Court File and Parties
Court File No.: CV-20-644241-00CL Date: 2024-11-14 Superior Court of Justice - Ontario
Re: George Vastis, Plaintiff (Defendant to the Counterclaim) And: Helen Vastis, Plaintiff And: Christos Kommatas, Defendant (Plaintiff to the Counterclaim) And: Calldron Gas Bars Ltd. And 1195705 Ontario Inc., carrying on business as Old Pro Driving Range, Defendants (Defendants to the Counterclaim)
Before: Cavanagh J.
Counsel: Kevin Fisher and Eli Bordman, for the Plaintiffs Jim Wortzman and Catherine Allen, for the Defendant Christos Kommatas Jason Squire and Spencer Jones, for the Liquidator, The Fuller Landau Group Inc.
Heard: August 26, 2024
Endorsement
Introduction
[1] The Fuller Landau Group Inc., in its capacity as court-appointed liquidator and receiver (in these capacities, the "Liquidator") of the undertaking, property and assets of Calldron Gas Bars Ltd. and 1195705 Ontario Inc. o/a Old Pro Driving Range (the "Companies") brings this motion for this Court's advice and direction with respect to (i) "the Res Judicata Issue" as defined in its Notice of Motion; and (ii) the payment of $250,000 to George Vastis pursuant to the Judgment of Justice Dietrich dated October 11, 2022.
[2] This motion involves Chris Kommatas and George Vastis who are equal shareholders of the Companies. They were engaged in contentious litigation in relation to their shareholdings in the Companies which went to trial before Dietrich J. who granted judgment on October 11, 2022 (the “Judgment”) for reasons released that day. The issue on this motion is the Judgment gives rise to the application of the doctrine of issue estoppel to preclude claims that Mr. Kommatas wishes to make.
[3] For the reasons that follow, I make the following order:
(a) I declare Chris Kommatas is precluded by the doctrine of issue estoppel from making a claim for an order that the Liquidator conduct a claims process as part of the Liquidation.
(b) I authorize and direct the Liquidator to make the payment of $250,000 to Mr. Vastis as ordered by paragraph 2 of the judgment of Justice Dietrich.
Background
[4] Mr. Kommatas and Mr. Vastis are 50% shareholders of the Companies. They are also the officers and directors of the Companies.
[5] Mr. Kommatas and Mr. Vastis were engaged in contentious litigation in relation to their shareholdings of the Companies. Mr. Vastis commenced an application on July 20, 2020 seeking relief under s. 248 of the Business Corporations Act. Mr. Kommatas commenced an application on September 11, 2011 also seeking such relief. By Order dated October 19, 2021, Gilmore J. ordered that the applications be converted into a single proceeding with a trial commencing February 28, 2022. The trial was heard before Dietrich J. over 14 days in February, March, April, and May, 2022.
[6] In the Order of Gilmore J. dated October 19, 2021 converting the applications into a single proceeding to proceed as an action, Mr. Vastis and his wife Helen Vastis were plaintiffs and Mr. Vastis was a defendant by counterclaim. Mr. Kommatas was a defendant and plaintiff by counterclaim. The Companies were defendants and defendants by counterclaim. Gilmore J. ordered that the Notices of Application shall constitute the pleadings in the action with each party being deemed to have defended the allegations raised against them by the other party.
[7] In his Notice of Application, Mr. Kommatas claimed various relief including (i) an order for the winding-up of the Companies, (ii) an order requiring Mr. Vastis to repay to the Corporations all expenses paid by them for or on behalf of Mr. Vastis and related parties, (iii) if necessary, an Order appointing a Receiver to manage and operate the Corporations and to oversee the sale of the Corporations' assets, (iv) an order that Mr. Vastis personally fund the costs of a forensic audit of the Corporations to ascertain the amounts of money Mr. Vastis and related parties have received from the Corporations in excess of what has been paid to Mr. Kommatas, (v) a tracing of all monies received from the Corporations by Mr. Vastis and related parties and judgment in accordance therewith, and (vi) an order for the trial of an issue to determine the damages that Mr. Vastis ought to pay to Mr. Kommatas or the Corporations.
