COURT OF APPEAL FOR ONTARIO

CITATION: Yaiguaje v. Chevron Corporation, 2017 ONCA 741

DATE: 20170921

DOCKET: M47811 & M47813 (C63309 & C63310)

Epstein J.A. (In Chambers)

BETWEEN

Daniel Carlos Lusitande
    Yaiguaje, Benancio Fredy Chimbo Grefa, Miguel Mario Payaguaje Payaguaje,
    Teodoro Gonzalo Piaguaje Payaguaje, Simon Lusitande Yaiguaje, Armando Wilmer
    Piaguaje Payaguaje, Angel Justino Piaguaje Lucitante, Javier Piaguaje
    Payaguaje, Fermin Piaguaje, Luis Agustin Payaguaje Piaguaje, Emilio Martin
    Lusitande Yaiguaje, Reinaldo Lusitande Yaiguaje, Maria Victoria Aguinda
    Salazar, Carlos Grefa Huatatoca, Catalina Antonia Aguinda Salazar, Lidia
    Alexandria Aguinda Aguinda, Clide Ramiro Aguinda Aguinda, Luis Armando Chimbo
    Yumbo, Beatriz Mercedes Grefa Tanguila, Lucio Enrique Grefa Tanguila, Patricio
    Wilson Aguinda Aguinda, Patricio Alberto Chimbo Yumbo, Segundo Angel Amanta
    Milan, Francisco Matias Alvarado Yumbo, Olga Gloria Grefa Cerda, Narcisa Aida Tanguila
    Narvaez, Bertha Antonia Yumbo Tanguila, Gloria Lucrecia Tanguila Grefa,
    Francisco Victor Tanguila Grefa, Rosa Teresa Chimbo Tanguila, Maria Clelia
    Reascos Revelo, Heleodoro Pataron Guaraca, Celia Irene Viveros Cusangua,
    Lorenzo Jose Alvarado Yumbo, Francisco Alvarado Yumbo, Jose Gabriel Revelo
    Llore, Luisa Delia Tanguila Narvaez, Jose Miguel Ipiales Chicaiza, Hugo Gerardo
    Camacho Naranjo, Maria Magdalena Rodriguez Barcenes, Elias Roberto Piyahuaje
    Payahuaje, Lourdes Beatriz Chimbo Tanguila, Octavio Ismael Cordova Huanca,
    Maria Hortencia Viveros Cusangua, Guillermo Vincente Payaguaje Lusitande,
    Alfredo Donaldo Payaguaje Payaguaje and Delfin Leonidas Payaguaje Payaguaje

Plaintiffs (Appellants)

(Responding Parties)

and

Chevron Corporation
,
Chevron Canada
    Limited
and Chevron Canada Finance Limited

Defendants (Respondents)

(Moving Parties)

Suzy Kauffman, for the moving party Chevron Canada
    Limited on M47811

Larry P. Lowenstein and Laura Fric, for the moving party
    Chevron Corporation on M47813

Paul M. Michell, for Chevron Canada Capital Company

Alan J. Lenczner, Q.C., Brendan F. Morrison, Kirk M.
    Baert, Celeste Poltak and Garth Myers, for the responding parties

Heard: June 27, 2017

Epstein J.A.:

[1]

The appeal underlying this motion
    for security for costs has its genesis in Ecuador. The appellants (the
    Ecuadorian plaintiffs) hold a judgment of approximately 9.5 billion dollars
    from an Ecuadorian court (the Ecuadorian judgment) against the respondent,
    Chevron Corporation.
[1]
The Ecuadorian plaintiffs seek to enforce that judgment in Ontario against
    Chevron and its seventh level, indirect subsidiary, Chevron Canada.

[2]

Chevron and Chevron Canada
    initially contested the jurisdiction of Ontario courts to enforce the
    Ecuadorian judgment. The matter reached the Supreme Court of Canada, which
    affirmed Ontarios jurisdiction over the Ecuadorian plaintiffs action:
Chevron Corp v. Yaiguaje
, 2015 SCC 42, [2015] 3 S.C.R. 69.

[3]

Following the Supreme Courts
    ruling, Chevron and Chevron Canada brought motions for summary judgment before
    the Ontario Superior Court. Both motions sought the dismissal of the Ecuadorian
    plaintiffs claims against Chevron Canada, on the basis of its separate
    corporate personality from Chevron. The Ecuadorian plaintiffs brought a
    cross-motion for summary judgment, seeking a declaration that Chevron Canadas
    assets were exigible to satisfy Chevron Corp.s judgment debt. The Ecuadorian
    plaintiffs also brought a motion to add Chevron Canada Capital Company (CCCC)
    as a defendant to their action, and to strike the defences in Chevron Corp.s
    statement of defence.

[4]

The motion judge granted the
    respondents' motion for summary judgment. He dismissed the Ecuadorian
    plaintiffs cross-motion and motion to add CCCC as a defendant, and partially
    granted their motion to strike. The Ecuadorian plaintiffs appealed all four
    decisions to this court.
[2]

[5]

The respondents now seek an order
    for security for costs totalling $1,022,951.47: $160,000 for the appeal and the
    rest for the proceedings below. They submit that such an order is appropriate
    as the Ecuadorian plaintiffs are not ordinarily resident in Ontario, have not
    provided evidence of impecuniosity, and have not established a good chance of
    success in the pending appeal. The Ecuadorian plaintiffs submit that security
    for costs should not be awarded given the merits of their appeal and Chevrons
    delay in bringing this motion. They also urge this court to adopt a new
    approach to the law of security for costs, one that displays sensitivity to the
    principle of international comity and the similarity of this proceeding to a
    class action.

