Court File and Parties

Court File No.: CV-22-00285-00 Date: 2024-11-25 Ontario Superior Court of Justice

Between: Tyler Hogan and TGH Holdings Ltd., Plaintiffs And: Brent Massaro and BJSM Holdings Ltd., Defendants

Counsel: Daniel Rosenbluth and Claire McNevin, for the Plaintiffs Derek Zulianello, for the Defendants

Heard: Tuesday August 20, 2024, Thunder Bay, Ontario, via Zoom

The Honourable Mr. Justice S. J. Wojciechowski

Reasons on Motion for Default Judgment

Introduction

[1] The plaintiffs, Tyler Hogan and TGH Holdings Ltd. (“Hogan” and “TGH”), bring this motion seeking judgment which includes the following:

(a) A declaration pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16, that the conduct of the defendants, Brent Massaro and BJSM Holdings Ltd. (“Massaro” and “BJSM”), was oppressive to Hogan and TGH;

(b) A declaration that Massaro and BJSM breached their fiduciary duties owed to Hogan and TGH;

(c) A declaration that Massaro and BJSM are liable to Hogan and TGH for the relief sought in this motion; and

(d) An Order requiring Massaro and BJSM to purchase Hogan’s and TGH’s interests in Thunder Bay Broom and Chemical Ltd.

[2] Thunder Bay Broom and Chemical Ltd. (the “Company”) was founded in or around 1980 and is in the business of distributing sanitation supplies, personal protective equipment, commercial cleaning equipment and appliances, as well as providing repair and maintenance services for the equipment sold.

[3] Hogan and Massaro purchased an ownership interest in the Company in 2007. As of 2014, through their respective holding corporations – TGH and BJSM – Hogan and Massaro each owned an equal 50% share in the Company.

[4] By November 2020, Hogan became concerned that Massaro was engaging in financial misconduct relating to the Company. Hogan’s evidence, filed in support of this motion, indicates that Massaro and other Company employees were working together to run product through the Company without proper documentation and accounting. There was also concern at that time that Massaro was competing with the Company through other entities owned by Massaro and/or other Company employees who were working with Massaro.

[5] Hogan attempted to discuss the misconduct he identified with Massaro, including the diversion of corporate opportunities, theft of inventory, selling product in non-arms length transactions at reduced margins, and purchasing product from companies owned or related to Massaro at increased prices. Massaro refused to participate in these discussions, and Hogan’s access to financial records, including year end financials and financial statements, became limited. Without sufficient transparency that Massaro’s dealings involving the Company were not contrary to the financial interests of the Company, Hogan and TGH issued a statement of claim against Massaro and BJSM seeking a proper accounting and for Massaro to purchase Hogan’s interest in the Company.

[6] The background to this litigation is set out with some detail in the Endorsement of Fregeau J. dated November 7, 2023. Without repeating the entire history, some of the relevant events are as follows:

• The statement of claim was issued on July 8, 2022;
• A statement of defence was delivered on September 30, 2022;
• The plaintiffs served and filed their reply on October 21, 2022;
• The plaintiffs made efforts to develop a discovery plan commencing on November 8, 2022, which the defendants effectively ignored until March 9, 2023;
• While the discovery plan provided a timeline for the delivery of the parties’ affidavits of documents and productions, the defendants again ignored the agreed upon timelines on more than one occasion;
• Ultimately, the plaintiffs brought a motion to strike the statement of defence based the failure of the defendants to meaningfully participate litigation.
• Based upon a well-documented pattern of delay, and in the face of peremptory orders, and after noting the defendants’ conduct inexcusable, Fregeau J. struck the defendants’ defence on November 7, 2023; and
• On January 5, 2024 a requisition was filed noting the defendants in default.

[7] Without any participation by the defendants in this action, the plaintiffs maintain that they have been unable to obtain detailed information and background to the Massaro’s alleged financial misconduct. The effect of Massaro’s conduct, and his failure to provide any disclosure of evidence or documents in response to Hogan’s claim, is described by Hogan as follows:

… as a result of Massaro’s refusal to make production, I remain “in the dark” regarding the extent of the financial misconduct he has engaged in, including with respect to the possibility that he is engaging in competition with the Company through external entities whose records are not available to the Company. This also includes documents he may hold personally respecting the alleged misconduct, such as documents in BJSM or 510’s possession regarding the schemes outlined below, and correspondence Massaro may have had with Semple, clients of the Company, and others regarding the schemes outlined below.

[8] “Semple” is Titus Semple, a former employee of the Company allegedly working with Massaro. “510” is 5106927 Ontario Ltd., a numbered company owned by Massaro through which he conducts business.

[9] Hogan’s evidence was accepted by Fregeau J.. In his reasons supporting Hogan’s motion to strike, Fregeau J. determined the following:

1. The defendants’ default cannot be described as inadvertent. The only reasonable inference on the facts is that it is deliberate;
2. The defendants’ failure is unequivocal. Nothing has been produced;
3. No explanation has been provided for the defendants’ default nor has the court been provided with a credible commitment to cure the default quickly. Incredibly, the defendants have not even filed materials on this motion to strike;
4. The defendants remain in complete default of the production obligations;
5. The default is material in that a party’s production obligations are fundamental to timely and orderly civil litigation;
6. The defendants remain in complete default of their production obligations as of the hearing of this motion to strike; and
7. The defendants’ default completely precludes the ability of the court to do justice in this case.

[10] Therefore, it is clear that Massaro and BJSM have deliberately ignored Hogan and TGH’s claim – and intentionally failed to respond to the previous orders requiring production of documents and participation in an examination for discovery – in an attempt to thwart Hogan and TGH’s efforts to determine the extent to which Massaro and BJSM impacted the Company’s economic interests.

[11] Counsel for the defendants, Derek Zulianello, appeared at this motion hearing. Mr. Zulianello sought leave to address the motion over the objection of the plaintiffs, and I declined to hear from him.

[12] The defendants have been noted in default and notice of this motion was provided to Mr. Zulianello simply as a courtesy. Effectively, the defendants no longer have standing to participate in this proceeding due to the operation of rr. 19.02(1)(b) and 19.02(3) the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). In addition, based on the decision of Fregeau J. in granting default judgment, it is plain and obvious that the defendants intentionally squandered their opportunity to participate in this litigation. Without a reason to question the findings of Fregeau J., I decided that Mr. Zulianello’s continued participation in this motion was limited to being simply an observer.

Default Judgment

[13] Rule 19 of the Rules deals with default proceedings.

[14] The relevant provisions of the Rules, as relied upon by Hogan and TGH, are as follows:

19.02 (1) A defendant who has been noted in default, (a) is deemed to admit the truth of all allegations of fact made in the statement of claim.

19.06 A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.

[15] The plaintiffs rely on these two provisions for the principle that obtaining a default judgement requires that all “deemed admissions of fact, together with any facts adduced at the hearing must entitle the plaintiff to judgement on the claim as a matter of law”. As stated in Churchill v. Aero Auction Sales Inc., 2019 ONSC 4766, 147 O.R. (3d) 44, at para. 18:

[18] Rule 19.06 provides that a plaintiff is not entitled to judgment on a motion for judgment merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment. In other words, the deemed admissions of fact, together with any facts adduced at the hearing, must entitle the plaintiff to judgment on the claim as a matter of law. To the extent that the plaintiff claims unliquidated damages, the court must be persuaded, based on the deemed admissions and other evidence adduced, that the quantum of damages claimed is fair and appropriate in the circumstances. [Emphasis added].

