COURT FILE NO.: BK-21-02717053-0031
DATE: 20230428
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Magical Credit Inc.
Appellant
– and –
Hoyes Michalos & Associates Inc.
Respondent
Elliott Birnboim, for the Appellant
Howard Manis & Daniel Litsos, for the Respondent
HEARD: March 24, 2023
J. Steele J.
[1] This is an appeal by the appellant, Magical Credit Inc. (“Magical Credit” or “MCI”), from a decision of Associate Justice Jean, dated April 6, 2022 (the “Decision”), which dismissed Magical Credit’s motion seeking an Order pursuant to Rule 15.01(2) of the Rules of Civil Procedure to be represented by Matthew Riddell (“Riddell”), a non-lawyer. MCI seeks an order that the Associate Justice’s judgment be set aside and a judgment granting leave for Riddell to represent it; or an order that the Associate Justice’s judgment be set aside and a new Rule 15.01(2) motion be heard.
[2] There were about 40 observers at this virtual hearing. The appellants state that this is a matter of significant importance with consequences beyond this estate. This is because it is cost efficient for certain small lender companies to have internal authorized persons, who are not lawyers, represent the company in court in respect of small claims such as the one in this case.
[3] I note at the outset that the factums filed were generally not of assistance. This is because (i) the appellant’s factum was filed late and was not served and filed as of the date the respondent served and filed its factum and accordingly, in its factum the respondent addressed the grounds for the motion set out in MCI’s Notice of Appeal prepared by Riddell as opposed to what was argued at the motion; and (ii) the appellant decided to hire legal counsel to argue the matter after Riddell had prepared and filed the appellant’s factum.
[4] For the reasons set out below, I have determined that MCI’s appeal is dismissed.
Background
[5] The underlying proceeding arose out of a consumer proposal made in the matter of Julia Ann Jeannette Skanes, of the City of Toronto, concerning a debt of approximately $6,194.00 owed to Magical Credit. Magical Credit filed a proof of claim that was disallowed by the respondent and licensed insolvency trustee firm, Hoyes Michalos & Associates Inc. (“Hoyes”).
[6] Riddell sought to represent MCI at the disallowance hearing. The disallowance hearing was adjourned until a Rule 15 motion could be heard to determine whether Riddell could represent MCI in Court. On December 6, 2021, the Associate Justice heard MCI’s Rule 15.01 motion. The Associate Justice dismissed the motion.
Analysis
[7] The issue to be determined on this appeal is whether the Associate Justice erred in her decision such that it ought to be set aside.
[8] The Associate Justice’s decision was made under Rule 15.01(2) of the Rules of Civil Procedure, which states:
A party to a proceeding that is a corporation shall be represented by a lawyer, except with leave of the court. [emphasis added]
Applicable Standard of Review
[9] The standard of review of an Associate Justice’s order is as stated by the Court in Zeitoun v. Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 O.R. (3d) 131 (Ont. Div. Ct.) at para. 40-41, affirmed 2009 ONCA 415, 96 O.R. (3d) 639 :
[40] The appellant argues that the appropriate standard of review of a master’s order, whether it be final or interlocutory, should be in accordance with that expressed by the Supreme Court in Housen v. Nikolaisen, supra, and by the Court of Appeal in Equity Waste Management such that the decision will be interfered with only if the master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error.
[41] I would agree with that submission....
[10] The Associate Justice applied the correct legal test in reaching her decision (as discussed further below).
[11] Accordingly, the onus is on the appellant to show that the Associate Justice made a palpable and overriding error or exercised her discretion on the wrong principles or misapprehended the evidence: Lin v. Rock, 2015 ONSC 1929. In South Yukon Forest Corp. v. R., 2012 FCA 165, 4 B.L.R. (5th) 31, at para. 46, leave to appeal refused, [2012] S.C.C.A. No. 349, the Federal Court of Appeal noted that “palpable” means an obvious error. “Overriding” was interpreted as an error that goes to the very core of the outcome of the case. The Federal Court of Appeal stated: “When arguing palpable and overriding error, it is not enough to pull at leaves and branches and leave the tree standing. The entire tree must fall.”
[12] The Court is to afford significant deference to the Associate Justice’s decision: Zeitoun.
[13] As noted by Master Graham in Robert M. Simon Construction Limited v. The Regional Municipality of Waterloo, [2007] 62 C.L.R. (3d) 1(Ont. S.C.J.), at para. 29, the discretion that is conferred on the Court under Rule 15.01(2) “is limited to granting leave to a corporation to be represented by an officer or director or shareholder of the corporation, and in effect represent itself, in the same manner as would an individual.”
Did the Associate Judge make a Palpable and Overriding Error?
