COURT FILE NO.: CV-14-126-00 (Kingston)
DATE : 20211224
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH TORRES and KEITH SMALBILL
Plaintiffs
-and-
MGL PROPERTIES LTD., (FORMERLY, MR. GAS LIMITED/MR. GAS LIMITEE), BCP IV SERVICE STATION LP, AND BCP IV SERVICE STATION LIMITED
Defendants
-and-
W.L. PETERS HOLDINGS LTD. and
SEA WAY RESTAURANT (PRESCOTT) LIMITED
Third parties
Matthew Benson, for the Plaintiffs
Michael Hebert and Cheryl Gerhardt-McLuckie, for the Defendants
Jaye Hooper, for the Third Parties
HEARD at Kingston: 21 December 2021 (by videoconference)
Mew J.
REASONS FOR decision
(Motion for Relief under s. 248 of the Business Corporations Act)
[1] The plaintiffs own a mixed-use commercial/residential building at 180 Water Street in Prescott. They bought it in 2007 for $800,000. They allege that contaminants have leaked onto their property from a nearby gas station formerly owned and operated by the defendants. They have a report which estimates the cost of remediating the contamination at, and affecting, their property, will be $7,300,000 excluding taxes.
[2] The defendant now known as MGL Properties Ltd. bought the gas station property located at 152 Water Street in 1985, and thereafter operated a “Mr. Gas” gas station there. In December 2018, MGL sold its gas station assets, including the Water Street location, to the defendants BCP IV Service Station LP and BCP IV Service Station Limited, for over $40 million.
[3] The third parties W.L. Peters Holdings Ltd. and Sea Way Restaurant (Prescott Limited) are, respectively, the owners of neighbouring properties at 132 King Street East and 111 King Street East.
[4] The liabilities of MGL’s gas station operations remain with MGL, which is no longer actively trading. The record indicates that over $18 million has been paid by way of dividends to MGL’s three individual shareholders or their personal holding companies. MGL’s remaining assets are said to be approximately $2.5 million, earmarked for “operating costs” and held in GICs or similar vehicles, and real property estimated by MGL to be worth between $1.5 million and $2 million.
[5] Pending a trial of their claims, the plaintiffs seek various orders including an order pursuant to section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 requiring the defendants to pay into court $8,000,000 by way of security for the plaintiffs’ claim. In the alternative they seek injunctive relief to enjoin the defendants from dissipating assets that might otherwise be used to satisfy a judgment obtained by them.
[6] The third parties take no position on this motion.
Facts
[7] Although the cumulative total of pages of documents (including factums and compendiums) on CaseLines for this hearing was in excess of 5,000 pages, I find the material facts to be relatively straightforward.
[8] When they bought the property, the plaintiffs were not aware that it was contaminated. No environmental investigation was undertaken prior to the acquisition.
[9] In 2013, as part of the process of remortgaging their property, the plaintiffs obtained a Phase I Environmental Site Assessment, which disclosed the presence of contamination by petroleum hydrocarbons, volatile organic compounds, and polycyclic aromatic hydrocarbons principally derived from gasoline.
[10] At around the same time, MGL had retained a consultant to carry out a Phase II Environmental Site Assessment on the Mr. Gas site, which found contamination in the soil and groundwater at that location.
[11] The plaintiffs started this action against MGL in March 2014, seeking amongst other relief, $7 million in damages arising from the contamination of their property which, they alleged, had been caused by MGL and its operations.
[12] Further investigations carried out in 2015 observed that the flow of groundwater was towards the south-east from the Mr. Gas site in the direction of the plaintiffs’ property. In addition, 6-7 centimetres of “free product” – or liquid petroleum – was measured in a monitoring well at the southern boundary of the Mr. Gas site.
[13] While there is a dispute as to the extent to which the Mr. Gas property is the source of the contamination discovered on the plaintiffs’ property (MGL takes the position that at least some of the contamination emanated from 132 King Street, which was the location of a different gas station up until approximately 1948), I accept that there is a serious issue as to whether Mr. Gas property is a source of the contamination of the plaintiff’s property.
[14] Amongst the allegations made by the plaintiffs are that MGL failed to meet its regulatory and reporting responsibilities to either the Technical Standards and Safety Authority (“TSSA”) and the Ministry of Environment, Conservation and Parks (“MECP”). Suffice it to say that while MGL may, ultimately, have cooperated with those agencies, I would accept, for the purposes of this motion, that the initial involvement of the TSSA and MECP appears to have come about as a result of pressure exerted by the plaintiffs rather than diligent adherence by MGL to its statutory responsibilities.
