COURT FILE NO.: CV-21-86794
DATE: 25/01/2023
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GILLES PORTELANCE Plaintiff/Defendant by Counterclaim
– and –
1343633 ONTARIO INC. and GILLES-ERIC PORTELANCE Defendants/Plaintiffs by Counterclaim
David Cutler for the Plaintiff/Defendant by Counterclaim
David Morin-Pelletier and Jessica Byles for the Defendants/Plaintiffs by Counterclaim
HEARD: September 9, 2022, with additional material filed September 23, 2022
decision on summary judgment motion
Justice Sally Gomery
[1] In this action, Gilles Portelance seeks payment of $883,197, either for the redemption of his Class D shares in 1343633 Ontario Inc. (the “Company”) or as damages for breach of contract. He also seeks $30,000 in repayment of a loan secured by a promissory note signed by Gilles-Eric Portelance.[^1] [^2] The Company and Eric contend that Gilles has already received $303,900 as part payment for his shares, as well as $339,788 in reimbursement for expenses paid to him and $84,990 for leasehold improvements that should be reimbursed to the Company. They deny that that Eric remains liable for the $30,000 loan and counterclaim against Gilles for an accounting as well as general and punitive damages.
[2] Gilles has now brought this motion seeking summary judgment granting his claim and dismissing the counterclaim. Eric and the Company contend that there are genuine issues for trial and that the motion should therefore be dismissed.
[3] For the reasons that follow, the motion for summary judgment is dismissed, with costs.
Legal principles
[4] Rule 20.04(2) states that, on a motion under the rule, the court shall grant summary judgment if it “is satisfied that there is no genuine issue requiring a trial”. In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada held that judges should not assume that every case should go to a full trial. They should instead consider what procedures will permit a fair adjudication of the issues, bearing in mind the goal of securing the just, most expeditious, and least expensive determination of every civil proceeding on its merits.
[5] A party responding to a summary judgment motion must put their best foot forward, and the Court is entitled to assume that each party has filed the available evidence; Danos v. BMW Group Financial Services Canada, 2014 ONSC 2060, aff’d 2014 ONCA 877, at paras. 13-22. If, on the record, the Court can make the necessary findings of fact and apply the law to those facts, there is no genuine issue for trial.
[6] A judge hearing a summary judgment motion may exercise fact-finding powers in r. 20.04(2.1) to determine if there is a genuine issue for trial, “unless it is in the interests of justice for such powers to be exercised only at a trial”. These powers include weighing the evidence, evaluating the credibility of a deponent, and drawing any reasonable inference from the evidence. Where appropriate, the judge may, for the purpose of exercising these powers, order that oral evidence be presented by one or more of the parties; r. 20.04(2.2).
[7] It is important for a motion judge to state the reason why summary judgment is appropriate in any given case. In Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, at para. 24, the Court of Appeal set out a two-stage analysis:
The judge must first determine if there is a genuine issue requiring a trial without using the enhanced fact-finding powers in r. 20.04(2.1) and r. 20.04(2.2). If there is no such issue, adjudication by way of summary judgment is appropriate. If there is, the judge must proceed with the second stage of the analysis.
On the second stage, the motion judge must determine if the need for a trial could be avoided by using the enhanced powers under r. 20.04(2.1) and 20.04(2.2) to weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. The judge may also order that oral evidence be presented by one or more parties.
[8] If credibility cannot be assessed on a written record, that signals that oral evidence or a trial is required; 2212886 Ontario Inc., at para. 41.
[9] Partial summary judgment is available. Judges hearing summary judgment motions must, however, tread carefully if it is impossible to resolve the entire dispute through rule 20. As noted by Justice Karakatsanis in Hryniak, at para. 60:
[I]f some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interests of justice.
[10] Where the resolution of such a claim requires an appreciation of the same evidence relevant to claims that would still have to go to trial, partial summary judgment is generally not an efficient use of the court’s resources or those of the parties.
Evidence on the motion
[11] Gilles and Eric each swore two affidavits on which they were cross-examined. Eric also obtained leave to examine the Company’s long-time accountant, Michael Coghlan, under r. 39.02(2).[^3]
[12] Gilles founded the Company in 1999 to operate a concrete cutting business. Eric is his son. He began working for the Company in the early 2000s but left around 2004.
