Superior Court of Justice - Ontario

COURT FILE NO.: CV-19-615428

MOTION HEARD: 20220427

RE: Sebastien Corbo, Plaintiff

AND:

Cura-Can Health Corp., Canadian Cannabis Corp., 2472235 Ontario Inc. o/a The Clinic Network, 1749945 Ontario Inc., The Clinic Network Canada Inc., Douglas Scott Keevil, Michael Steele and Kim Wei, Defendants

BEFORE: Associate Justice Jolley

COUNSEL: Micheal Simaan, counsel for the moving party plaintiff, respondent on the cross motion William A. Chalmers, counsel for the responding party defendant Michael Steele, moving party on the cross motion Chloe Snider, counsel for the defendant Kim Wei

HEARD: 27 April 2022

REASONS FOR DECISION

Overview

[1] The plaintiff sues the corporate defendants for wrongful dismissal and the individual defendants for unpaid wages and pay in lieu of vacation entitlements. He has pleaded section 81 of the Employment Standards Act, 2000 S.O. 2000, c. 41 (“ESA”) with respect to the personal liability claims and seeks leave to amend his statement of claim to also reference section 131 of the OBCA and section 119 of the CBCA, the individual director liability sections concerning unpaid wages and vacation pay.

[2] The defendant directors Keevil and Wei take no position on the motion to amend. The defendant Steele is a director of the defendants Cura-Can Health Corp. and The Clinic Network Canada Inc., both CBCA incorporated companies. He opposes the plaintiff’s motion, arguing that the proposed claim against him is premature. He argues that he is not liable for unpaid wages unless the corporation has been sued for the debt within six months after it became due and execution has been returned unsatisfied in whole or in part. He argues that the plaintiff fails to meet both of these preconditions and the amendment should therefore be denied as being untenable at law.

[3] Steele brings his own rule 25.11 cross motion to strike certain portions of the present statement of claim on the basis that the preconditions to a director’s personal liability have neither been pleaded nor met.

Factual and legislative overview in respect of the plaintiff’s motion to amend

[4] The plaintiff sets out his claim for unpaid wages and vacation pay and share entitlement at paragraph 30 of his pleading, as follows:

30. Corbo states that as directors, Keevil, Wei and Steele are liable for all unpaid wages, vacation pay and other entitlements due to Corbo pursuant to section 81 of the Employment Standards Act. The full particulars of these unpaid amounts will be provided prior to trial.

[5] The proposed amended paragraph 30 would read:

30. Corbo states that as directors, Keevil, Wei and Steele are liable for all unpaid wages, vacation pay and other entitlements due to Corbo pursuant to section 81 of the Employment Standards Act, section 131 of the Business Corporations Act, and section 119 of the Canada Business Corporations Act. The full particulars of these unpaid amounts will be provided prior to trial.

[6] The relevant CBCA provisions state:

Directors and Officers

Liability of directors for wages

119. (1) Directors of a corporation are jointly and severally, or solidarily, liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively.

Conditions precedent to liability

(2) A director is not liable under subsection (1) unless

(a) the corporation has been sued for the debt within six months after it has become due and execution has been returned unsatisfied in whole or in part;

(b) the corporation has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proved within six months after the earlier of the date of commencement of the liquidation and dissolution proceedings and the date of dissolution; or

(c) the corporation has made an assignment or a bankruptcy order has been made against it under the Bankruptcy and Insolvency Act and a claim for the debt has been proved within six months after the date of the assignment or bankruptcy order.

Limitation

(3) A director, unless sued for a debt referred to in subsection (1) while a director or within two years after ceasing to be a director, is not liable under this section.

Amount due after execution

(4) Where execution referred to in paragraph (2)(a) has issued, the amount recoverable from a director is the amount remaining unsatisfied after execution.

[7] The relevant OBCA provisions state:

131(1) The directors of a corporation are jointly and severally liable to the employees of the corporation for all debts not exceeding six months' wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than twelve months under the Employment Standards Act, and the regulations thereunder, or under any collective agreement made by the corporation.