[14] The leading test is set out in 419212 Ontario Ltd. v. Astrochrome Crankshaft Toronto Ltd., 1991 CanLII 7163 (ON SC), [2007] 3 O.R. (3d) 116 (Ont. S.C.J.), at para. 13. The Court sets out factors to be taken into account when determining whether leave ought to be granted to a corporation to be represented by a non-lawyer under Rule 15.01:
One of the factors to be taken into account in deciding whether to grant leave to a corporation to act without a solicitor is the internal situation of the corporation, and whether the person seeking to represent the corporation in court is a senior representative of the corporation who has been duly authorized by the board of directors, who themselves are properly elected. Another is the nature of the action and the issues, and whether it would be seriously unfair to the opposite party to have the case presented or defended by a non-solicitor. Another factor is whether the proposed corporate representative will be able to properly carry out the duties of a litigant under the rules.
[15] The Associate Justice applied the Astrochrome test in reaching her decision. She further notes that in Murphy v. Stefaniak, 2014 ONSC 4396, 69 C.P.C. (7th) 182, the Court “considered whether the proposed representative had the authority to act for and bind the corporation, whether he was sufficiently knowledgeable about its affairs, whether the positions of the corporation and the representative was largely indistinguishable, whether the proposed representative is a self-represented litigant in his personal capacity and whether there would be a delay by a requirement that the proposed representative find resources to retain a lawyer.” She noted that for the purposes of her decision she combined these factors with the Astrochrome factors.
[16] I further note that Tash Benson Group Inc. v. Back-Bone Gear Inc. et al., 2021 ONSC 7667 refers, at para. 29, to Ward v. 1121720 Ontario Ltd. o/a Havcare Investments Inc., 2015 ONSC 3873, at paras. 3 and 4, which lists the following as potential factors to consider on a Rule 15.01(2) motion:
a. The internal situation of the corporation – is the person seeking leave to represent the corporation a senior representative of the corporation who has been duly authorized by a duly elected board of directors?
b. Will the proposed corporate representative be able to carry out the duties of a litigant under the Rules?
c. What is the nature of the action and of the issues? Will it be seriously unfair to the opposite party for the case to be presented or defended by a non-lawyer?
d. Are the interests of shareholders, officers, directors, employees, creditors and other potential stakeholders adequately protected if leave is granted?
e. Will the proposed representative be reasonably capable of comprehending the issues and articulating the case on behalf of the corporation?
f. Is the corporation financially capable of retaining counsel?
[17] The appellant argues that the Associate Justice’s discretion under Rule 15.01(2) must be exercised in accordance with established principles, which the appellant argues it was not.
[18] The respondent argues that Riddell sought to be permitted to represent Magical Credit under an exception to the general rule that corporations shall be represented by a lawyer and the Associate Justice exercised her discretion in denying Riddell that leave. The respondent submits that the Associate Justice applied fact and law in doing so, and even if I may have come to a different decision, this is no reason to overturn her decision. The respondent submits that the Associate Justice has not made a palpable and overriding error.
[19] As noted above, in Astrochrome, the first consideration is the internal situation of the company. Specifically, in this case whether Riddell, who works at MCI, was a senior representative of MCI and duly authorized to represent MCI. The Associate Justice first noted that “[i]t has not always been clear as to the internal situation of MCI.” The Associate Justice considered the evidence before her and determined that:
• There was no evidence as to the identity of the MCI shareholders in either the first motion record filed by MCI or the second motion record filed by MCI. The only evidence regarding the shareholder structure was Riddell’s reference to MCI as a “closely held and small company.”
• The first motion record and Riddell’s affidavit evidence filed on July 2, 2021 indicated that Riddell was a “full time employee, officer and director for the creditor, [MCI]...” and that Riddell was a “senior representative of the Creditor and [he has] been duly authorized to represent the Creditor by Natalie Bell and Mark Joseph, the only other officers and directors of the Creditor.”
• The MCI corporate search dated July 13, 2021 did not show Riddell as an officer or director of MCI. That search indicated that Mark Joseph (“Joseph”) was the administrator, the sole director and the sole officer holding the positions of Secretary and President.
• On August 5, 2021, two additional directors were appointed: Ruchama C. Joseph and Riddell. The change notice was filed on August 10, 2021.
• “[T]here is no evidence that would tend to establish that Riddell was ever an officer of MCI, either at July 2, 2021 when Riddell affirmed the July affidavit or at August 27, 2021 when Riddell affirmed the August affidavit.”
[20] With regard to the directors of MCI changing as between July and August 2021, the Associate Justice stated:
It would appear that, as of July 13, 2021, the date of the MCI corporate search attached to the Visentin affidavit, the only officer and director of MCI was Joseph and Riddell was not an officer and director. The August 10, 2021 change notice filed by MCI on August 13, 2021 confirmed the addition of Ruchama Joseph and Riddell as directors effective August 5, 2021. As of the date of the hearing of the 15.01 motions, Joseph remains the sole officer of MCI. To emphasize, there is no evidence that would tend to establish that Riddell was ever an officer of MCI, either at July 2, 2021 when Riddell affirmed the July affidavit or at August 27, 2021 when Riddell affirmed the August affidavit.
