Tony have given no details as to why the December 2014 to December 2018 mortgages were necessary and what was done with the money.
[36] The Plaintiffs say that these mortgages depleted the equity in the property, the net income the property could produce, and the value of their shares. Mary and Tony did this without regard to the other shareholders.
4. Corporate Reorganization and Estate Planning
[37] The Plaintiffs say that Mary and Tony orchestrated Anna’s tax and estate planning and corporate reorganization in 2010, which gave Mary and Tony control over DCCL. After September 2010, the 7 children all received equal preferred shares but Mary obtained an additional number of shares of a different class, which gave her 95% of the voting rights. Tony and Mary controlled the estate planning and reorganization process. They recommended the consultant, Ms. Zinardo, to Anna. Ms. Zinardo reported to them. Mary never disclosed to her siblings that the result of this reorganization would give her effective control.
5. Mary and Tony’s Appropriation of Money to their Benefit, and to the Detriment of the Other Shareholder Siblings
[38] In the chart below, I have laid out a) what Mary swore to with respect to payments to the siblings from 2006 to 2013 based on Mary’s December 2013 Affidavit filed in support of her passing of accounts for Anna, and b) what Mary swore in her January 15, 2020 affidavit as having been paid out to the siblings between 2006 and 2017:
| Person | 2006-2013 | 2006 - 2017 |
|---|---|---|
| Frank | $17,728 | $21,570 |
| Jimmy | $120,182 | $84,948 |
| Teresa | $76,175 | $66,437 |
| Connie | $40,778 | $18,100 |
| Cesare | $58,396 | $69,403 |
| Mary | $564,359 | $30,840 |
| Tony | $963,953 | ($182,351) Mary says that DCCL owes this to Tony |
[39] The Plaintiffs say that a careful review of the incomplete DCCL documents produced to date, however, shows Mary and Tony use the corporate bank accounts to pay themselves significantly more money than Mary swore to in January 2020, or to which they were entitled.
[40] Between 2006 and 2013, Mary used DCCL’s accounts to make payments to herself or on her own behalf of $174,516. She made repayments of $72,706, leaving a net amount appropriated of $101,810.23.
[41] A careful review of the trust account of the lawyer who dealt with the first four mortgages on the property and the bank records produced to date show that Mary received from the proceeds of the first four mortgages the total net sum of $24,984.44. These sums are in addition to any salary Mary may have received from DCCL.
[42] Tony received a net total from DCCL of $214,619.33, and from the first four mortgages, the net total sum of $468,765.55. These sums are in addition to any salary Tony may have received from DCCL.
6. Mortgages from December 2014
[43] From December 2014 to December 2018, Mary and Tony increased the mortgages on the property by a further $1.225 million. They have never provided financial statements showing why the increases were required and where the proceeds of the mortgages went. Maria Cosentino, Tony’s wife, is the bookkeeper for DCCL. She is in the process of reconstructing the general ledger for DCCL beginning in 2012. This process is not yet complete.
7. Recent Unexplained Events
[44] A number of recent events have further concerned the Plaintiffs insofar as the lack of disclosure by Mary and Tony.
[45] First, in November 2019, Canada Revenue Agency placed a lien on the property $133,000 for unpaid taxes.
[46] Second, in August 2019, the interest only payments on the mortgage went into default. A partial payment was made for August 2019 and no payments were made for September and October 2019. There was no evidence about the payments for November 2019 to February 2020.
[47] Notwithstanding the Plaintiffs’ demands, Mary and Tony have given no explanation for the default, especially since DCCL received $250,000 in February 2017 as a result of one mortgage and another $550,000 in December 2018. The Plaintiffs say that the rent for the property is $27,000, and the expenses only a little over $25,000.
[48] Mary, Tony, and DCCL have not provided any accounting with respect to why the mortgages needed to be given and what happened with the money that was received from the $800,000 received in 2017 and 2018 from refinancing.
[49] Third, there is the secrecy and refusal to disclose information with respect to the current APS. No explanation has been given as to why the property needs to be sold. No explanation is given for the urgency of the sale. The identity of the beneficial purchaser is a secret. No updated appraisals were obtained with respect to the property. No explanation is given as to why the mortgage fell into arrears. Tony made the same misrepresentation in this APS as he made in the APS with the Region of Peel. This is not a mere coincidence.
