COURT FILE NO.: CV-20-00649630-00CL
DATE: 20201120
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL EVANS, GIUSEPPE FIORILLO, and 2582632 ONTARIO INC.
Applicants
– and –
PROKURON SOURCING SOLUTIONS INC., PROKURON INC., and DAVID TITLE
Respondents
Jonathan Rosenstein, for the Applicants
David Title, self-represented
HEARD: November 9, 2020
endorsement
dietrich j.
[1] The applicants seek an order pursuant to the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Arbitration Act”) to enforce an arbitral award dated July 20, 2020. The respondents oppose the application.
[2] Upon releasing the award, the arbitrator determined that the conduct of the individual respondent, David Title, made it impossible to continue the arbitration. Accordingly, the arbitrator terminated the arbitration, but confirmed that the award was still to have effect.
[3] The applicants seek a judgment requiring the respondents to pay the amounts of certain loans found to be owing to the individual applicants, as well as fixing the costs of the arbitration, which the arbitrator ordered but did not fix. They also seek ancillary orders to implement a further arbitral process, which cannot now be overseen by the arbitrator because the arbitration has been terminated.
[4] Mr. Title asserts that the award should not be enforced because he was treated unfairly in the arbitration, the arbitrator was biased against him, and the arbitration was a fraud. He also seeks an adjournment.
[5] For the reasons that follow, the applicants are entitled to enforcement of the award in respect of the amounts owing to the individual applicants and costs. They are also entitled to the other relief sought that is consistent with the award. Mr. Title has not taken any steps to set aside the arbitral award and has not established any grounds on which it should be set aside.
Background Facts
[6] The individual respondent, Mr. Title, and the individual applicants, Michael Evans and Giuseppe Fiorillo—indirectly through 2582632 Ontario Inc. (“258 Ont.”)—are the shareholders and directors of Prokuron Sourcing Solutions Inc. (“Prokuron”). Through 258 Ont., the individual applicants purchased two-thirds of Prokuron’s shares from Mr. Title in 2017. Mr. Title continued to own one-third of the shares.
[7] Prior to the closing of the share purchase, each of Mr. Evans and Mr. Fiorillo made a $200,000 loan to Prokuron in exchange for a promissory note. The loan documentation included a guarantee, which Mr. Title signed as the “Guarantor”.
[8] Shortly thereafter, a dispute arose among the shareholders. The applicants brought an action against Mr. Title seeking repayment of the $400,000 in personal loans made by Mr. Evans and Mr. Fiorillo to Prokuron. They also sought a remedy for oppression arising from Mr. Title’s alleged removal of Mr. Evans and Mr. Fiorillo from Prokuron.
[9] Mr. Title counterclaimed that the applicants breached their fiduciary duties to Prokuron, which justified their removal. He sought damages for their alleged improper conduct.
[10] The parties attended mediation and agreed, in Minutes of Settlement, to dismiss the action and submit to binding arbitration. Mr. Title was represented by counsel when he entered into the Minutes of Settlement and throughout the arbitration.
[11] The parties retained the arbitrator, the Honourable Frank J.C. Newbould, Q.C., and agreed that the arbitration would be conducted in two phases. The first phase would deal with liability and the second phase would deal with damages.
[12] The COVID-19 restrictions in place in June 2020, including travel restrictions that prevented Mr. Title from traveling from his residence in Belize to Toronto, precluded an in-person arbitration. Therefore, the arbitration was conducted by videoconference over five days, ending on June 30, 2020.
[13] On July 20, 2020, the arbitrator was prepared to release his report on the first phase of the arbitration. At that time, Mr. Title’s lawyer brought a motion seeking his withdrawal as lawyer of record, and the arbitrator granted that motion. Mr. Title subsequently wrote to the arbitrator to lodge his criticism of that decision.
