Court File and Parties

COURT FILE NO.: CV-10-5284-0000 DATE: 2024 01 18

SUPERIOR COURT OF JUSTICE – ONTARIO 491 Steeles Avenue East, Milton ON L9T 1Y7

RE: Renato Brun Del Re AND: The Estate of Philip Thomas Buck, deceased and 1083453 Ontario Inc.

BEFORE: Coats J.

COUNSEL: Margaret McCarthy, for the Applicant Glenroy Bastien, for the Respondent, the Estate of Philip Buck, deceased

HEARD: October 4, 2023 and October 27, 2023

Endorsement

Part 1: Background

[1] The submissions made on October 4, 2023 and October 27, 2023 by counsel, based on Affidavit evidence filed, were the final step of the Reference Hearing conducted by way of a motion to a judge pursuant to an order by Justice G. Miller dated December 9, 2014.

[2] The Reference arises out of an Order made by Justice John Murray on April 5, 2012 winding up the Respondent, 1083453 Ontario Inc, (the “Corporation”) which was equally owned by the two shareholders, the Applicant and the Respondent Philip Buck, now deceased (the “Respondent Estate”).

[3] The only asset of the Corporation was a property known as 4272 No. 4 Side Road, Burlington, Ontario (the “Property”) which was sold in May of 2015 pursuant to the December 9, 2014 Order of Justice Miller.

[4] After the sale in May of 2015, the net proceeds of $380,554.28 were paid into court on July 23, 2015, being the proceeds of sale of the Property net of the real estate commission, the mortgage, outstanding realty taxes, H.S.T. and a payment to each party in accordance with Justice Miller’s Order. The current balance of the money paid into court is $404,963.36, as of August 31, 2023.

Part 2: History of Proceeding

[5] The Applicant has filed a Document Brief dated July 4, 2023 containing all endorsements and orders made in the proceeding to that date.

[6] The matter first came before me in February of 2017. The history of the matter and the parties’ relationship is set out in my endorsement dated July 7, 2017.

[7] In my endorsement of June 17, 2019, I identified the 4 remaining issues as follows:

1. Should the funds be released to pay the Canada Revenue Agency (“CRA”)? Are there problems with the CRA filings as Ms. Draper [paralegal assisting Mr. Buck] will be submitting?
2. Were any of the mortgage proceeds obtained by Mr. Buck or any of the expenses paid by Mr. Buck incurred for the business? This issue is defined in my July 7, 2017 endorsement.
3. Any issues regarding costs arising since costs were previously argued- additional costs incurred since costs were argued.
4. The final numbers for distribution taking into consideration all of my findings/determinations.

[8] These have remained the outstanding issues.

Part 3: Analysis

Issue 1: Should the funds be released to pay CRA? Are there any problems with the CRA filings?

[9] The Corporation had not filed any income tax returns since its incorporation in 1994.

[10] By my order of February 7, 2018, Kevin Mouscos, an accountant, was ordered to prepare the income tax filings for the Corporation. He completed those tax filings for the 1994 to 2015 taxation years in April of 2019.

[11] As set out in my June 17, 2019 endorsement, Ms. Draper raised concerns with the filings done by Mr. Mouscos. Almost 4 years later, the Respondent Estate filed an Affidavit of Mr. Kristopher Klinck, also an accountant, sworn June 14, 2023, wherein he raised concerns with the filings. Mr. Klinck also filed an Affidavit sworn August 10, 2023, which had attached to it approximately 1000 pages of documents. Mr. Mouscos has responded to these Affidavits.

[12] Based on the reasons below, I accept the evidence of Mr. Mouscos over that of Mr. Klinck and accept that Mr. Mouscos’ calculations are preferable and that his tax filings are the correct tax filings.

[13] Although both Mr. Mouscos and Mr. Klinck are qualified experts in accounting, Mr. Mouscos has been working in public accounting since 2007 and has 16-years of experience providing corporate tax compliance advice to small and medium-sized privately owned business corporations in Ontario. He holds a public accounting licence. Mr. Klinck does not work as a public accountant. He is employed by an insurance company. He does corporate filings outside of his regular day-to-day employment. He does not have a public accounting licence. Although a public accounting licence is not required to do corporate filing, this and Mr. Mouscos’ years of full-time experience in the field, lead me to prefer his evidence.