[13] In December 2003, Eric borrowed $30,000 from Gilles and signed a promissory note on January 27, 2004 undertaking to repay the loans on demand. According to Eric, Gilles forgave this loan a year or two later after Eric’s business, Stalker Performance & Sound Inc., failed. He contends that Gilles recovered money through an auction of Stalker’s assets but admits that there is nothing in writing about this. Gilles admitted in cross-examination that he received the Stalker auction proceeds but denies that he gave up his right to repayment of the loan as a result.
[14] In 2007, Eric returned to the Company as a full-time employee. Eleven or twelve years later, Eric and Gilles agreed that Eric would take over the Company’s ownership and operations through a transaction referred to as an Estate Freeze. Effective March 31, 2018, Gilles sold his 500 class A shares in the Company for 883,197 Class D shares with a stated value of $883,197. Eric acquired 100 newly issued class A shares for a nominal payment of $10. Gilles resigned as an officer of the Company and Eric became its sole director.
[15] The evidence is unclear as to when the Estate Freeze was first discussed. In his first affidavit, Gilles stated that he consulted his lawyer about the Estate Freeze in early 2018. In cross-examination, he said that this consultation did not occur until about a year later. He further admitted that none of the paperwork putting the Estate Freeze into effect — the Class D share certificate, the entries in the shareholders’ registry, a memorandum of agreement between Gilles and the Company, and the Share Purchase Agreement between Eric and the Company — was signed until early 2019. These documents and company records were backdated to March 31, 2018.
[16] Even though the Estate Freeze was not reflected in any documents at the time, the Company began paying Gilles $2,000 per week in April 2018. There is no written agreement or documentation with respect to the payments. According to Gilles, they were dividends to which he was entitled as a Class D shareholder and also compensated him for ongoing part-time work for the Company. According to Eric, he and his father had a verbal agreement that these payments would reduce the amount that Gilles could recover for his Class D shares. This arrangement was reached because Eric did not have enough money to purchase the Company outright from his father in early 2019.
[17] The Company also continued to reimburse Gilles’ expenses, including gas for his personal vehicle, his mobile telephone, meals and entertainment. Eric was the sole director of the Company following the Estate Freeze and had the sole authority to approve payments from its accounts. There is again no written agreement about the kinds of expenses that Gilles could claim or the justification for the Company paying for them. According to Gilles, these expenses were paid in exchange for him charging the Company a below-market rent on a shop located on land he owned. The rent paid by the Company was $2,500 per month. There was no written lease, nor is there any reliable evidence about the fair market value rent.
[18] The parties had a falling out in early 2021. They do not agree on exactly what led to the breakdown of their relationship.
[19] According to Gilles, the breakdown started because Eric asked him to transfer ownership of the property on which the Company’s premises (and Gilles’ home) were located. No documents have been filed to corroborate this.
[20] According to Eric, Gilles began submitting claims for expenses outside the scope of their verbal agreement. This included claims for expenses incurred by Gilles’ girlfriend, his personal income tax, property tax, food, personal trips, medical expenses, fines, and the costs of repairs and renovations of his house. The records of Gilles’ expense claims have been filed. Eric says that he confronted his father about the expenses he was charging to the Company. He also later accused his father of entering the Company’s premises outside of business hours without authorization, shredding documents, taking possession of the shareholder registry, and attempting to add his girlfriend to the payroll. There is no documentation to corroborate these accusations.
[21] Eric and Gilles exchanged angry text messages in April and May 2021. Gilles wrote: “I guess you decided to cut my dividend cheque, what happened to dad nothing will change you still get your pay and perks when I GAVE YOU THE COMPANY ?? Not a problem just transfer me another $6,000.00 for the rent which is still less than the going rate.” Gilles points out that Eric did not, in response, dispute his father’s characterization of the weekly payments as dividends, nor did he deny that he was paying below-market rent for the use of Gilles’ property. Later in the same text exchange, Eric alludes to the $2,000 weekly transfers from the Company to Gilles as “your pay”. He also made insulting and derogatory comments about his father which sadly attest to the complete breakdown of a previously close family relationship.