[14] On August 18, 2020, the arbitrator released his award for the first phase of the arbitration. He found that Mr. Title knowingly signed the guarantees on the loan documentation and is liable for all outstanding amounts on the loans, which are to be paid to Mr. Evans and Mr. Fiorillo: para. 50 of the award.
[15] The arbitrator also found that Mr. Evans and Mr. Fiorillo were not liable for acts of oppression, but Mr. Title was (e.g. the removal of Mr. Evans and Mr. Fiorillo as signing officers): para. 90 of the award.
[16] Regarding Mr. Title’s oppressive conduct, the parties agreed on a remedy wherein Mr. Title would purchase the shares that Mr. Evans and Mr. Fiorillo, through 258 Ont., held in Prokuron. The award also contemplated the second phase of the arbitration, whereby the arbitrator would oversee Mr. Title’s purchase of the shares. This purchase would be based on a December 1, 2017 valuation (at which time the arbitrator found that Mr. Evans and Mr. Fiorillo were excluded from Prokuron) by a jointly-selected valuator or two competing valuators. The arbitrator would determine the value based on the opinion of the valuator(s) and Mr. Title would purchase the shares at that amount at closing (the “Share Purchase Process”).
[17] Regarding other amounts that may be owing among the parties, the award provides that:
All accounting of other amounts owed, including unpaid dividends or shareholder loans, if any, amounts owed by 258 Ont. to Mr. Title or Prokuron on the BMO loan, amounts owing by Prokuron to Mr. Evans and Mr. Fiorillo on the promissory notes held by them for their loans of $200,000 each, amounts if any owing by Prokuron to Mr. Title, and any other appropriate accounting of amounts owed, shall be dealt with in the damages phase of the arbitration: para. 121 of the award.
[18] Finally, the arbitrator found that the applicants had succeeded in the first phase and were entitled to have their costs of the arbitration, including the arbitrator’s costs to date, paid by Mr. Title. The arbitrator also permitted the applicants to make submissions on their costs of the prior action and permitted Mr. Title to make argument in respect of those costs.
[19] At the same time the award was released, the arbitrator terminated the arbitration pursuant to s. 43(3)(b) of the Arbitration Act, which allows an arbitration to be terminated where its “continuation has become unnecessary or impossible.” In this case, it was evident that Mr. Title would not pay the arbitrator’s fees and he had also impugned the arbitrator’s integrity.
[20] Though Mr. Title indicated that he would commence proceedings to oppose the arbitral award, he never did.
Positions of the Parties
[21] The applicants submit that Mr. Title has no right to appeal the arbitrator’s award because it was agreed in the Minutes of Settlement that there would be no right of appeal. Accordingly, they ask this court to enforce the award.
[22] The applicants acknowledge that the arbitrator contemplated two phases of arbitration. The first phase concerning liability was completed, but the second phase concerning damages was not. The arbitrator envisaged that a global amount owing to the applicants by Mr. Title would be determined at the end of the damages phase after accounting for any amounts owing by the applicants to the respondents. However, the applicants assert that Mr. Title has not been cooperative in the arbitration process and now resides in Belize from where, by his own admission, he cannot leave during the COVID-19 pandemic other than by private jet. The applicants also claim that there is little value remaining in Prokuron because Mr. Title has started another company, Prokuron Inc., where he has carried on the business previously conducted at Prokuron.
[23] The applicants are therefore not optimistic that the Share Purchase Process and final accounting will take place any time soon, if at all. Accordingly, they ask this court to enforce the award with regard to the $400,000 in loans made by Mr. Evans and Mr. Fiorillo and to permit them, at their election, to pursue the second phase contemplated in the award at a later date and with the court’s assistance, as opposed to the arbitrator’s assistance.
[24] The applicants additionally seek payment of their costs of the arbitration, as ordered but not fixed by the arbitrator, as well as their costs of the action. They ask this court to fix their costs on a scale greater than partial indemnity because Mr. Title accused them of criminal acts and forgery, which allegations were rejected by the arbitrator. The applicants also seek their costs of this application.
