Court File and Parties

COURT FILE NO.: CV-18-603277

DATE: 20220330

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Ismail Abbasbayli

AND:

Fiera Foods Company, Bakery Deluxe Company, 2168587 Ontario Ltd., David Gelbloom and Boris Serebryany

BEFORE: J.T. Akbarali J.

COUNSEL: Nikolay Y. Chsherbinln, for the plaintiff

Andrew Porter and Vivian Hua, for the defendants

HEARD: March 29, 2022

ENDORSEMENT

Overview

[1] The defendants move to strike certain paragraphs of the statement of claim, in which the plaintiff claims an oppression remedy against the individual defendants.

Brief Background

[2] The plaintiff claims to have been a common employee of the corporate defendants. He alleges that his employment was wrongfully terminated, and seeks damages for wrongful dismissal, moral damages and punitive damages, as well as reimbursement of certain expenses.

[3] The individual defendant Gelbloom is alleged to be the sole director, secretary and president of the numbered company defendant. The individual defendant Serebryany is alleged to be a director of the other two corporate defendants, as well as their directing mind and will. Of relevance to this motion, the plaintiff has pleaded personal liability on the part of the individual defendants arising out of alleged oppressive conduct in reliance on s. 248 of the Business Corporations Act, R.S.O. 1990, c. B. 16 (“OBCA”).

[4] The plaintiff issued a statement of claim on August 14, 2018 which was the subject of an earlier motion to strike by the defendants on a number of bases, including the defendants’ allegation that the claim disclosed no reasonable cause of action under s. 248 of the OBCA. Justice Pollak struck the oppression remedy claim with leave to amend on December 16, 2019. In the same decision, Pollak J. dealt with other challenges to the claim and, among other things, struck certain other portions of the claim without leave to amend.

[5] The plaintiff appealed Pollak J.’s decision to the Court of Appeal. The appeal was allowed in part, but Pollak J.’s determination striking the oppression remedy claim with leave to amend was upheld by order of the Court of Appeal dated February 16, 2021: Abbasbayli v. Fiera Foods Company, 2021 ONCA 95.

[6] The plaintiff subsequently amended his statement of claim. The defendants argue that the amended claim fails to disclose a cause of action against the individual defendants under s. 248 of the OBCA, and that the related paragraphs in the amended claim should be struck without leave to amend. The principal issue on this motion is thus the sufficiency of the pleaded claim for an oppression remedy.

[7] The plaintiff raises two preliminary complaints which I also address: first, his argument that the defendants are seeking relief they already sought, and that having failed to appeal Pollak J.’s order striking his original oppression claim with leave to amend, their motion is improper; and second, his argument that having filed a pro forma statement of defence in this action, the defendants required leave under r. 2.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to bring this motion, which they did not seek.

Is this motion improper because it is a renewal of a motion already brought?

[8] The motion is not improper. Justice Pollak’s decision struck the plaintiff’s oppression remedy claim with leave to amend because, although she determined the claim was not properly pleaded, she was open to the possibility that the claim could be pleaded properly. She stated that the defendants’ motion “provided the plaintiff with a roadmap of what is required to fix this pleading.” Her decision was upheld by the Court of Appeal.

[9] In reaching her decision, Pollak J. noted that the jurisprudence provides that leave to amend is only denied in the clearest of cases: see, for example Tran v. University of Western Ontario, 2015 ONCA 295, at para. 26.

[10] The plaintiff has now amended his claim, as he was entitled to do. But that does not mean that the amended claim is immune from scrutiny. The defendants allege that the claim fails to disclose a reasonable cause of action. They are entitled to test the amended claim by way of this motion.

Is leave required because the defendants delivered a pro forma statement of defence?

[11] The defendants have delivered two statements of defence. The first was a pro forma statement of defence, delivered under threat of being noted in default. It challenges the validity of the plaintiff’s statement of claim.

[12] The second was a substantive defence from the corporate defendants. An endorsement from Associate Judge Josefo indicates that the parties agreed that filing this second defence would not be a “fresh step” in the proceeding.

[13] The defendants argue that the case law indicates that a defence that only challenges the validity of a claim is not a fresh step requiring leave to bring a motion to strike the claim: Deemar v. College of Veterinarians of Ontario, [2007] O.J. No. 3933.