[22] In April or May 2021, the Company stopped paying Gilles’ personal expenses and the weekly $2,000 payments. Eric moved the Company’s operations off Gilles’ property in mid-May 2021 and the Company ceased paying him rent.
[23] On May 20, 2021, Gilles’ lawyer sent a letter to the Company and Eric demanding that his Class D shares be redeemed for $883,197 and that his $30,000 loan be repaid by June 25, 2021. The defendants did not respond to the letter. The statement of claim in this action was issued even before the deadline set in the letter elapsed.
[24] In cross-examination on his affidavit filed in response to the motion, Eric admitted that the Class D shares issued to Gilles had a value of $883,197 but said that his father had been repaid some of this amount since April 2018. He admitted that the Company’s shareholder registry had not been modified to show any change in Gilles’ ownership of Class D shares and no new share certificates had been issued reflecting this either. The Company had also not logged the weekly payments it made to Gilles beginning in April 2018 so that it could ascertain how many shares he had supposedly redeemed. Eric testified that this was unnecessary for the first few years because he did not expect that payments to Gilles would come close to reducing the value of the Class D shares to zero.
[25] In his examination, Mr. Coghlan stated that he had been the accountant for the Company since its incorporation and for Gilles personally for about forty years. He was unaware of the Estate Freeze until some time in 2021. He understood, at the time, that Gilles was still the Company’s president even though Eric took charge of the day to day operations in early 2018. He was unsure whether he received instructions from Gilles or Eric or both from 2018 to 2021. Mr. Coghlan initially testified that Gilles continued to sign the Company’s financial statements and tax returns up until 2021, but later said he was not sure whether the signatures were that of Gilles or Eric. He testified that he also prepared personal tax returns for Gilles, in which he characterized income he received from the Company as dividend income. This included his reimbursement for personal expenses.
Application of legal principles in this case
[26] I find that there are genuine issues requiring a trial and that I cannot fairly resolve these issues using my enhanced powers on a summary judgment motion at r. 20.04(2.1). Since the parties’ agreement about Gilles’ entitlements and the Company’s obligations as a result of the Estate Freeze was never reduced to writing, adjudication of the issues will depend on whose evidence is more credible. This adjudication cannot be based solely on the written record.
[27] Gilles contends that his entitlement to redeem his Class D shares is straightforward and uncontroversial. Eric admitted in cross-examination that his father owns the shares, that their value is $883,197, and that he is entitled to redeem them on demand.
[28] This account of Eric’s cross-examination omits his qualification, in response to question 209, that the parties agreed that the value of Gilles’ Class D shares would be reduced by the weekly payments received after the Estate Freeze. Gilles contends that Eric’s testimony on this point is implausible. If I accept this argument, I do not need to make findings of credibility in order to grant summary judgment. I am not, however, persuaded that Eric’s evidence about the terms of the parties’ agreement is so fundamentally implausible that it can be summarily rejected.
[29] Some of the circumstantial evidence is admittedly more consistent with Gilles’ position than Eric’s position. If the parties agreed that the Company’s payments to Gilles would reduce the redemption value of his shares, I would ordinarily have expected the Company to track these payments as they were made. I would have also expected the Company to issue a new share certificate to Gilles at some point, showing the balance of class D shares remaining after he received payments from April 2018 forward. The parties’ text messages in April and May 2021 characterize the weekly payments to Gilles as pay or dividends and, when Gilles mentioned the redemption of his shares, Eric did not immediately respond by indicating that partial redemption has already occurred. The defendants did not, in fact, allege that the weekly payments reduced the value of Gilles Class D shares until the statement of defence and counterclaim was amended in December 2021.
[30] This circumstantial evidence does not, however, preclude the possibility that a trial judge could accept Eric’s evidence about their arrangement over that of his father. Gilles’ misstatement of the circumstances surrounding the Estate Freeze in his affidavit implies that his evidence may not be uniformly reliable. The Company’s written records evidently did not always reflect the actual state of affairs. For example, the financial statements did not show that Eric had 500 Class A shares as a result of the Estate Freeze or that Gilles had ceased to be an officer. Eric’s allegation that his father gave unauthorized instructions to the Company’s accountant is arguably supported by Mr. Coghlan’s evidence on examination.