[14] Further, Mr. Mouscos’ filings have already been accepted by CRA. Exhibit 7 attached to Mr. Mouscos’ Affidavit sworn on October 2, 2023, is a statement from CRA showing its acceptance of Mr. Mouscos’ calculations and the interest accrued. Attached as Exhibit 3 to Mr. Mouscos’ April 27, 2019 Affidavit is correspondence he received from CRA including Notices of Assessment for the Corporation from 1994 to 2015, from incorporation until the year the Property was sold. These Notices of Assessment were based on Mr. Mouscos’ filings.

[15] Mr. Mouscos’ calculations were prepared on the basis that the Corporations did not operate a business and that its only transaction was the purchase and sale of the Property. The tax payable was based on a taxable capital gain. This approach is consistent with the Corporation’s history.

[16] Mr. Klinck’s calculations were based on the Corporation generating business losses which were used to offset the capital gain. There are many problems with this approach.

[17] Mr Klinck has started with the proposition that there were farming loses carried forward to 2015 in the amount of $232,478.11 yet the Corporation never prepared any financial statement showing the loses. There is no proof that the Company was operating a business, other than a few photographs which show only a few crops. There are no Corporate bank records showing Corporate or business expenses. There are no cancelled cheques showing the payment of these expenses.

[18] Mr. Klinck based his calculations of these loses on a bundle of miscellaneous receipts and invoices. No one has attested to the veracity of these invoices being related to the Property or any business of the Corporation. They were simply attached to Mr. Klinck’s August 10, 2023 Affidavit. Some pre-date the existence of the Corporation. Some are from the period after the order winding up the corporation. Some have no dates. Some are made out to others or do not show who incurred the expense. Many do not show what the purpose of the invoice or expenses was. There is no summary or financial statements showing which expenses were allocated to which year to create the loses.

[19] Mr Klinck included in his expenses property taxes, mortgage payments and operating expenses such as utilities. As will be set out below, I accept the Applicant’s evidence that Mr. Buck was to pay these expenses in lieu of rent for his living on the Property. I am not satisfied these are business expenses. I will deal with the mortgage payments under Issue 2 below.

[20] Mr. Klinck in a document entitled Appendix D (part of his June 14, 2023 Affidavit) set out concerns he had with Mr. Mouscos’ filing. I am satisfied with the detailed responses Mr. Mouscos has produced in his affidavits sworn July 12, 2023 and October 2, 2023. The Applicant has also addressed factual errors in Mr. Klinck’s assumptions in the Applicant’s Affidavit of July 12, 2023 and I accept his factual corrections.

[21] Mr. Klinck has calculated the capital gain based on figures that cannot be reconciled to the documents filed in this proceeding. His starting point is unclear. Mr. Klinck’s capital gain calculation is based on sale numbers which Mr. Mouscos has not seen anywhere in the evidence filed in this proceeding. Appendix A to Mr. Klinck’s June 14, 2023 Affidavit sets out the starting point of his calculations as $459,717.51. There is no report or calculation showing how he arrived at this number. This makes his entire set of calculations unreliable. I was told by counsel for the Respondent Estate at the argument of these final issues, that this starting number came from a financial statement that has not been filed and that I have not seen.

[22] Mr. Klinck has not explained how income loses (if these were to be accepted) can be used to offset capital gains. Mr. Mouscos says they can’t be. Mr. Klinck does not provide any explanation as to how they can be. Mr. Mouscos evidence is that a business’ income losses can only be applied against business income. If the business has no income, the income losses are irrelevant. Income loses cannot be used to reduce capital gains, which is what Mr. Klinck has done. Mr. Klinck provides no basis for his doing so or any contradictory evidence to Mr. Mouscos’ evidence on this point.

[23] I cannot reconcile the numbers Mr. Klinck has on Appendix A to any evidence filed in this case. I cannot reconcile any of the numbers he put on his draft 2015 Net Income (Loss) form- Schedule 1. He has not provided any explanation for the numbers he used.