[50] Finally, with respect to the current APS, Tony disclosed, for the first time, in his January 15, 2020 affidavit filed for this motion that he negotiated for himself a 1% commission for arranging the sale, which, if enforced, will result in the payment to Tony of $85,000. The financial statements show that Tony receives approximately $20,000 a year from DCCL to compensate him for running the “day-to-day operations” of DCCL. The Plaintiffs say that arranging the sale was part of the day to day operations of DCCL and that the 1% commission is merely Tony’s attempt to appropriate a further $85,000 to his benefit.
[51] The foregoing, say the Plaintiffs, shows that Mary and Tony cannot be trusted. It shows that there is the real risk that Mary and Tony will use the proceeds of sale to their own benefit. The Plaintiffs say that the sale of the property is suspect, and should be stopped by way of an oppression remedy, a preservation order, or a Certificate of Pending Litigation. Alternately, the Plaintiffs seek payment of the sale proceeds into court pending the outcome of the litigation.
Position of Mary, Tony, and DCCL
[52] The Defendants say that all parties will be prejudiced if the sale does not proceed. They will lose the benefit of an $8.5 million sale. The mortgage is in default and the mortgagee has issued its notice to enforce on its security. If the property can be re-financed, there will be a $39,000 refinancing charge. If the property cannot be re-financed, it will go under power of sale. The result of this will mean a reduced profit in the sale and reduced shareholder value.
[53] The Defendants point to the financial statements and say that the company is in dire circumstances. DCCL has not turned a profit since 2014. Two of its anchor tenants have gone bankrupt (one in 2017 and one in 2019), thereby reducing revenues.
[54] The Defendants say that the $2.3 million in total mortgage funds received from the mortgages on the Wolfedale property was used to support the operation of DCCL directly, to avoid having to call for shareholder advances, and for the benefit of the siblings. They broadly deny that they misappropriated funds, or abused their position with DCCL or as Anna’s attorney or executor.
[55] The Defendants say that the Plaintiffs rely on information Mary swore in 2013 in the action for passing of accounts. They should not have done so. That information is outdated. As stated on the then accountant’s note, those documents may have been completed in reliance on incomplete information.
[56] The Defendants say that Maria Cosentino’s reconstruction of DCCL’s general ledger since 2006 is more reliable. Maria is Tony’s spouse and DCCL’s bookkeeper. Maria has undertaken a re-creation of DCCL’s general ledger from 2006 onward. To date, Maria has reconstructed the GL from 2012 to 2017 and is working on 2018. They are more reliable records. For example, they show payments by Tony to DCCL of large sums of money.
[57] Maria says that Connie’s understanding of accounting is flawed.
[58] Notwithstanding the Defendants’ assertion that the information from the mortgage lawyer’s file information with respect to the mortgages up to the December, 2014 mortgage is unreliable, the Defendants have produced no contrary information.
DISPOSITION
[59] The Plaintiffs’ motion is allowed, in part, for the reasons set out below. I order that the proceeds of the sale (after payment of registered mortgages and liens) be paid into Court to the credit of the action (or otherwise invested by agreement of the parties), pending further order of the Court. The balance of the motion is dismissed.
ANALYSIS
1. Oppression Remedy
[60] The Plaintiffs seek their remedy primarily under section 248 of the Ontario Business Corporations Act (OBCA). Since the remedy they seek is injunctive, the Court must take a two-step approach.
Step 1 – Oppression
[61] The oppression remedy is an equitable remedy that seeks to ensure fairness. It gives the court abroad, equitable jurisdiction to enforce not just what is legal but what is fair and equitable in the circumstances. It allows the court to look at business realities, not just narrow legalities (see: Re BCE Inc., 2008 SCC 69, at para. 58).
[62] If the court is satisfied that the business or affairs of the corporation, or the powers of the directors of the corporation have been or are threatened to be exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of a claimant, the court is empowered to make any interim or final order it sees fit ( BCE, supra, at para. 89).
[63] In order to apply the oppression remedy, the court must ask itself two questions: Does the evidence support a reasonable expectation asserted by the claimant? and, Does the evidence establish that the reasonable expectation of the oppressed shareholder was violated by conduct that was oppressive, or amounted to unfair prejudice or unfair disregard of the oppressed shareholders interests? (See: BCE, supra, at paragraph 68).
