2334526 Ontario Inc., 2021 ONSC 7958
COURT FILE NO.: CV-21-00712-00
DATE: 2021 12 02
SUPERIOR COURT OF JUSTICE – ONTARIO
7755 Hurontario Street, Brampton ON L6W 4T6
RE:
Prayag Polytech Private Limited v. 2334526 Ontario Inc. et al.
BEFORE:
Justice Trimble
COUNSEL:
R. Kumar, for the plaintiff/respondent, rkumar@asterialaw.ca
B. Illion, for the defendant/moving party 2334526 Ontario Inc., brian.illion@illion.ca
HEARD:
November 16, 2021, by video conference
ENDORSEMENT
The Motion
[1] The moving Defendant, 2334526 Ontario Inc. O/A Sushrut Polymers (“Sushrut”), seeks a stay of this action until such time as the Plaintiff, a foreign corporation, obtains the license required by the Extra-Provincial Corporations Act (the EPCA) since s. 21 of the EPCA provides that an unlicensed foreign corporation is not capable of maintaining an action in Ontario until it obtains a licence under the EPCA.
Facts
[2] Due to my ruling on a preliminary issue, the following facts are taken from Sushrut’’s affidavits.
[3] Prayag is corporation registered in India, where it produced polymer resins (among other things) which it sells around the world through others. Prayag is not registered in Ontario or elsewhere in Canada. It is not licenced in Ontario, nor does it have an agent for service in Ontario.
[4] Between approximately 2012 and 2018 Sushrut was engaged to sell and service Prayag’s polymer resins and masterbatches as Prayag’s Ontario based “Channel Partner” for customers of Prayag’s resins located in Ontario and the United Sates. What Prayag meant by “channel partner” is unclear. What is clear is that Sushrut was, in effect, Prayag’s sole conduit for sale of its polymer resins in Ontario and the US.
[5] Kumar Satyandra was Sushrut’s contact with the Plaintiff throughout the business relationship. Prayag’s contact was Manish Aggarwal. Because of the involvement of Milan Aggarwal as the sole affiant for Prayag, I refer to Manish Aggarwal and Milan Aggarwal by their first names as a matter of clarity. I mean no disrespect in this regard.
[6] Manish supervised Sushrut’s business activities as it pertained to Prayag’s products. Satyandra routinely reported to Manish on Sushrut’s business including sale of resins, including the name of the 3 customers for such resins, amount of product sold to such customers, as well as inventory levels in Sushrut’s warehouse. The reporting also included reports of Sushrut’s expenses including not only its employees’’ salaries, but also such as warehouse rental expense.
[7] Manish was involved and informed on all aspects of Sushrut’s business. Sushrut even took direction from Manish concerning pricing of the product for customers, prospective employees Sushrut wished to hire that would deal with Prayag’s resins, and Sushrut , at Manish’s order, procured waste material “logs” for Prayag’s use.
[8] Sushrut held itself out and operated as Prayag’s representative to customers in the U.S. and Canada (such as Mitsubishi) with the knowledge and approval of Manish. In October 2017, Sushrut prepared a formal written agreement outlining the parties’ relationship. It was created (although never signed) because a large customer , Mitsubishi, required formal confirmation that Sushrut could legally represent Prayag. Sushrut said that regardless of thee fact it was not signed, the Agreement reflected the actual relationship between the parties. The agreement said in Article 3 that “…Prayag agrees to exclusively appoint Sushrut as its exclusive agent…”.
Positions of the Parties
[9] Sushrut argues that Prayag must be licensed because its activities fall within the statutory definition of carrying on business in Ontario found at s.1(2) of the EPCA and the limited exception found in s.1(3) does not apply to the Plaintiff.
[10] Prayag argues that is not carrying on business in Ontario. That is a question of fact, and the invoices show that Prayag was not carrying on business in Ontario. The relationship was merely one of buyer and seller, and all liability of R}Prayag ended once the products reached Canada.
Preliminary Matters
[11] There are two preliminary matters.
[12] First, the moving Defendant has served its Revised Statement of Defence, but the Court will not accept it. The Plaintiff consents to the extension of time for the Defendant to serve its Revised Statement of Defence. I order that the Court receive the revised Defence if served by 31 January 2022.