[6]

For the reasons that follow, I
    have determined to order security for costs in the amount of $591,335.14 for
    Chevron Canada, and $351,616.33 for Chevron.

BACKGROUND

[7]

The judicial history in this case
    dates back to 1993, and the facts underlying the litigation as far back as
    1964. I will provide only those facts relevant to the security for costs
    motions.

[8]

The Ecuadorian plaintiffs represent
    approximately 30,000 indigenous villagers from Ecuadors Oriente region.
    Chevron is a public company, incorporated in Delaware and headquartered in
    California. Its principal business involves holding shares in subsidiary
    corporations and managing those investments.

[9]

The Ecuadorian judgment relates to
    oil extraction activities in the Oriente region between 1964 to 1992 by Texaco
    Inc., a corporation that merged with Chevron prior to 2003. These extraction
    activities allegedly caused extensive environmental damage.

[10]

Chevron, which has no assets in
    Ecuador, refused to acknowledge the Ecuadorian judgment following its release
    in February 2011. The Ecuadorian plaintiffs therefore sought to enforce the
    judgment in various jurisdictions around the world.

[11]

In lengthy reasons delivered in
    2014, Judge Kaplan of the District Court for the Southern District of New York
    found that the Ecuadorian judgment had been obtained by fraud (the "New
    York decision") and prohibited the judgment from being enforced in the
    United States. His decision was upheld by the United States Court of Appeal for
    the Second Circuit, and the Supreme Court declined to grant
certiorari

for a
    further appeal.

[12]

In 2012, the Ecuadorian plaintiffs
    commenced an action in Ontario, seeking to enforce the Ecuadorian judgment against
    Chevron and Chevron Canada.

[13]

Chevron and Chevron Canada
    initially disputed whether Ontario courts had
jurisdiction simpliciter
to recognize and enforce the Ecuadorian judgment.
    This dispute ultimately reached the Supreme Court, which concluded in a
    decision released in September 2015 (the "
Chevron
decision") that Ontario courts had jurisdiction

over the enforcement action.

[14]

However, the Supreme Court was
    clear that the finding of jurisdiction simply afforded the Ecuadorian plaintiffs
    the opportunity to seek to enforce the Ecuadorian judgment in Ontario. Success
    was not guaranteed  Chevron and Chevron Canada remained free to argue against
    enforcement based on their separate corporate personality, and any other
    applicable defences.

[15]

The matter proceeded to the
    Ontario Superior Court. Chevron and Chevron Canada brought motions for summary
    judgment to dismiss the Ecuadorian plaintiffs claim against Chevron Canada.
    The principal basis for the motions was that Chevron Canada had a separate
    legal personality from Chevron, and was therefore not liable for Chevrons
    judgment debts.

[16]

The Ecuadorian plaintiffs brought
    a cross-motion for summary judgment, seeking a declaration that the assets of
    Chevron Canada are exigible to satisfy Chevrons judgment debt. They did not
    allege wrongdoing on the part of Chevron Canada, but instead submitted that
    Chevron Canada was an asset of Chevron available for execution and seizure
    pursuant to the
Execution
    Act
,

R.S.O. 1990, c.
    E.24 to satisfy the Ecuadorian judgment. In the alternative, they argued that
    the court should pierce the corporate veil between Chevron and Chevron Canada,
    based on Chevron's effective control over Chevron Canada and the injustice that
    would otherwise result. The Ecuadorian plaintiffs also brought a motion to add
    Chevron Canada Capital Company (CCCC), a sixth-level subsidiary of Chevron
    that owns all the shares of Chevron Canada, as a defendant to their action.

[17]

In reasons dated January 20, 2017,
    the motion judge granted Chevron and Chevron Canadas summary judgment motions
    and dismissed the Ecuadorian plaintiffs cross-motion. In separate reasons,
    dated January 25, 2017, the motion judge refused to allow the Ecuadorian
    plaintiffs to amend their statement of claim by adding CCCC.

[18]

As to the summary judgment
    motions, the motion judge concluded that Chevron Canada was not an asset of
    Chevron, but rather a separate legal person. Chevron Canada was therefore not
    exigible and available for execution and seizure pursuant to the
Execution Ac
t
.
    The motion judge rejected the Ecuadorian plaintiffs submission that Chevron
    enjoyed an indirect beneficial interest in Chevron Canada, thereby allowing
    application of s. 18(1) of the

Act
,
    which states that "the sheriff may seize and sell any equitable or other
    right, property, interest or equity of redemption in or in respect of any
    goods, chattels or personal property, including leasehold interests in any land
    of the execution debtor." The motion judge found that Chevron, as an
    indirect shareholder, did not have any legal or equitable interest in the
    assets of Chevron Canada. As the
Execution Act
was a procedural statute which did not create any new rights in
    property, its provisions were of no assistance to the Ecuadorian plaintiffs.

[19]

The motion judge also declined to
    pierce the corporate veil separating Chevron and Chevron Canada. He noted the
    long-standing case-law holding that the separate legal personality of a
    corporate entity would only be disregarded where it was completely dominated
    and controlled, and being used as a shield for fraudulent or improper conduct.
    The motion judge found that the Ecuadorian plaintiffs had not made out either
    part of the test. The evidence showed that Chevron and Chevron Canada had a
    typical parent/subsidiary relationship, and the Ecuadorian plaintiffs had not
    alleged that Chevrons corporate structure was designed or used as an
    instrument or fraud or wrongdoing. The motion judge further concluded that
    there was no independent "just and equitable" or group enterprise
    exception allowing the corporate veil to be lifted even where the established
    test was not satisfied.