[64] The claimant must identify the expectations that he or she claims were violated by the conduct at issue, and that the claimant reasonably held those expectations. Evidence is required of such expectations and any finding will depend on the facts of the case. It may be readily inferred that a stakeholder has a reasonable expectation of fair treatment and transparency by the allegedly oppressing shareholders (see BCE, supra, at paragraph 70).
[65] Once the court finds that there are reasonable expectations, reasonably held, the court must consider whether the acts complained of are oppressive, or unfairly prejudicial to, or unfairly disregard the claimant’s interests. The conduct contemplated in this consideration is conduct that is burdensome, harsh and wrongful, a visible departure from standards of fair dealing, or an abuse of power (see BCE, supra, paragraph 92).
[66] In this case, the Plaintiffs’ say that their reasonable expectation, reasonably held is that they would receive fair treatment from the controlling shareholders. This includes the expectation that a) they would receive information about the money that the corporation received from the mortgages and where it went, b) they would receive a response from the directors about why the mortgage was not being paid and c) they would receive basic information with respect to the need for the sale of the property, among other things.
[67] In this case, there are two possible frames of reference within which I may assess the question of Tony and Mary’s allegedly oppressive conduct, one broad and one narrow.
[68] The Defendants argue that I should adopt a narrow frame of reference; namely, I should restrict my analysis to Mary and Tony’s actions concerning the current APS. The Plaintiffs argue that I should adopt a broad frame of reference; namely, I should look at Mary and Tony’s conduct with respect to the APS within the larger context of their conduct overall. The Plaintiffs argue that Mary and Tony’s conduct has been dismissive of the Plaintiffs’ rights and that Tony and Mary have conducted themselves with unfair disregard of their interests. They have not operated DCCL transparently and in a responsible and responsive manner. They have not operated DCCL in a manner designed to maximize or protect DCCL’s assets and shareholder equity.
[69] Regardless of the frame of reference I adopt, I conclude that the Plaintiffs had the reasonable expectation that the shareholders who control the company would treat them fairly, openly, and transparently. Relying on paragraph 70 of BCE, I conclude that this expectation is reasonable and, on the evidence before me, the Plaintiffs reasonably held that expectation.
[70] Regardless of the frame of reference I adopt, I conclude that Mary and Tony’s actions are oppressive. For example, adopting the narrow frame of reference, that is, limiting my consideration to Tony and Mary’s actions with respect to the current APS, Tony and Mary did not treat the Plaintiffs equitably and fairly.
[71] The Wolfedale property was the only asset of the corporation. What happened to that asset determined the value of the company shares and the shareholders equity. Mary and Tony did not disclose the current APS when it was entered into. When they disclosed it three weeks later they disclosed only the fact that the APS had been reached, not the details or the APS itself. Those were not provided for another month. The APS that they produced was redacted to obliterate the purchaser’s name. Notwithstanding requests to do so, they gave no explanation as to why the property was not marketed broadly, or what the urgency was in selling it. They did not obtain updated appraisals of the property, relying instead on ones that were over a year old. They included a misrepresentation in the APS. I do not accept that the misrepresentation was included by error. The same misrepresentation was included in a similar APS than a year earlier, which Connie pointed out to Tony and Mary. Finally, when the APS was entered into it was clear that the Plaintiffs were making serious allegations against Mary and Tony with respect to depleting the property’s equity. Notwithstanding these allegations, Tony negotiated a 1%, or $85,000 commission for himself, which he did not disclose until he swore an affidavit on January 15, 2020 for the use on this motion.
[72] Tony and Mary’s conduct did not constitute fair treatment of the affected shareholders’ interests. Their refusal to provide information when requested by other shareholders is not transparent and is unfair and in disregard of the interests of the affected shareholders. Their November 19, 2019 out of hand dismissal of the Plaintiffs’ request for information concerning the APS and the circumstances around it is emblematic of their overall attitude. Through their lawyer they said:
“… The additional information and documents that you have requested as a condition of your clients to make any decision regarding the approval of the APS is not, in my opinion, relevant to your clients’ consideration [to] approve the APS relating to the Wolfedale property. Bearing in mind that Mary has multiple voting shares represent approximately 96% of the votes and she is in favour of the APS the special resolution approving the APS will be approved at a special meeting of shareholders. The costs and expenses to calling and holding a special meeting of the shareholders for this purpose will be saved if your client consent to the special resolution approving the APS. Let me know by 12 noon tomorrow if your clients agreed to give their consent.”