[31] Gilles argues that Mr. Coghlan’s evidence should not be given much weight because he was vague, unsure, and demonstrated limited awareness of what was occurring at the Company or between the parties after early 2018. Such a credibility assessment is something that a judge hearing viva voce testimony is well placed to make, and that a judge on a summary judgment motion is not.
[32] Gilles asks me to infer that the texts exchanged between the parties in April and May 2019 are more reliable than Eric’s affidavit evidence or testimony on cross-examination. Text messages are inherently light on detail and context. These particular texts were obviously exchanged by Eric and Gilles when they were angry and upset. It would be reckless to infer that they provide a complete or accurate picture of the parties’ understanding.
[33] Aside from these texts and a brief letter from Mr. Coghlan referring to what Eric told him, there is no documentation of the parties’ deal with respect to rent abatement in return for payment of Gilles’ expenses. Having heard testimony, a judge could determine what the parties agreed, at the time of the Estate Freeze, about what expenses Gilles could or could not reasonably charge to the Company, given the reduced rent. It is impossible to assess the plausibility of the parties’ competing accounts on the written record before me.
[34] A limited oral hearing would not promote efficiency, as a judge would need to hear all, or almost all, of the same testimony that would be called at trial.
[35] Finally, resolution of Gilles’ claim for repayment of the $30,000 loan is contingent on credibility issues, as is the outcome of the defendants’ unjust enrichment claim. As a result, even if I accepted Gilles’ arguments on the share redemption issue, I could not grant more than partial summary judgment on the main claim. Gilles’ claim on the promissory note and the counterclaim would still have to go to trial.
Disposition
[36] In his outline, Eric seeks costs on a full indemnity or substantial indemnity basis for both this motion and the motion before Justice Doyle. Rule 20.06 provides that the court may order costs of a motion for summary judgment if the moving party acted unreasonably in presenting the motion.
[37] In my view, Gilles was unreasonable in pursuing this motion after receiving Doyle J.’s endorsement on Eric’s motion for leave to examine Mr. Coghlan. She observed that the terms of the parties’ oral agreement were the central issue in the litigation, and cautioned Gilles to reconsider whether to proceed with a summary judgment motion:
Given that the issue at the summary judgment motion is whether there was an agreement between the plaintiff and his son and the corporation that the plaintiff would be paid by way of dividends and personal expenses, consideration should be given as to the merit of proceeding to a motion for a summary judgment. The summary judgment motion judge will be required to make findings of credibility based on transcripts and affidavits. The parties may wish to consider attending a case conference to discuss whether this is a suitable case for a summary judgment motion.
[38] Given this clear direction, Gilles should have either abandoned the motion or, at the very least, sought further insight at a case conference.
[39] The defendants say they paid $44,107 in fees, disbursements and HST on the two motions, or $35,136 on a substantial indemnity basis. (I have rounded all figures to the nearest dollar.) I am reducing this amount to reflect recovery of only partial indemnity costs prior to Doyle J.’s endorsement and to reduce the counsel fee at hearing which is premised on six hours of hearing. The resulting amount of $32,720 is, I note, still less than the partial indemnity costs that the plaintiff claimed had he prevailed.
[40] The motion for summary judgment is accordingly dismissed and the plaintiff is ordered to pay the defendant $32,720 in costs on the two motions, inclusive of fees, disbursements, and HST.
Justice Sally Gomery
Released: January 25, 2023
COURT FILE NO.: CV-21-86794
DATE: 25/01/2023
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GILLES PORTELANCE
Plaintiff/Defendant by Counterclaim
– and –
1343633 ONTARIO INC. and GILLES-ERIC PORTELANCE
Defendants/Plaintiffs by Counterclaim
decision on summary judgment motion
Justice S. Gomery
Released: January 25, 2023
[^1]: Because the parties share the same surname, I will refer to the plaintiff as Gilles and the individual defendant as Eric. [^2]: This was a bilingual motion, with the plaintiff making submissions in English and the defendants doing so in French. I elected to prepare these reasons in English because most of the documents and correspondence between the parties are in English. [^3]: Portelance v. 1343633 Ontario Inc., Court file CV-21-86794, Endorsement by Justice A. Doyle dated May 30, 2022.