[20]

As to the motion to add CCCC as a
    defendant, the motion judge declined to grant the Ecuadorian plaintiffs the
    relief sought. He noted that the Ecuadorian plaintiffs did not allege a cause
    of action against CCCC, but rather sought the same relief against it as against
    Chevron Canada. Accordingly, the motion judge concluded that the Ecuadorian
    plaintiffs claim against CCCC could not succeed for the same reasons that
    their claim against Chevron Canada had failed.

[21]

The Ecuadorian plaintiffs have
    appealed both of the motions judges decisions, prompting this motion for
    security for costs. Chevron Canada seeks security for costs for the appeal in
    the amount of $100,000, and for the proceedings below in the amount of
    $541,335.14 (being Chevron Canada's portion of the costs awarded below).
    Chevron seeks security for costs for the appeal, in the amount of $60,000, and
    for the proceeding below in the amount of $321,616.33 (being Chevrons portion
    of the costs awarded below). The total amount of security sought is
    $1,022,951.47

SECURITY FOR COSTS

(1)

General Principles

[22]

Chevron and Chevron Canada rely on
    rr. 61.06(1)(b) and 56.01(1)(a) of the
Rules of
Civil Procedure
. Rule 61.06(1)(b) reads as follows:

In an appeal where it appears that,

(b) an order for security for
    costs could be made against the appellant under rule 56.01 a judge of the
    appellate court, on motion by the respondent, may make such order for security
    for costs of the proceeding and of the appeal as is just

[23]

While r. 56.01(1)(a) reads:

The court, on motion by the
    defendant or respondent in a proceeding, may make such order for security for
    costs as is just where it appears that

(a) the
    plaintiff or applicant is ordinarily resident outside Ontario;

[24]

Here, there is no dispute that the
    Ecuadorian plaintiffs reside outside of Ontario. They have pleaded that they
    are residents of Ecuador.

[25]

This means that Chevron and
    Chevron Canada have met their initial onus of showing that the Ecuadorian
    plaintiffs fit within r. 61.06(1)(b). Thus, they have successfully
    "triggered the enquiry" into security for costs, requiring me to take
    into account a number of factors and make such order as is just:
Zeitoun v
. Economical Insurance Group
(2008), 91 O.R. (3d) 131 (Div. Ct.), aff'd 2009 ONCA
    415, 96 O.R. (3d) 639, at para. 44. Relevant considerations include the merits
    of the claim and the possible effect of an order for security preventing a bona
    fide claim from proceeding. Courts enjoy broad discretion to make such order as
    is just:
Novak
    v. St. Demetrius (Ukranian Catholic) Development Corporation
, 2017 ONCA 693, at para. 9;
Stojanovic v. Bulut
, 2011 ONSC 874 (Master), at para. 5.

[26]

As per
Zeitoun
, at paras. 49-50, if the Ecuadorian plaintiffs
    demonstrate impecuniosity on a balance of probabilities, they can resist the
    motion by showing that their claim is not plainly devoid of merit  a low
    evidentiary threshold. Conversely, where impecuniosity is not shown, a closer
    scrutiny of the merits is called for and it will be legitimate to require the
    Ecuadorian plaintiffs to demonstrate a good chance of success on the main
    appeal in order to resist the motion. The Ecuadorian plaintiffs submit that test
    is satisfied given the merits of their pending appeal.

[27]

The Ecuadorian plaintiffs also
    advance a novel submission, one that Mr. Lenczner, their counsel, says should
    become part of the law pertaining to security for costs. The Ecuadorian
    plaintiffs submit that this motion should be approached differently because of
    the combination of two factors  it is part of an action for recognition and
    enforcement of a foreign judgment, and the original Ecuadorian action
    essentially amounts to a class action. In oral argument, Mr. Lenczner suggested
    that security for costs should never be ordered against an appellant in such
    circumstances.

[28]

Chevron and Chevron Canada submit
    that security for costs is warranted because the Ecuadorian plaintiffs have not
    provided evidence of impecuniosity, and have not established a good chance of
    success in the pending appeal. They also reject the appellants proposed new
    approach to the law of security for costs, contending that the principle of
    comity does not require the Ecuadorian plaintiffs to be treated more favourably
    than domestic litigants.

[29]

I have structured my analysis of
    the parties submissions in two parts. I begin by outlining why security for
    costs should be ordered under the usual analysis. I then explain why the
    appellants proposed change to the law of security for costs does not warrant a
    different conclusion.

Impecuniosity

[30]

A party who seeks to establish
    impecuniosity must lead evidence of "robust particularity", with full
    and frank disclosure, and supporting documentation as to income, expenses and
    liability:
T.S.
    v. Publishing Group Inc. v. Shokar
, 2013 ONSC 1755 (Master);
Mapara v. Canada (Attorney General)
, 2016 FCA 305, at para. 8. Doherty J. (as he was
    then) explained the rationale for this evidentiary rule in
Hallum v. Canadian Memo
rial Chiropractic College
(1989), 70 O.R. (2d) 119 (Ont. H.C.), at pp. 9-10:

A litigant who falls within one of the categories created by
    rule 56.01(a) to (f), and who relies on his impecuniosity to avoid an order
    requiring that he post security, must do more than adduce some evidence of
    impecuniosity. The onus rests on him to satisfy the court that he is
    impecuniousThe onus rests on the party relying on impecuniosity, not by virtue
    of the language of rule 56.01, but because his financial capabilities are within
    his knowledge and are not known to his opponent; and because he asserts his
    impecuniosity as a shield against an order as to security for costs.