[16] The plaintiffs also rely on Paul’s Transport Inc. v. Immediate Logistics Limited, 2022 ONCA 573, 472 D.L.R. (4th) 359, at para. 80:

[80] On a plain reading of r. 19.02(1)(a), it applies to allegations of fact made in the statement of claim, not to conclusions of law or mixed law and fact. Rule 19.02(1)(a) does not deem everything in a statement of claim admitted, only allegations of fact. Rule 19.06 provides that a plaintiff is not entitled to judgment merely because the “facts alleged in the statement of claim” are deemed to be admitted. Again, there is no reference to conclusions of law or mixed law and fact. And, significantly, under r. 19.06, judgment is not to be granted unless the facts deemed to be admitted “entitle the plaintiff to judgment”. Giving effect to the two rules harmoniously requires distinguishing between allegations of fact and conclusions of law. The court must determine whether the deemed factual admissions in the pleading and any evidence tendered by the plaintiff entitle the plaintiff to judgment. [Emphasis added].

[17] Accordingly, I am to take the facts set out within the statement of claim, consider which facts can be deemed admissions, and then review the evidence filed by Hogan to determine whether to grant judgment.

Facts and Admissions

[18] After reviewing the statement of claim and the affidavit of Tyler Hogan sworn August 8, 2024, the paragraphs within this section of my decision set out my findings of fact.

[19] Hogan and Massaro are business partners in the Company. Hogan holds his interest in the Company through TGH, and Massaro holds his interest in the Company through BJSM. Hogan and Massaro are the Company’s sole shareholders on a 50/50 basis. Each owns 50% of the Company, through TGH and BJSM, respectively.

[20] Historically, the practice of Massaro and Hogan in their dealings with the Company has been to require unanimity for significant corporate decisions.

[21] Massaro maintains another company, known as 5106927 Ontario Ltd. (“510”), through which he conducts business.

[22] Jared Fanti (“Fanti”) began working for the Company in March 2020 as an account manager. He is the sole owner of 1000197104 Ontario Ltd. (“JMF”), which operates in substantially the same business as the Company. Fanti resigned from the Company on January 19, 2024.

[23] Titus Semple (“Semple”) worked for the Company in marketing and sales commencing in May 2016. Semple Enterprises Inc. was formed on December 4, 2020, with Semple as its sole officer and director, and serves some of the same clients as the Company. Semple resigned from the Company on December 29, 2023.

[24] The Company’s office is located at 125 West Gore Street, Thunder Bay, Ontario, and provides janitorial and sanitation products to customers throughout Northwestern Ontario. In addition to its office, the Company maintains a warehouse located at 117 West Gore Street, Thunder Bay (the “Warehouse”).

[25] Massaro historically worked in the office and managed the Company’s finances. Hogan historically worked in the field, managing vendor relationships, procurement, and sales for the Company. However, starting in late 2020, Massaro began to withdraw from the Company, requiring Hogan to take on his responsibilities. As of late 2020, Massaro no longer had a consistent presence in the Company’s office.

[26] At the present time, Hogan manages the Warehouse of products and the office, and completes equipment maintenance for customers in and around Thunder Bay.

[27] Before 2020, Hogan had access to information related to the Company’s financial position. However, between 2020 and 2023 many decisions regarding the Company’s finances were withheld or hidden from Hogan by Massaro and Nanette Bonner, the Company’s former general manager.

[28] Since 2020, limited financial information relating to the Company has been shared with Hogan, and Hogan’s questions regarding the Company’s financial matters have gone unanswered. Since 2020, Massaro has stopped preparing basic financial statements for the Company and has failed to respond to Hogan’s requests for financial statements or year end processes. While some financial information and disclosure have been provided to Hogan since 2023, this does not include the full financial disclosure to which he is entitled.

[29] Massaro’s conduct effectively excluded Hogan from the Company’s governance and management, despite Hogan’s roles as director, officer, and employee.

[30] As of November 2020, Massaro’s conduct was consistent with him engaging in financial misconduct at the expense of the Company, including his reluctance to respond to requests regarding the Company’s financial dealings and his withdrawal from the Warehouse to a separate office with Semple and Fanti.

[31] At this same time, Hogan noticed that large quantities of product were coming into the Warehouse without packing slips and being shipped to end users without any Company orders or invoices attached to them.

[32] Hogan became concerned that Massaro was competing with the Company through other entities, and upon investigating further he was able to identify financial misconduct, including indications of diversion of corporate opportunities, theft of Company inventory, selling of Company product to Semple and/or his company at reduced margins, and causing the Company to purchase product such as steri-wipes and masks from Massaro’s company without proper corporate authorization.

[33] When confronted with these issues, Massaro did not deny nor respond to Hogan’s information.

[34] By the end of 2021, Massaro refused to engage in preparations of the year-end financials or provide necessary information for the Company’s accountant to prepare financial statements.

[35] In July 2022, Hogan commenced this action against Massaro. As already outlined, Massaro has more or less ignored this litigation and refused to actively respond to or participate in the litigation process.

[36] Once Nanette Bonner, the Company’s General Manager, was dismissed in June 2023, Hogan was able to get access to additional financial information evidencing Massaro’s misconduct, including instances when Massaro took money from the Company without explanation, or caused the Company to pay for products and services it never received.

[37] Instances of inventory theft and fraud committed by Massaro include the following:

a. On December 3 and 4, 2020, Massaro used Company funds totaling $428,835 to purchase 5,000 cases of Lysol disinfectant spray from Fordis, one of the Company’s suppliers. At Massaro’s direction, payments of $200,000 on December 3, 2020 and $228,835 on December 4, 2020 were sent to 510 from the Company’s bank account. No invoice from 510 was sent to the Company for these amounts. b. The Company never received the inventory from Fordis, nor any revenue associated with this inventory. The inventory was sent to 510, and funds representing the costs of this inventory was sent from the Company to 510. c. In late 2020 or early 2021, Hogan determined that approximately 250 mops were removed from the Company’s premises without authorization or payment to the Company. No documentation exists to support the sale or transfer of this inventory, and when asked, Massaro did not provide a response. The profit loss for these mops is approximately $1,652.50.

[38] Instances of improper invoicing from 510 to the Company include the following:

a. The Company purchased Level 1 Surgical Masks from BJSM in an amount of $18,136.50, however an invoice from the supplier, Ultra Box, indicates that the costs for these masks was actually $4,576.50. The Ultra Box invoice is directed to BJSM, which in turn sold this product to the Company for a 400% mark up. b. On November 27, 2020, Massaro caused the Company to pay 510 $144,007.20 relating to invoice 1003 from 510 to the Company for Intech-SteriWipes. However, no such inventory was ever entered in the Company’s books nor received by the Company.