[21] The Associate Justice determined that there was no basis for the court to accept that Riddell was a “senior representative” of MCI, given that he is not an officer and there was no evidence regarding the corporate structure of MCI. She found that “Riddell has misled the court in these and other cases as to his status as an officer and/or director of MCI.”
[22] The Associate Justice further noted that there was no resolution of the board of directors authorizing Riddell to represent MCI’s interest in these matters. She did not accept Riddell’s evidence that he is the company’s “alter ego” and has full authority to bind the company, without any corroborating evidence, as the Associate Justice found that Riddell had misrepresented his status as a director and officer in the first affidavit, and as an officer in the second affidavit.
[23] The appellant argues that Riddell has been MCI’s “director of legal services” for several years. The appellant argues that Riddell has acted in that capacity the whole time and was certainly appointed as a director of the corporation by the time the Associate Justice heard the motion. MCI argues that this is the operative date. Prior to Riddell being made a director of the company on August 5, 2021, his title was (and is) “Director of Legal Services.” However, it appears that this is his title as an employee of MCI and not indicative of his being a “director” of MCI for corporate law purposes. Riddell was not made a “director” of the company until August 5, 2021, as is reflected in the MCI corporation profile report dated August 13, 2021 that was before the Associate Justice. There were no other corporate resolutions of MCI in evidence that would support a finding that Riddell was a member of the board of directors of MCI or a “director” as contemplated in the OBCA prior to August 5, 2021.
[24] MCI argues that because directors elect the officers, Riddell’s status as a director is higher. However, this does not mean that it is acceptable to represent oneself as an officer of the company, when the corporate profile report (August 13, 2021) clearly shows that MCI’s only officer is Joseph (president and secretary). Further, generally, pursuant to s. 133 of the OBCA, the directors may designate the offices of the corporation, subject to the articles, the by-laws or any unanimous shareholder agreement. This would generally require action of the board of directors, which in MCI’s case includes 3 persons.
[25] MCI also argues that the relevant date to satisfy this test is the date the motion was heard, and Riddell had been appointed as a director of MCI by that time. However, as noted, there was no evidence (other than Riddell’s statement) that the corporation had duly authorized Riddell to represent it.
[26] As noted in the respondent’s factum the Associate Justice reviewed the material and found that: Riddell had misrepresented his status as an officer and director of MCI; Riddell filed no evidence in support of his purported position as officer and director of MCI in his July 2, 2021 affidavit; Riddell filed no evidence in support of his proclamation that he had the authority to represent and otherwise bind MCI; and Riddell did not file any evidence establishing the shareholdings or ownership structure of MCI. The Associate Justice found that given her conclusions related to this portion of the Astrochrome test, MCI and Riddell “have failed to establish a basis for the exercise of [her] discretion to grant the 15.01 motions.”
[27] In the circumstances, the Associate Justice was not satisfied with Riddell’s proclamation that he was authorized to represent MCI. The Associate Justice held that the authorization to represent a corporation requires some form of evidence or formal resolution. This is consistent with Astrochrome where the court noted that the person seeking to represent the company ought to be a senior representative of the corporation “who has been duly authorized by the board of directors.” This does not permit any person who is a director of a company to represent the company in court. Among other things, the person must be duly authorized by the board of directors for the company. The Board of Directors for MCI as of August 2021 included 3 persons. There was no evidence (other than Riddell’s statement) that the MCI board had duly authorized Riddell to represent the company. The Associate Justice was not prepared to accept Riddell’s statements of due authority due to “Riddell’s continued misrepresentation as to his “officer” status.” I am satisfied that she did not make a palpable and overriding error in determining that Riddell was not duly authorized by MCI.
[28] As noted above, there were numerous observers who attended this matter out of interest, as small lender companies sometimes use internal persons to assist with these types of claims. Associate Justice Jean’s decision and my dismissal of the appeal does not mean that small companies cannot use internal persons who are non-lawyers. However, if they wish to do so, they must be prepared to satisfy the Astrochrome test. Among other things, the company must have evidence of appropriate corporate steps having been taken to authorize the individual to represent the company in court.
[29] As noted in Tash Benson, at para. 30, neither Astrochrome nor Ward mandates the court to consider all factors in all cases. In my view, the conclusion above is sufficient to conclude that the Associate Justice did not make a palpable and overriding error in the exercise of her discretion under Rule 15.01 and to dismiss the appeal. However, I will briefly address the other Astrochrome factors.