[31]

In my view, the Ecuadorian
    plaintiffs have failed to demonstrate that they are impecunious. The only relevant
    evidence filed in their responding motion record consists of three settlement
    agreements between Chevron and third parties who had previously funded the
    Ecuadorian plaintiffs in this litigation. These third party funders have
    disavowed their financial interest in the Ecuadorian judgment, in the light of
    the New York decision.

[32]

Chevron and Chevron Canada object
    that these settlement agreements are not properly in evidence. They are not
    proven by affidavit and were filed after the Ecuadorian plaintiffs advised that
    they would not be tendering any responding evidence on the motion, thus
    preventing cross-examination and reply evidence. I need not address this
    evidentiary dispute, as I agree with Chevron and Chevron Canada that these
    settlement agreements do not assist the Ecuadorian plaintiffs in demonstrating
    impecuniosity. What the settlement agreements demonstrate is that the
    Ecuadorian plaintiffs have received a significant amount of funding for this
    litigation in the past. They leave unanswered the question of whether the
    Ecuadorian plaintiffs have other funding available to them  a question that
    the Ecuadorian plaintiffs declined to answer.

[33]

The Ecuadorian plaintiffs have
    filed no other evidence as to their finances beyond these three settlement
    agreements. There is no supporting evidence as to their income, expenses and
    liability. This can hardly be called "robust particularity". We know
    nothing about the individual circumstances of any of the 47 Ecuadorian
    plaintiffs  and perhaps more importantly, their financial backers.

[34]

Accordingly, I conclude that the
    Ecuadorian plaintiffs cannot demonstrate impecuniosity. I must assume that
    ordering security for costs will not end this litigation.

Merits

[35]

Where the moving party has met its
    initial onus under r. 56.01, and where the responding party is not impecunious,
    security for costs will generally be appropriate unless the responding party
    can demonstrate that their appeal has a good chance of success. I agree with
    the statement of Code J. in
Cigar500.com Inc. v. Ashton Distributors Inc
.
(2009), 99
    O.R. (3d) 55, at para. 69, that "the burden in
Zeitoun
for a Plaintiff who is not "impecunious" is
    a high one." If the responding party is not impecunious, the standard is
    higher than "not devoid of merit, but is not as high as proving the claim
    on a balance of probabilities at trial, or establishing that there is no
    triable issue on a summary judgment motion":
Bruno Appliances and Furniture
    Inc. v. Cassels Brock & Blackwell LLP
,
2013 ONSC
    4501 (Div Ct.), at para. 19.

[36]

In my view, the Ecuadorian
    plaintiffs have not demonstrated that their appeal has a good chance of
    success.

[3]
The motion judge
    held that, absent a piercing of the corporate veil, the shares and assets of
    Chevron Canada are not available for execution and seizure to satisfy the Ecuadorian
    judgment against Chevron. That conclusion is unlikely to be overturned.

[37]

The separate legal personality of
    corporations is a fundamental principle of corporate law, recognized in
Salomon v. Salomon & Co.
,
[1897]
    A.C. 22 (U.K. H.L.) and endorsed by Canadian courts many times. The principle
    applies equally to groups of companies  such as the Chevron group  absent a
    compelling reason to pierce the corporate veil. As the English Court of Appeal
    made clear in
Adams
    v. Cape Industries Plc
, [1991]
    1 All E.R. 929, [1990] B.C.C. 786, at pp. 817, 820: :

There is no general principle that all companies in a group of
    companies are to be regarded as one. On the contrary, the fundamental principle
    is that "each company in a group of companies ... is a separate legal
    entity possessed of separate legal rights and liabilities."

. . .

Our law, for better or worse, recognizes the creation of
    subsidiary companies, which though in one sense the creatures of their parent
    companies, will nevertheless under the general law fall to be treated as
    separate legal entities with all the rights and liabilities which would
    normally attach to separate legal entities.

[38]

Brown J. (as he then was)
    expressed support for the principles in
Adams

in an earlier decision in this litigation, when the
    matter of jurisdiction

was before the courts. He cited
Adams
in noting that "the fact that a parent
    corporation operates a number of world-wide companies as an integrated economic
    unit does not mean that separate legal entities will be ignored, absent some
    compelling reason for lifting the corporate veil." Other Canadian courts
    have reached similar conclusions: see
Cunnigham v. Hamilton
(1995), 169 A.R. 132 (C.A.), at para. 4;
Bow Valley Husky (Bermuda) Ltd.
    v. St. John Shipbuilding
, 126
    D.L.R. (4th) 1 (Nfld C.A.), at paras. 48-49, revd on other grounds, [1997] 3 S.C.R.
    1210;
Martin v.
    Astrazeneca Pharmaceuticals PLC
, 2012 ONSC 2744, at paras. 120-121, affd 2013 ONSC 1169 (Div. Ct.);
First Gulf Bank v. Collavino Inc.
, 2013 ONSC 4630, at paras. 107-113.

[39]

The question is, therefore,
    whether the Ecuadorian plaintiffs can show they are entitled to execute
    Chevrons judgment-debt against Chevron Canada, despite their separate legal
    personalities. To do so, the Ecuadorian plaintiffs must either establish a proper
    basis for execution against Chevron Canada under the
Execution Act
, or provide some compelling reason for lifting the
    corporate veil. In my view, the appellants have not demonstrated a good chance
    of success on either front.

Enforcing against Chevron Canada under the Execution Act

[40]

The central difficulty with the
    Ecuadorian plaintiffs submissions on this issue is that absent a piercing of
    the corporate veil, they lack an existing right or interest in Chevron Canada. I
    do not see how they can avail themselves of the
Execution Act

in such
    circumstances.