[39] Massaro also authorized the Company to pay expense claims totalling $95,624.07, which were coded in the Company’s accounting system as Repairs and Maintenance for the Warehouse, but were never received. Cheques in the following amounts payable to the following businesses were authorized and signed by Massaro:

i) Cheque dated October 30, 2020 in the amount of $9,909.95 payable to Adapt; ii) Cheque dated December 17, 2020 in the amount of $6,763.05 payable to Clow Darling; iii) Cheque dated November 16, 2020 in the amount of $8,891.07 payable to Northwest Drainage Solutions; iv) Cheque dated July 31, 2023 in the amount of $33,335.00 payable to Northwest Drainage Solutions; and v) Cheque dated September 6, 2023 in the amount of $36,725.00 payable to Northwest Drainage Solutions.

[40] The work described in the invoices from the above businesses does not reflect work that would have been required in the Warehouse. Instead, these claims are consistent with work that would be required for Massaro’s personal or rental properties, unrelated to the Company.

[41] Since 2020, charges to Massaro’s Company credit card total $661,326.18. While some of these charges properly relate to Company business, personal charges relating to Massaro – totalling $28,399.52 – were incorrectly coded in the Company’s journals as business expenses.

[42] Fanti, through JFM, invoiced the Company on December 1, 2023, for $6,622.93 for items he purchased as part of his job. Massaro directed the Company to process a cheque payable to Fanti for these amounts on December 2, 2023. However, Fanti had purchased these items in September 2023 using his Company credit card. As such, when Fanti submitted an invoice dated December 1, 2023, and when Massaro directed payment on December 2, 2023, these items had already been paid for by the Company.

[43] Semple was paid as a Company employee from December 2015 to December 29, 2023. However, Semple stopped working for the Company during the summer of 2022, and notwithstanding, Massaro directed that Semple continue to be paid until January 2024.

[44] Massaro also directed the Company to sell product to Semple Enterprises at an underpriced cost or at no cost at all, including the following:

i. On June 20, 2022, Massaro caused the Company to sell Semple Enterprises eight bottles of disinfectant at $5.98 a bottle, which was sold to another client of the Company on August 3, 2022, at $16.33 a bottle; ii. On June 29, 2022, Massaro caused the Company to sell ten cases of toilet paper to Semple Enterprises at no cost, which the same product was sold to another client on June 27, 2022, for $49.00 a case; iii. Between March 9, 2023, and April 20, 2023, Massaro caused the Company to sell 368 bags of SternPAC to Semple Enterprises at $146.00 a bag, when it was sold to another client on April 17, 2023 at $329.89 a bag; and iv. On July 27, 2023, Massaro caused the Company to sell 96 packs of Clorox Wipes at $4.73 a pack, eight gallons of upholstery cleaner at $23.95 a gallon, and 36 bottles of bleach at $6.67 a gallon to Semple Enterprises. The prices for these products which were sold to other clients around the same time were $7.49 a pack, $44.95 a gallon and $9.15 a gallon respectively.

[45] Between April 2022 and May 2024, a review of the Company’s books shows that selling Semple Enterprises underpriced inventory and goods resulted in a loss to the Company of approximately $48,171.19. In addition, despite the fact Semple Enterprises failed to pay many of the invoices for goods it received, Massaro continued to authorize the shipment and delivery of inventory and goods. Out of the $278,279.21 in total billings to Semple Enterprises, the Company only received $15,140.26 in payment, leaving an unpaid shortfall in the amount of $263,138.95.

[46] Accounts managed by Massaro, Fanti, and Semple for the Company remain in arrears, and Massaro has refused to collect on these outstanding accounts receivable. Employees working in the Company’s accounting department were directed by Massaro not to collect payment on various outstanding invoices for accounts managed and controlled by Massaro, Fanti, and Semple. The total amount of accounts receivable in this regard was $3,527,424.64 as of August 2023. As of May 2024, collection efforts have reduced this amount to $1,664,642.06.

[47] Based on the evidence presented, and the deemed admissions engaged as a result of the defendants’ default, I find that Massaro has ceased acting honestly and in good faith in the best interests of the Company by engaging in a pattern of diverting business opportunities to companies owned by the defendants and/or their associates.

[48] In terms of diverting the Company’s corporate opportunities, Massaro’s efforts resulted in Mishkeegogamang First Nation ordering product from Massaro, Semple, and Fanti which was historically supplied by the Company. Since 2022, this is but one example of the notable decrease in orders from the Company’s historic First Nations clients, all of whom were previously managed by Massaro, Semple, and Fanti.

[49] For the 2019 to 2022 fiscal years, the annual sales for First Nations clients amounted to $4.8 million, $5.6 million, and $4.3 million, respectively. However, during the years 2023 and 2024, sales for those clients decreased to $2.5 million and $2.1 million annually.

[50] The lost sales resulting from Massaro’s diversion of opportunities is estimated to be in an amount of $3.5 million to the date of this motion.

Oppression Remedy

[51] As noted in the outset of these reasons, the plaintiffs are seeking judgment in the form of an oppression remedy.

[52] Hogan and TGH rely on s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”), which prescribes oppression remedies in certain situations:

Oppression remedy

248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section.

Idem

(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,

(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;

(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or

(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. [Emphasis added].

[53] The plaintiffs rely on the case of BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, 3 S.C.R. 560, which outlines the requirements under the OBCA to grant an oppression remedy. The Supreme Court states the following at para. 68 of its decision:

[T]he foregoing discussion suggests conducting two related inquiries in a claim for oppression: (1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?

[54] Following this two-part test, the plaintiffs submit first that Hogan had reasonable expectations, and second, that Massaro violated these expectations.

[55] I will now examine the case law presented by the plaintiffs in support of their position, with respect to both questions.

Did Hogan have a reasonable expectation?

[56] The case law recognizes that any consideration of a corporate stakeholders’ reasonable expectations is a contextual question. However, there is general acceptance for the position that it is reasonable to expect fair treatment, compliance with the OBCA, and that directors will fulfill their fiduciary obligations by acting honestly and in good faith.

[57] The plaintiffs rely on para. 82 of BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, 3 S.C.R. 560 specifically, to support this proposition:

The cases on oppression, taken as a whole, confirm that the duty of the directors to act in the best interests of the corporation comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules. In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including, but not confined to, the need to treat affected stakeholders in a fair manner, commensurate with the corporation's duties as a responsible corporate citizen. [Emphasis added].

[58] Para. 93 of D’Antonio v. Monaco, 2013 ONSC 5007, further clarifies this principle:

First, authorities suggest that "where a breach of fiduciary duty has occurred, the test for oppression has also been met." It seems to me that any shareholder would have a reasonable expectation that a company's directors would fulfil their fiduciary duties and would act honestly and in good faith with a view to the best interests of the corporation. Breach of those duties must be a breach of a shareholder's reasonable expectations. Shareholders' reasonable expectations lie at the heart of the oppression remedy. [Emphasis added].