[73] Using the broad frame of reference, Mary and Tony’s conduct in general, reinforces the view that they have acted oppressively.
Step 2 - Test for the Injunctive Relief
[74] A finding of oppression, by itself, does not end the analysis. Where the relief claimed is injunctive, the test for injunctive relief also must be applied.
[75] The Plaintiffs, relying on Le Maitre Ltd. v. Segerenn, [2007] O.J. No. 2047 at paragraphs 26 through 31, urge me to accept the proposition that where there is oppressive conduct and the interim remedy sought is injunctive, fairness to the parties should override the injunctive principles, where it is apparent that the dictates of fairness are so overwhelming that it is appropriate to forgo compliance with any one or all of the tests for injunctive relief.
[76] I prefer the reasoning of Perell J. in Lakhani v. Gilli Enterprises, 2019 ONSC 1727, at paragraph 37 when he restricted the application of Le Maitre. He said that a lesser standard for injunctive relief in oppression remedy cases is applied only in the rarest of circumstances. Generally, the principles for granting an interim interlocutory injunction apply in oppression cases when injunctive relief is sought.
[77] I now turn to the principles governing interim injunctive relief.
[78] At para. 43 of RJR Macdonald, the Supreme Court stated:
First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
[79] At paras. 44-45, the Supreme Court in RJR MacDonald said that the “serious question” threshold is a “low one” and a judge should not engage in an extensive review of the merits. A judge must be satisfied that the application is “neither vexatious nor frivolous.”
[80] The second test is whether the litigant who seeks the interlocutory injunction would, unless the injunction is granted, suffer irreparable harm. The court defined “irreparable” as referring to the nature of the harm suffered rather than its magnitude and, specifically described it as harm which either cannot be quantified in monetary terms or which cannot be cured.
[81] The third test involves the determination of which of the parties will suffer the greater harm from the granting or refusal of the interlocutory injunction pending a decision on the merits. In other words, the balance of convenience must be weighed.
[82] The court then considers and weighs the above factors and determines whether it is just or convenient to grant the injunction. None of these criteria is determinative. A weakness in one may be made up by strength in the other. The case should be looked at holistically.
[83] The onus is on the Applicants to establish that they meet this test.
Serious Issue to be Tried
[84] For the reasons stated above, I conclude that the Plaintiffs have shown a serious issue to be tried regardless of the whether the court adopts the Defendants’ narrow or the Plaintiffs’ broad frame of reference. There is a serious issue of whether Mary and Tony will misdirect funds from the sale. This mitigates in favour of an injunction.
Irreparable Harm to the Applicant
[85] The Plaintiffs say that the irreparable harm arises from the fact that the property is DCCL’s only asset and that Mary and Tony, to date, have depleted its value by mortgaging of the property, repeatedly. The Plaintiffs argue that permitting the Defendants to unilaterally deal with the property and sell it to an undisclosed third party against the wishes of the majority of DCCL’s shareholders raises serious risk of unknown and unquantifiable damages which can amount to irreparable harm.
[86] The Plaintiffs also say that since they are seeking an order to reverse the corporate reorganization that Anna did for estate planning purposes and to reverse the transfer of Anna’s parcel of the Wolfedale property to the corporation, permitting the sale to go forward would nullify this relief.
[87] Finally. the Plaintiffs say that as in Seferovic v. Seferovic, 2019 ONSC 5023 at paragraphs 49 to 53, the Defendants here advance a “trust me” position; namely, notwithstanding the history of Mary and Tony’s actions, the Plaintiffs should trust Mary and Tony to protect their interests in this sale.
[88] The Defendants argue that there is no irreparable harm. They point to the fact that in January 2014 the Plaintiffs sought the sale of the property by motion which the Defendants opposed. An appraisal was obtained at that time. The motion was settled, and the sale was never pursued. On this motion, the Plaintiffs acknowledged that they would amend the statement of claim two claim against a fund, assuming there injunctive relief failed.
[89] The irreparable harm threshold in cases where conduct is alleged of the nature claimed against Tony and Mary, is lowered. I am satisfied that the Plaintiffs have proved irreparable harm if the sale is permitted to complete. This mitigates in favour of granting the injunction.
Balance of Convenience
[90] In my view, the balance of convenience weighs in favour of not granting the injunction.