[8] By the Judgment dated October 11, 2022 and for reasons released that day, Justice Dietrich ordered and adjudged the winding-up and liquidation of the Companies pursuant to section 207(1)(b)(iv) of the Ontario Business Corporations Act. In the Judgment, Justice Dietrich also ordered and adjudged that a further order shall issue for the appointment of a receiver to facilitate the winding-up and liquidation of the Companies' assets, to conduct the sale process, and the distribution of the proceeds under the supervision of the court.
[9] By Order dated December 20, 2022 (the "Winding-Up Order"), Dietrich J. appointed The Fuller Landau Group Inc. as Receiver, without security, of all assets, undertakings, and properties of the Companies for the purposes of conducting a wind-up, sales process, and the distribution of the proceeds under the supervision of this Court.
[10] The parties were unable to resolve costs. Dietrich J. invited written submissions and her endorsement was released on March 10, 2023.
[11] By letter dated April 25, 2024, counsel for Mr. Kommatas wrote to the Liquidator regarding the claims process that, the letter states, will need to take place prior to the final wind-up of the Corporations. Counsel for Mr. Kommatas appended to their letter what is stated to be a summary of some of the unequal payments made by the Corporations on behalf of Mr. Vastis and his family.
[12] The Liquidator reports that it raised the April 25, 2024 letter with counsel for Mr. Vastis who advised the Receiver that their client's position is that Mr. Kommatas is precluded from making the claims in the April 25, 2024 letter because they are res judicata as a result of the shareholder litigation that preceded the appointment of the Liquidator.
[13] The Liquidator reports that on May 10, 2024, it wrote to counsel for the shareholders advising of each party's position on the claims asserted by Mr. Kommatas in his counsel's April 25, 2024 letter and suggesting that the "Res Judicata Issue" is likely a threshold issue.
[14] The Receiver reports that it is holding $34,623,322.40 of proceeds of sale and, after estimated future disbursements, including $250,000 in payment of the judgment amount to Mr. Vastis and $1,000,000 held as a "hold back for future equalizations", and other disbursements including corporate taxes and professional fees, the estimated amount available for future shareholder distributions is $14,060,322.40.
[15] In the Liquidator's Notice of Motion dated July 15, 2024, the Liquidator seeks advice and direction from this Court with respect to the matters identified in paragraph 1 of this Endorsement.
Analysis
[16] I first address the "Res Judicata Issue" that is the subject of the Liquidator's motion for advice and direction.
[17] Issue estoppel is a branch of res judicata which precludes the re-litigation of issues previously decided in court.
[18] In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, Binnie J., writing for the Court, cited the following passage from McIntosh v. Parent, at p. 422, as a more particular definition of issue estoppel:
When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies. Any right, question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as an answer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause of action. The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as the judgment remains. [Emphasis added [by Binnie J.]]
[19] There are three preconditions which must be met for issue estoppel to be successfully invoked:
(a) The issue must be the same as the one decided in the prior decision;
(b) The prior judicial decision must have been final; and
(c) The parties to both proceedings must be the same, or their privies. See Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, at para. 23; Danyluk, at para. 25.
[20] Mr. Kommatas submits that the first precondition is not satisfied. He accepts that the second and third preconditions are satisfied.
[21] In its Notice of Motion, the Liquidator seeks this Court's advice and directions with respect to "(a) the Res Judicata issue (as defined below); and (b) the payment of $250,000 to George Vastis pursuant to Justice Dietrich's Judgment ('Judgment') dated October 11, 2022". The Liquidator states in the grounds for the motion in its Notice of Motion, under the heading "The Res Judicata Issue":
The Principals [Mr. Kommatas and Mr. Vastis] have raised an issue with respect to there being an unequal distribution from the sale of the Companies' real property. The Liquidator is currently holding a $1,000,000 holdback to specifically address this issue.