The Oppression Claim
[15] The plaintiffs assert a remedy under section 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) which they describe as granting the court a “wide-ranging judicial discretion” to rectify matters where a Corporation or its directors have acted in a manner that is oppressive or that unfairly disregards the interests of any security holder, creditor, director or officer.
[16] An oppression claim can be brought by any “complainant”, defined in section 245 of the OBCA as including a current or former director of a company, a security holder, or “any other person who, in the discretion of the court, is a proper person to make an application”. This can include creditors.
[17] The plaintiffs argue that eligible complainants are not restricted to judgment creditors, but can also include potential creditors of a corporation. They rely, in particular, on Tannis Trading Inc. v. Coldmatic Refrigeration of Canada Ltd., (2010) 85 B.L.R. (4th) 77 (Ont. SCJ), a decision of the Divisional Court.
[18] In Tannis, the defendant company, Coldmatic, negligently installed freezer panels at the plaintiff’s food products and food services business. Coldmatic was put on notice of the plaintiff’s claim on 7 September 2000. A further demand letter dated 28 February 2005 gave notice of an intention to litigate if the matter was not resolved amicably by 15 March 2005. Two days later, Coldmatic’s principal, Zafir, signed a letter of intent to sell all of Coldmatic’s assets. He subsequently swore an affidavit in support of a Bulk Sales Act exemption in which he deposed that the sales would not impair the ability of the defendant’s creditors to be paid in full. The plaintiff’s action was started a few days after the asset sale closed and Coldmatic ceased carrying on business. The case went to trial. M.J. Quigley J. ruled that pursuant to s. 248 of the OBCA, the plaintiff was entitled to a remedy against Zafir. The court rejected the defendants’ submission that a creditor for an un-liquidated claim is not entitled to a remedy because debt actions should not be routinely turned into oppression actions. On appeal, the Divisional Court upheld the trial decision. Rady J., at paras 26-27, wrote:
26 However, there are cases in which a creditor has been granted relief under the Act where those in control of the corporation have stripped it of assets or dissipated assets rendering it immune to a judgment. See, for example, Gignac, Sutts & Woodall Construction Co. v. Harris, 1997 CanLII 12437 (ON SC), [1997] O.J. No. 3084 (Ont. Gen. Div.); SCI Systems Inc. v. Gornitzki Thompson & Little Co. (1997), 1997 CanLII 12436 (ON SC), 147 D.L.R. (4th) 300 (Ont. Gen. Div.) var'd on other grounds (1998), 1998 CanLII 17741 (ON SCDC), 110 O.A.C. 160 (Ont. Div. Ct.); Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (Ont. C.A.); and Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1998), 1998 CanLII 5847 (ON CA), 40 O.R. (3d) 563 (Ont. C.A.).
27 In the circumstances of this case, the trial judge had evidence before him on which he could reasonably conclude that oppressive conduct had occurred. In particular, he was disturbed by the timing of the agreement to sell assets and the failure to set aside a reserve for Tannis' claim of which Coldmatic had notice. He found that Mr. Zafir was evasive in his evidence about whether he personally benefited from the sale. We see no basis on which to disturb the exercise of his discretion and his finding that Tannis was a complainant and entitled to a remedy.
[19] In Cohen v. Cambridge Mercantile Corp., 2007 CanLII 21596 (ON SC), the plaintiff’s claim was against his former employer for damages arising from alleged breaches of his contract of employment. His compensation had included the payment of commissions on all business generated from a particular client. The plaintiff alleged that those commissions were unilaterally reduced by the employer and, ultimately, the employer conducted its affairs with the client in such a way as to lose it as a client, thereby depriving the plaintiff of commissions for the last five months of his employment and the potential to do business with the client following his termination. He asserted a number of claims, including a declaration that the affairs of the employer were conducted in a manner oppressive to his interests, and damages of $100,000 as compensation for the plaintiff’s loss of an opportunity to gain additional monetary benefits relating to business from the client. The employer brought a Rule 21 motion to strike out the plaintiff’s claim on the basis that was plain and obvious that the plaintiff must not succeed at trial with his oppression claim.
[20] D.M. Brown J. declined to strike out the oppression claim. The plaintiffs referred me to para. 34 of his decision:
Under section 248 of the OBCA a ‘complainant’ may seek relief from the court where a corporation has acted in a manner that is “oppressive…or unfairly disregards the interests of any security holder, creditor, director or officer of the corporation”. Courts have recognized creditors – both actual and potential – as “complainants” under section 245(c) of the OBCA: Apotex Inc. v. Laboratories Fournier S.A., 2006 CanLII 38354 (ON SC), [2006] O.J. No. 4555 (S.C.J.), at para. 38. Such recognition usually is given in circumstances of a corporation that is insolvent or nearing insolvency: Middlegate Financial Corp. v. B.F. Realty Holdings Ltd., 2003 CanLII 39497 (ON SC), [2003] O.J. No. 5555 (S.C.J.), at para. 89; aff’d [2005] O.J. No. 428 (C.A.); Waiser v. Deahy Medical Assessments Inc., [2006] O.J. No. 224 (S.C.J.). While Mr. Cohen has not yet been adjudged a creditor of Cambridge, his claim in this action makes him a potential one: J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd., [2006] O.J. No. 812 (S.C.J.), at paras. 67 and 75.
