2024 ONSC 3995

Court File and Parties

COURT FILE NO.: CV-22-219 DATE: July 15, 2024

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: 1080977 Ontario Inc. Operating As Stevans Sales and Marketing, Plaintiff

- and -

The Shores of Port Credit Inc. and DCMS Realty Developments Inc., Defendants

AND BETWEEN:

The Shores of Port Credit Inc. and DCMS Realty Developments Inc., Plaintiffs by Counterclaim

- and -

1080977 Ontario Inc. Operating As Stevans Sales and Marketing, Newcombe Design Associates Inc., Nisa Law Firm Inc., José Rodrigues Nisa (also known as Joseph Nisa) and Fonds d’assurance responsabilité professionnelle du Barreau du Québec, Defendants by Counterclaim

COUNSEL: M. Lambert – for the Plaintiff L. Galessiere – for the Defendants L. Galessiere – for the Plaintiffs by Counterclaim M. Lambert – for the Defendants by Counterclaim, 1080977 Ontario Inc. A. Ananaba – for the Defendants by Counterclaim, Nisa Law Firm Inc. and Joseph Nisa

HEARD: April 10, 2024 in Brantford by videoconference

MacNeil, J.:

REASONS FOR DECISION

INTRODUCTION

[1] An action was commenced by the Plaintiff, 1080977 Ontario Inc. (“108 Ontario”), seeking damages in the sum of $432,879.97 for breach of contract and/or unjust enrichment resulting from various unpaid invoices. The proceeding involves a number of parties and an alleged cyberfraud scheme.

[2] By this motion, 108 Ontario seeks an order granting it leave to continue the action, pursuant to s. 7(1) of the Business Names Act, R.S.O. 1990, c. B.17 (“the Business Names Act” or “the Act”).

[3] The Defendants, The Shores of Port Credit Inc. and DCMS Realty Developments Inc. (“the Defendants”), oppose the granting of the motion. They filed responding materials in support of their position.

[4] The Defendants by Counterclaim, Nisa Law Firm Inc. and Joseph Nisa (“the Defendants by Counterclaim”), also oppose the relief sought by the Plaintiff on this motion. Although neither of these parties filed any responding materials, their lawyer made oral submissions at the hearing.

BACKGROUND

[5] 108 Ontario was incorporated on August 26, 1994 and has been operating since that date under the business name of Stevans Sales and Marketing and/or Stevans Sales and Marketing Inc.

[6] Margaret Ann Fitch and Stephen Masschaele are the directors, officers and shareholders of 108 Ontario.

[7] The Defendant, The Shores of Port Credit Inc. (“The Shores”), is the registered owner of a senior living retirement residence/apartments located at 270/280 Lakeshore Road West, in Mississauga, Ontario (the “Retirement Residence”).

[8] The Defendant, DCMS Realty Developments Inc. (“DCMS”), carries on the business of real estate development. During the material time, DCMS acted as the development manager for The Shores in connection with the construction of the Retirement Residence.

[9] The Defendant by Counterclaim, José Rodrigues Nisa (aka Joseph Nisa), is a lawyer practicing in Quebec and is the principal of Nisa Law Firm Inc., another Defendant by Counterclaim.

[10] The action has been discontinued as against Fonds d’assurance responsabilité du Barreau du Québec.

[11] The Shores retained the Defendant by Counterclaim, Newcombe Design Associates Inc. (“Newcombe Design”), to provide interior design services, which included sourcing furniture and fixtures for the Retirement Residence project. It is alleged that Newcombe Design then contracted with an entity known as Stevans Sales and Marketing Inc. for the provision of certain furnishings.

[12] In or about December 2021, DCMS purportedly received an email from Newcombe Design requesting that The Shores change its usual practice of paying invoices by cheque and, instead, at the request of Stevans Sales and Marketing Inc., make payments by way of electronic funds transfer.

[13] In January 2022, The Shores made two electronic funds transfer payments to Nisa Law Firm Inc., totalling $352,972.00 as directed by an “Ann Fitch”, who they believed was the principal of Stevans Sales and Marketing Inc.

[14] Subsequently, it was discovered that the “Ann Fitch” who provided the banking information to The Shores was not the real Margaret Ann Fitch from Stevans Sales and Marketing Inc., and that the parties appeared to have been the victims of cyberfraud.

[15] The Plaintiff commenced an action against the Defendants in the name of “Stevans Sales and Marketing Inc.” by statement of claim issued October 11, 2022.