[14] In my view, a defence that does nothing but challenge the validity of a claim is not a fresh step in a proceeding that prevents a defendant from challenging the statement of claim without leave.

[15] Even if it were, the plaintiff indicates it would not oppose leave being granted; rather, it objects to the fact that the defendants did not ask for leave.

[16] If leave were required, I would have no hesitation in finding that the defendants’ motion should be dealt with on its merits under r. 2.01(1), which provides that a failure to comply with the rules is an irregularity and does not render a proceeding or a step a nullity. Under that rule, the court may grant relief, on such terms as are just, to secure the just determination of the real matters in dispute. Were it necessary, I would grant leave to the defendants under r. 2.01(1)(a) to bring their motion.

Should the claims under s. 248 of the OBCA be struck on the basis that they disclose no reasonable cause of action at law?

The Test to Strike out a Claim

[17] Under r. 21.01(1)(b), a party may move to strike out a claim on the basis that it discloses no reasonable cause of action. “A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, at para. 17. Put another way, a claim will be struck if it has no reasonable prospect of success: Imperial Tobacco, at para. 17.

[18] If any fact material to establishing a cause of action is omitted, the statement of claim is bad, and the remedy is a motion to strike the pleading: Balanyk v. University of Toronto, 1999 14918 (ON S.C.J.) at para. 29. A pleading should be read generously so as not to unfairly deny a party the benefit of the pleading: Balanyk, at para. 30.

The Oppression Remedy

[19] The plaintiff relies on s. 248 of the OBCA which provides:

(1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, 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 any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).

[20] A “complainant” for the purposes of s. 248 of the OBCA is defined in s. 245 as:

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

[21] Read together, while “complainant” is broader than “security holder, creditor, director or officer of the corporation”, to establish oppression, the conduct at issue must be oppressive or unfairly prejudicial to, or unfair disregard the interests of, a security holder, creditor, director of officer of the corporation.

[22] It is plain that a creditor has status to bring an application for an oppression remedy as a complainant: Churchill v. Aero Auction Sales Inc., 2019 ONSC 4766, at para. 24. The plaintiff argues that, as a former employee who is owed wages that were accrued but remain unpaid, he is a creditor of the corporate defendants, and therefore a proper complainant.

[23] The plaintiff also argues that, as a non-shareholder employee of the corporate defendants, he is a proper complainant. He does so in reliance on cases such as Churchill, Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 8538 (ON CA), 200 D.L.R. (4th) 289 (Ont. C.A.), leave to appeal refused, [2001] S.C.C.A. No. 397, Brigaitis v. IQT, Ltd. c.o.b. as IQT Solutions, 2014 ONSC 7, 22 B.L.R. (5th) 297, Beadler v. Gudgeon Brothers Ltd., 2006 2612 (Ont. S.C.J.) and El Ashiri v. Pembroke Residence Ltd., 2015 ONSC 1172.

[24] In its decision in this action the Court of Appeal addressed some of this jurisprudence in the context of its discussion about when a wrongful dismissal may also justify a finding of oppression, at paras. 42-43:

I begin by noting that wrongful dismissal by itself will not usually justify a finding of oppression; nor is a terminated employee always a “complainant” who has standing to bring an oppression proceeding under s. 248 of the OBCA. Typically, oppression claims that are asserted in the context of wrongful dismissal are made by shareholder employees whose interests have been unfairly disregarded: see e.g. Walls v. Lewis (2009), 2009 31983 (ON SC), 97 O.R. (3d) 16 (S.C.). Claims have been asserted successfully by non-shareholder employees where a director’s conduct has prevented the corporate employer from paying wages or wrongful dismissal damages: see e.g. Churchill v. Aero Auction Sales, 2019 ONSC 4766, 147 O.R. (3d) 44 (the director, also the plaintiff’s former common law spouse, withheld wages, terminated her employment, caused the corporation to cease operations, and transferred its assets to a related corporation); Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 8538 (ON CA), 200 D.L.R. (4th) 289 (Ont. C.A.), leave to appeal refused, [2001] S.C.C.A. No. 397 (directors caused the company to go out of business and transferred its assets to related companies they owned and operated a few months before a scheduled wrongful dismissal trial). Similarly, such a claim was permitted to proceed as part of a proposed class proceeding in Brigaitis v. IQT, Ltd. c.o.b. as IQT Solutions, 2014 ONSC 7, 22 B.L.R. (5th) 297, at paras. 90-99, where it was alleged that the directors had diverted funds for personal use before the corporation terminated the employment of employees, leaving insufficient funds to pay termination pay and other amounts.