(2) A director is liable under subsection (1) only if,

(a) the corporation is sued in the action against the director and execution against the corporation is returned unsatisfied in whole or in part; or

(b) before or after the action is commenced, the corporation goes into liquidation, is ordered to be wound up or makes an authorized assignment under the Bankruptcy and Insolvency Act (Canada), or a receiving order under that Act is made against it, and, in any such case, the claim for the debt has been proved.

[8] Rule 26 provides that leave to amend a pleading shall be granted at any stage of a proceeding on such terms as are just unless prejudice would result that could not be compensated for by costs or an adjournment. Claims that are untenable at law should not be granted leave.

[9] Steele argues that the amendment should not be permitted as it is “bound to fail” and is therefore untenable. As noted above, he argues first that the claim is out of time as the plaintiff did not sue the corporations within six months of the debt becoming due. He then argues that it is premature as there is no judgment against the corporate employer that has been unsatisfied.

[10] It is agreed that the plaintiff’s proposed amendment is based on material facts already contained in the statement of claim and that no further discoveries would be required were the amendment granted.

The claim is not clearly out of time

[11] Steele argues that the claim set out in the proposed amendment is bound to fail as it was commenced out of time. He submits that the corporate employers were not sued within six months of the debt to the plaintiff becoming due as required by section 119(2)(a) of the CBCA.

[12] The plaintiff pleads that by June 2018, he was owed in excess of $45,000 in unpaid wages and unpaid vacation pay. On or shortly after 5 June 2018 he took a medical leave of absence, during which time he continued to request payment. On 4 October 2018 Cura-Can decided to terminate the plaintiff’s employment effective immediately.

[13] Steele argues that the six month requirement starts at the beginning of June 2018, when the unpaid wages were allegedly already due, albeit while the plaintiff was still employed. The plaintiff argues that the limitation period runs from the time of his termination in October 2018 and the action was commenced within six months of that date. He argues in the alternative that the defendants’ promises to pay, which continued past June 2018, extend any limitation period.

[14] It is not beyond doubt that the limitation period runs from the first date that funds were due and unpaid, rather than from the date that a party definitively refuses to pay. Nor is it clear that the limitation period is not extended by a promise to pay. Further, a trial judge may interpret this provision considering the factual matrix in which an employer allegedly was consistently behind in its payment of wages, benefits and other entitlements and then paid irregularly or insufficiently. I cannot say that the claim is bound to fail on this basis.

The amendment is not clearly premature

[15] Steele argues that he cannot be sued until there is a judgment against the corporate employer and execution on that judgment has been returned unsatisfied.

[16] The plaintiff argues that there is support in Abbasbayli v. Fiera Foods Co. 2021 ONCA 95 (“Abbasbayli”) for the proposition that it is not premature to sue a director at the same time as the corporate employer.

[17] As Steele notes, Abbasbayli dealt with the OBCA whose provision, unlike the CBCA, requires an employee to sue the company and the director in the same action. In that case, the directors argued that the action against them was premature as there was no unsatisfied judgment against the corporation, as required by the OBCA, before they could be found liable for those unpaid wages.

[18] The Court of Appeal overturned the motion judge’s decision to strike Abbasbayli’s claim against the directors. He was permitted to plead that he was owed vacation pay at the date of his termination and that it remained unpaid. He was not required to wait to see if execution against the corporation was returned unsatisfied before he could sue. The court held: “it is not premature to assert the claim in this action: s. 131(2) contemplates that the corporate employer will be sued in the same action as the director, although the director will not become liable to pay the accrued vacation pay until execution against the corporation is returned unsatisfied.”

[19] I am not satisfied that the plaintiff’s approach is bound to fail. It is not expressly precluded by the CBCA and has the advantage of being practical in its approach. As noted by plaintiff’s counsel in his exchange with Steele’s counsel predating the motion, “while I see that there are some cases that support your position that you need to first get judgment against the company before you can proceed against the individual directors, there are other cases that suggest the opposite. Given the law with respect to multiplicity of proceedings, I really don't see how the technical approach makes sense and given the direction of the courts to ignore technicalities, I think the courts will prefer the approach of bringing all claims in one action.” In this instance, I do prefer the approach proposed by the plaintiff or, at least, find it is not untenable.

[20] I am also mindful of the comments of Myers, J. noted in his endorsement, referenced in paragraph 33 below, that “While it may be, for example, that technically it is premature to name directors, if the corporation has no ability to pay or refuses to undertake to pay, perhaps keeping them all in one action is, in that case is [sic] the efficient, affordable way to proceed.”