[41]

I agree with the motion judge that
    the
Execution
    Act
, notwithstanding the
    broad language found in s. 18(1), is only engaged when the judgment debtor has
    an existing right or interest in the property over which execution is sought.
    As noted by the motion judge, Conway J. adopted this position in
Belokon v. Kyrgz Republic
, 2016 ONSC 4506, stating at para. 31, that "The
    Execution Act is a procedural statute. It does not create new rights  it only
    provides a process for the enforcement of otherwise existing rights." I
    find it unlikely that this court will reach a different conclusion on the
    proper interpretation of the
Act
, having recently upheld Conway J.s
    decision in its entirety: 2016 ONCA 981, leave to appeal to S.C.C. refused,
    [2017] S.C.C.A. No. 74, and [2017] S.C.C.A. No. 75.

[42]

The Ecuadorian plaintiffs submit
    that they nonetheless fall within the ambit of the
Act
as they enjoy a
    beneficial interest in Chevron Canadas assets and shares. At the motion, they
    relied on
Sistem
    Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic
,
2014 ONSC
    2407, where Thorburn J., in their view, came to a different conclusion than
Belokon
on roughly the same facts. However, her decision was
    reversed by this court, on the basis that the Republic was not properly served
    in accordance with the
State Immunity Act
: 2015 ONCA 447, 126 O.R. (3d) 545, leave to appeal to
    S.C.C. refused, [2015] S.C.C.A. 354.

[43]

Regardless, I do not read Thorburn
    J. as finding that the
A
ct
creates rights in property where there were none
    before. Rather, her finding that the Kyrgyz Republic enjoyed a beneficial
    interest in shares issued by Kyrgyzaltryn (a wholly owned subsidiary of the
    Republic), turned on several factors not present in this appeal (set out at
    paras. 53-61):

(a) the Republic provided all the consideration for the issuance of the
    shares,

(b) the relevant agreement referred to the "Kyrgyz side", which
    was defined to include the Republic,

(c) various different parties stated at different times that the Republic
    was the owner of the shares, and

(d) special laws were enacted to confirm the Republic's interest in the
    shares and control of their use.

[44]

I also disagree with the
    Ecuadorian plaintiffs submission that, since the dividends flowing between
    Chevron Canada and Chevron can be seized under the
Execution Act
, the
assets
that generate those dividends should also be seizable. I do not see the
    existence of dividends as detracting from the conclusion that Chevron has no
    exigible interest in Chevron Canada. I concur with the motion judge and Brown
    J. that "the distribution of profits from sub to parent via dividends is a
    standard fact of inter-corporate life." It does not provide a sound basis
    for a right or interest in Chevron Corp.s assets.

Piercing the Corporate Veil

[45]

Accordingly, the remaining
    question in terms of merits is whether the motion judge erred in refusing to
    pierce the corporate veil between Chevron and Chevron Canada. In my view, the
    Ecuadorian plaintiffs are also unlikely to be successful here. This court, in
Shoppers Drug Mart Inc. v.
    6470360
,
2014 ONCA 85, leave to appeal to S.C.C. refused,
    [2014] S.C.C.A. No. 119, confirmed that the appropriate test to apply in
    determining whether the corporate veil should be pierced remains that stated by
    Laskin J.A. in
642947
    Ontario Ltd. v. Fleischer
(2001), 56 O.R. (3d) 417 (C.A.), at para. 68:

Typically, the corporate veil is pierced when the company is
    incorporated for an illegal, fraudulent or improper purpose. But it can also be
    pierced if when incorporated "those in control expressly direct a wrongful
    thing to be done":
Clarkson Co. v. Zhelka
, [1967] O.J. No.
    1054 at p. 578. Sharpe J. set out a useful statement of the guiding
    principle in
Transamerica Life Insurance Co. of Canada v. Canada Life
    Assurance Co.
(1996), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd
    [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal
    personality of a corporate entity where it is completely dominated and
    controlled and being used as a shield for fraudulent or improper conduct."
[4]

[46]

As stated by Sharpe J. (as he then
    was) in
Transamerica
at para. 22, the first part of the test,
    "complete control", requires more than ownership. It requires
    "complete domination, and that the subsidiary company does not, in fact,
    function independently." The second part of the test relates to the nature
    of the corporations conduct. There must be "conduct akin to fraud that
    would otherwise unjustly deprive claimants of their rights."

[47]

On the first branch, the motion
    judge concluded that Chevron Canada was not completely dominated and controlled
    by Chevron, but rather that they had a typical parent/subsidiary relationship.
    This determination is a finding of mixed fact and law, and will not be easy for
    the Ecuadorian plaintiffs to overcome on appeal. Moreover, in coming to this
    conclusion, the motion judge reasonably relied upon and adopted the findings of
    Brown J. These findings include that Chevron Canada initiates its own plans and
    budgets, funds its day to day operations and some recent capital expenditures,
    and files its own tax returns and corporate statements. Brown J. also noted
    that the relevant corporate structure has been in place since 1966, and was
    clearly not instituted in order to avoid the Ecuadorian judgment.

[48]

In terms of the second branch, and
    as the motion judge noted, the Ecuadorian plaintiffs expressly do not plead
    that the corporate structure of which Chevron Canada is a part was designed or
    used as an instrument of fraud or wrongdoing. At para. 24 of their pleadings,
    the Ecuadorian plaintiffs state that "the plaintiffs do not allege any
    wrongdoing against Chevron Canada". Nor have the Ecuadorian plaintiffs provided
    convincing proof that Chevrons corporate structure is being used as a shield
    for fraudulent or improper conduct.