Following the sale of the Eglinton Ave. Property and the Acton Property, counsel for Chris stated that his position is that between 2019 and the Liquidator's appointment, George received more proceeds from the Companies and thus Chris ought to receive a larger portion of the remaining proceeds held by the Liquidator.
George's position is that the issues raised by Chris are "res judicata" as a result of the shareholder litigation that preceded the appointment of the Liquidator (the "Res Judicata Issue").
[22] Mr. Kommatas submits that the "Res Judicata Issue" is "whether there has been an unequal distribution of Companies' proceeds as a result of George having received more proceeds from the Companies prior to the Liquidator's [appointment] and, accordingly, whether Chris ought to receive a larger portion of the remaining proceeds held by the Liquidator". He describes this issue as the "Unequal Distribution" issue.
[23] Mr. Kommatas relies on paragraph 18 of the trial reasons of Justice Dietrich in which she writes that "[a] receiver is required not only to facilitate the sales process, but also to manage the distribution of the net proceeds of sale, which will include addressing historical accounting irregularities, income tax reporting, unpaid dividends, and shareholder loan accounts." He relies on paragraph 2 of the Winding Up Order which provides for the appointment of the Liquidator as receiver of the assets of the Companies "for the purposes of conducting a wind-up, sales process, and the distribution of the proceeds under the supervision of this Court." Mr. Kommatas submits that the Liquidator was expressly empowered to collect monies owing to the Companies including those owed by Mr. Vastis as a result of improperly receiving excess funds.
[24] Mr. Kommatas submits that the issue before the court on this motion is similar to the issue that was before the court in Basegmez et al. v. Akman et al., 2022 ONSC 4127. In Akman, there was a dispute between shareholders of a company that led to litigation resulting in a finding of oppression against one of the shareholders and an order for the liquidation of the land re-development project the company was undertaking. A trial was held as the process by which to resolve disputes over the distribution of proceeds of liquidation. The applicants submitted that a number of issues raised at the trial were already determined in their favour by the decision of the judge who decided the oppression application, which was upheld by the Divisional Court. The trial judge, at para. 25, found that the issues which the applicants argued were already decided were not distinctly put in issue before the application judge or the Divisional Court and were not directly determined in those proceedings. The trial judge, at para. 26, found that the proceeding before the judge who decided the issue of oppression did not address the arguments raised by the respondent at the trial, and that he should not be deprived of the ability to raise those arguments.
[25] Mr. Kommatas submits that, like in Akman, Dietrich J. made no findings about any of the unequal claims asserted in the April 25, 2024 letter from his counsel, although she made findings of oppression based on, among other things, evidence which also relates to his claims based on unequal payments from the Companies.
[26] Mr. Kommatas submits that the issue, as he identifies it, was not decided by Dietrich J. because she did not decide whether Mr. Vastis received more proceeds from the Companies than Mr. Kommatas or whether, as a result, Mr. Kommatas should receive a larger portion of the remaining proceeds held by the Liquidator. Mr. Kommatas submits that, therefore, the first precondition to the application of the doctrine of issue estoppel is not satisfied.
[27] In the Seventh Report of the Liquidator dated July 15, 2024, which was filed to assist the Court with respect to determining the issues on this motion, the Liquidator refers to the April 25, 2024 letter from Mr. Kommatas' counsel as memorializing his position on the argument that resulted in this motion.
[28] In the April 25, 2024 letter, counsel for Mr. Kommatas writes "regarding the claims process which will need to take place prior to the final wind-up of the Corporation". The letter refers to claims which Mr. Kommatas seeks to assert "through a formal claims process as a part of the liquidation". The letter appends as a schedule "a summary of some of the unequal payments made by the Corporations on behalf of Mr. Vastis and his family". The letter asks that the Liquidator conduct a full investigation so that there can be proper equalization. The letter asks the Liquidator to advise as to the claims process that the Liquidator recommends.
[29] I disagree with Mr. Kommatas that, with respect to the doctrine of issue estoppel, the issue is the one he identifies.
