Jun 22, 2020

COURT OF APPEAL SUMMARIES (June 15 – 19, 2020)

Michel v. Spirit Financial Inc., 2020 ONCA 398 (CanLII)

[Benotto, Zarnett and Thorburn JJ.A.]

Counsel:

Michael A. van Bodegom and Daniel W. Veinot, for the appellants FK and Spirit Financial Inc, and respondent on cross-appeal, GK

Jeffrey Kriwetz and Alexander Hora, for the respondent/appellant on cross-appeal, AM

Keywords: Contracts, Debtor-Creditor, Demand Loans, Damages, Civil Procedure, Limitation Periods, Costs, Standard of Review, Limitations Act, R.S.O. 1990, c. L.15, Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, s 5, Hare v. Hare, 83 O.R. (3d) 766 (C.A.), Cross Bridges Inc. v. Z-Teca Foods Inc., 2016 ONCA 27, Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Sup. Ct.), aff’d (1997) 74 A.C.W.S. (3d) 207 (C.A.), 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.), 2105582 Ontario Ltd. (Performance Plus Golf Academy) v. 375445 Ontario Limited (Hydeaway Golf Club), 2017 ONCA 980, Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, Hamilton v. Open Window Bakery Ltd., 2004 SCC 9

Facts:

The respondent, AM sued the appellant FK, his corporation, the appellant Spirit, and FK’s son, GK, for repayment of investments or loans and for fraud. FK counterclaimed against AM for slander. AM was largely successful at trial, with FK being found liable to repay loans and for fraud. The slander claim was dismissed, as was AM’s claim against GK. Substantial indemnity costs were awarded against FK and Spirit. The claim by AM against GK was dismissed. FK and Spirit appealed. AM cross-appealed on the dismissal of the claim against GK.

Issues:

Did the trial judge err by:

1. failing to apply the limitation period;

2. holding Spirit liable in addition to FK;

3. improperly calculating damages;

4. engaging in procedural unfairness;

5. dismissing the slander action;

6. awarding costs on a substantial indemnity basis; and

7. dismissing the claim against GK.

Holding:

Appeal allowed in part. Cross-appeal dismissed.

Reasoning:

1. Yes. The trial judge made a finding of fact that all the advances made by AM to FK and Spirit were loans. The loans were advanced from 2000 to 2009, during which time the Limitations Act, R.S.O. 1990, c. L.15 was largely replaced by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. On January 1, 2004, the basic limitation period for demand loans was changed from six years from the date of the loan to two years from the date of the demand: Hare v. Hare, 83 O.R. (3d) 766 (C.A.), and Limitations Act, 2002, s. 5.

The first five loans were made by 2001. These loans and the promissory note were captured by the “old” Limitations Act. The trial judge dismissed the limitation period defence for these loans because he found that the partial payments made after AM’s demand had the effect of extending the limitation period. The difficulty here was that the limitation period had already expired for these loans when the partial payments were made. The partial payments therefore could not reset the limitation period clock on these loans: Cross Bridges Inc. v. Z-Teca Foods Inc., 2016 ONCA 27. The first repayment made to Michel, was more than a year too late for even the most recent of the five loans to be saved from the statute bar.

The claims on the remaining loans were not barred by the limitation period, as acknowledgments of those loans were provided, or partial payments were made, before the limitation period expired.

2. No. Spirit was properly found liable for the loans.

The jurisprudence with respect to separating personal from corporate liability typically considers an attempt to hold individuals liable for corporate debts. But the analysis is instructive even though the question here was whether the corporation should be held liable in addition to the individual.

A separate legal entity will be disregarded when there is “complete control” and “conduct akin to fraud”: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Sup. Ct.), aff’d (1997) 74 A.C.W.S. (3d) 207 (C.A.). It may also be disregarded where those in control of a corporation expressly direct a wrongful act: 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.).

The trial judge held that Spirit was completely controlled by FK and that Spirit was being used as a shield for fraudulent or improper conduct. He found that: (i) FK was “the controlling will and mind of both Spirit”; (ii) FK was “simply transferring all of the money in each between his own pockets”; (iii) Spirit was “just a plaything of FK’s”; and (iv) Spirit “must be considered an accomplice to FK’s fraudulent activities.”

These findings of fact would be sufficient to pierce the corporate veil and hold FK liable for obligations of Spirit – here they have a different but equally well-founded consequence. When Kramer directed Spirit to participate in – be an accomplice to – wrongful conduct, Spirit was rendered liable for that conduct.

3. No. An appellate court should only intervene in the award of damages where “the trial judge made an error of principle or law, or misapprehended the evidence, or it could be shown there was no evidence on which the trial judge could have reached his or her conclusion, or the trial judge failed to consider relevant factors in the assessment of damages, or considered irrelevant factors, or otherwise, in the result, made ‘a palpably incorrect’ or ‘wholly erroneous’ assessment of the damages”: 2105582 Ontario Ltd. (Performance Plus Golf Academy) v. 375445 Ontario Limited (Hydeaway Golf Club), 2017 ONCA 980, Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58.

4. No. On the last day of evidence before the trial judge, FK conceded that AM’s Swiss franc advances were still available and belonged to AM. The trial judge found that he “agreed to pay those funds to AM in accordance with a signed direction”. He then “endorsed the Trial Record accordingly”. This was not procedurally unfair.

5. No. The dismissal of the slander action was fully supported by the findings of fact made by the trial judge.

6. No. The trial judge awarded substantial indemnity costs because of FK’s fraud, because of the failure to admit facts and because FK used the slander action to defend AM’s claims. A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9. The Court saw no reason to interfere.

7. No. It was open on the evidence for the trial judge to find that GK didn’t have much to say in his father, FK’s business, and therefore the claim against GK was properly dismissed.