[59] And in Peoples Department Stores Ltd. (Trustee of) v. Wise, 2004 SCC 68, 3 S.C.R. 461, para. 35 provides the scope of reasonable expectations:

The statutory fiduciary duty requires directors and officers to act honestly and in good faith vis-à-vis the corporation. They must respect the trust and confidence that have been reposed in them to manage the assets of the corporation in pursuit of the realization of the objects of the corporation. They must avoid conflicts of interest with the corporation. They must avoid abusing their position to gain personal benefit. They must maintain the confidentiality of information they acquire by virtue of their position. Directors and officers must serve the corporation selflessly, honestly and loyally. [Citation omitted].

[60] Each of these cases support the plaintiffs’ position that Hogan, as a 50% owner and long-term business partner of the Company, had a reasonable expectation that Massaro would not breach his fiduciary duties, which include the duty to act in the best interests of the Company and its shareholders. This necessarily includes the reasonable expectation that, as a director, Massaro would refrain from self-dealing, diversion of opportunities, and acting in conflict-of-interest situations. Therefore, by virtue of their positions within the company as directors, both Hogan and Massaro were obliged to respect their fiduciary duties, and each had the reasonable expectation that the other would also comply.

[61] Claimants may seek oppression remedies even where a portion of the harm caused by the impugned actions technically accrues to the corporation, and not the individual: see Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, 89 O.R. (3d) 36, at paras. 29-31.

[29] It is stating the obvious to say that s. 248 of the Act is drawn in broad language, both in terms of the harms it addresses and the non-exhaustive list of remedies it contemplates. Included in the list of remedies in s. 248(3) is a provision for "an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract": see s. 248(3)(h) (emphasis added). This provision contemplates a remedy under s. 248 that benefits the company itself even though the claim made by the complainant could also have been pursued by way of a derivative action.

[30] As already noted, this court recognized in Jabalee, supra, that there is a degree of overlap between the claims that could be made out as derivative actions and those that could fall under the oppression remedy. As this court said at para. 5 of the endorsement, "[t]he two are not mutually exclusive."

[31] One situation in which the overlap between the oppression remedy and the derivative action can be found is where directors in closely held corporations engage in self-dealing to the detriment of the corporation and other shareholders or creditors. [Citations omitted]. [Emphasis added].

[62] Accordingly, it is no obstacle to Hogan’s claim for an oppression remedy that his claim may also constitute a derivative action, because the two are not mutually exclusive.

Did Massaro violate Hogan’s reasonable expectations?

[63] The evidence provided thus far demonstrates that Massaro engaged in self-dealing and used his position within the Company to fraudulently divert company funds. He also acted while in a conflict-of-interest by knowingly arranging for the purchase of products below market value by a company in which he had a personal interest.

[64] Hogan and TGH rely on the case of Veolio ES Industrial Services Inc. v. Brule, 2012 ONCA 173 to support the proposition that Massaro’s behaviour manifestly violated his fiduciary duties of honesty, loyalty, non-competition, and non-usurpation:

33 Without disclosure and consent, a fiduciary cannot compete with his employer during the course of his employment. After his employment ends, the fiduciary employee generally cannot directly solicit the employer's customers for a reasonable period of time …. The parties agree that the fiduciary is free to otherwise compete once his employment ends, provided that he does not do so unfairly. [Citation omitted].

[65] Paras. 73–76 of Interhealth Canada Ltd. v. O’Keefe, 2023 ONCA 368 summarizes the Supreme Court’s ruling in Canaero v. O’Malley, [1974] S.C.R. 592:

73 At p. 607 of Canaero, Laskin J. wrote that a director or senior officer is disqualified:

...from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

74 Thus, the issues at trial were: (1) whether Mr. O'Keefe's resignation was prompted or influenced by a wish to acquire for himself or divert to CHNI a maturing business opportunity which the appellant was actively pursuing; or (2) whether after his resignation Mr. O'Keefe usurped for himself or diverted to CHNI a business opportunity which, before he resigned, was maturing and the appellant was actively pursuing.

75 Canaero, at p. 620, explains that whether there is a breach of fiduciary duty which survived resignation must be tested against many factors. A non-exhaustive list includes the "position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director's or managerial officer's relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or, indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company, and the circumstances under which the relationship was terminated, that is whether by retirement or resignation or discharge."

76 A finding that a defendant has usurped a corporate opportunity does not depend upon proof by a plaintiff that, but for the acts of the fiduciary, the plaintiff would have obtained the opportunity at issue. [Citations omitted].

[66] The plaintiffs characterize Massaro’s behaviour as “usurping for himself” or “diverting” as described by the Supreme Court. While the resignation of Massaro is not in issue, his conduct in removing himself from the operations of the Company is akin to a resignation in the sense that his actions outside the day-to-day business of the Company negatively impacted the interests of the plaintiffs.

Personal Liability

[67] The plaintiffs further argue that personal liability against Massaro is appropriate in this case. In support of their position, they rely on the following test set out in Wilson v. Alharayeri, 2017 SCC 39, 1 S.C.R. 1037:

[47] To reiterate, Budd provides for a two-pronged approach to personal liability. The first prong requires that the oppressive conduct be properly attributable to the director because he or she is implicated in the oppression. In other words, the director must have exercised - or failed to have exercised - his or her powers so as to effect the oppressive conduct.

[48] But this first requirement alone is an inadequate basis for holding a director personally liable. The second prong therefore requires that the imposition of personal liability be fit in all the circumstances. Fitness is necessarily an amorphous concept. But the case law has distilled at least four general principles that should guide courts in fashioning a fit order under s. 241(3). The question of director liability cannot be considered in isolation from these general principles.

[49] First, "the oppression remedy request must in itself be a fair way of dealing with the situation". The five situations identified by Koehnen relating to director liability are best understood as providing indicia of fairness. Where directors have derived a personal benefit, in the form of either an immediate financial advantage or increased control of the corporation, a personal order will tend to be a fair one. Similarly, where directors have breached a personal duty they owe as directors or misused a corporate power, it may be fair to impose personal liability. Where a remedy against the corporation would unduly prejudice other security holders, this too may militate in favour of personal liability.

[50] To be clear, this is not a closed list of factors or a set of criteria to be slavishly applied …. But personal benefit and bad faith remain hallmarks of conduct properly attracting personal liability, and although the possibility of personal liability in the absence of both these elements is not foreclosed, one of them will typically be present in cases in which it is fair and fit to hold a director personally liable for oppressive corporate conduct. With respect to these two elements, four potential scenarios can arise:

(i) The director acted in bad faith and obtained a personal benefit; (ii) The director acted in bad faith but did not obtain a personal benefit; (iii) The director acted in good faith and obtained a personal benefit; and (iv) The director acted in good faith and did not obtain a personal benefit.

[53] Second, as explained above, any order made under s. 241(3) should go no further than necessary to rectify the oppression. This follows from s. 241’s remedial purpose insofar as it aims to correct the injustice between the parties.

[54] Third, any order made under s. 241(3) may serve only to vindicate the reasonable expectations of security holders, creditors, directors or officers in their capacity as corporate stakeholders….

[55] Fourth – and finally – a court should consider the general corporate law context in exercising its remedial discretion under s. 241(3). As Farley J. put it, statutory oppression “can be a help; it can’t be the total law with everything else ignored or completely secondary.” This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where such other relief may be more fitting in the circumstances. [Citations omitted].