[30] The April 25, 2024 letter is clear that Mr. Kommatas seeks a claims process as part of the liquidation and, through this claims process, he seeks an unequal distribution of the proceeds of sale of the Companies' assets. The question on this motion is whether Mr. Kommatas is precluded by the doctrine of issue estoppel from making a claim to an order directing a claims process as part of the liquidation. This claims process would be required before Mr. Kommatas could seek an unequal distribution of the proceeds of sale of the Companies' assets.
[31] At trial, Mr. Kommatas made written closing submissions concerning the appropriate remedy. In his written submissions, at paragraphs 70, 91, and 144, Mr. Kommatas submitted:
Chris wants a Receiver Appointed. The Receiver will investigate matters and report to the Court. The mandate of the Receiver will be to liquidate the assets of the Corporations and to wind them up. The Receiver can oversee a claims process regarding the equalization of the shareholder loan accounts and any other claims. Chris seeks this because this is the best and only way to ensure that fair market value is obtained for the corporate assets. …
It is for this reason that the winding-up of the Corporations, with a claims process to try to normalize the financial statements and the shareholder accounts, is just and equitable. There can be no confidence in the conduct and management of the Corporations affairs - the management of which was solely undertaken by George (and allegedly by Helen).
Based on the evidence at the case law, it is submitted that there is only one logical conclusion to this matter: the sale of the Properties on the open market, with any necessary equalization to be determined by the receiver. Quite simply George cannot be permitted to continue to operate the Corporations any longer and Chris should not be forced to sell his shares to George at a discounted price. Chris, therefore, asks for an order appointing a Receiver to report to the Court on a sales process and a claims process.
[32] This shows that, at trial, Mr. Kommatas claimed an order for the appointment of a receiver who would report to the Court on a claims process.
[33] Although Dietrich J. granted Mr. Kommatas' claim for a receivership/liquidation order, she did not grant his claim to an order directing a claims process as part of the liquidation. This is clear from the Judgment where no claims process is ordered, despite a clear request for such an order in Mr. Kommatas' closing submissions.
[34] In her costs endorsement, at para. 6, Dietrich J. described the claims made in the litigation and she wrote that "Mr. Kommatas sought an order that the receiver appointed conduct a claims process as part of the receivership." In her costs endorsement, at para. 29, Dietrich J. addressed Mr. Kommatas' offer to settle which included an order that the receiver conduct a claims process. Justice Dietrich addressed the submissions by Mr. Vastis that a claims process was not included in the judgment and the offer to settle does not correspond with the judgment. Justice Dietrich held:
The judgment does not order a claims process and does not exempt Mr. Kommatas from responsibility or liability for any unreported taxes or unpaid tax liability (including interest and penalties) owing as a consequence of the failure of the directors and officers to report all income earned in the Companies. The issue of the claims process was an important issue for Mr. Kommatas, on which he did not succeed. I accept these arguments.
[35] In her costs endorsement, Dietrich J. concluded, at para. 38:
In this case in which success was divided, I find that Mr. Kommatas has not shown that he was substantially more successful in his claims. Mr. Vastis was also successful in some of his claims and in defending against Mr. Kommatas' claim for a claims process as part of the receivership.
[36] I am satisfied that the question of whether an order should be made that the receiver or liquidator conduct a claims process was distinctly put in issue before Dietrich J. at the trial and that she decided this issue by declining to make an order for the receiver or liquidator to conduct a claims process. Although the costs endorsement does not, itself, give rise to application of the doctrine of issue estoppel, in her costs endorsement Dietrich J. confirmed that she decided this issue in her trial decision. This is the same issue that Mr. Kommatas seeks to relitigate in the liquidation. The Akman decision is distinguishable because in Akman, the trial judge held that the issues which the applicant argued gave rise to the application of the doctrine of issue estoppel were not distinctly put into issue and decided in the prior proceeding.
[37] The preconditions for the application of the doctrine of issue estoppel are satisfied.
[38] In Danyluk, at para. 62, Binnie J. held that the court retains discretion to refuse to apply the doctrine of issue estoppel, although he accepted that such discretion must be very limited in application. Binnie J. held, at para. 67, that the objective is to ensure that the operation of issue estoppel promotes the orderly administration of justice but not at the cost of real injustice in the particular case.