[25] Mr. Title asserts that the award should be set aside because he was treated unfairly by the arbitrator, who was biased against him. He further submits that the arbitration was a “complete cover up of the truth”, that he did not know that he had no right of appeal, and that the arbitration process was biased from the very beginning and a fraud.
[26] Mr. Title submits that the applicants should not be entitled to the relief they seek because he does not owe them $400,000 for loans to Prokuron they say he guaranteed. Mr. Title asserts that the applicants did not pay anything to Prokuron.
[27] Mr. Title also submits that the hearing should be adjourned to give him more time to review the material and the opportunity to retain counsel.
Law and Analysis
[28] The Arbitration Act provides the framework by which arbitration awards can be transformed into judgments. Section 50 provides as follows:
50 (1) A person who is entitled to enforcement of an award made in Ontario or elsewhere in Canada may make an application to the court to that effect.
(2) The application shall be made on notice to the person against whom enforcement is sought, in accordance with the rules of court, and shall be supported by the original award or a certified copy.
(3) The court shall give a judgment enforcing an award made in Ontario unless,
(a) the thirty-day period for commencing an appeal or an application to set the award aside has not yet elapsed;
(b) there is a pending appeal, application to set the award aside or application for a declaration of invalidity;
(c) the award has been set aside or the arbitration is the subject of a declaration of invalidity; or
(d) the award is a family arbitration award.
(4) The court shall give a judgment enforcing an award made elsewhere in Canada unless,
(a) the period for commencing an appeal or an application to set the award aside provided by the laws of the province or territory where the award was made has not yet elapsed;
(b) there is a pending appeal, application to set the award aside or application for a declaration of invalidity in the province or territory where the award was made;
(c) the award has been set aside in the province or territory where it was made or the arbitration is the subject of a declaration of invalidity granted there;
(d) the subject-matter of the award is not capable of being the subject of arbitration under Ontario law; or
(e) the award is a family arbitration award.
(5) If the period for commencing an appeal, application to set the award aside or application for a declaration of invalidity has not yet elapsed, or if such a proceeding is pending, the court may,
(a) enforce the award; or
(b) order, on such conditions as are just, that enforcement of the award is stayed until the period has elapsed without such a proceeding being commenced, or until the pending proceeding is finally disposed of.
(6) If the court stays the enforcement of an award made in Ontario until a pending proceeding is finally disposed of, it may give directions for the speedy disposition of the proceeding.
(7) If the award gives a remedy that the court does not have jurisdiction to grant or would not grant in a proceeding based on similar circumstances, the court may,
(a) grant a different remedy requested by the applicant; or
(b) in the case of an award made in Ontario, remit it to the arbitral tribunal with the court’s opinion, in which case the arbitral tribunal may award a different remedy.
(8) The court has the same powers with respect to the enforcement of awards as with respect to the enforcement of its own judgments.
[29] The applicants meet the requirements in s. 50 of the Arbitration Act. Their application was properly made on notice to the respondents and supported by a certified copy of the award. At the mediation in early 2020, the parties entered into Minutes of Settlement, which Mr. Title signed. The Minutes provide that: “The parties shall jointly enter into a Submission to an Arbitrator, containing generally the following terms: … There shall be no right of appeal from the decision of the arbitrator”: para. 2d of the Minutes of Settlement. Additionally, the 30-day window for setting aside an award under s. 47(1) of the Arbitration Act has elapsed and Mr. Title has not brought an application to set aside the award.
[30] Mr. Title has not provided any sworn evidence in support of his assertions. He admits that he was represented by counsel when he signed the Minutes of Settlement, but submits that he was not told that he had no right to appeal the arbitrator’s decision.