[68] In this case, by virtue of Massaro being directly implicated in the impugned conduct, both prongs of the test are met, and personal liability is appropriate. Wilson further provides guidance as to a non-exhaustive list of factors to be considered when deciding whether personal liability is appropriate as a remedy:

32 However, Budd also featured a survey of the case law illustrating when personal orders against directors may be appropriate. In an oft-cited passage, author Markus Koehnen suggests that this survey revealed five situations in which personal orders against directors might be appropriate:

(1) Where directors obtain a personal benefit from their conduct. (2) Where directors have increased their control of the corporation by the oppressive conduct. (3) Where directors have breached a personal duty they have as directors. (4) Where directors have misused a corporate power. (5) Where a remedy against the corporation would prejudice other security holders. [Footnotes omitted.]

[69] Therefore, the totality of factors in this case – such as Massaro’s personal benefit from the conduct, the breach of fiduciary duty, and Massaro’s misuse of his director position – all weigh in favour of imposing personal liability against Massaro in his role as director, rather than against the Company as a whole.

[70] Sidaplex-Plastic Suppliers, Inc. v. Elta Group Inc. (1995), 131 D.L.R. (4th) 399, at paras. 24-26, pp. 406-407, also speaks to personal liability for oppression remedies:

Lawyers and judges tend to worry and fuss a great deal about whether or not a given set of circumstances permits the piercing of the “corporate veil”. They do so for legitimate reasons pertaining to corporate law. While personal liability of a director in an oppression remedy situation may be founded upon such a base - as it was in the authorities referred to above - the issue, in my view, is not so much one of piercing the corporate veil as it is a question of the overall application of s. 248(2) of the OBCA and the interplay between its various provisions.

When "oppressive" conduct (in the broad sense), has been found to have occurred under s. 248, the court has a very broad discretionary power to "make an order to rectify the matters complained of". That broad discretionary power, under s. 248(3) is to "make an interim or final order it thinks fit", including:

(j) an order compensating an aggrieved person;

In its targeting of the kinds of conduct encompassed by the oppression remedy provision of the Act, the legislature has focused specifically upon the acts or omissions of the corporation (s. 248(2)(a)), the business or affairs of the corporation (s. 248(2)(b)), and the exercise of the powers of the directors (s. 248(2)(c)). . . . When the power of the director is exercised in a fashion which causes an act or omission of the corporation which effects an unfairly prejudicial result, or a result which unfairly disregards the interests of the complainant - or which causes the business or affairs of the corporation to be conducted in a manner which has the same effect - those powers themselves have been "exercised in a manner" which is caught by the section, in my opinion. Liability therefore lies directly with the director, under the section, in appropriate cases. [Emphasis added.]

[71] The plaintiffs characterize Massaro’s conduct as being directly beneficial to him, as well as a product of his misuse of his director powers. I agree. Therefore, and in relying on previous jurisprudence, Massaro should not be permitted to hide behind his corporate personality and should instead be held personally liable.

Appropriate Remedy – Buyout

[72] The plaintiffs again rely on the Supreme Court in Wilson for the proposition that, in issuing an oppression remedy, the court has a broad discretionary power to fashion just and contextual remedies under s. 241 of the OBCA:

[56] Under s. 241(3), fashioning a fit remedy is a fact-dependent exercise. When it comes to the oppression remedy, Carthy J.A. put the matter succinctly:

The point at which relief is justified and the extent of relief are both so dependent upon the facts of the particular case that little guidance can be obtained from comparing one case to another and I would be hesitant to enunciate any more specific principles of approach than have been set out above.

[73] The plaintiffs suggest the following to be factors that must be considered in crafting an appropriate remedy in this case:

i. Significant financial harm has been suffered by the plaintiffs; ii. A one-time remedy would be insufficient, as Massaro has continued his misconduct in the face of legal proceedings and after his defence was struck; iii. Massaro continues to divert company funds, resulting in continuous harm to Hogan and TGH; iv. It is not reasonable to expect Massaro to abide by any court orders with respect to his conduct; and v. There has been a complete breakdown in trust between Massaro and the plaintiffs such that any remedy forcing Hogan and TGH to remain with the company would be unjust.

[74] Given the totality of factors, Hogan and TGH suggest that the appropriate remedy would be a buyout. They rely on several cases in support of this position.

[75] The plaintiffs rely on C.I. Covington Fund Inc. v. White (2000), 10 B.L.R. (3d) 183 to support, first, that a restraining order is not an appropriate remedy, and second, that the court has a broad discretion when it comes to crafting an appropriate oppression remedy:

46 Section 248(3) of the OBCA confers a broad discretion on the Court in determining an appropriate remedy, including "any interim or final order it thinks fit". The purpose of the remedy is to rectify the oppression. The provision has been used to make compensation orders against individual directors where their conduct has been found oppressive in small, closely held corporations such as Delta, and they have personally benefited - for example, by the removal of assets from the corporation.

[76] In 2082825 Ontario Inc. v. Platinum Wood Finishing Inc. (2009), 96 O.R. (3d) 467, the Divisional Court upheld a trial judge’s discretionary oppression remedy. This case provides some guidance on the scope of the court’s authority, and how it may be assessed on appeal:

[54] The Ontario Court of Appeal decision Budd v. Gentra Inc., [1998] O.J. No. 3109, 111 O.A.C. 288 (C.A.) confirms, at para. 52, [page479] that personal liability for officers and directors may be appropriate in limited circumstances as follows:

The case law provides examples of various situations in which personal orders are appropriate. These include cases in which it is alleged that the directors or officers personally benefited from the oppressive conduct, or furthered their control over the company through the oppressive conduct. Oppression applications involving closely held corporations where a director or officer has virtually total control over the corporation provide another example of a situation in which a director or officer may be held personally liable to rectify corporate oppression.

[55] In our view, the facts of this case fall squarely within the limited circumstances when officers or directors may be personally liable as outlined in Budd.

[56] Herwynen Sawmill Ltd. was directly linked to the oppressive conduct by benefiting from the non-payment of its receivables.

[57] After Barbieri was hospitalized, he was essentially cut out of all management of Platinum and his salary was terminated. He went from a position of running Platinum, to having no involvement and no notice of its activities.

[58] The decision of Newbould J. with respect to aspects of the remedy is discretionary and is dependent upon the facts of this case.

[59] Discretionary decisions should not be lightly interfered with: "an appellate court will be justified in intervening in a trial judge's exercise of his discretion only if the trial judge misdirects himself or if his decision is so clearly wrong as to amount to an injustice". Where a motions judge exercises his or her discretion, that decision cannot be replaced simply because the appellate court has a different assessment of the facts. [Citations omitted].

[77] The plaintiffs rely on Larmon v. Synergy Hospitality Inc. (2004), 1 B.L.R. (4th) 244 in support of their position that it would be unreasonable for the court to order that Hogan and Massaro remain in business together, and that it is within the court’s authority to grant a buyout remedy:

41 The record establishes that Mr. Larmon and Ms. Saunders cannot get along with each other. There is no point in keeping them in the same business together. There is no point in forcing Synergy to consummate the oral agreement to give Mr. Larmon 25% of the shares. Their dispute needs to be resolved and they then need to go their separate paths and get on with their lives.