[24] I now turn to the question of who should be responsible for the interest accrued on the debt to CRA.

[25] The Applicant has proposed that the interest owing to CRA to February 20, 2019 be paid by the Corporation and therefore be debited from the net proceeds, with the practical result that the shareholders have equally contributed to same. In my view, this approach is reasonable and appropriate. Attached as Exhibit 3 to Mr. Mouscos’ Affidavit of April 27, 2019 is a CRA Statement of Details showing the total tax payable of $89, 692. The accrued interest to that date was $15,321.72. It is reasonable that this be “shared equally” as the Corporation had not filed tax returns until Mr. Mouscos did so and this was the response to the filings from CRA.

[26] Mr. Buck, and the Respondent Estate since his death, have at all times since April 27, 2019 refused to consent to the release of the funds from those held in court to pay CRA. They have been solely responsible for the delay in payment. In the distribution of the funds paid into Court, the Respondent Estate shall be solely responsible for the payment of any and all interest payable to CRA above the amount of $15, 321.72.

[27] Mr. Mouscos’ initial account for services has been paid out of the monies paid into court, with the effect that it was paid “equally” by the two shareholders.

[28] Any further accounts of Mr. Mouscos, for additional services, including the preparation of his further Affidavits, shall be the responsibility of the Respondent Estate, in the distribution of the monies paid into court. This includes Mr. Mouscos’ invoices of April 20, 2023, July 12, 2023 and his final invoice. These expenses were incurred only because Mr. Buck, and then the Respondent Estate, refused to accept Mr. Mouscos’ CRA filings and the CRA’s notices of assessment and pay the CRA debt.

Issue 2: Were any of the mortgage funds obtained by Philip Buck or any of the expenses paid by Philip Buck incurred for the business?

[29] The background with regard to this issue is set out at paragraphs 35-38 of my endorsement of July 7, 2017 as follows:

[35] Mr. Del Re’s proposed distribution credits him with the full $165,571.71 incurred to pay off the mortgage registered against the Property prior to the sale, meaning that Mr. Buck is responsible for the entire mortgage payout from his share of the net proceeds of sale. With respect to this mortgage, the parties’ positions and presented facts vary significantly. Mr. Del Re states that he was not aware of the mortgage until 2014 and, as Mr. Buck received the full benefit of the mortgage, he should be responsible for this amount. Mr. Buck states that Mr. Del Re was aware of the mortgage from the time the parties purchased the Property and the funds were used towards the expenses of the farm and business; as such, he argues that responsibility for this amount, or at the least the amount of the expenses incurred for the business, should be split between the parties. He claims the mortgage has been renewed since the corporation purchased the Property in 1994.

[36] There are gaps in the evidence presented by the parties on this issue and, before a final determination may be made, further information is required. Specifically, I require new affidavit evidence from Mr. Buck. This affidavit shall set out all relevant information regarding any mortgage or encumbrance on the Property from the time of the purchase in 1994 to the time of the sale of the Property to John Evans. Additionally, Mr. Buck has prepared a list of numerous expenses he claims to have incurred on behalf of the corporation, using the mortgage proceeds. Some of these may be proper business expenses, but it is impossible to tell from the information currently before the court. As such, Mr. Buck will be required to provide the following documentation. Within 90 days of the date of this order, Mr. Buck shall serve and file an affidavit with respect to these issues; supporting documentation shall be attached, including:

• All mortgage applications against the Property, from 1994 to the time of the sale, including renewals, add-on or replacement mortgages;
• All loan statements for the mortgage(s) on the Property from 1994 to the date of sale;
• Documentation, including receipts or invoices, of any expenses Mr. Buck incurred for the benefit of the Property and/or the parties’ business, showing the cause of the expense, date, and amount incurred. This documentation shall be connected to the specific expenses Mr. Buck has already listed in his materials; and
• All financial statements, income tax returns, and Notices of Assessment that have been prepared for the corporation.

[37] If, in order to prepare the above, Mr. Buck requires any corporate documents from Mr. Del Re, he shall request these documents from counsel for Mr. Del Re. Mr. Del Re shall fully cooperate and provide the requested documents.