[39] In Fresco v. Canadian Imperial Bank of Commerce, 2022 ONCA 115, the Court of Appeal cited Schweneke v. Ontario, where the court commented on the judicial discretion to refuse to apply issue estoppel and stated: "In exercising the discretion the court must ask - is there something in the circumstances of this case such that the usual operation of the doctrine of issue estoppel would work an injustice?"
[40] In Fresco, the Court of Appeal also cited Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141. In Dosen, the Court of Appeal, at paras. 36-37, addressed the exercise of discretion to decline to apply res judicata where its application would work an injustice:
A court may decline to apply res judicata or abuse of process where the application would work an injustice. This might occur where the first proceeding denied a party a full and fair hearing, even though that party exercised reasonable diligence. Additionally, even if the first proceeding was conducted with scrupulous fairness, it might still be unfair to use the results of the first proceeding to preclude re-litigation of an issue.
It may be appropriate to exercise discretion to decline to apply the abuse of process doctrine when (1) the first proceeding is tainted by fraud or dishonesty, (2) fresh, new evidence, previously unavailable, conclusively impeaches the original results, or (3) fairness dictates that the original result should not be binding in the new context: Catalyst, at para. 68. The list of relevant factors to this discretion is not closed. The discretionary factors for whether to decline to apply the abuse of process doctrine may also apply in the context of deciding whether to apply the doctrine of res judicata.
[41] Mr. Kommatas submits that even if I were to find that Dietrich J. decided the "Res Judicata Issue", it would be in the interests of justice to invoke the Court's inherent jurisdiction to exercise its discretion not to apply the doctrine of issue estoppel. He submits that the trial judge did not analyze the claims set out in the April 25, 2024 letter from his counsel and that any overlap between evidence relating to such claims and the evidence at trial related to the issue of oppression. Mr. Kommatas submits that for the Liquidator to analyze and review the claims through a claims process would not create any overlap or result in any waste of judicial resources. Mr. Kommatas submits that because the trial judge did not make specific findings which were determinative of the claims made in the April 25, 2024 letter, there is no risk of inconsistent findings.
[42] At the trial, Mr. Kommatas sought a claims process order as part of the order he sought for the appointment of a receiver. The evidence upon which he relied for this claim was tendered at the trial. The trial judge heard this evidence over a 14-day trial, and was well positioned to decide whether further proceedings were justified and should be ordered through a claims process supervised by the receiver. The trial judge was alert to this claim which she characterized in her costs endorsement as raising an important issue for Mr. Kommatas. The trial judge decided this question and declined to order the requested claims process. There is nothing in the circumstances of this case that persuades me that the usual operation of the doctrine of issue estoppel would work an injustice.
[43] I conclude that Mr. Kommatas is precluded by the doctrine of issue estoppel from making a claim for an order that the Liquidator conduct a claims process as part of the liquidation.
[44] With respect to the Liquidator's motion for advice and direction in respect of the payment of $250,000 to Mr. Vastis, Mr. Kommatas does not dispute that this amount must be paid to Mr. Vastis and he agrees that it may be paid now.
Disposition
[45] For these reasons, I give the following directions on the Liquidator's motion for advice and direction:
(a) I declare Chris Kommatas is precluded by the doctrine of issue estoppel from making a claim for an order that the Liquidator conduct a claims process as part of the Liquidation.
(b) I authorize and direct the Liquidator to make the payment of $250,000 to Mr. Vastis as ordered by paragraph 2 of the judgment of Justice Dietrich.
[46] The Liquidator also moves for an order (i) approving the Seventh Report of the Liquidator dated July 15, 2024, and (ii) approving the Liquidator's interim statement of receipts and disbursements. There is no opposition. I am satisfied that this relief should be granted. I so order.
[47] If the parties are unable to resolve costs, they may make written submissions in accordance with a timetable to be agreed upon by counsel and approved by me (with reasonable page limits).
Cavanagh J. Date: November 14, 2024