[21] The trial judge may find the fact that the OBCA requires a director to be sued in the same action as the corporate employer does not preclude him or her being sued along with the employer in a CBCA claim, as that Act is silent on that issue.

[22] Importantly, both Acts share the same provision that a director is not liable until there is a judgment against the employer that is unsatisfied. It remains open to the trial judge to follow the rationale of Abbasbayli and permit the claim to continue but hold that Steele would not become liable until execution against the companies is returned unsatisfied or impose a temporary stay until the execution against the employer is returned. I would not hamstring any options available at trial by barring the claim from even getting out of the gate.

[23] The plaintiff’s motion to amend paragraph 30 of his statement of claim as set out in paragraph 5 above, is granted.

Steele’s cross motion

[24] Steele seeks an order striking certain paragraphs of the claim as they relate to the plaintiff’s claim against him under the ESA. He moves pursuant to rule 25.11(b) and (c) on the basis that the pleading is scandalous, frivolous or vexatious or an abuse of the process of the court. He argues that the pleading must fail as the plaintiff has not pleaded the ESA’s preconditions to a director becoming personally liable for an employee’s outstanding wages, nor have those preconditions been met on the evidence he filed on this motion.

Factual and legislative overview

[25] The plaintiff alleges in paragraph 30 of his statement of claim that Steele is liable to him for unpaid wages, vacation pay and other entitlements pursuant to section 81 of the ESA, (now in addition to his OBCA and CBCA pleading). Section 81 of the ESA states:

81 (1) The directors of an employer are jointly and severally liable for wages as provided in this Part if,

(a) the employer is insolvent, the employee has caused a claim for unpaid wages to be filed with the receiver appointed by a court with respect to the employer or with the employer's trustee in bankruptcy and the claim has not been paid;

(b) an employment standards officer has made an order that the employer is liable for wages, unless the amount set out in the order has been paid or the employer has applied to have it reviewed;

(c) an employment standards officer has made an order that a director is liable for wages, unless the amount set out in the order has been paid or the employer or the director has applied to have it reviewed; or

(d) the Board has issued, amended or affirmed an order under section 119, the order, as issued, amended or affirmed, requires the employer or the directors to pay wages and the amount set out in the order has not been paid.

Analysis

[26] There are at least three problems with Steele’s cross motion, in my view.

[27] First, motions of this nature are generally to be brought at the outset of litigation, as they are pleadings motions. The defendant is correct that the timing of a rule 25.11 motion is not mandated in the Rules, but the clear purpose of the rule is to ensure that pleadings motions are dealt with early, and generally before the party opposite has pleaded (see Bardaran v. Alexanian 2016 ONCA 533 at paragraph 14).

[28] This policy is affirmed in rule 2.02(1) which provides that “a motion to attack a proceeding or a step, document or order in a proceeding for irregularity shall not be made, except with leave of the court (a) after the expiry of a reasonable time after the moving party knows or ought reasonably to have known of the irregularity; or (b) if the moving party has taken any further step in the proceeding after obtaining knowledge of the irregularity.”

[29] In this instance, Steele was able to plead to the issues in the claim. He filed his statement of defence and counterclaim in August 2019 addressing the ESA allegations he now wishes to have struck. He and the plaintiff have produced their relevant documents and have been examined for discovery. Mediation has taken place. The claim is ready to be set down for trial now that the pleadings amendment motion has been determined. In my view, the motion is too late.

[30] Second, the lateness of the motion demonstrates that it is not really a pleadings motion at all. While brought under the guise of rule 25.11, this motion is really a disguised summary judgment motion in which Steele asks the court to make determinations on the merits of the claim. Steele has delivered an affidavit setting out the Alberta insolvency proceedings of the corporate defendants and deposing that the plaintiff has not filed a claim for unpaid wages with the receiver. He further deposes that the preconditions under the ESA have not been met – there is no employment standards officer order or Labour Relations Board order against him or the companies. He further swears that no claim was made by the plaintiff within six months of the debt becoming due, an issue that the trial judge will need to determine in the factual context of the alleged part payments and promises to pay.