[91] DCCL has not been profitable since 2014, according to the financial statements in the file. The mortgage is in default. The mortgagee has indicated that if it opts to refinance, it will charge a $39,000 refinancing fee. If it chooses not to refinance, the mortgagee has issued its notice of intention to realize on its security. There is a substantial risk that the property will be sold under power of sale. Any mortgagee operating under power of sale has little interest in maximizing the sale price. A sale under a power of sale or $39,000 refinancing fee is contrary to the interests of the corporation and its shareholders in that it depletes the value of the asset and shareholders equity.
[92] The reason for DCCL’s poor financial state, the mortgages on the property, and what happened to the money received from each new refinancing, issues in this action. Preventing the sale of the property pending resolution of some or all of the actions between the various family members does not address the reasons for, and liability for the poor financial state of the company, the mortgages placed on the property, and what happened to the proceeds from the refinancings.
[93] Keeping the property allows the company and the shareholders to keep any increase in the equity in the property, assuming there is a continued accrual of equity. It also exposes the corporation and shareholders to the risk of changes in the real estate market or other issues affecting the value of the property negatively. Meanwhile, the Damoclesean sword of foreclosure or power of sale still hangs over the property.
[94] Further, the history of this litigation and the other actions that are currently being case managed prove that the three groups of siblings (Connie, Teresa, Frank, Jimmy and Cesare; Tony and Mary; and Sam) do not get along with each other. Their disagreements as expressed through their multifaceted litigation suggests that the fate of the property will sit in the limbo for some time.
Conclusion re Interim Interlocutory Injunction
[95] Based on my findings above, I am satisfied that there is a serious issue to be tried with respect to Tony and/or Mary diverting the proceeds of the sale of the property to their own use, or that they will dissipate the proceeds.
[96] I am satisfied that there will be irreparable harm to the Plaintiffs if the injunction is not granted. The claim of irreparable harm, however, is weak. I say this for several reasons. First, the Plaintiffs’ motion to force the sale of the property in 2014 (although abandoned) indicates that, at least at that time, they did not perceive there to be any irreparable harm if the property were sold.
[97] Second, it appears that there will be a net fund of approximately $6 million, or $857,142 per sibling. Based on the case presented before me, it appears that Mary and Tony’s share is sufficient to cover Tony and Mary’s liability if the Plaintiffs are wholly successful.
[98] Third, even if the Plaintiffs are able to reverse Anna’s transfer of one of the two parcels to DCCL, and to undo the corporate reorganization Anna did as part of her estate the property is still subject to the mortgages placed on them. There is no evidence to suggest that these mortgages were nothing but mortgages given by bone fide lenders for value.
[99] Fourth, any relief the Plaintiffs may obtain for Mary and Tony’s depletion of the equity in the property lies against Mary and Tony. Whether Anna and/or DCCL still owns the property is irrelevant to this issue.
[100] Fifth, the Plaintiffs’ claims are clearly quantifiable in monetary terms.
[101] Sixth, based on the evidence to date, while I conclude that the claims to undo Anna’s estate plan, the corporate reorganization, and the transfer of Anna’s parcel to DCCL is vexatious or frivolous, the likelihood of the success of these claims seems remote.
[102] Weighing all of the RJR factors together it would not be just, in all circumstances, to issue an injunction preventing the sale of the property.
2. Interim Preservation Order
[103] In order to obtain an interim preservation order under Rule 45.01(1) of the Rules of Civil Procedure, the moving party must establish each of the following four factors:
a. the property sought to be preserved is the property in question in a proceeding or relevant to an issue in the proceeding; b. there is a serious issue to be tried with regard to the property; c. the interim preservation or custody of the property is necessary to enable a party to advance or defend its claim; d. the balance of convenience favours granting the relief sought by the applicant or moving party.
(see: BMW Canada INC. v. Auto port limited, 2019 ONSC 4299 (Div. Ct.), at paragraph 53)
[104] For the same reasons stated above with respect to the claim for interim injunctive relief under the oppression remedy, the Plaintiff has failed to show that an interim preservation of the property is necessary to enable the Plaintiffs to advance their claims. Further, for the reasons stated above, the balance of convenience favours not granting the preservation order.