[38] Mr. Del Re is entitled to file a responding affidavit. Should he choose to do so, this affidavit shall be served and filed within 30 days of his receipt of Mr. Buck’s affidavit.

[30] A mortgage in the amount of $175,000 in favour of Prosperity One Credit Union Limited was arranged by Mr. Buck and was registered on February 16, 2011. There were previous mortgages. I accept the Applicant’s evidence that he had no knowledge of any mortgage, including no knowledge of the 2011 mortgage. There is no document showing that he had any knowledge of the mortgage. There is no document that he signed related to the mortgage. There is no bank statement showing that the mortgage proceeds were paid to an account of the Corporation. Of significance is that the mortgage was registered on a date after the Applicant had commenced this application for a winding-up of the Corporation.

[31] On May 25, 2015, the date of closing of the court ordered sale of the Property, the amount of $165,571.71 was required to pay out the Tandia Mortgage, the lender which replaced Prosperity One.

[32] Mr. Buck claimed that he used the mortgage proceeds to improve the property. As part of my endorsement of July 7, 2017, and as set out above, I provided Mr. Buck with an opportunity to serve and file additional material in this regard.

[33] Mr. Buck served and filed an Affidavit of October 9 or 10, 2017. The Affidavit did not contain copies of any mortgage applications. He did not provide any financial statements, income tax returns or Notices of Assessment for the Corporation. Mr. Buck did provide a computer printout with a running balance of the mortgage loan from Prosperity Credit Union, showing advances made, but it did not show where the advances were deposited or for what purpose. The printout refers to payments being made on the mortgage from a specific account, but no details of that account were provided.

[34] In his Affidavit, Mr. Buck made a statement that funds from the mortgage were used toward the upkeep and maintenance of the farm, and for capital repairs and replacements. He provided no documentation to substantiate this. He did attach some receipts to his October 9 or 10, 2017 Affidavit. They consisted of an uncollated collection of miscellaneous receipts that did not appear to be connected to the only listing of expenses that Mr. Buck made, which was attached to his June 23, 2016 Affidavit. There is no explanation for the cause or purpose of the receipt/invoiced expenses or any explanation as to how the expenses benefited the Property or any business conducted on the Property.

[35] The Applicant summarized the receipts and invoices attached to Mr. Buck’s October 9 or 10, 2017 Affidavit at paragraph 15 of his November 2, 2017 Affidavit. Two were incurred before the purchase of the Property by the Corporation and many were incurred after the winding-up order made on April 5, 2012. None of the expenses were incurred in the name of the Corporation. None of the expenses were made with any authorization of the Corporation. There was no proof that any of the expenses were paid from mortgage proceeds. There were no corresponding bank records.

[36] There was no information provided by Mr. Buck to indicate that the proceeds of the mortgage were deposited to a bank account to the credit of the Corporation, or directed to expenses for the Corporation. This information would only be available to Mr. Buck as he arranged the mortgage.

[37] The Applicant has given evidence that he received no part of the mortgage proceeds. This is uncontroverted by any document.

[38] Mr. Klinck prepared an Affidavit of August 10, 2023 attaching as Exhibit A approximately 1000 pages of invoices and documents he says he relied on in preparing his evaluation. The Affidavit does not address the veracity of the documents. It does not say where the documents came from or whether they were copies of originals. It does not say that the invoices reflect payments made from the mortgage proceeds or to the benefit of the Corporation or the Property. Some of the payments were made after the date of the winding-up order.

[39] I have considered all of the material filed by Mr. Buck and by the Respondent Estate. I find that Mr. Buck is solely responsible for the mortgage payments as he has not established that any of the proceeds were used for Corporate or Property expenses. Further, I accept the Applicant’s evidence that in lieu of rent Mr. Buck was to pay the property taxes, utilities and insurance. As set out in my endorsement of July 7, 2017, the Applicant did not pursue his claim for occupation rent because he was content that it be set off against expenses Mr. Buck paid for the Property, primarily the property taxes. Also, there is no indication that mortgage proceeds were used to pay these expenses. There is no evidence that Mr. Buck even asked the Applicant for a contribution to these expenses.