[30] The second consideration in Astrochrome is the nature of the action and the issues and whether it would be unfair to the other party.
[31] In this brief section of the reasons, the Associate Justice states that the nature of underlying motions raise important legal issues. As noted above, the background to the Rule 15.01 motion relates to an appeal by MCI from a disallowance of a proof of claim by the administrator. The Associate Justice notes that there could be significant impact on a debtor. In addition, she notes that there may be implications regarding creditor rights and entitlements and could influence the approval (or not) of the proposal. The Associate Justice concludes that in the circumstances of these estates, it would be unfair to the administrator and the debtors to permit Riddell, a non-solicitor, to represent MCI.
[32] The final consideration in Astrochrome is whether the proposed corporate representative will be able to properly carry out the duties of a litigant under the rules. The Associate Justice stated that she had “serious and grave doubts as to Riddell’s ability to perform the duties of a litigant under the rules.” She noted that although Riddell has technical capabilities as a result of holding a paralegal diploma and a law degree from the United Kingdom, she was troubled by certain conduct by Riddell and cited several examples.
[33] Riddell does not hold a paralegal license under the Law Society of Ontario (“LSO”) rules. However, under section 30(1) of Law Society By-Law 4, a person who is employed by a single employer, who provides legal services only for that employer and does not provide any legal services to any person other than the employer, is authorized to provide legal services in Ontario that a paralegal licensee is authorized to provide. However, this By-Law would not apply to permit Riddell to appear in bankruptcy court. Riddell sought to be permitted under Rule 15.01 as a non-litigant.
[34] The appellant argues that Riddell, who has completed his paralegal training and has appeared in Court in many cases, is competent to represent MCI. MCI argues that Riddell’s level of competency is well above that of most self-represented litigants that appear before the Court. It is noted by the appellant, as well as the Associate Justice, that there have been other courts that have been critical of Riddell and some that have been highly complimentary of Riddell. MCI’s position is that if Riddell engages in misconduct worthy of sanction, this can be addressed by the LSO. MCI argues that this factor relates to competency, not integrity.
[35] However, the respondent referred to Canada Trust v. Public Guardian and Trustee, 2019 ONSC 1768, where the Court stated, at para. 7: “[The proposed corporate representative’s] conduct as a non-lawyer representative of these corporations in other proceedings as well as his conduct so far in the present Application demonstrate that he is not capable of advocating on behalf of the corporation.” The conduct noted in Canada Trust included making unfounded allegations against opposing counsel and bringing frivolous requests.
[36] The court in Tash Benson, in considering whether a person could represent the company under Rule 15.01 referred to Lamond v. Smith, 2004 CanLII 6218 (ON SC), [2004] 11 CPC (6th) 104 (Ont. S.C.J.), where the Court stated: “In an era when self-represented litigants abound it does not make sense to worry whether [the proposed corporate representative] is capable of carrying out the responsibilities of a litigant. Absent proven mental incompetence, [the proposed corporate representative’s] intelligence and litigious capabilities, in my view, are quite irrelevant.” In Tash Benson the Court stated, at para. 42, that the proposed corporate representative’s shortcomings as a litigant were not sufficient to disqualify him from representing the company. In that case, the proposed litigant had filed a lengthy statement of claim with hundreds of pages of irrelevant schedules and a long and repetitive factum, among other things.
[37] I agree that this factor ought to have a relatively low bar. However, it is one factor in a discretionary test. In any event, the Court is entitled to look beyond mere competency in determining whether a proposed representative is able to properly carry out the duties of a litigant.
[38] The Associate Justice concluded that Riddell was not capable of discharging the duties of a litigant based on the record before her. She noted the various decisions of the Law Society Panel, of Kristjanson J. and of judges in other jurisdictions in addition to the concerns that she outlined in reaching this conclusion.
[39] Here, the Associate Justice concluded that the Rule 15.01 motions be dismissed. She stated that “[a]ll of the factors weigh overwhelmingly against the exercise of my discretion to grant Riddell the authorization to represent MCI.”
[40] The appellants have failed to show that the Associate Justice exercised her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error.
Disposition and Costs
[41] The appeal is dismissed.
[42] The parties are encouraged to settle the issue of costs. If the parties are unable to agree on costs by May 12, 2023, they shall notify my judicial assistant. In that case, the respondent shall deliver its costs submissions limited to 3 pages (plus Bill of Costs) by May 26, 2023. The appellant shall deliver its costs submissions limited to 3 pages (plus Bill of Costs) by June 9, 2023. The parties shall send a copy of their costs submissions by email to my judicial assistant.
J. Steele J.
Released: April 28, 2023
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Magical Credit Inc.
Appellant
– and –
Hoyes Michalos & Associates Inc.
Respondent
REASONS FOR JUDGMENT
Justice J. Steele
Released: April 28, 2023