[21] However, D.M. Brown J. continued, at para. 37:
To date, however, the cases have interpreted section 248(2) of the OBCA as requiring proof of a wrong to the interests of a creditor qua creditor. Where, for example, the reorganization of a group of companies had the effect of depriving a judgment creditor of one of those companies of the ability to recover on his judgment, an oppression remedy was granted against the company’s directors: Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.), at paras. 60 to 63; see also, Litz v. Litz, [1995] M.J. No. 65 (Q.B.), at paras. 15 to 18. In Royal Trust Corp. of Canada v. Hordo (1992), 10 B.L.R. 86 (Ont.Gen.Div.) Farley J. sounded a note of caution against a too expansive application of the oppression remedy when he stated, at p. 92:
It does not seem to me that debt actions should be routinely turned into oppression actions…I do not think that the court’s discretion should be used to give ‘complainant’ status to a creditor where the creditor’s interest in the affairs of the corporation is too remote or where the complaints of the creditor have nothing to do with the circumstances giving rise to the debt or if the creditor is not proceeding in good faith. Status as a complainant should also be refused where the creditor is not in a position analogous to that of a minority shareholder and has no ‘particular legitimate interest in the manner in which the affairs of the company are managed’.
[22] MGL relies on the comments of Farley J. in Royal Trust, as well as the decision of Belobaba J. in Apotex Inc. v. Laboratories Fournier S.A., 2006 CanLII 38354 (ON SC), in which it was held that because the plaintiff’s status as a potential creditor did not pre-date the alleged oppression but was created by the very conduct being complained about, the oppression pleading had no chance of success and should be struck out. At para. 42, Belobaba J. wrote:
If the oppressive conduct alone was enough to create the status of a creditor-complainant for the purposes of the oppression remedy, then the oppression remedy could be used by any plaintiff in any case where a corporation has caused damage through an otherwise conventional breach of contract or through tortious conduct. This is obviously not the object or purpose of the oppression remedy. Nor is it the law in Ontario.
[23] It is clear that the OBCA oppression remedy is not a short cut to obtain a judgment, or de facto execution before judgment, against a corporate defendant. All of the cases I was referred to where creditors or potential creditors were allowed to claim, or obtained, relief under s. 248, involved plaintiffs who either had a judgment or had a liquidated claim against the corporation at the time of the alleged oppression.
[24] I am therefore of the view that the plaintiffs do not qualify as “complainants” as that term is defined in s. 245 of the OBCA and that, as a result, they cannot advance an oppression claim.
Injunctive Relief
[25] In the alternative to relief under the oppression remedy, the plaintiffs say they are entitled to a Mareva injunction, freezing MGL’s remaining assets.
[26] It is common ground between the parties that to obtain a freezing order, the plaintiffs must meet both the traditional three-part test for injunctive relief set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311, as well as the requirements set out in Sibley & Associates LP v. Ross, 2011 ONSC 2951.
[27] The test in RJR-MacDonald requires the plaintiffs to establish that:
a. There is a serious issue to be tried.
b. Irreparable harm will be suffered if the relief is not granted.
c. The balance of convenience favours granting an injunction.
[28] To obtain a freezing order, the plaintiffs must, in addition:
a. Make full and frank disclosure of all material matters within his or her knowledge.
b. Give particulars of the claim against the defendant, stating the grounds of the claim thereof, and the points that could fairly be made against it by the defendant.
c. Give some grounds for believing that the defendant has assets in the jurisdiction.
d. Give some grounds for believing that there is real risk of the assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with so that the plaintiff would be unable to satisfy a judgment awarded to him or her.
e. Give an undertaking as to damages.
[29] As I have already indicated, there is enough evidence in the record before the court to conclude that there is a significant issue to be tried as to whether the plaintiffs’ property has been contaminated as a result of pollutants emanating from the defendants’ property.
[30] The evidence of irreparable harm is less clear. The plaintiffs assert a risk to the health of the occupants of their building, but evidence supporting that assertion is confined to the opinion of their retained expert.