[31] Section 46 of the Arbitration Act permits a court, on a party’s application, to set aside an award on several listed grounds. Among other things, the award may be set aside if the applicant can demonstrate that
• He was not treated equally and fairly,
• He was not given an opportunity to present a case or respond to another party’s case,
• He was not given proper notice of the arbitration or of the appointment of an arbitrator,
• The arbitrator has committed a corrupt or fraudulent act,
• There is a reasonable apprehension of bias, or
• The award was obtained by fraud.
As noted, Mr. Title did not take any steps to set aside the award. He did not bring such an application or submit any admissible evidence in this hearing in support of his allegations. Many of Mr. Title’s submissions are arguments on the merits of the issues put before the arbitrator.
[32] Mr. Title also argues that the application should be adjourned so that he may be given more time to review the material. He submits that he has only a sixth-grade education and has difficulty reading large volumes of documents. He would like the opportunity to retain counsel and submits that he has attempted to do so but, because he is currently residing at his home in Belize, his efforts have been unsuccessful.
[33] The record shows that Mr. Title was given considerable notice of this application and was encouraged to retain a lawyer. The award was released on August 18, 2020, but Mr. Title took no steps to set it aside. He was apprised of a case conference arranged by the applicants to schedule this application and was provided with their conference brief on September 2, 2020 in advance of a case conference held on September 10, 2020. At the case conference, Justice Hainey scheduled the application for November 9, 2020. Mr. Title admits that Justice Hainey strongly recommended he retain counsel to represent him on this application.
[34] The applicants served Mr. Title with their application record on October 5, 2020 (before the Notice of Application was issued) and offered to assist him in filing his materials to Sync.com, as required by the court during the COVID-19 pandemic. The issued Notice of Application was sent to Mr. Title on October 19, 2020 with another offer to assist in uploading Mr. Title’s materials.
[35] I am satisfied that Mr. Title had ample opportunity to bring an application to set aside the award, but he failed to do so. I am also satisfied that Mr. Title had ample notice of the application to enforce the award. He was encouraged to retain a lawyer a month prior to the hearing. While I appreciate that Mr. Title is currently residing at his home in Belize, there is no evidence to suggest that he was unable to contact lawyers in Toronto, where he also has a residence, who may have been able to represent him. Mr. Title submits that he contacted many lawyers and none replied, but he offered no admissible evidence in support of his efforts in this regard. Accordingly, I decline to grant an adjournment of the application.
[36] Because the arbitrator terminated the arbitration after determining liability but without establishing the full extent of the damages, the applicants are in the unique position of seeking partial enforcement of the award. They ask this court to enforce the payment of the $400,000 in loans made to Prokuron, for which the arbitrator found Mr. Title liable as guarantor. They seek this payment notwithstanding that the final accounting, which would factor in all amounts owing by all parties, will not be completed until the end of the second phase.
[37] This is a reasonable request and it is just and equitable that this part of the award be enforced. The arbitrator found that “the debts owing by Prokuron to Mr. Evans and Mr. Fiorillo on their loans of $200,000 each are now due and payable”: para. 34 of the award. He also found that “Mr. Title knowingly signed the guarantees … and I order that Mr. Title is liable to pay these amounts to Mr. Evans and Mr. Fiorillo”: para. 50 of the award. The arbitrator found that Mr. Evans and Mr. Fiorillo had not committed any acts of oppression and were not liable to Mr. Title.
[38] At the arbitration, Mr. Title requested a declaration that he had a valid shareholder loan owing by Prokuron to him in an amount to be determined in the second phase. The arbitrator could not determine on the evidence that there were any shareholder loans owing by Prokuron to Mr. Title. He concluded that whether such a loan existed would be determined during the second phase and that Mr. Title had no right to any priority of payment: para. 120 of the award. If it is subsequently determined that Mr. Title has a valid shareholder loan, that loan can be brought into the accounting during the second phase, which will now exclude the principal of the two $200,000 loans made by Mr. Evans and Mr. Fiorillo.
