Court File and Parties

Court File No.: CV-20-00648451-0000 Motion Heard: 2022-07-05 Superior Court of Justice - Ontario

Re: Mary-Theresa Meikle, Plaintiff And: Arez Couture Inc. et al, Defendants

Before: Associate Justice R. Frank

Counsel: Franciska Veress appearing in person and as a director of Arez Couture Inc. Ellen V. Swan for the plaintiff/responding party

Heard: July 5, 2022

Reasons for Decision

A. Introduction and Background Facts

[1] This is a motion by the defendant Franciska Veress (“Ms. Veress”) for leave to represent the corporate defendant, Arez Couture Inc. (“Arez”).

[2] In this action, which was commenced under the Simplified Procedure, the plaintiff/responding party, Mary-Theresa Meikle, seeks repayment of a loan, or alternatively damages for breach of contract with respect to monies loaned to Arez and guaranteed in part by Ms. Veress.

[3] Ms. Veress and Arez have counterclaimed against the plaintiff, alleging breaches of a February 2018 Unanimous Shareholder Agreement among Ms. Veress, the plaintiff and Arez (the “USA”).

[4] It is not contested that the plaintiff and Ms. Veress are the sole shareholders and directors of Arez. There is evidence of attempts by Ms. Veress to have the plaintiff removed as a director of Arez, which the plaintiff has objected to on the basis that, in her view, she is entitled to remain a director pursuant to the terms of the USA.

[5] Ms. Veress’s evidence is that Arez does not have sufficient funds to retain counsel and that she is not in a financial position to fund such legal representation. In support of this, Ms. Veress has filed financial information about Arez for the years ending September 20, 2018, 2019 and 2020, as well as information about the balance of the funds held in Arez’s bank account as of February 16, 2021 ($2,392.69) and June 11, 2022 (overdrawn by $10.30).

[6] Ms. Veress’s evidence is that she has had to take on employment with another company in order to pay Arez’s bills as well as her own expenses, and that she has obtained pro bono legal advice for Arez and herself due to insufficient funds to retain legal counsel.

[7] For the reasons and subject to the conditions outlined below, Ms. Veress’s motion for leave to represent Arez is granted.

B. Discussion and Analysis

[8] The issue to be determined on this motion is whether Ms. Veress should be granted leave under Rule 15.01(2) to represent Arez in this action.

[9] The parties agree that the applicable test with respect to whether to grant leave to an individual to represent a corporation is summarized in Extend-A-Call Inc. v. Granovski.[^1] In that case, Boswell J. explained the applicable test as follows:

17 Rule 15.01(2) provides that a party to a proceeding that is a corporation shall be represented by a lawyer, except with leave of the Court. The Rule is not instructive in terms of how applications for leave are to be determined.

18 As Quinn J. observed in Lamond v. Smith, 2004 6218 (ON SC), 11 C.P.C. (6th) 104 (Ont. S.C.J.), the rationale for the rule is not readily apparent. Clearly, individuals are able to, as a right, represent themselves. Corporations, of course, are incapable of representing themselves, but as Quinn J. pointed out in Lamond v. Smith, where the corporation is closely held and there is a sole director, officer and shareholder, it is hard to justify not allowing that individual to represent the company in view not only of the right of individuals to represent themselves, but the prevalence of individuals representing themselves in our courts.

19 There is, however, at least one material difference between individuals and corporations. In particular, there may be numerous other stakeholders with significant interests in the affairs of a corporation including shareholders, officers, directors, employees, and perhaps creditors. The potential for other significant interests to be affected when a corporation becomes involved in litigation is a sufficient rationale for the requirement that corporations be represented by counsel in the absence of leave. Before granting leave, I believe the Court should have regard to the following factors:

(i) Whether the proposed representative has been duly authorized by the corporation to act as its legal representative;

(ii) Whether the proposed representative has a connection to the corporation;

(iii) The structure of the corporation in terms of shareholders, officers and directors and whether it is a closely held corporation;

(iv) Whether the interests of shareholders, officers, directors, employees, creditors and other potential stakeholders are adequately protected by the granting of leave;

(v) Whether the proposed representative is reasonably capable of comprehending the issues in the litigation and advocating on behalf of the corporation. The Court should not impose too high a threshold at this stage, given that the courts abound with self-represented litigants of varying skills. The proposed representative should, however, be reasonably capable of comprehending the issues and articulating the case on behalf of the corporation;

(vi) Whether the corporation is financially capable of retaining counsel. Access to justice has been a concern troubling courts at all levels in Canada for some considerable time. It is fundamental to [the] integrity of the courts and the reputation of the administration of justice that parties have reasonable access to our courts. If the refusal to grant leave would effectively bar a corporation from access to justice, this factor should be given considerable weight; and,

(vii) Any other relevant factor specific to the circumstances of the individual case.[^2]

[10] The plaintiff acknowledges that Ms. Veress has a close connection to Arez and that Arez is a closely held corporation. However, the plaintiff opposes this motion on the grounds that:

1. Ms. Veress is not the sole shareholder or stakeholder in Arez;

2. Ms. Veress is not the sole director of Arez and has not been authorized by the Board of Directors of Arez to represent Arez in this action;

3. Ms. Veress is not capable of representing Arez nor of understanding the legal issues involved in the action; and

4. Ms. Veress has a conflict of interest and cannot appropriately represent Arez in this action.

[11] The plaintiff also questioned whether the evidence filed in support of the motion is sufficient to demonstrate that Arez is not financially capable of retaining counsel. Specifically, the plaintiff submitted that the evidence is limited to snapshots of bank accounts and out‑of‑date financial information that does not meet the burden of showing that the corporation cannot afford to retain counsel. In my view, while the evidence regarding financial ability is not overwhelming, I am satisfied that it is sufficient to meet the onus of demonstrating a lack of financial resources. Although no cross‑examination was available to the plaintiff because this action was commenced under the Simplified Procedure, there is uncontradicted evidence that the plaintiff has access to the Arez banking information, and the plaintiff (who remains a director of Arez) filed no evidence to rebut Ms. Veress’s evidence with respect to the company’s financial status.

[12] With respect to the question as to whether Ms. Veress is reasonably capable of comprehending the issues in the litigation and advocating on behalf of the corporation, the plaintiff quite rightly acknowledges that, to date, Ms. Veress has acted extremely capably in following the Rules of Civil Procedure. The plaintiff submits, however, that the issues in these proceedings – and, in particular, the issues raised by the counterclaim – are complex issues of corporate governance, enforceability of the USA, enforceability of restrictive covenants and dispute resolution provisions. The plaintiff also submits that the counterclaim raises complex issues of legal and equitable set‑off and that, as currently framed, expert witnesses may be required. In support of the argument that Arez should not be represented by Ms. Veress, the plaintiff relies on the following passage from De La Rocha v Markham Endoscopy Diagnostics Inc:[^3]

While Mr. Frustaglio indicates his view that this is a simple case, that is strictly the view of a layperson. Mr. Frustaglio has not indicated that he has had any other experience in dealing with lawsuits or court proceedings. This case involves an allegation of constructive dismissal which is not always uncomplicated and can in fact involve issues and principles that are complex. There may be advantages to having counsel retained that Mr. Frustaglio has not thought of. For instance, counsel may be able to narrow or focus issues, may be better able to converse with opposing counsel and may increase the odds of an early settlement.[^4]

[13] The plaintiff argues that, as in De La Rocha, the issues in this action are complex, and there would be advantages to having counsel retained that Ms. Veress may not have considered. The plaintiff also argues that having counsel may enable the parties to narrow the issues, and it may improve the likelihood of settlement.

[14] In determining whether Ms. Veress has demonstrated the necessary ability to represent Arez, I am mindful that “[t]he Court should not impose too high a threshold at this stage, given that the courts abound with self-represented litigants of varying skills.”[^5] In my view, Ms. Veress has demonstrated that she is reasonably capable of understanding the issues and articulating the case on behalf of Arez.

[15] While the plaintiff takes issue with Ms. Veress’s understanding and position on certain legal and procedural issues with respect to the counterclaim, in my view this does not disqualify Ms. Veress from being a representative of Arez. For example, while the plaintiff is entitled to take the position that the counterclaim must be the subject of arbitration under the terms of the USA, Arez is equally entitled to respond to that position. If that issue is not resolved between the parties, it may become the subject of a stay motion by the plaintiff. But it is premature to reach a conclusion on how such a motion would be decided (if the issue is not resolved between the parties). Further, while I accept that there may be certain complexities to the proceedings for which it would be advantageous for Arez to have legal counsel, this is not a circumstance where Arez has sufficient funds to retain counsel yet is opting not to do so. Thus, unlike the case in De La Rocha, this is not a situation where the principal of the company has chosen to refrain from retaining counsel in order to use the company’s funds for other purposes (e.g., operating costs). In this case, access to justice for the corporate defendant is an important consideration. As noted in Extend-A-Call, access to justice “is fundamental to [the] integrity of the courts” and “[i]f the refusal to grant leave would effectively bar a corporation from access to justice, this factor should be given considerable weight”.[^6] In all the circumstances, I am not prepared to deny Ms. Veress’s motion on the basis that she is not a lawyer and has no legal training. This is particularly the case given the capability she has shown to date in understanding the issues and advocating on behalf of the defendants, as well as her initiative to seek pro bono assistance where necessary and available. The alternative of denying Ms. Veress leave to represent Arez would place the company in a position where it would not be able to retain counsel and defend itself. This would almost surely lead to default judgment against Arez rather than allowing for a determination of the proceedings on their merits.

[16] The plaintiff also submits that Ms. Veress is not the sole shareholder of Arez and asserts that Ms. Veress is in a conflict of interest and, therefore, the interests of Arez’s stakeholders would not be adequately protected if she represents the corporation. The plaintiff argues that, as guarantor of a portion of the loans on which the plaintiff’s claims are based, Ms. Veress’s interests are not aligned with the company’s interests because the claims against the two parties are separate and distinct.