3. Certificate of Pending Litigation
[105] The following are the settled principles of law apply to issuing a CPL:
a. The test on a motion for leave to issue a CPL made on notice to the Defendants is the same as the test on a motion to discharge a CPL (see: Homebuilder Inc. v. Man-Sonic Industries Inc., 1987 CarswellOnt 499 (Master) at para. 1); b. Whether the claimant has an “interest in land” is a threshold issue as set out in section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C. 43, is a question of whether there is a triable issue, not whether the Plaintiff will likely succeed (see: 1152939 Ontario Ltd. v. 2055835 Ontario Ltd., 2007 CarswellOnt 756 (S.C.J.), at para. 62); c. The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has “a reasonable claim to the interest in the land claimed” (see: G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 CarswellOnt 219 (C.A.) at para. 20); d. Factors the court can consider on a motion to discharge a CPL include (i) whether the Plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security (see: 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Master) at paras. 10-18); and e. The court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated (see: 931473 Ontario Ltd. v. Coldwell Banker Canada Inc., 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 CarswellOnt 1026 (Div. Ct.) at para. 9).
(see: Natale v. Testa, 2018 ONSC 2823 at paras. 49 and 5).
[106] The Defendants argue that the Plaintiffs have met none of the tests. The Defendants take issue, most specifically, with respect to the Plaintiffs claim to have an interest in the land.
[107] I conclude that a CPL should not issue here. I do so based on the balancing of the factors to be considered as set out in paragraphs d and e of the settled legal principles of law.
(i) The Plaintiff is not a shell corporation, (ii) The land is not unique. Since Domenic’s death it appears that the land buildings have been rented out as a trucking yard (subject to DCCL and some of the siblings maintaining offices in the building). While its location appears to be convenient to highway access, there is no evidence that this makes it unique; (iii) The intent of the parties in acquiring the land. The two parcels of land were originally acquired separately, one by Domenic and the other by DCCL so that DCCL could operate its construction business on the property. After Domenic’s death it became a rental property, and Anna’s transfer of Domenic’s former parcel to DCCL did not change the use of the property; (iv) Is there an alternative claim for damages? The Plaintiffs make no claim for damages, specifically. They claim dedicatory relief and relief under the OBCA. For example, the Plaintiffs plead that Mary breached her statutory and fiduciary duties to Anna both as Anna’s attorney and executrix, and that Mary breached her obligations as an officer and director of DCCL. All of the claims, however, arise from the alleged improper acts by Mary as an officer and director of DCCL, as well as the attorney for property, and later executrix for Anna. Her actions in these capacities are alleged to have been oppressive under the OBCA and abuse of her position as and officer and director of DCCL, as Anna’s attorney and executrix, and a breach of fiduciary duty. The remedy sought includes access to corporate information to the Plaintiffs, and an accounting by Mary. If the findings and orders are made as requested with respect to Mary’s conduct as set out in pages four through eight of the statement of claim, Mary will be required to account to the Plaintiffs and to disgorge any money she improperly took; (v) Calculating damages. This is an irrelevant factor on the pleading as it stands. However, if the findings and orders are made as requested with respect to Mary’s conduct as set out in pages four through eight of the statement of claim, Mary will be required to disgorge the money the Plaintiff’s alleged she took. The Plaintiffs have, on this motion, partially quantified the money that they allege Mary and Tony took from the corporation and the property; (vi) Are damages a satisfactory remedy? This too is an irrelevant factor in the pleading as it stands. Disgorgement, however, is implicit in the accounting request; (vii) The presence of a willing purchaser. There is clearly a willing purchaser for the property. There is no evidence that the purchaser is other than a third party purchaser for value; (viii) The harm to each party if the CPL is or is not removed with or without security. The current state of the property is that it is in distress since mid-August 2019, which resulted in the mortgagee issuing its notice to realize on his security. Liens have been placed on the property by CRA. It is uncertain whether that lien remains. The Corporation has not been profitable since 2014. Placing the CPL on the property will negatively affect the rights of all shareholders. There is no evidence that the purchaser will complete the purchase if the CPL is placed on the property. The sale will likely be lost. If the APS does not complete, at minimum, the mortgagee will charge a $39,000 refinancing fee if it agrees to refinance. The mortgagee, however, has made no such commitment to refinance. The difficulties that the corporation and the property still face will not change. Not putting the CPL on the property causes relatively little negative affect on the parties. The equity on the property is crystallized. The mortgages and any other liens will be paid off. The risk that Mary and Tony will divert the proceeds of sale or deplete them can be addressed by an order that proceeds, net of any mortgages or liens on the property, be paid into court pending further order. Tony’s right to the 1% commission would be addressed in the action. It would not be paid to him before then.