It is not sufficient for a terminated employee, as here, to plead that the individual defendants acted oppressively as directors of the corporate defendants, and to claim all of their damages against such individuals, relying on s. 248 of the OBCA. Nor is it sufficient to allege that the directors directed the appellant’s termination, or that they failed to ensure that he received a record of employment.

[25] Recent Supreme Court of Canada jurisprudence set out the necessary elements of an oppression claim. In Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037, the Supreme Court of Canada held that a complainant must do two things: (i) identify the reasonably held expectations they claim to have been violated by the conduct at issue, and (ii) show that these reasonable expectations were violated by corporate conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director or officer of the corporation: at para. 24. The Court also held that to impose personal liability, there must be oppressive conduct that is properly attributable to the director’s implication in the oppression, and the imposition of personal liability must be fit in all the circumstances: at paras. 47-48. See also the Court of Appeal in Abbasbayli, at para. 44.

[26] In Wilson, the Supreme Court of Canada also discussed the interplay between the oppression remedy and the general corporate law context underlying the dispute. It held that a court should consider the general corporate law context when exercising its remedial discretion under the oppression remedy provision. “This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where such other relief may be more fitting in the circumstances”: at para. 55.

[27] Consistent with Wilson, the defendants note that courts have consistently held that a claim for wrongful dismissal is not, in itself, a proper claim to be asserted by way of oppression remedy. Rather, where the dismissal is part of an overall pattern of conduct, and where the employment is closely connected with the complainant’s rights as a shareholder, officer and director, the dismissal may be properly considered as part of that pattern of oppressive conduct: Naneff v. Con-Crete Holdings Ltd., (1993), 11 B.L.R. (2d) 218 (Ont. Gen. Div.), at para. 125. See also Walls et al. v. Lewis et al. (2009), 97 O.R. (3d) 16, 2009 31983 (ON SC) at para. 41 (“Wrongful dismissal, standing alone, does not justify a finding of oppression. It is only where the interests of the employee are closely intertwined with his interests as a shareholder and where the dismissal is part of a pattern of conduct to exclude the complainant from participation in the corporation that the dismissal can be found to be an act of oppression.”); and Clitheroe v. Hydro One Inc, 2002 CarswellOnt 3919, at para. 27, finding that instances where a claim for wrongful dismissal is included in an application for relief under the oppression remedy are rare, and only arise if the termination of employment is part of a pattern of oppressive conduct.

[28] The cases relied on by the plaintiff, where a non-shareholder employee has been found to be a complainant under the oppression remedy generally involve cases where internal corporate maneuvering has been used to defeat the employee’s claim to damages, for example, by winding up the corporate employer and transferring the corporation’s assets out of the company, leaving the corporation unable to satisfy the claims of the employee. An exception is the El Ashiri case, where no after-the-fact corporate maneuvers were alleged, but there, the sole officer and director of two corporations mislead the plaintiff employees who were hired by the corporations into working and continuing to work without ever being paid what they were due, even from the outset. The director misled the plaintiffs knowing that the corporations were never in a position to pay them what they were due. These cases demonstrate a pattern of conduct that was oppressive to the employees’ interests as creditors.

[29] No case has been referred to me in which a non-shareholder employee has been found to be a proper complainant in an oppression remedy claim where the claim is a typical wrongful dismissal claim and the there is no internal corporate maneuvering or conduct by individual directors to deplete the company of assets, or mislead the plaintiff into believing that the corporation has assets to pay wages.