[17] In my view, the question of whether the interests of Arez’s stakeholders are adequately protected must be considered in the context of the issues to be determined in the current proceedings and “other relevant factor[s] specific to the circumstances”.[^7] In this regard, I note that:

1. The plaintiff is seeking to recover funds she alleges are owing to her by Arez, and she is seeking to enforce a guarantee by Ms. Veress with respect to a portion of the funds.

2. Ms. Veress is not contesting the validity of the guarantee, and the company and Ms. Veress would share a common defence.

3. There are only two shareholders and two directors of the defendant company. There are no other employees or representatives of the company. Even if a lawyer were to represent Arez, this would not make a material difference with respect to the conflict concerns raised by the plaintiff. In practical terms, there is currently no one other than Ms. Veress who would be able to instruct counsel for Arez with respect to the defence and counterclaim. The company cannot be represented or instructed by the plaintiff, the person who is suing it.

4. Ms. Veress is already self-represented in defending the action, and she has shown herself to be capable of doing so, as noted above.

[18] Given the nature of the claim, defence and counterclaim, and the unique factual circumstances noted above, I find that Ms. Veress is the most appropriate person to represent Arez. I find further support for this conclusion in Rule 1.04(1.1), considering that the amount in issue in the main action is $42,800 (plus interest and costs) and the amount claimed in the counterclaim is just under $35,000, as well as in Rule 1.04(1). As Boswell J. noted in De La Rocha:

Ultimately the court must give effect to what order is in the interests of justice and must pay heed to Rule 1.04, which directs the court to construe the rules so as to ensure the just, most expeditious and least expensive determination of every civil proceeding on its merits.[^8]

[19] Finally, relying on Ward v. 1121720 Ontario Ltd.,[^9] the plaintiff submits that Ms. Veress should not be authorized to represent Arez in these proceedings because she has not demonstrated that she has been authorized to do so by the Arez board of directors. Once again, it is important to consider the unique facts of this case. As noted above, the evidence is that the Ms. Veress and the plaintiff are the only current directors of Arez and that Ms. Veress has attempted to have the plaintiff removed as a director but has been unable to do so. As also noted above, the plaintiff’s position is that she is entitled to remain a director under the terms of the USA. The issue of the plaintiff’s right to remain a director is not before me on this motion, nor is the issue of the respective rights of the plaintiff and Ms. Veress (as a matter of corporate governance) to decide whether Ms. Veress should be authorized to represent Arez in these proceedings. In this regard, however, I query whether the plaintiff – having commenced an action against Arez, which is the very action in respect of which representation / authorization to represent is at issue – would be entitled to vote on the question of Arez’s representation in defending the action, or if she would be required to abstain from such a vote.

[20] Although Ms. Veress has not yet been authorized to represent Arez in these proceedings, the reasons and circumstances for that are unique. In the result, I am of view that it is appropriate to grant Ms. Veress leave to represent Arez in these proceedings, subject to the condition that she obtains authorization from Arez to do so by September 30, 2022. In the event that the issue of Ms. Veress’s authorization to represent Arez in these proceedings remains in issue, the parties shall convene a case conference with me to obtain direction with respect to the most appropriate means of dealing with the question of Ms. Veress’s authority.

C. Conclusion

[21] For the reasons outlined above, Ms. Veress’s motion for leave to represent Arez in these proceedings is granted, and I order as follows:

1. Franciska Veress is granted leave to represent the defendant, Arez Couture Inc., in this action and counterclaim, on the condition that Ms. Veress obtains authorization from the corporation to do so by September 30, 2022.

2. In the event that Ms. Veress’s authorization to represent Arez in this action remains in issue, the parties shall convene a case conference with me to obtain direction with respect to the most appropriate means of dealing with the question of Ms. Veress’s authority.

[22] If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines). Both parties’ cost submissions shall be filed by August 12, 2022.

R. Frank Associate J.

Date: July 22, 2022

[^1]: Extend-A-Call Inc. v. Granovski, 2009 33047 (ON SC), 2009 CarswellOnt 3754, [2009] O.J. No. 2711, 178 A.C.W.S. (3d) 734 (“Extend‑A‑Call”) [^2]: Extend-A-Call at paras 17-19 [^3]: De La Rocha v Markham Endoscopy Diagnostics Inc, 2010 ONSC 5100 (“De La Rocha”) [^4]: De La Rocha at para 7 [^5]: Extend-A-Call at para 19; see also Lamond v. Smith, 11 C.P.C. (6th) 104, 2004 6418 (Ont. S.C.J.) at paras 8-10 [^6]: Extend-A-Call at para 19 [^7]: With respect to the need to consider “other relevant factors”, see Extend-A-Call at para 19 [^8]: De La Rocha at para 3. [^9]: Ward v. 1121720 Ontario Ltd., 2015 ONSC 3873 at paras 7-9