[49]

It follows that the Ecuadorian
    plaintiffs do not have a good chance of satisfying the well-established test
    for piercing the corporate veil. Instead, they take the position that corporate
    separateness should not be applied in situations where it will yield a result
    "too flagrantly opposed to justice".

[50]

The motion judge correctly refused
    to accept that submission. As he noted, Sharpe J. rejected the notion that the
    corporate veil could be pierced based on what is "just and equitable"
    in
Transamerica
(a submission based off a solitary dictum to that
    effect found in
Kosmopoulos
    v. Constitution Insurance Co. of Canada
, [1987] 1 S.C.R. 2, also relied upon by the
    Ecuadorian plaintiffs) This court has also rejected that position on several
    occasions:
Parkland
    Plumbing & Heating Ltd. v. Minaki L
odge Resort
    2002 Inc.
,
2009 ONCA 256, 305 D.L.R. (4th) 577 (Ont. C.A.), at
    para. 50;
A-C-H
    International Inc. v. Royal Bank
, 254 D.L.R. (4th) 327 (Ont. C.A.), at para. 28; and
Boyd v. Wright Environmental
    Management Inc.
, 2008 ONCA
    779, 303 D.L.R. (4th) 747, at para. 44, where Juriansz J.A. noted that
    "the "just and equitable" ground for piercing the corporate
    veil, suggested in earlier cases, was firmly rejected by Sharpe J. in
Transamerica
, and upheld on appeal to this court." This
    submission has also been rejected in numerous other cases, which have found
    that mere injustice to one party is not sufficient to pierce the corporate
    veil, without wrongdoing or conduct akin to fraud (see
B.G. Preeco I (Pacific Coast)
    Ltd.
v
. Bon S
treet
    Holdings Ltd.

(1989)
,
43 B.L.R. 67 (C.A.), at para. 37;
Edington v. Mulek Estate
, 2008 BCCA 505, 54 B.L.R. (4th) 165, at paras. 24-26,
Nevsun Resources
    Ltd. v. Delizia Ltd.
,
2016 FC 393, at paras. 49-50).

[51]

Although I have concluded that the
    Ecuadorian plaintiffs do not have a good chance of success in this appeal, I do
    not say that they face an impossible task. Thorburn J.'s analysis in
Kyrgz Republic
shows that in certain situations, for the purposes of
    the
Execution
    Act
, a party may be taken to
    have an exigible beneficial interest in shares that it does not own legally
    albeit on very different facts from these, and on the basis of reasoning not
    adopted by this court.

[52]

As well, it is worthy of note that
    the Supreme Court, in its decision in this action, observed at para. 95 that
    "this is not a case in which the Court is called upon to alter the
    fundamental principle of corporate separateness, as reiterated in
BCE Inc., Re
,
2008 SCC
    69, [2008] 3 S.C.R. 560 (S.C.C.) at least not at this juncture." The Court,
    while stating that its decision should not be understood to prejudice further
    arguments with respect to the distinct corporate personalities of Chevron and
    Chevron Canada, seemingly left open the possibility of rethinking the
    doctrines of corporate separateness and presumably the principles behind
    piercing the corporate veil as well. However, even considering these points, I
    do not see the Ecuadorian plaintiffs as having a "good chance of
    success" on this appeal. In my view, applying the usual security for costs
    analysis, the just order in this case would require the Ecuadorian plaintiffs
    to post security for costs.

(2)

Does the Context of
    this Case Change the Analysis?

[53]

With his signature vigour, Mr.
    Lenczner argues that the Supreme Court, in its
Chevr
on
decision, adopted a "new approach" to
    enforcement and recognition actions. In his view, the Supreme Court instructed
    the courts to approach such cases in a different manner than first instance
    actions. He urges this court to heed the Supreme Courts call for a generous
    and liberal approach to the recognition and enforcement of foreign judgments.
    The Ecuadorian plaintiffs also submit that the need for a generous approach to
    recognition and enforcement is further buttressed in this case by the fact that
    the underlying litigation is essentially a class action, with the 47 appellants
    representing 30,000 indigenous people in Ecuador. Accordingly, they submit that
    this Court should be particularly hesitant to impose a barrier to the appeal.

[54]

Chevron and Chevron Canada dispute
    that the Supreme Court was calling for a "new approach" to
    enforcement and recognition actions. They submit that the
Rules
clearly contemplate that an appellant who is
    ordinarily resident outside of Ontario may be ordered to pay security for
    costs. There is, in their view, no exception for recognition and enforcement
    actions  and certainly such an exception cannot be inferred from the Supreme
    Courts
Chevron
decision, which dealt with jurisdiction.

[55]

Dealing briefly first with the
    class action point, the motion judge, in his costs endorsement, stated the
    following "I do not accept the plaintiffs' submission that their claim
    against Chevron Canada is analogous to a class proceeding and that s. 31(1) of
    the
Class
    Proceedings Act
therefore
    applies." I agree with him on that point.

[56]

Regardless, even if I were to
    accept the class action analogy, this would not prevent security for costs
    being ordered where the justice of the case warrants it. The Ecuadorian
    plaintiffs cite no case-law suggesting that a class action that results in the
    claim being dismissed against a defendant would insulate non-resident
    plaintiffs from having to post security for costs if they sought to bring an
    appeal.  Although I was unable to find any analogous cases involving r.
    61.06(1), in
2038724
    Ontario Ltd. v. Quizno's Canada Restaurant Corp
. (2007), 45 C.P.C. (6th) 375, Hoy J. (as she then was)
    ordered the intended representative plaintiffs in a proposed class action to
    pay security for costs pursuant to r. 56.01.