[108] While the foregoing is sufficient to dispose of the question of the CPL, since the parties made submissions on the threshold issue of the Plaintiffs’ interest in the land, I turn to it now, although my decision with respect to the CPL does not turn on it.
[109] The Plaintiffs argue that, following Chilian v. Augdome Corp., [1991] O.J. No. 414 (C.A.), at paragraphs 55-56, in order to obtain a certificate of pending litigation, it is not necessary that the claimant has an interest in the land, directly. It is sufficient that an interest in the land be a question in the preceding which, if substantiated, would adversely affect the Defendant’s interest in the land.
[110] In the case at bar, Plaintiffs say that their claims with respect to undoing Anna’s estate planning and the transfer of the individually held parcel to DCCL are sufficient to create an arguable case that there is an interest in land at stake in the action. Those claims will affect the Defendant’s ability to sell the property.
[111] I agree with the Defendants that Chilian is an unusual case, an observation with which Morden, ACJO agreed (see: Chilian, paragraph 80). I also agree with the comments of Lofchik J. in Kafouf v. Kafouf, 2017 ONSC 5093, that Chilian should be distinguished and restricted to its unusual circumstances.
[112] In the case at bar, the Plaintiffs’ interests in the land, currently, arise indirectly through their status as shareholders of DCCL or as beneficiaries under Anna’s will. Regardless of the route by which the Plaintiffs claim an interest in the land, the land itself appears to be held by its owners at any time after Domenic’s death as a rental property, although DCCL maintained an office there. Where property is held for investment purposes, it is not unique. It has no intrinsic value to the Applicant other than as security for the damages that the Applicant claims to have suffered, or the accounting that may be owed to them by Mary and Tony. As Master Muir stated in Nabizadeh v. Manifar, 2015 ONSC 5503, at para. 19: “A CPL is intended to protect an interest in land in situations where other remedies would be ineffective. It is not intended to be an instrument to secure a claim for damages.” (see: 2254069 Ontario Inc. v. Kim, 2017 ONSC 5003, at para 3). The same could be said for an accounting as a remedy.
4. Payment into Court
[113] The Plaintiffs argue that if they were not successful in obtaining an interim injunction, a preserving order, or a CPL, I should order that the proceeds of sale of the property should be paid into court to the credit of the action. Such remedy is provided for by Rule 45.02 of the Rules of Civil Procedure. I agree. Consequently, I order that the current APS shall be permitted to close on its terms. If the current APS does not close, I can be spoken to with respect to further consideration of what should happen with the property.
[114] Assuming it closes, I order:
a. The proceeds of the sale of the Wolfedale property (net of any amounts required to discharge registered mortgages or liens) shall be paid into Court to the credit of the action, or other such investment as the parties agree upon, until further order of the Court. b. Tony shall not be paid his 1% commission on the sale. His entitlement to it shall be an issue in the trial of this action. c. All advice given by the lawyer handling the sale on behalf of DCCL shall be given in writing to DCCL and be copied immediately to all parties to the action. d. All instructions given to the lawyer handling the sale on behalf of DCCL shall be in writing to the lawyer and copied immediately to all parties to the action. e. Any party other than DCCL having property or goods on the Wolfedale property, shall remove all of his/her/its property or goods from the Wolfedale property by 4 p.m., Saturday, 22 February 2020. f. If, by 4 p.m., Saturday 22 February 2020, any party other than DCCL has not removed all his/her/its property or goods from the Wolfedale property, DCCL shall remove, store, and insure each person or party’s property or goods separately from the property or goods of any other person or party. g. Any costs associated with the removal, storage and insuring of any party or person’s property or goods shall be paid by DCCL, subject to any further order of the Court reapportioning liability for those expenses. h. Before DCCL removes any party’s or person’s property or goods, DCCL shall photograph the property or goods in situ on the property, and again once stored. Further, DCCL shall create provide a separate written inventory of the property or goods of each person or party, and provide that inventory and photographs to the owner of that party or person’s property. i. Any disputes as to ownership of any property or goods on the Wolfedale property shall be determined by the trial judge at the trial of this action.
Trimble J. DATE: February 18, 2020