[31] Nor is the balance of convenience tipped firmly in favour of tying up eight million dollars’ worth of MGL’s assets, given divergent evidence about the true value of the plaintiffs’ claim. In that regard, the defendants say that the plaintiffs’ claim, if liability is established, would be worth an amount less than $500,000 to approximately $2.5 million. The plaintiffs peg the value of their claim to the $7.3 million estimated by their expert (which includes the cost of returning not only the plaintiffs’ property but also the defendants’ and the Town of Prescott’s road allowance to pristine condition). And this in relation to a property (the plaintiffs’) said to be worth approximately $2 million. Although damages for remediation costs which exceed the value of a property can be recoverable, they must nevertheless be reasonable. However, on a motion such as this, it would be inappropriate for me to make a judgment as to whether the amounts claimed, and the reasons therefor, are reasonable.
[32] However, even if the court was to give the plaintiffs the benefit of the doubt on the application of the RJR-MacDonald factors, they cannot meet an essential element of the test for a Mareva injunction because they have not produced any direct evidence to support the asserted belief that there is real risk of the remaining assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with so that the plaintiffs would be unable to satisfy a judgment awarded to them. The best the plaintiffs can say is that the defendants had no insurance that would respond to their claim, and that only $4.5 million (or possibly less depending on the market value of MGL’s real estate assets) is remaining after payment of MGL’s other liabilities and the payment of dividends of approximately $18 million to its shareholders. Nevertheless, I am invited to accept that the plaintiffs’ claim is worth more than the remaining value of MGL and to infer that the rest of the money and assets will be disposed of before this case is over.
[33] While I can well understand the concern that the sale of the Mr. Gas property and the significant reduction of MGL’s assets may have raised on the plaintiffs’ part, the evidence is that a substantial amount remains. The sale of the Mr. Gas business came about as a result of an unsolicited approach from a competitor. MGL has produced evidence of the dividends paid and its representative, Gilles Guindon, provided an affidavit in August 2020 concerning MGL’s remaining assets. In that affidavit he advised that the shareholders of MGL have bound themselves to indemnify the defendants BCP IV Service Station LP and BCP IV Service Station Limited to the full extent of any claim that the plaintiffs establish against those parties and that “[i]t has been the intention of Mr. Gas and remains the intention of MGLP and the Shareholders to properly deal with the issue of the contamination alleged to exist on the King Street Property and further alleged to be migrating onto the Plaintiffs' Property”.
[34] There is no evidence that MGL’s assets have been further diminished since August 2020.
[35] The mere possibility of assets being further depleted is not enough to order what the defendants characterise as execution before judgment. There must be a real risk.
[36] Accordingly, I have not been persuaded that the extraordinary remedy of a Mareva injunction is warranted on the facts of this case.
[37] I would add this. The extraordinary remedy of injunctive relief, in the form of an order freezing all of MGL’s assets pending the resolution of claims that have already been rumbling through the court system for nearly eight years, would be neither just nor appropriate.
Disposition
[38] For the foregoing reasons, the plaintiffs’ motion is dismissed.
[39] Given the passage of time since this action was commenced, the parties should ensure that all outstanding steps are completed to enable this matter (including the third party action) to be set down for trial by no later than 30 June 2022. If for any reason that deadline becomes unachievable, any of the parties may request a case conference by contacting my judicial assistant, Aimee McCurdy, at Aimee.McCurdy@ontario.ca.
Costs
[40] I advised counsel at the end of the hearing that, at this juncture, I would fix both the costs of this motion and of the previous motion heard on 10 September 2021 to enforce the terms of an alleged settlement of this motion (I determined that there had not been a settlement) rather than reserve them to the trial judge. However, I am now reminded by looking at my previous decision that the parties agreed that the costs of the settlement motion should be in the cause, on a scale and in an amount to be fixed by the trial judge, if not otherwise resolved by the parties before then.
[41] The parties should therefore endeavour to agree the costs of this motion within ten business days of the release of these reasons. Should that not be possible, my judicial assistant should be notified, and I will establish a timetable for submissions.
Graeme Mew J.
Dated: 24 December 2021
COURT FILE NO.: CV-14-126-00 (Kingston)
DATE : 20211224
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH TORRES and KEITH SMALBILL
Plaintiffs
-and-
MGL PROPERTIES LTD., (FORMERLY, MR. GAS LIMITED/MR. GAS LIMITEE), BCP IV SERVICE STATION LP, AND BCP IV SERVICE STATION LIMITED
Defendants
-and-
W.L. PETERS HOLDINGS LTD. and
SEA WAY RESTAURANT (PRESCOTT) LIMITED
Third parties
REASONS FOR decision
(Motion for Relief under s. 248 of the Business Corporations Act)
Mew J.
Released: 24 December 2021