[16] In the course of exchanging pleadings, the Plaintiff was advised by the Defendants that a search of the Ministry of Government and Consumer Services for Ontario records revealed no incorporated entity bearing the name “Stevans Sales and Marketing Inc.”.

[17] The Plaintiff then amended its statement of claim to name the proper incorporated company as the Plaintiff, being “1080977 Ontario Inc. operating as Stevans Sales and Marketing”. With the consent of the Defendants, the claim was amended pursuant to the Order of Broad J., dated January 24, 2023.

[18] In its Amended Statement of Claim, the Plaintiff alleges that it contracted with The Shores and DCMS, through their agent Newcombe Designs, for the supply of furnishings for Retirement Residence project.

[19] After receiving the Defendants’ Amended Statement of Defence and Counterclaim, the Plaintiff realized that its business name of “Stevans Sales and Marketing” was not registered in accordance with the provisions of the Business Names Act. The Plaintiff then instructed its lawyer to register the name of “Stevans Sales and Marketing” in accordance with the provisions of the Act. The business name of “Stevans Sales and Marketing” was so registered, effective April 12, 2023.

[20] The Plaintiff delivered a Reply, Crossclaim and Defence to the Amended Statement of Defence and Counterclaim of the Defendants, dated May 2, 2023. Other pleadings were also exchanged.

POSITION OF THE PLAINTIFF

[21] It is the position of the Plaintiff that it has operated using the business name of Stevans Sale and Marketing and Stevans Sales and Marketing Inc. since August 26, 1994.

[22] The Plaintiff alleges that it has a history of business dealings with the Defendants prior to the issues raised in the claim. Specifically, the Plaintiff and the Defendants had at least five prior business dealings. The parties are known to each other. Further, the Plaintiff and the Defendant by Counterclaim, Newcombe Design, had at least twenty prior business dealings before the dealing that is the subject of this claim.

[23] There was no intent by the Plaintiff to deceive any of the parties in this proceeding or mislead the public. The failure to register the business name of Stevans Sales and Marketing was merely through inadvertence by the owners of the Plaintiff corporation. When 108 Ontario discovered that its business name of Stevans Sales and Marketing was not registered, it arranged to have the name registered under the Act.

[24] The Defendants and Newcombe Design previously paid invoices rendered by the Plaintiff in the name of Stevans Sales and Marketing Inc.

[25] If the Plaintiff is not granted permission from the court to continue with this lawsuit, then the Defendants will have received goods and services from the Plaintiff in the amount of $432,879.97 and the Plaintiff will not be paid for same. Furthermore, the extent of liability for the non-payment of the invoices by the Defendants by Counterclaim, Newcombe Design, Nisa Law Firm Inc. and Joseph Nisa will not be adjudicated.

POSITION OF THE DEFENDANTS

[26] The Defendants oppose the Plaintiff’s motion on various grounds.

[27] The proceeding was originally commenced by Stevans Sales and Marketing Inc. The invoices which the Plaintiff alleges are outstanding were rendered by Stevans Sales and Marketing Inc. At no time did the Defendants contract with Stevans Sales and Marketing Inc. and/or the Plaintiff for the provision of services nor did they have any prior dealings with the Plaintiff. In fact, DCMS or The Shores did not have any knowledge that the corporate entity, 108 Ontario, existed until counsel for the Plaintiff advised that it wished to amend its statement of claim.

[28] The Defendants submit that neither the failure of 108 Ontario to register Stevans Sales and Marketing as a trade name nor the Plaintiff’s use of Stevens Sales and Marketing Inc. were inadvertent acts by 108 Ontario.

[29] The action relates to cyberfraud and representations allegedly made by or on behalf of Stevans Sales and Marketing Inc. The Defendants contend that they were deceived and/or misled by 108 Ontario’s actions and/or omissions.

[30] For more than 30 years, 108 Ontario made no effort to register a trade name. The Plaintiff has offered no evidence to explain why this is the case. In addition, 108 Ontario has operated using the name Stevens Sales and Marketing Inc. in contravention of s. 11 of the Business Corporations Act, R.S.O. 1990, c. B.16, (the “OBCA”), which prohibits the unauthorized use of the abbreviation “Inc.” 108 Ontario continues to be in breach of both the Business Names Act and the OBCA in that it still uses “Stevans Sales and Marketing Inc.” in its public representations. As of the hearing date, the Plaintiff has not registered “Stevans Sales and Marketing Inc.” as its business name.