42 Section 248(3) of the OBCA provides that the Court may make any order it thinks fit. In my view, a compulsory buy-sell stipulation is fair, appropriate and practical in the circumstances at hand. Ms. Saunders should be required to bid first in any buy-sell approach because she has the best understanding of the financial state of the business. I have had counsel return for their submissions in respect of this possible remedy. [Emphasis added].

[78] Based on Massaro’s recent conduct, as described by Hogan and confirmed in the default judgment decision of Fregeau J., there is clearly no way forward in the Company if it is predicated on both Massaro and Hogan working together. A buyout remedy is the most effective and appropriate way to address Massaro’s misconduct in the circumstances.

Conclusion

[79] To summarize, the plaintiffs put forth the following arguments in support of their position that a buyout remedy granted pursuant to s.248 of the OBCA, in the context of a default proceeding pursuant to r. 19 of the Rules, is the appropriate and just remedy in this case:

1. Massaro has been noted in default pursuant to r. 19 of the Rules.
2. On account of the fact that Massaro is in default, the remainder of r. 19 applies: a. Rule 19.02: A defendant noted in default is deemed to have admitted the truth of all allegations in the statement of claim; and b. Rule 19.06: A plaintiff is not entitled to default judgement based on deemed admissions unless the admissions themselves entitle the plaintiff to judgement. c. Therefore, if the facts in the statement of claim entitle the plaintiffs to judgement as a matter of law, then a default judgement may be granted based on the deemed admissions in addition to the evidence provided by the plaintiffs.
3. Massaro’s conduct has been “oppressive”, and this court should fashion an appropriate remedy to address this situation. a. Section 248 of the OBCA allows for oppression remedies to be granted, or any other remedy the Court sees fit, where satisfied that a director of a company has engaged in oppressive or prejudicial behaviour. b. The plaintiffs note the following: i. Hogan is a lawful complainant under the OBCA, entitling him to a remedy under s.248; and ii. TGH Holdings is also a lawful complainant. c. The two-step test for determining whether conduct is “oppressive” within the meaning of s.248 is as follows: i. Did Hogan have reasonable expectations? ii. Were his reasonable expectations violated by Massaro? d. Massaro’s conduct clearly violates even the most basic element of his duties as director, that being his fiduciary duties. Hogan had a reasonable expectation that Massaro would abide by, at minimum, his fiduciary duties with respect to loyalty, honesty, and fairness. However, Massaro’s pattern of self-dealing, diversion, and dishonesty completely violate these reasonable expectations. Therefore, in granting default judgement and crafting an appropriate remedy, the court can consider granting an oppression remedy pursuant to the OBCA.
4. Massaro should be held personally liable for his behaviour. a. Directors may be held personally liable for their actions with respect to the corporation where their conduct is: iii. Attributable to them as director such that they are implicated in the oppression; and iv. The imposition of liability is just and fit considering all circumstances. b. Based upon case law, the following factors support a finding of personal liability for Massaro: i. He obtained personal benefit; ii. He breached his fiduciary duties as director; and iii. He misused his corporate power. c. Due to the nature and scope of his conduct, Massaro should be held personally liable along with his corporation, and forced to bear the weight of whatever judgement the court sees fit, rather than being permitted to hide behind his corporate shield.
5. A buyout is the most appropriate remedy for the court to grant. a. Oppression remedies under s.248 of the OBCA are highly discretionary – this is well-reflected in the case law. b. A one-time compensatory order would not be sufficient, nor would any remedy forcing Hogan to continue working with Massaro. i. This is because Massaro has continued his behaviour during the course of this litigation – as such, there is no reason to think he would abide by a court order, nor that one would prevent ongoing harm in the future. ii. Furthermore, there has been an irreparable breakdown in the relationship between the two men such that it is not reasonable to expect them to work together anymore. c. Given the totality of factors – Massaro’s persistent violations of his fiduciary duties, in violation of Hogan’s reasonable expectations, the total relationship breakdown, and the personal gain accrued to Massaro, among other things – the plaintiffs suggest that the most appropriate remedy is a buyout. This would allow the parties to go their separate ways and ensure that no ongoing harm accrues to the plaintiffs in the future.

Remedy and Damages

[80] I agree with the positions of the plaintiffs.

[81] Based on the foregoing submissions, I am satisfied that the appropriate remedy would be for Massaro to buy out Hogan’s interests in the Company.

[82] What, then, would be the appropriate valuation of the Company for the purposes of the buy out?

[83] Any valuation must reflect the fair value of the Company, a value which is assessed on the assumption that there is no oppressive conduct that could arguably impact that value. In this regard, I agree with Hogan that any buy out figure which is determined without accounting for Massaro’s misconduct would be inequitable and effectively provide Massaro with a windfall.

[84] To provide an assessment of the valuation of the Company, Hogan and TGH Holdings retained Kathryn Gosnell (“Gosnell”), who is a Chartered Accountant, Chartered Professional Accountant, Chartered Financial Analyst, Chartered Business Valuator and Senior Director at Kroll Canada Limited. Along with a copy of her Curriculum Vitae and an executed Acknowledgment of Expert’s Duty, Gosnell prepared an expert report dated August 9, 2024 (the “Report”).

[85] In reviewing her CV, along with the signed Form 53, I accept her as an expert qualified to provide a fair market valuation of the Company based on several scenarios.

[86] Paragraph 1.1 of the Report provides the basis for Gosnell’s opinion.

[87] She indicates that she was retained to provide an opinion as to the fair value of the 50% common shareholding in the company as of February 29, 2024 (the “Valuation Date”) based on four alternative assumptions:

1. assuming there was no misconduct of Massaro;
2. assuming the alleged misconduct of Massaro as outlined in these reasons;
3. Massaro committed misconduct which resulted in a reduction to the Company's annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $300,000 in each of the years 2020 to 2024; and
4. Massaro committed misconduct which resulted in a reduction to the Company's annual EBITDA of $600,000 in each of the years 2020 to 2024.

[88] A summary of the valuation opinions of Gosnell for each of the scenarios is provided in chart form within the Report as follows:

Summary of the fair Value of TGH’s Shares in TBBC and the Foregone Dividends to the Plaintiffs arising from the Defendants’ Alleged Financial Misconduct on the Plaintiffs

Scenario	Fair Value of TGH’s Shares in TBBC as at February 29, 2024 – Midpoint	Foregone Dividends July 31, 2024	Total
1	7,250,000		7,250,000
2	11,250,000	2,100,000	13,350,000
3	12,200,000	2,600,000	14,800,000
4	13,150,000	3,200,000	16,350,000

[89] In reviewing the Report, it is clear that the Company’s revenues since 2017 have been significant. The revenues during the years 2017 to 2019 were in the range of $3 million to $4 million annually. These increased during the pandemic given the nature of the Company’s business being focused on sanitation products. As such, the Company’s annual revenues for 2020, 2021, and 2022 ranged between $7 million and just under $8 million.