[13] Second, Sushrut seeks to exclude the Affidavit of Prayag’s only Affiant, Milan Kumar Aggarwal, a Director at Prayag on two bases:
a. Milan had no direct or indirect dealings with Sushrut. All of dealings between the parties were with Manish Aggarwal (Manish), Prayag’s VP of Overseas Business; and
b. Milan does not state which evidence is within his direct knowledge and what is on information and belief. Since Milan had no direct involvement with Sushrut, and since Milan does not state the basis of his information and belief, his evidence is improper, hearsay, and should not be accepted.
[14] Prayag does not address this issue in its factum. In oral argument, counsel argued that I should accept the Affidavit because:
a. It is sworn or affirmed, albeit remotely,
b. Milan was a Director of the Company since 20 October 2018. Implicit in this submission is that he had the obligation to inform himself.
c. Prayag is a small, family run business, and Milan has knowledge of the day to day activities of the company.
[15] I accept Sushrut’s position for the following reasons:
a. I do not accept the submission at para. c., above. Counsel was giving evidence. Counsel was also giving evidence with respect to when Milan became a director. None of this was in Milan’s Affidavit. It is improper.
b. While Milan is a director, he became one only after all relevant events had taken place.
c. As a Director, Milan has an obligation to review records and inform himself of facts and matters at issue in the litigation. However, where he was not involved in aspects of the case and others were, or where his information comes from document review, he is obliged to give the source of his evidence or information.
d. Milan says that where his information comes form a Third Party, he identifies he source. He does not.
e. Milan does not say what, if any, of his statements are from his direct knowledge or document review.
[16] Accordingly, I have ignored the following paragraphs as Milan, on its face, was not directly involved, and Milan does not state the source of his knowledge: 9, 10, 17d, 20, 22 - 26, 31 – 37.
[17] I have ignored the following paragraphs as they are not evidence, but argument or a legal conclusion: 13, 14, 19, 21, 27, 29, 39.
The Law
The Extra Provincial Corporations Act
[18] The following are the appropriate sections of the EPCA:
Section 1(2):
For the purposes of this Act, an extra-provincial corporation carries on its business in Ontario if,
(a) it has a resident agent, representative, warehouse, office, or place where it carries on its business in Ontario;
(b) it holds an interest, otherwise than by way of security, in real property situate in Ontario; or
(c) it otherwise carries on its business in Ontario.
Section 1(3) :
An extra-provincial corporation does not carry on its business in Ontario by reason only that,
(a) it takes orders for or buys or sells goods, wares, and merchandise; or
(b) offers or sells services of any type, by use of travellers or through advertising or correspondence.
Section 4(2)
No extra-provincial corporation within class 3 shall carry on any of its business in Ontario without a licence under this Act to do so, and no person acting as representative for or agent for any such extra-provincial corporation shall carry on any of its business in Ontario unless the corporation has a licence under this Act.
Section 21(1)
An extra-provincial corporation within class 3 that is not in compliance with section 19 or has not obtained a licence when required by this Act, is not capable of maintaining any action or any other proceeding in any court or tribunal in Ontario in respect of any contract made by it. R.S.O. 1990, c. E.27, s. 21 (1). [Emphasis Added]
Principles of Law
[19] The following are the appropriate principles of law:
a. Whether an extra provincial business is carrying on business in a province is a question of fact (see: Weight Watchers International Inc. v. Weight Watchers of Ontario Ltd. (1972), 1972 677 (ON SC), [1973] 1 O.R. 549 (H.C.), at p. 554; Success International Inc. v. Environmental Export International of Canada Inc. 1995 7186 (ON SC), 1995 CarswellOnt 25, [1995] O.J. No. 969, 23 O.R. (3d) 137, at para. 36).
b. The statute is not intended to apply to those who merely trade within the province. It is intended to apply to those who carry on business within the province, which requires the extra provincial corporate to do some act within the province (see: John Deere Plow Co. v. Agnew (1913), 1913 30 (SCC), 48 S.C.R. 208, at pages 218-219; Success, at para. 23).
c. A single, isolated transaction does not mean the extra provincial corporation is conducting business in Ontario. One must look at the transaction. If it has significant duration or magnitude, or involves retaining premises or employees in Ontario, the party is likely carrying on business here (see: Success, at para. 25 – 28).
d. Subsection 1(2) defines what is "carrying on business" and subs. 1(3) says what is not. The wording in s. 1(2)(a) is unclear and circular, but the wording suggests that the legislature intended that the notion of carrying on business should be broadly interpreted to cover situations not within the legislature's contemplation when the statute was enacted (see: Success, para. 31).