[31] The Defendants argue that the courts have recognized that that there needs to be a consequence for failing to register under the Act and that the purpose of the legislation is disciplinary: Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2013 ONSC 3271, at paras. 24, 50 and 55.

[32] It is the Defendants’ position that 108 Ontario has habitually breached both the Act and the OBCA and has failed to meet the test set out in s. 7(2) of the Business Names Act. Accordingly, the motion for leave to continue its action should be dismissed.

POSITION OF THE DEFENDANTS BY COUNTERCLAIM

[33] The Defendants by Counterclaim, Joseph Nisa and Nisa Law Firm Inc., support the position taken by the Defendants and urge the court not to grant the motion.

[34] Counsel for the Defendants by Counterclaim argues that the s. 7(2) test has not been met. By not registering its business name, the Plaintiff clearly meant to deceive others. As well, using “Inc.” in its name is very deceiving. Further, because of the Plaintiff’s failure to register its business name, if a party had wished to sue the Plaintiff, it would have been impossible because the suing party would not have known to name 108 Ontario as the defendant. Stevans Sales and Marketing Inc. has been a non-entity all these years. The Plaintiff has been hiding its true identity. The 30 years of inaction in failing to register the proper business name under the Act is inexcusable.

ISSUE

[35] The issue to be determined is whether the Plaintiff should be granted leave of this court to continue this proceeding, under s. 7(1) of the Business Names Act.

ANALYSIS

The Law

[36] Section 2(1) of the Business Names Act provides that no corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation.

[37] By s. 7(1) of the Act, a person carrying on business in contravention of s. 2(1) is not capable of maintaining a proceeding in an Ontario court in connection with that business except with leave of the court.

[38] Section 7(2) of the Act provides that the court shall grant leave if the person seeking to maintain the proceeding satisfies the court that:

(a) the failure to register was inadvertent;

(b) there is no evidence that the public has been deceived or misled; and

(c) at the time of the application to the court, the person is not in contravention of the Business Names Act or its regulations.

[39] Section 7(3) provides that no contract is void or voidable by reason only that it was entered into by a person who was in contravention of the Act or its regulations at the time the contract was made.

[40] Section 10(1) of the Business Names Act provides that, every person who without reasonable cause, contravenes section 2, among others, is guilty of an offence and on conviction is liable to a fine of not more than $2,000 or, if the person is a corporation, to a fine of not more than $25,000.

[41] Where a party does not meet all three factors of the test set out in s. 7(2), leave can be refused: World Stone & Tile Inc. v. Ezekiel, 2012 ONSC 5673, at para. 8.

[42] A frequently cited case is Bazinet v. Kinross Gold Corp., 1999 CarswellOnt 584 (Ont. Gen. Div.), wherein the plaintiff commenced an action for damages for breach of contract. He alleged that the defendant breached contracts entered into with a business known as Haulex Services and that he suffered damages as a result. Haulex was a partnership between the applicant and his cousin. The two of them decided to ask the cousin’s brother to register Haulex under the Business Names Act primarily to make it easier for Haulex to obtain credit. In the statement of claim, the applicant was named as the sole plaintiff. He brought an application for a declaration that s. 7 of the Business Names Act had no application to the action or, in the alternative, for an order granting leave to maintain the action. In considering s. 7(2) of the Act, Valin J. observed, at para. 14:

… The general purpose of the Act is to ensure that businesses are registered. The limitation placed on the ability of an unregistered business to maintain a proceeding seems to be in part disciplinary. There needs to be some consequence for failing to register a partnership. However, where the failure to register is inadvertent, and no harm flows from it, the disciplinary function of the Act becomes largely irrelevant. It would be unfair to bar actions in such circumstances.

[43] At para. 11 of Bazinet, Valin J. recognized that a residual discretion exists in the court even if the three specific criteria set out in s. 7(2) of the Act are not met. However, in para. 15 of the decision, the court held that leave should be granted “only in exceptional situations, because to do otherwise would considerably weaken the disciplinary purpose of the Act”.

[44] In Bazinet, Valin J. concluded that the applicant had planned the registration of Haulex in the name of the third party for the purpose of misleading the public at least to the extent that the real partners could obtain credit for their business. As a result, Valin J. ultimately held that the disciplinary and business ethics purposes of the Act outweighed the injustice that might flow from refusing to grant leave to the applicant to maintain the proceeding, and declined to exercise his discretion to grant leave.