[90] In terms of the EBITDA figures, between the years 2017 and 2019, these ranged from approximately $1 million to $1.5 million. For the years 2020, 2021, and 2022, the EBITDA figures fell somewhere between $2.5 million and $3 million.

[91] In contrast, the annual revenue in 2023 and 2024 was just over $4 million, with the EBITDA amounts falling somewhere in the range of $1.6 million.

[92] In terms of the assets that existed as of the valuation date, Gosnell noted the following:

1. Cash of $2.1 million which was characterized as being redundant;
2. Accounts receivable of $3.1 million;
3. Accounts receivable from Massaro and one of his companies in the amount of $500,000;
4. Inventory of $1 million;
5. Income tax receivable of $1.4 million;
6. Property, plant and equipment of $500,000;
7. Notes receivable from related parties of $900,000, relating to amounts receivable from TGH and BJSM; and,
8. Cash surrender value of life insurance of $7102.00.

[93] There are also some liabilities of the Company which were noted as of the valuation date, these being accounts payable of $1 million and a debt of $40,000 relating to a delivery truck.

[94] There are two generally accepted approaches to assessing value: the going concern approach and the liquidation approach. Gosnell used the going concern approach based on the Company's history of positive earnings and cash flows and the anticipation that the company would continue to be profitable in the future, with positive working capital to cover its liabilities.

[95] Gosnell also clearly stated in the Report that her opinions with respect to Scenarios 3 and 4 were based upon assumptions that $300,000 and $600,000 were incurred by the Company as annual expenses resulting from Massaro’s alleged misconduct during the years 2020 to 2024. This is to be contrasted with Scenario 2, in which Gosnell attempts to quantify the value of the alleged misconduct as described by Hogan and as set out within his affidavit materials. This method is summarized in Schedule 5.2-1 of her report.

[96] It is worth noting at this juncture that the evidence from Hogan is based, in part, on evidence obtained by a Company employee involved in the accounting department. As such, while the opinions relating to Scenario 2 are based on Hogan’s evidence, Scenario 3 and Scenario 4 are based only on Hogan’s assumptions. No investigative accounting has been undertaken to independently confirm these assumptions.

[97] In Scenario 2, after reviewing the summary of alleged misconduct by Massaro and as detailed by Hogan, found at Schedule 5.2-1 of the Report, the adjustments for each year from 2020 to 2024 vary. While that may be due to the limited evidence available for each of these years, Hogan clearly had access to internal accounting information which he used to piece together what Massaro was doing. As such, it is possible that Hogan was unable to access or identify all of Massaro’s misconduct, but it is clear that Scenario 2 represents the situation based upon what Hogan actually knows. Scenarios 3 and 4, on the other hand, attempt to consider additional but unidentifiable effects of Massaro’s misconduct which Hogan speculates might exist.

[98] With respect to Scenario 2, in 2020 there is no adjustment noted as a result of the misconduct. In 2021, $600,888 is the value of the EBITDA adjustment resulting from the alleged misconduct, as calculated by Gosnell. The figures for 2022, 2023, and 2024 are $23,852, $1,157,656 and $1,269,274 respectively, with the total impact of Massaro’s misconduct, as supported by Hogan’s evidence, valued at $3,051,671.

[99] Scenario 3 takes the adjustment figures from Scenario 2 and adds another $1.5 million representing $300,000 per year from 2020 to 2024.

[100] Scenario 4 applies a different assumption, using an estimated annual amount of $600,000 over five years to add to the Scenario 2 assessment, i.e., applying another $3 million to account for Massaro’s unknown misconduct.

[101] During counsel’s submissions, I was urged to adopt either Scenario 3 or Scenario 4 circumstances when valuing the Company for the purposes of defining the parameters of the oppression remedy. As I understand the submission, Hogan knows Massaro conducted himself in a number of ways to impact Hogan’s financial interest in the Company. The information and belief of Hogan is found within his affidavit filed in support of this motion.

[102] However, based on Hogan’s limited knowledge of Massaro’s misconduct, which could have been better explored and identified if Massaro did not intentionally avoid participating in this litigation - including the discovery process – it is argued that there must be more misconduct which is not known. As such, in assessing damages, the plaintiffs submit that the court should notionally attribute either $300,000 or $600,000 per year for five years – 2020 to 2024 – to account for that unknown misconduct.

[103] Accepting Gosnell’s figures presented in her analysis, there is a significant difference in damages when comparing Scenario 2 to Scenarios 3 and 4.

[104] I do not find, however, that there is enough of an evidentiary basis to depart from Scenario 2 – which is based on the evidence provided by Hogan – and use Scenario 3 or Scenario 4 in order to calculate the value of the Company.

[105] The assumptions used in Scenarios 3 and 4 are simply that: assumptions. There is no evidence available to support a $300,000 or $600,000 annual variation in the figures determined to apply to Scenario 2. The assumptions presented in Scenarios 3 and 4 rely upon the initial premise of Massaro’s misconduct being worse than that assessed in Scenario 2. I appreciate the arguments being advanced, and the sense of justice associated with adopting the plaintiffs’ assertion that, where there is known misconduct, there must be more which has further impacted the valuation of the Company in Massaro’s favour. This position is made even more attractive by Massaro’s refusal and unwillingness to participate in this litigation.

[106] Why should Massaro benefit from any misconduct which the plaintiffs have been unable to prove or demonstrate because of Massaro’s own delinquency in actively dodging this action? Is not the prejudice suffered by the plaintiffs in advancing a clear and cogent valuation of the Company, based upon a fulsome record of evidence, enough to allow the court to consider Scenarios 3 or 4?

[107] A plaintiff may only recover damages which are caused by a defendant’s wrong. There must be a causal connection between the wrong and the damages, and the onus of establishing this connection is borne by the plaintiff. The standard of proof required to show that the defendant’s breach of duty caused damages to a plaintiff is the balance of probabilities.

[108] Not only must the plaintiff prove the existence of a loss caused by the defendant’s wrong, the plaintiff must also establish the extent, or quantum, of the loss. In other words, the plaintiff has the onus to prove the amount of damage he or she has endured, and those damages must also be established on a balance of probabilities.

[109] If there is no evidence adduced to support the loss which is claimed and proven, then a court could hold the burden of proof against the plaintiff and award no damages. The onus of proving damages rests upon a plaintiff. In Cotter v. General Petroleums Ltd., [1951] S.C.R. 154, at pp. 175-176, a plaintiff was clearly out $1,000 due to the defendant’s actions but sought additional damages above and beyond $1,000. The court, in considering the plaintiff’s position on damages, said that if damages exceeding $1,000 were sought, these must be supported by the evidence, without which it may be that there is or is not an actual loss.

[110] The onus lies on a plaintiff to prove its damages on a reasonable preponderance of credible evidence: see 100 Main Street East Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401, at p. 33 (C.A.).