[57]

Turning now to the "new
    approach" argument, I find myself largely in agreement with the positions
    of Chevron and Chevron Canada. I see no basis in Ontario case law, or the
    Supreme Courts decision in
Chevron
,
    to suggest that an otherwise meritorious motion for security for costs should
    be denied because the action to which it relates concerns recognition and
    enforcement of a foreign judgment.

[58]

Brown v.
    Raymond Jones Ltd
(2007), 51
    C.P.C. (6th) 76 (Ont. Master), a case cited by Chevron and Chevron Canada, is apposite
    on this issue. In that case, the applicants sought orders giving effect to
    Letters of Request from the United States, and the moving parties sought
    security for costs. The moving parties relied on
Four Embarcadero Center Venture
    v. Mr. Greenjeans
Corp

(1986), 10
    C.P.C. (2d) 105 (Ont. Master), which cited the English Court of Appeal case
Crozat v. Brogden
, [1894] 2 Q.B. 30 (Eng. C.A.), for the proposition
    that "there is no difference between an action on a foreign judgment and
    any other action". The applicants in
Raymond Jones

sought to distinguish
Four Embarcadero Center
, on the basis that it predated the Supreme Court's
    private international law decisions of
Morguard Investments Ltd. v. De Savoye
,
[1990] 3
    S.C.R. 1077, and
Beals
    v. Saldanha
,
[2003] 3 S.C.R. 416
.
Master Graham rejected
    this argument, holding that:

In cases both of judgments from other provinces and of foreign
    judgments, it is open to the defendant to challenge the basis on which the
    court rendering the judgment assumed jurisdiction over the matter, and a
    defendant doing so successfully would presumably be entitled to costs in the
    Ontario proceeding to enforce the judgment. The principle of comity does not
    mean that a litigant from a foreign jurisdiction should be in a more advantageous
    position than a domestic litigant with respect to the costs exposure arising
    out of a proceeding in the domestic court. Four Embarcadero Center Venture was
    therefore not overruled by Morguard or Beals and is still good law in Ontario.

[59]

I appreciate that
B
rown
predates the Supreme Court's recent
Chevron
decision, upon which the Ecuadorian plaintiffs rely.
    Thus, in a sense, this is a matter of first impression. However, the principles
    underlying
Chevron

have been
    present in the Supreme Courts jurisprudence on private international law for
    some time.
Brown
post-dates and specifically considers
Morguard
and
Beals
,
    earlier cases that also stressed the importance of comity and spoke of a new
    approach to recognition and enforcement of foreign judgments in the modern
    world. Moreover, the post-
Morguard

and
Beals

case law
    the Ecuadorian plaintiffs rely upon specifically recognized the principle that
    a litigant seeking to enforce a foreign judgment should not be put in a more
    advantageous position than domestic litigants:
Pro
Swing Inc. v. Elta Golf Inc.
, 2006 SCC 52, [2006] S.C.R. 612, at para. 31.

[60]

In my view, the Supreme Courts
Chevron
decision did not change this principle.
Chevron
stands for the proposition that Canadian courts
    should take a generous approach in finding jurisdiction to allow litigants
    holding foreign judgments to bring enforcement actions in Canada. I do not read
    the decision as saying that, when such enforcement actions are brought before
    Canadian courts, they should be treated differently than cases involving
    domestic litigants. As I explained above, I am of the view that if the Ecuadorian
    plaintiffs were domestic litigants, an order for security for costs would be
    appropriate. I do not see why the result should be different because the
    Ecuadorian plaintiffs hold a foreign judgment.

[61]

I find support for this conclusion
    in the Supreme Court of Canadas decision in
Pro Swing
. Addressing the recognition and enforcement of
    equitable orders issued by foreign courts, Deschamps J. clarified at para. 31
    that comity does not require receiving courts to extend greater judicial
    assistance to foreign litigants than it does to its own litigants. I also
    point to a comment made by Strathy C.J.O. in
Independence Plaza 1 Associates L.L.C. v.
    Figliolini
, 2017 ONCA 44,
    albeit in a different context:

I would remark that, despite their undoubted importance, the
    principles of comity expressed in Morguard, Beals, Chevron do not require the
    absence of any limitation period for a proceeding on a foreign judgment it is
    one thing to remove barriers to the extraterritorial recognition of foreign
    judgments. But it is quite another to grant them more generous status than any
    other debt obligation or to give them the same status as a domestic judgment
    for limitations purposes.

[62]

The purposes underlying security
    for costs orders also suggest that a party seeking to enforce a foreign
    judgment should not be treated differently than a domestic litigant. While
    courts may award security for costs for a range of reasons, the core aim of such
    an order under r. 61.06 is to provide respondents with a measure of protection
    for costs incurred and to be incurred in the proceeding, which is now on appeal:
Henderson v.
    Wright
, 2016 ONCA 89, 345
    O.A.C. 231, at para. 24;
Combined Air Mechanical Serv
ices
    Inc. v. Flesch
, 2010
    ONCA 633, 268 O.A.C. 172, at para. 8;
York University v. Markicevic
, 2017 ONCA 651, at para. 53. That aim is no less
    important when the main appeal concerns enforcement of a foreign judgment,
    particularly when the respondent is exposed to the risk of being forced to go
    to a foreign jurisdiction to enforce an order for costs: Linda S. Abrams and
    Kevin P. McGuinness
,
Canadian Civil Procedure Law
,
2
nd

Ed
.
(Markham: LexisNexis, 2010), at p. 1476.