[45] It was noted by Cavarzan J. in Ramey v. Winkleigh Co-operative Housing Corp, 2010 ONSC 4676, at para. 91, however, that cases decided after Bazinet have tended to let the action proceed in the absence of an intention or effort to deceive.

[46] In Ramey, at para. 91, and in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2013 ONSC 3271, at para. 54, leave to appeal refused 2013 ONSC 4901, the courts rejected the argument that the disciplinary purposes of the Business Names Act require a strict application of the Act. As Perell J. in Excalibur held, at paras. 51-53:

51 In my opinion, the first discipline of the business names statutes is that there is an incentive to register. The incentive is that unless the business has registered, any litigation by it will be stayed and the business will have to obtain leave from the court to lift the stay.

52 If leave is granted, then the business will have registered and purposes of the Act will have been served. There is no necessity to impose the draconian punishment of negating an existing action.

53 If leave, however, is denied (both under the saving provision or under the court’s residual discretion to grant leave), then there is disciplinary punishment, so to speak, for failing to register. The punishment when leave is not granted is that the business will have to register and then start afresh with a new action, which would be more exposed to limitation period defences.

[47] In Excalibur, Perell J. further commented at paras. 31, 42 and 46 that, in his view, the case law strongly supports “a gentle interpretation” of the business-name registration statutes.

[48] Perell J. noted that, in Bloomsbury & Butterfield Ltd. (cob Heritage Auctioneers) v. Economical Mutual Insurance Group (cob Langdon Insurance), 2011 ONSC 4889, at para. 21, Boswell J. had concluded, referring to a decision of Farley J. in Toronto-Dominion Bank v. E. Goldberger Holdings Ltd., [1999] O.J. No. 5245 (S.C.J.), that even when a plaintiff has not satisfied the statutory requirements for leave to be granted to maintain an action, the court has a residual discretion to grant leave. In Bloomsbury, Boswell J. held that he was not satisfied that the conditions set out in s. 18(2) of the Corporations Information Act – which are similar in nature to those found in s. 7(2) of the Business Names Act – were met, such that the granting of leave to continue the action was mandatory. However, he went on to find that leave should be granted as an exercise of discretion holding that, while the plaintiff’s failure to pay fees applicable to it was not truly inadvertent, it would be unjust in the court’s view to effectively terminate the action without a hearing on the merits on that basis. He concluded that “[s]uch a punishment would be grossly out of proportion to the acts and/or omissions of the Plaintiff”: see paras. 23-24.

[49] A similar approach was taken by Master Hawkins in Sports Medicine & Rehabilitation Clinics v. Kotic, 2008 CarswellOnt 5446, at para. 8, wherein he rejected the argument that leave must be denied if a plaintiff did not meet all of the factors prescribed by s. 7(2) of the Business Names Act, holding: “What that subsection means is that if the conditions set out in subsection 7(2) of that Act are met the court must grant leave. Subsection 7(2) of the Act does not mean that if those conditions are not met the court must deny leave. Even if those conditions are not met the court still has a discretion to grant leave.”

Discussion

[50] In my view, this is an appropriate case to grant leave under s. 7(1) of the Act to the Plaintiff to maintain this action.

[51] The main issue in the action is whether the Plaintiff ought to be permitted to recover the amounts claimed on its invoices from the Defendants. The dispute stems from the Defendants’ allegation that it paid the amounts but, through no fault of its own, such payment was made to a fraudulent third party. It is not contended that the goods and services were not delivered or that the amounts claimed in the invoices themselves were not accurate.

[52] With respect to the first factor in s. 7(2), I am satisfied, based on the uncontroverted evidence of Margaret Ann Fitch, although slim in nature, that the failure to register the Stevans Marketing and Sales name was inadvertent. It appears that the Plaintiff has otherwise operated for some 30 years without incident. (See Tempus Investments v Foxton, 1994 CarswellOnt 3528 (Ont. Gen. Div.), at para. 20.)

[53] With respect to the second factor in s. 7(2), I find that there is no probative evidence that the public has been deceived or misled. The only evidence in the record is a bald statement, found in the supporting affidavit of Andrew Biller, filed on behalf of the Defendants, that: “It is clear from the pleadings that the conduct of Stevans Sales and Marketing Inc. and the representations made by it are in issue such that DCMS and/or The Shores were deceived and or misled by it and/or 1080977 Ontario Inc.”