[111] Murano et al. v. Bank of Montreal and Peat Marwick Thorne (1995), 31 C.B.R. (3d) 1 (Ont. Gen. Div.), at para. 166, cites a passage from a South Carolina Court of Appeal decision addressing the assessment of damages in these terms:

If the fact of damage is established, the law does not require the amount of damage to be proven with mathematical certainty; damages may be recovered if there is evidence upon which a reasonable assessment of loss can be made. The estimation of damages, however, cannot be based on conjecture or speculation; it must pass the realm of opinion not founded on the facts and must rest on evidence from which a reasonable accurate conclusion regarding the amount of loss can be logically and rationally drawn. There must be a certain standard or fixed method by which the loss may be estimated with a fair degree of accuracy.

[112] The plaintiffs’ evidence suggests that Hogan was unable to access accounting information relating to the Company for a period of time. However, following Nannette Bonner’s dismissal in June 2023, Hogan was once again able to access enough of the Company’s financial information in order to inform himself and provide evidence as to the nature of Massaro’s misconduct.

[113] In addition, Hogan was able to work with an employee of the Company – who is unnamed in this litigation for his or her protection – and obtain access to more information relating to the financial health of the Company. This additional information forms part of Hogan’s evidence in this matter and was provided to Gosnell in order to come up with Scenario 2.

[114] It seems reasonable to assume that before coming to court with this motion, the plaintiffs would have accessed as much evidence as was available so that Gosnell could do her job and provide a proper valuation analysis of the Company. It may also be reasonable to assume that, without Massaro’s participation in this litigation, there are a number of rocks which remain unturned and, as such, the full extent of the Company’s valuation is unknown. But even the scope of the unknown remains unknown. Perhaps, given the access to the financial records which Hogan did have, the plaintiffs were actually able to discover the full extent of Massaro’s misconduct.

[115] The opinion set out in the Report with respect to Scenario 2 is based on facts that have been proven on a balance of probabilities.

[116] The opinions set out in the Report with respect to Scenarios 3 and 4 are not based on facts or evidence, but instead are based upon pure assumptions.

[117] Without sufficient evidentiary underpinnings, I decline to accept the valuations proposed in Scenarios 3 and 4, and instead adopt Gosnell’s opinion with respect to damages as set out in Scenario 2.

Conclusion

[118] A declaration shall issue pursuant to s. 248 of the Business Corporations Act that Massaro and BJSM have engaged in or caused conduct that is oppressive, unfairly prejudicial to, and unfairly disregarding of the interests of the plaintiffs in the Company.

[119] A declaration shall issue that Massaro and BJSM breached their fiduciary duties owed to Hogan and TGH, and both Massaro and BJSM are liable to Hogan and TGH for damages.

[120] In fashioning a remedy to address the oppressive conduct and breach of fiduciary duties by Massaro and BJSM, it is appropriate in the circumstances that Massaro and BJSM, jointly and severally, forthwith pay damages to Hogan and TGH such that they purchase TGH shares in the Company for $13,350,000 plus post-judgment interest as provided by the Court of Justice Act.

[121] Upon full payment for the shares of the Company as provided in the foregoing para.120, TGH shall transfer its shares in the Company to BJSM or another designate of Massaro or BJSM.

Costs

[122] The plaintiffs are successful in their motion and are entitled to their costs.

[123] The costs’ submissions of the plaintiffs seek substantial indemnity costs in the amount of $55,000 inclusive of fees, disbursements and HST. This figure is based on all-in claims as follows: $43,101.01 in partial indemnity costs, $61,682.45 in substantial indemnity costs, and $67,876.26 in actual costs.

[124] The two counsel who participated in this motion are Daniel Rosenbluth, who was called in 2016, and Claire McNevin, who was called in 2019. Mr. Rosenbluth’s hourly rate is $600 while Ms. McNevin is charged out at $550 an hour.

[125] Emma Wall, who appears to have done much of the work organizing and putting the motion materials together, was called in 2022 and billed out at $450 an hour, adding $7,087.50 in partial indemnity, $10,631.25 in substantial indemnity, and $11,812,50 in actual fees to the bottom line.

[126] The argument in this matter took less than 2 hours. In that a default judgment had been entered as against the defendants, there was no need to prepare documents or arguments to address submissions from Massaro and BJSM’s counsel. There is no doubt that putting together the materials in support of the relief sought, in addition to preparing for oral argument, was not a simple task. Reading the materials, which were well drafted, and hearing submissions, which were focused on the material issues, greatly assisted me in understanding this case and formulating my decision.

[127] However, despite the amount at issue being in the millions of dollars, most of the heavy lifting to support the damages’ figures presented was done by Gosnell. Therefore, counsel for the plaintiffs did not have to prepare themselves to address the calculations of damages, save and except to reference the difference in the four scenarios. The efforts to advance Hogan and TGH’s case would have been the same whether the damages in question were $100,000 or $100 million.

[128] In other words, the amount at issue is not specifically reflective of the effort required to advance the interests of the plaintiffs.

[129] Reviewing the considerations set out in r. 57.01, I find that the amount sought of $55,000 would not be reasonably anticipated by the defendants for a motion hearing that took less than two hours to argue in the Northwest Region.

[130] I do find that this matter was not simple, and involved issues of complexity both with respect to detailing the alleged misconduct and the damages which flow from that misconduct. In addition, it is not possible to ignore the fact that the issues addressed in this matter were of utmost important to the plaintiffs.

[131] An additional consideration when determining costs is described in r. 57.01(1)(e). The conduct of Massaro and BJSM throughout this litigation has been irresponsible, and designed to thwart the justice which Hogan and TGH were attempting to achieve. On the face of this conduct, it is reasonable to request a higher-than-normal scale of costs since the actions of Massaro unduly complicated the overall litigation process.

[132] Having said that, without Massaro’s participation in the motion, can it be said that the conduct of the defendants unnecessarily lengthened the duration of this step in the proceeding? Surely this conduct must have complicated the efforts of Gosnell in her attempt to provide her expert opinions. To the extent that those complications impacted her efforts, I assume that any consequential costs would be contained in her fee account, which is not in issue.

[133] I do not find, however, that Massaro’s conduct impacted the overall effort of the plaintiffs to argue the issues relating to remedy and damages. In fact, it is likely that Massaro’s absence made the process easier and more streamlined.

[134] Awarding costs of $55,000 for a two-hour motion in the Northwest Region would far exceed any other awards made for similar efforts. The time spent by several different lawyers on behalf of the plaintiffs naturally increased the costs of this matter, which would not have been the case if the same lawyer drafted the materials and then argued the matter. Further, the hourly rates charged for the years of experience claimed is not in line with the rates of counsel practicing in Northwestern Ontario.

[135] Considering all of these factors, some of which support a healthy costs’ award while others do not, I find that an appropriate award for costs in this matter is $25,000 inclusive of fees, disbursements and HST.

[136] Interest on any amounts awarded in this decision attracts interest at the appropriate rates provided by the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended.

“Original signed by” ___ The Hon. Justice S.J. Wojciechowski Released: November 25, 2024

COURT FILE NO.: CV-22-00285-00 DATE: 2024-11-25 ONTARIO SUPERIOR COURT OF JUSTICE Tyler Hogan and TGH Holdings Ltd Plaintiffs – and – Brent Massaro and BJSM Holdings Ltd. Defendants REASONS FOR motion on default judgment Wojciechowski J. Released: November 25, 2024