e. Subs. 1(3), sets out explicit situations that do not constitute carrying on business. An extra-provincial corporation does not carry on its business in Ontario by reason only that (a) it takes orders for or buys or sells goods, wares, and merchandise or (b) offers or sells services of any type by use of travellers or through advertising or correspondence. By this wording the legislature recognized that some commercial transactions engaged in by extra-provincial corporations should not attract the licensing requirements of the EPCA. The decision by the legislature list specific exceptions indicate that most commercial transactions and activities with some nexus in Ontario were intended to attract the responsibilities imposed by the Act (see: Success, para.s 32 and 33).
f. MacPherson, J. in Success, held that the Ontario EPCA has effectively expanded the definition of ‘carrying on business’ in a province as more narrowly used in John Deere, Linde Canadian Refrigerator Co. v. Saskatchewan Creamery Co. (1915), 1915 39 (SCC), 51 S.C.R. 400; Euclid Avenue Trusts Co. v. Hohs (1911), 24 O.L.R. 447 (C.A.); and Pacific Fruit & Produce Co. v. Dingle (1922), 1922 486 (MB CA), 65 D.L.R. 64 (Man. C.A.
g. In interpreting a commercial statute, as with a commercial contract, one must interpret it in a way which "promotes a sensible commercial result" (see: Consolidated Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co. (1979), 1979 10 (SCC), [1980] 1 S.C.R. 888, at p. 901; Success, at para. 34).
Result and Analysis
[20] Prayag’s action is stayed until such time as it brings itself into compliance with the EPCA.
[21] There is no doubt that Prayag is an extra provincial corporation and that it had no licence as required by the EPCA, has not paid the appropriate fees, and has no agent in Ontario for service (ss. 4(2) and 19(1)).
[22] The crux of the motion is whether Prayag was conducting business in Ontario within the definition of the EPCA.
[23] I conclude that Prayag was conducting business in Ontario within the meaning of the EPCA. I say this for the following reasons:
[24] Re s. 1(2)(a), it had a resident agent or representative in Ontario. I am satisfied that Prayag exercised sufficient control over Sushrut such that Sushrut was effectively Prayag’s agent in the US and Canada. No one factor prevails in this analysis. The factors include the parties’ contractual relationship, that their relationship was exclusive, Prayag extended credit to Sushrut, and Prayag was aware that large customers of Sushrut (like Mitsubishi) wanted to be assured that Sushrut was an exclusive supplier for Prayag and took no position contrary. In reaching this finding, I have considered the allegations of fact in paragraphs 5 to 7 and the fact that the Plaintiffs do not say that their relationship was purely one of buyer and seller.
[25] Re s. 1(2)(c), Prayag’s activities fall within “otherwise carries on business in Ontario” and is not captured by the exceptions in s. 1(3). In interpreting s.s 1(2) and 1(3) in combination, and in a commercially sensible way, I find that that because of s. 1(2)(c) the definition of ‘carrying on business’ is to be interpreted as broadly as in commercially sensible, and the exceptions in s. 1(3) are to be interpreted as narrowly as is commercially sensible.
[26] Prayag is an extra provincial corporation of class 3 under s. 2(1) of the EPCA that was carrying on business as contemplated by s. 1(2) and not excluded by s. 1(3). It did not register and obtain a licence as required by s. 4 and pay the required fee, nor did it have an agent for service under s. 19(1). Therefore, s. 21(1), it “… is not capable of maintaining any action or any other proceeding in any court or tribunal in Ontario in respect of any contract made by it.”
Costs
[27] The moving Defendant is successful on the motion and resumed entitled to its costs. If the parties cannot decide who pays whom costs and in what amount, I shall do so based on written submissions. Submissions are limited to 3 double-spaced, typewritten pages (excluding Bills of Costs or offers). The moving Defendant’s submissions are to be served and filed by 4 pm, 20 December 2021, and the Responding party’s by 4 pm, 10 January 2022. There will be no right of reply.
Trimble J.
Date: December 2, 2021
2334526 Ontario Inc., 2021 ONSC 7958
COURT FILE NO.: CV-21-00712-00
DATE: 2021 12 02
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Prayag Polytech Private Limited
- and –
2334526 Ontario Inc. et al.
ENDORSEMENT
Trimble J.
Released: December 2, 2021