[31] The court is to guard against turning these pleadings motions into summary judgment motions. While evidence is admissible by virtue of rule 25.11, as Blair, J.A. noted in Miguna v Toronto Police Services Board 2008 ONCA 799, it does not follow that the motion is to be turned into an evidentiary disposition. The evidence is to be considered only to determine whether the pleading is frivolous and vexatious and an abuse of process, not to make a finding on the merits.

[32] Third, I find it likely that Steele would have brought an undisguised motion for summary judgment had he been permitted to do so. But he was not. Steele tried to bring a summary judgment motion in October 2021. He made the same arguments in that notice of motion as he does here. The two notices of motion have significant overlap in their grounds including whether the preconditions to a claim have been met and whether the civil claim as well as any future claim to the Ministry is out of time, such that this action was out of time.

[33] The scheduling of Steele’s summary judgment motion came before Myers, J. on 15 November 2021 at civil practice court. His Honour refused to schedule the motion, with the following endorsement:

The defendant Steele proposes to move for summary judgment to dismiss the claim against him. The identical claim is made against two other defendants. Accordingly the same evidence and arguments will be made at trial against them. There is a [sic] therefore a clear risk of duplication and inconsistent verdicts as between the issue for which partial summary judgment is sought and the remaining action. On that basis, the Court of Appeal forbids me to schedule the motion as proposed.

I do not decide whether, if all of the individual defendants joined together, the claims against them may be sufficiently distinct from the claims against the corporation so as to enable them together to move for partial summary judgment.

There are apparent procedural issues with including claims against the directors before judgment is obtained against the company under any of the applicable statutes. Moreover, there seems to be a problem with the counterclaim having been pled imprecisely and possibly having mistakenly swept in the individuals as plaintiffs by counterclaim. Or perhaps it was done on purpose with instructions.

In addition, discoveries are nearly completed. There is a narrow window for summary judgment before the action starts to be readied for trial and it becomes too late for a major motion to be considered proportional with trial looming.

Counsel should speak and determine what is truly in issue and what is not. While it may be, for example, that technically it is premature to name directors, if the corporation has no ability to pay or refuses to undertake to pay, perhaps keeping them all in one action is, in that case is the efficient, affordable way to proceed. Similarly, were the defendants named as plaintiffs by counterclaim on purpose? Is relief claimed on behalf of anyone other than the corporate defendant?

These are manifestly issues for counsel to discuss and resolve to provide the most efficient, affordable dispute resolution process for their clients. I am not ordering a case conference as yet. First counsel need to try to narrow the issues themselves. They may agree, for example that some issues might be readily resolved summarily without the need for a lengthy and expensive motion.

[34] Nothing has changed since that endorsement. There remains a risk of duplication and inconsistent verdicts. Discoveries are completed and the trial approaches, meaning it may be “too late for a major motion to dismiss an action to be considered proportional”, in the words of Myers, J. The only change is that Steele has now crafted this rule 25.11 motion as a Trojan horse to accomplish the outcome that Myers, J. denied.

[35] I further note that the approach proposed by Steele results in no savings in parties’ or judicial time or resources. Steele will still be required to defend the amended pleading and other individual defendants will be defending both the amended pleading and that portion that Steele sought struck. Further, while Steele advised the court that he was undertaking to discontinue his counterclaim, that motion has not been brought, the plaintiff has not agreed to forgo his costs of defending the counterclaim and Steele has not agreed to pay the plaintiff’s costs thrown away.

[36] Even if I had found that this is one of the “clearest cases” where it was “plain and obvious that the case cannot succeed” (see Bardaran, supra at paragraph 15), striking portions of the claim at this stage would not secure the just, most expeditious and least expensive determination of every civil proceeding on its merits (rule 1.04(1)).

[37] For the reasons set out above, the cross motion is dismissed.

Costs

[38] Both parties have filed costs outlines. If they are able to resolve costs, they are to advise my assistant trial coordinator at Christine.Meditskos@ontario.ca. If they make reasonable efforts to settle the issue of costs and are unable to do so by 30 June 2022, they may file costs submissions no more than three pages in length with Ms. Meditskos. Once that issue is settled either by me or on consent, I will issue the draft order that was uploaded to caselines.

Associate Justice Jolley

Date: 31 May 2022