[30] In its decision in this case, the Court of Appeal noted that the plaintiff did not address the elements identified by the Supreme Court of Canada in his pleading. He did not plead his reasonable expectations of the directors or that those reasonable expectations were violated by oppressive corporate conduct. On this basis, it upheld Pollak J.’s order striking the oppression remedy claim with leave to amend. It specifically disclaimed any intention to determine whether a claim for an oppression remedy is appropriate in the circumstances of this case, whether the plaintiff would have standing as a “complainant” under s. 245 of the OBCA or whether the plaintiff would be able to successfully plead a claim under s. 248 of the OBCA against the individual defendants.

The Amended Statement of Claim

[31] It is against this backdrop that I turn to consider the oppression remedy pleading in the plaintiff’s amended statement of claim.

[32] The defendants impugn paragraphs 56, 57, 59, 60 and 61 of the statement of claim. I describe these paragraphs briefly:

a. Paragraph 56 alleges that the individual directors engaged in a bad faith course of conduct outside the scope of their ordinary duties and used their directorial powers oppressively by directing the corporations to dismiss the plaintiff for cause;

b. Paragraph 57 pleads that the individual directors exercised their powers in an oppressive manner and are jointly and severally liable for the plaintiff’s claims under, among other things, s. 248 of the OBCA;

c. Paragraph 59 alleges that the individual directors did not carry out their duties in good faith when they failed to instruct the corporate defendants to remit the wages owing to him that accrued before his dismissal, made the decision to dismiss him without notice, and did not issue him a record of employment. The plaintiff then specifically pleads the following alleged reasonable expectations which he claims were disregarded by the individual directors:

i. The directors would conduct the companies’ affairs with a view to protecting his interests as a former employee who was owed vacation pay held in trust by the corporations;

ii. The directors would not exercise their powers in bad faith to advance their personal financial interests by instructing the corporations to withhold the plaintiff’s vacation pay;

iii. The directors would not obtain, directly or indirectly, a personal benefit from the plaintiff’s labour that resulted in the accrual of the outstanding vacation pay, which they instructed the companies to withhold;

iv. The directors would carry out the corporations’ affairs in a breach of their duties of honest performance and the duty to exercise good faith in the manner of dismissal;

v. The directors did not carry out their duties in good faith when they failed to instruct the corporations to remit accrued vacation pay owing to the plaintiff before his dismissal and when they decided on behalf of the corporations to dismiss the plaintiff for cause; and

vi. The directors would not unfairly disregard the plaintiff’s interests by instructing the corporations not to issue a record of employment.

d. Paragraph 60 alleges that the plaintiff is a creditor and complainant of the corporations.

e. Paragraph 61 pleads that the directors are liable for all compensation and damages sought against the corporate defendants that are claimed in the prayer for relief.

[33] I conclude that the paragraphs described above do not disclose a reasonable cause of action, and must be struck because:

a. The reasonable expectations that the plaintiff has pleaded are all qua employee, and not qua creditor, shareholder, officer, or director.

b. The substance of the plaintiff’s claim, or, put another way, the general corporate context behind the claim, is wrongful dismissal. The plaintiff’s pleading falls afoul of the direction of the Supreme Court of Canada in Wilson, at para. 55, that director liability under the oppression remedy cannot be a surrogate for other forms of statutory or common law relief. Here, the plaintiff’s claim sounds in wrongful dismissal, and statutory entitlements. Invoking the oppression remedy is a tactic designed to rope in the individual directors. If it were permissible in this instance, every wrongful dismissal action that involved a corporate employer would include an oppression remedy claim. The jurisprudence recognizes that is not the intent of the oppression remedy. Nor does it advance the objects of r. 1.04, which identify that a crucial object of civil litigation is to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. While r. 1.04 deals with the interpretation of the rules, the policy underlying it is relevant to this case, and has found expression in other cases, including Hryniak v. Mauldin, 2014 SCC 7, where the court endorsed the proportionality principal in r. 1.04: at para. 30, and held that “undue process and protracted trials, with unnecessary expense and delay, can prevent the fair and just resolution of disputes”: at para. 24 [emphasis in original].