[54] The Defendants rely on World Stone & Tile v. Ezekiel, 2012 ONSC 5673, in support of their argument that leave should be refused. In my view, World Stone & Tile is distinguishable from the present case. That case dealt with a construction lien claim for a new home tile installation and a counterclaim for damages for defective workmanship in the installation. The homeowner-defendants denied any involvement with the corporate plaintiff, insisting that they dealt with Biagio Guarascio in his personal capacity as a sole proprietorship. Biagio Guarascio sought leave to maintain the proceeding in the name of “World Stone & Tile Inc.” The defendant, Wayne Ezekiel, testified that he was unaware that the plaintiff’s business was an incorporated entity until the construction lien was filed. All of the negotiations were conducted under the letterhead of “World Stone & Tile”, as was the contract entered into. Mr. Ezekiel assumed he could rely on the personal assurances as to the quality of superior workmanship advanced by Mr. Guarascio as opposed to them being avoided by means of a form of limited liability. Here, in the case before me, there is no evidence that the Defendants relied on the fact that the Plaintiff was an unincorporated entity for the purposes of liability. There is also no evidence that the Plaintiff carried on business using the name of “Stevans Sales and Marketing Inc.” with the intent that its customers would not know who they were dealing with and hence be unable to take appropriate steps or make necessary inquiries.

[55] I accept and adopt the approach taken by Master Hawkins in Sports Medicine & Rehabilitation Clinics, at para. 5, wherein he held that the concept of the public being deceived or misled in s. 7(2)(b) of the Act must mean more than simple ignorance as to who actually operates a business identified only by its business name.

[56] With respect to the third factor in s. 7(2), at the time the motion was argued before me, the Plaintiff had registered its business name “Stevans Sales and Marketing” – the name by which it is prosecuting this action – in accordance with the Act, and so was no longer in contravention of the Business Names Act or its regulations. While the Defendants argue that the Plaintiff is also in contravention of the OBCA, I am only concerned on this motion with compliance with the Business Names Act.

[57] In my view, the test set out in s. 7(2) of the Act has been satisfied.

[58] In the event that I am wrong in this regard, however, I would nonetheless exercise the court’s residual discretion under s. 7(1) and grant leave to the Plaintiff to continue the action.

[59] From the evidence, it is clear that the Defendants knew they were dealing with the Plaintiff as an entity that had been retained by Newcombe Design to provide goods and services for the Retirement Residence project. At the time of Newcombe Design’s contracting with the Plaintiff, there was a corporation in existence that was prepared to provide the goods and services needed by the Defendants. There was no suggestion that the Defendants did not get what was bargained for by way of the contract. The evidence is that the Defendants had already successfully paid earlier invoices and had intended to pay the invoices at issue. The dispute between the parties does not arise because the Plaintiff’s invoices were rendered in an unregistered business name.

[60] I conclude that it would be patently unfair in the circumstances to prevent the Plaintiff from pursuing its action for damages by relying on the technical requirements of the Act. In this regard, I concur with the statements of Justice E. Macdonald in the case Ontario Hospital Assn. v. Timbrell, [1998] O.J. No. 2187 (Ont. Gen. Div.), at para. 2, where she granted leave to maintain an action despite arguments that corporate filing requirements had been breached by the Ontario Hospital Association, commenting:

There are issues which are of a public policy nature that bear some comment. Denial of leave would, in this case, be inconsistent with statutory law and the results of the jurisprudence. It is not in the public interest that [s. 18 of the Corporations Information Act] be used in the fashion urged upon the court by the moving parties. I am concerned that interest in compliance is not the motivating factor here. … Finally, I would add that denial of leave would be inconsistent with public policy in Ontario which favours holding parties to their agreements. …

[61] Accordingly, pursuant to s. 7(1) of the Business Names Act, leave is granted to the Plaintiff to maintain this action.

DISPOSITION

[62] In the result, the Plaintiff’s motion is granted.

COSTS

[63] It was the Plaintiff’s own conduct that resulted in the need for this motion, and the relief granted only benefits the Plaintiff. Further, since leave of the court was needed, a motion was required whether the other parties consented to it or not. In these circumstances, despite its success, I decline to award any costs to the Plaintiff.

MacNeil, J. Released: July 15, 2024