[40] The mortgage was not approved by both directors of the Corporation and there was no corporate resolution authorizing the mortgage.

[41] I, therefore conclude, based on all of the above, that the mortgage paid out on closing in the amount of $165, 571.71 should be reflected as paid solely on behalf of Mr. Buck in the calculation of the distribution of monies paid into court.

Issue 3: Costs

[42] Miller J. ordered on December 9, 2014 that the Applicant receive “costs of the entire application on a full indemnity basis as fixed by the court”, to be paid out of the portion of the proceeds of sale determined to be owing to the Respondent, Philip Buck.

[43] Since the payment of the sale proceeds into court in July of 2015, $7000 in costs owing to the Applicant by Mr. Buck was paid out of the funds held in court. This was further to the order of Justice Emery dated July 5, 2016. This $7000 in credited to Mr. Buck/ the Respondent Estate in the distribution of monies paid into court, as having been paid by Mr. Buck/ the Respondent Estate.

[44] In accordance with Miller J’s order, I am to determine costs on a full-indemnity basis. The Applicant has been wholly successful.

[45] In reviewing the Bills of Costs filed by the Applicant, I have considered the factors set out in Rule 57.01(1) of the Rules of Civil Procedure. This matter was complex. It was started in 2010 and is just now in the final stages of completion. There have been at least 36 court attendances. Mr. Buck and now the Respondent Estate have opposed every significant step in this case.

[46] The matter is important to the Applicant. The net proceeds from the sale of the Property has been paid into court since 2015. In the final analysis, my task is to fix costs that are reasonable in the circumstances: see Boucher v. Public Accountants Council of Ontario (2004), 71 O.R. (3d) 291 (CA).

[47] First, I have reviewed the Costs Outline of John Findlay dated April 19, 2017. Mr. Findlay represented the Applicant from approximately June of 2011 to approximately April of 2017. The steps he took are outlined in a detailed attachment to the Costs Outline. The Costs Outline was prepared on a partial indemnity basis, notwithstanding Miller J’s order providing for full indemnity costs. The hours expended are appropriate given the complexity of the case. The hourly rate is appropriate and reasonable given Mr. Findlay’s level of experience. The hours expended on motions where costs were already dealt with regarding Mr. Findlay’s services have been deducted. I find that Mr. Buck is responsible for costs payable to the Applicant fixed in the amount of $80,920 for fees and $3375.77 for disbursements, for a total of $84, 295,77. This is reflected in the distribution of monies.

[48] Second, I turn to the Costs Outline prepared by Ms. McCarthy who has represented the Applicant from July 7, 2017 to present. She has presented 4 Bills of Costs dated January 2, 2018, April 19, 2022, July 10, 2023 and October 3, 2023.

[49] The January 2, 2018 Bill of Costs was prepared on a partial indemnity basis, notwithstanding Miller J’s order. The hours expended are reasonable. Details were provided. The rate is reasonable. Fees of $14,023.30 are allowed and disbursements of $285.56 for a total of $14,308.86.

[50] The April 19, 2022 Bill of Costs was also prepared on a partial indemnity basis, notwithstanding Miller J’s order. The hours expended are again reasonable. Details were provided. The hourly rate is reasonable. A total of $14, 238 is allowed. Mr. Buck and the Respondent Estate shall pay this amount to the Applicant.

[51] The July 10, 2023 Bill of Costs is the first prepared on a full-indemnity basis. The hours expended and rate charged are both reasonable. A total of $6,780 is allowed.

[52] Ms. McCarthy estimated her fees from July 11, 2023 onward at $12,250. I allow this amount. She has provided a Bill of Costs dated October 3, 2023 prepared on a full-indemnity basis and the $12,250 was a reasonable estimate. I have allowed the $12,250.

[53] The total owing to the Applicant by Mr. Buck/ the Respondent Estate regarding Ms. McCarthy’s services for costs is $47,576.86 and this is reflected in the distribution of monies paid into Court.