c. In my view, there is no reasonable possibility of success in this case, in the sense that it is not reasonably possible that a court would exercise its discretion to find the plaintiff to be a proper complainant in his capacity as a non-shareholder employee. The claim does not plead any improper corporate maneuvering or attempts to defeat the plaintiff’s ability to collect any eventual judgment from the corporate defendants. While it pleads that the individual directors personally benefited from the failure to pay the plaintiff his vacation pay (which is alleged to be three weeks’ wages, earned at a base salary of $35,360), this is a bald allegation without any pleading of material facts to support it.

d. Moreover, given that the pleaded reasonable expectations are not expectations that the plaintiff would hold qua creditor, but only qua employee, there is no reasonable possibility that a court would find the plaintiff’s reasonable expectations qua creditor to have been breached.

e. The only pleaded reasonable expectation that even suggests it is related to the plaintiff’s creditor capacity is the first one, that the directors would conduct the companies’ affairs with a view to protecting the plaintiff’s interests as a former employee who was owed vacation pay held in trust by the corporations. Even that is clearly grounded in the plaintiff’s capacity as a (former) employee, and the expectation relates to his status as a (former) employee, not his status as creditor.

[34] For these reasons, I strike the impugned paragraphs of the plaintiff’s statement of claim.

[35] Moreover, I strike the impugned paragraphs without leave to amend. Although leave to amend is only refused in the clearest of cases, a court is entitled to consider whether prior amendments to the claim have been made. A party is not entitled to unlimited scope to amend its pleading: Tran, at para. 27.

[36] The plaintiff, with the benefit of a prior motion and decisions from both Pollak J. and the Court of Appeal, set out to amend his claim to properly plead oppression against the individual directors. Justice Pollak observed that the defendants’ motion had provided a road map to the plaintiff about what was required to properly plead the claim. The plaintiff has clearly read the jurisprudence. He has picked phrases from relevant case law to try to stitch together a claim that passes the test. He has failed, not for lack of trying, but because an oppression remedy claim cannot succeed on these pleaded facts, even assuming them all to be true. The claim is a wrongful dismissal claim. The oppression remedy pleading, and the motions it has spawned, have been a sideshow, distracting from the true claim that must be litigated. The oppression claim has added expense and delay, and nothing more. Granting leave to amend would only lead to more expense and delay.

Costs

[37] The parties each filed costs outlines prior to the motion and agreed that once I had determined the motion on its merits, I would adjudicate costs on the basis of the outlines filed.

[38] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 1999 2052 (ON CA), 46 O.R. (3d) 330, at para. 22.

[39] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 2004 14579 (Ont. C.A.), 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[40] In this case, the defendants are the successful parties and are presumptively entitled to their costs.

[41] The defendants’ costs outline seeks partial indemnity costs of $11,667.91, which reflects fees only. No disbursements are claimed. In contrast, the plaintiff’s costs outline discloses partial indemnity costs of $5,932.50, an amount which includes $682.50 in disbursements. There is no reason in this case to award costs on anything other than a partial indemnity scale.

[42] In my view, the following factors are relevant to quantum:

a. There is some duplication of time in the defendants’ bill of costs, in that some steps are claimed for two counsel, when one counsel’s attendance is all the unsuccessful plaintiff should reasonably be expected to pay for;

b. The preliminary issues raised by the plaintiff were poorly focused and, to some extent, technical. To the extent the defendants had to respond to those issues, they caused the defendants to unnecessarily incur some costs;

c. The defendants appropriately delegated work to the least expensive timekeeper, whose partial indemnity rate is lower than the partial indemnity rate of the plaintiff’s counsel. However, the partial indemnity rate of defendants’ counsel’s most expensive timekeeper is, while in keeping with market conditions, higher than the plaintiff may have reasonably expected to pay;

d. The plaintiff’s own costs indicate that the defendants’ costs are outside of his reasonable expectations generally.

e. The issues raised were important to the parties, and were matters of moderate complexity.

[43] In my view, costs of $8,500 are fair and reasonable in the circumstances. This amount shall be paid by the plaintiff to the defendants within thirty days.

Conclusion

[44] In summary, I make the following orders:

a. Paragraphs 56, 57, 59, 60 and 61 of the plaintiff’s amended statement of claim shall be struck without leave to amend.

b. The plaintiff shall pay the defendants’ costs of $8,500 all-inclusive within thirty days.

J.T. Akbarali J.

Date: March 30, 2022