[39] Mr. Title has declined to pay the costs of the arbitration and is now residing in Belize. He submits that he cannot leave Belize other than by private jet and that, because of the COVID-19 pandemic, he is unable to access funds in his bank accounts in both Canada and Belize. The applicants submit that they will be hard-pressed to locate assets owned by Mr. Title against which to enforce their judgments for the loan repayments. Mr. Title has been operating the Prokuron business through a new company and a different bank account over which the applicants have no signing authority.
[40] I agree with the applicants that it is not realistic to think that Mr. Title will readily engage in the Share Purchase Process, which was to commence within three weeks of the release of the award. Accordingly, it is appropriate to defer the Share Purchase Process to such date as the applicants elect to pursue the second phase. Since the arbitration has been terminated, the second phase, including the Share Purchase Process and final accounting process, shall proceed with the assistance of this court as required.
Costs
[41] The arbitrator found that the applicants were successful in the first phase of the arbitration and ordered Mr. Title pay their costs of the arbitration, including the arbitrator’s costs to date: para. 124 of the award. The applicants were permitted to include costs relating to the prior action in their submissions, and Mr. Title could argue that no such costs should be ordered. The arbitrator invited the parties to submit their costs in writing according to a prescribed timetable. However, because the arbitration was terminated when the award was released, no costs submissions were made.
[42] The applicants’ costs submissions, including costs of the action, form part of their application record. They ask this court to fix their costs.
[43] Mr. Title did not make any costs submissions. I gave him the opportunity to review the applicants’ Bill of Costs relating to the action and the arbitration, as well as their Bill of Costs for this application, in the course of the hearing.
[44] Regarding their Bill of Costs relating to the action and the arbitration, but not including the costs of this hearing, the applicants show fees of $104,273.59 and disbursements of $68,206.38, for a total of $172,479.97, inclusive of HST. These fees are calculated on a partial indemnity basis, but the applicants submit that they should be entitled to something in excess of partial indemnity because Mr. Title accused them of criminal acts and forgery, which allegations were rejected by the arbitrator. Further, they submit that the arbitrator rejected Mr. Title’s claim that he had not signed the underlying documents and found his allegations that the applicants breached their fiduciary duties to Prokuron to be unfounded and contrived.
[45] Mr. Title objects to the fees sought by the applicants relating to the Mareva injunction they brought in the action. He submits that the applicants did not succeed on that motion and should not be entitled to costs related to it. The motion did not proceed as scheduled because the respondents were short-served. It was adjourned on terms, and the matter was eventually settled through minutes of settlement approved by court order.
[46] It is correct that a Mareva injunction was never granted, but two court orders did arise out of the applicants’ motion. I therefore reduce the costs sought by the applicants relating to their motion for a Mareva injunction by $12,430 (being approximately fifty percent of the fees, plus HST). This reduces the grand total, on a partial indemnity scale, to $160,049.97. To this amount, I would add twenty percent to bring into account Mr. Title’s unfounded allegations of criminal acts, forgery and breach of fiduciary duty. Accordingly, I fix the costs of the arbitration and the action at $192,059.96, inclusive of disbursements and HST.
[47] In addition, the applicants seek their costs of this application on a partial indemnity basis. They submit fees of $7,334.50, inclusive of disbursements and HST, plus an additional three hours for the hearing (3 x $325 plus HST = $1,101.75) for a total of $8,436.25. The applicants have been successful in their application and these fees are fair and reasonable. I therefore fix the fees of this application at $8,436.25.
[48] In summary, I fix the total costs payable by Mr. Title to the applicants for the action, the arbitration, and this application at $200,496.21, inclusive of disbursements and HST. These costs shall be paid within thirty days of the date of this endorsement.
Disposition
[49] A Judgment shall issue in the form attached hereto. The Judgment is effective as of the date of this endorsement and it does not need to be entered.
Dietrich J.
Released: November 20, 2020