[54] The Applicant had a different counsel before Mr. Findlay, Ms. Nardi-Bell. Her account has been provided. It is reasonable and appropriate. I allow this account in the amount of $22,183.08. Mr. Buck/ the Respondent Estate shall pay the amount to the Applicant and this is reflected in the distribution of monies paid into court.

[55] I note that Mr. Findlay’s Costs Outline and the first two of Ms. McCarthy’s Bills of Costs were prepared on a partial-indemnity basis. This is to the benefit of Mr. Buck and the Respondent Estate, given Miller J’s order of December 9, 2014.

[56] In considering the reasonable expectations of Mr. Buck and the Respondent Estate, I have reviewed the Costs Outline of the Respondent prepared on a partial-indemnity scale. The Respondent Estate has had legal counsel only since January of 2023. The Bill of Costs includes services of Ms. Draper, a paralegal, who appears to have become involved in 2014. Although 4 other lawyers are listed, details have only been provided for Mr. Bastien. The total set out is $110, 749.23. This supports that the costs I have awarded the Applicant should have been within the reasonable expectation of Mr. Buck and the Respondent Estate.

Issue 4: The final numbers for Distribution

[57] As of August 31, 2023, there is $404, 963.36 paid into court remaining of the net proceeds of sale.

[58] The Applicant has prepared a distribution chart for the Court’s consideration. A copy of this chart entitled Distribution of Monies In Court (Mortgage being deducted from Philip Buck’s share) as at July 12, 2023 is attached as Schedule ‘A’ to this Endorsement. I find that Schedule ‘A’ accurately reflects how the proceeds should be distributed and reflects the decisions I have made in this endorsement and prior endorsements and the endorsements of other judges.

[59] The Chart shows $416,487.25 owing to the Applicant. This assumes that the sum of $89,692 has been paid to CRA plus interest of $15,321.72. No money has yet been paid to CRA. CRA will have to be paid out in full before further funds can be distributed. There will not be sufficient funds after that to pay the Applicant the $416,487.24. This is why Mr. Buck is shown in a negative position. The remaining money paid into court is not enough to pay both CRA and the Applicant what he is owed as a shareholder. This Reference is about dividing the net proceeds. There can be no order for the payment of money by Mr. Buck or the Respondent Estate for any additional monies the Applicant is owed. The Applicant is simply entitled to the remaining money after payment of CRA

[60] The Respondent Estate requested that $2,467.50 be paid to a doctor who did a capacity assessment of Mr. Buck. Part of the costs were paid from monies paid into court to facilitate the litigation moving forward. There is no basis for the Corporation to pay anything further towards this account.

Part 4: Conclusion and Orders

[61] The decisions from this endorsement that are reflected in Schedule ‘A’ are as follows:

1. I accept the CRA filings as prepared by Mr. Mouscos and as set out in the Notices of Assessment from CRA. The interest on the amount outstanding to CRA from February 2019 onward shall be the sole responsibility of Mr. Buck/ the Respondent Estate and shall be on his side of Schedule ‘A’. All of Mr. Mouscos’ accounts, except the first, shall be attributed to Mr. Buck/ the Respondent Estate and on his side of Schedule ‘A’.
2. The mortgage from Tandia in the amount of $165,571.41 paid out on the closing of the sale of the Property shall be attributed solely to Mr. Buck/ the Respondent Estate and be on his side of Schedule ‘A’.
3. The costs awards of $84,295.77 regarding Mr. Findlay, $47,576.86 regarding Ms. McCarthy, and $22,183.08 regarding Ms. Nardi-Bell shall be payable by Mr. Buck/ the Respondent Estate to the Applicant and therefore be attributed to Mr. Buck/ the Respondent Estate on Schedule ‘A’.

[62] I therefore order that the current and full amount owing by the Corporation to CRA in the approximate amount of $134,820.53 plus additional interest, based on the Notices of Assessment from CRA, be paid from the monies paid into court.

[63] The Applicant shall then serve and file to my attention, copying the opposing party, proof that CRA has been paid in full. I require this proof before authorizing the remainder of the monies paid into Court to be released to the Applicant. Mr. Buck/ the Respondent Estate shall receive none of the money paid into Court.

Coats J. Released: January 18, 2024

‘Schedule A’