[63]

Finally, I can find passages in
    the Supreme Court's Chevron decision that undercut the reading the Ecuadorian
    plaintiffs urge. I refer, in particular, to para. 46, in which Gascon J. states
    that "enforcement is limited to measures

like seizures, garnishments or execution

that can be taken only within the confines of the jurisdiction,
and in
    accordance with its rules
", and that "
Whether recognition and
    enforcement should proceed depends entirely on the enforcing forum's laws
"
    (emphasis added). Further, at para. 51, Gascon J. cited the definition of
    comity as "the recognition which one nation allows within its territory to
    the legislative, executive or judicial acts of another nation, having due
    regard both to international duty and convenience,
and the rights of its own
    citizens
or of other persons who are under the protection of its
    laws". Further, Gascon J. was clear at para. 95 that his decision merely
    addressed jurisdiction, and should not be understood to prejudice further
    arguments with respect to the distinct corporate personalities of Chevron and
    Chevron Canada."

[64]

I am therefore unable to accept,
    as a general rule, that courts should approach security for costs differently
    in an appeal involving enforcement of a foreign judgment. To be sure, there
    will be cases involving recognition and enforcement of foreign judgments where
    security for costs will not be appropriate. Plaintiffs may establish
    impecuniosity. That did not happen here. They may demonstrate that they have
    assets within Ontario, or in a jurisdiction with which Ontario has a reciprocal
    enforcement of judgments agreement. There is no such evidence in this case.
    Plaintiffs may also demonstrate a good chance of success on their appeal, and
    will often benefit from the fact that Canadian courts rarely re-examine the
    merits of a foreign judgment in an enforcement action. This appeal, however,
    does not involve a typical enforcement proceeding. On the contrary, it
    challenges long-standing and well-established corporate law principles - and,
    in my view, is unlikely to do so successfully. In these circumstances, I find
    that an order for security for costs is entirely appropriate.

(3)

Conclusion

[65]

There is no question that the
    Ecuadorian plaintiffs are normally resident outside of Ontario, thus
    "triggering the enquiry" into security for costs. The Ecuadorian
    plaintiffs have put forward no evidence to demonstrate that they are
    impecunious. Since the Ecuadorian plaintiffs cannot be deemed impecunious, they
    must demonstrate that their appeal has something akin to a "good chance of
    success" to resist the motion. This, in my view, they cannot do  the
    appeal challenges well established corporate law doctrines, as well as a
    finding of mixed fact and law that there is no basis to pierce the corporate
    veil. The
Execution
    Act
does not create rights in
    property where there were none before. Finally, the Ecuadorian plaintiffs seek
    to resist the motion by relying on an alleged "new approach" endorsed
    by the Supreme Court for recognition and enforcement actions. I do not read the
Chevron
decision as establishing any such new approach. The
    case dealt only with jurisdiction. It does not hold that plaintiffs seeking to
    enforce a foreign judgment should be treated differently than any other
    litigant in our courts. The just order in this case is one for security for
    costs.

(4)

Quantum

[66]

Having concluded that security for
    costs is warranted, I now turn to determining the appropriate quantum. The
    Ecuadorian plaintiffs submit that the quantum for both Chevron and Chevron
    Canada should not exceed $50,000 in the aggregate. They contend that the
    arguments to be advanced in the main appeal have already been canvassed several
    times, and thus little additional preparation will be necessary. Further, the
    positions of Chevron Canada and Chevron are identical, with both seeking the
    same remedy (the removal of Chevron Canada as a defendant).

[67]

Chevron and Chevron Canada submit
    that the quantum they seek is reasonable. The bulk of it is made up of the
    costs already awarded during this action, which remains unpaid. The quantum
    sought for security for costs falls within the range of costs awards that have
    been made recently by this Court for appeals of similar length.

[68]

In my view, while it may be true
    that the arguments to be advanced on this appeal have already been canvassed
    several times, it must be noted that the large majority of the security sought
    relates to the awards of costs already made. Having said, that, I am of the
    view that the amounts claimed for security for the costs of the appeal are high
    having regard to the history of this matter. They should be reduced to take
    into account the reasonable Ecuadorian plaintiffs argument that the issues
    advanced will be much the same as have been advanced before.

[69]

The total amount sought might
    seem like a large quantum of security. However, it pales in comparison to the
    over $9.5 billion that the Ecuadorian plaintiffs are seeking to enforce. In
    awarding costs for the motion, the motion judge noted the following in relation
    to Chevron (and made similar comments in regards to Chevron Canada):

The plaintiffs attempt to enforce an over $9 billion judgment,
    which is known to be and has been found to be fraudulent. As Judge Kaplan of
    the SDNY found, the plaintiffs have been supported by millions of dollars from
    a sophisticated financing network involving "numerous investors",
    including litigation financers and law firms. The Plaintiffs have enjoyed a
    large team of experienced counsel internationally. They are similarly
    represented by a large team of experienced counsel in Canada. In the
    circumstances, Chevron Corp.'s efforts in Canada, including on the motions for
    summary judgment motions (and the motion to strike) are proportionate,
    reasonable and to have been expected.

[70]

Considering that the Ecuadorian
    plaintiffs have not demonstrated impecuniosity, or that their appeal has a
    strong chance of success, $50,000 in security for costs would not be a just
    order. I have concluded that significant security for costs should be ordered,
    albeit less than what the moving parties have requested.

DISPOSITION

[71]

I therefore order the Ecuadorian
    plaintiffs to post security for costs. Chevron Canada is entitled to security
    for costs of the appeal in the amount of $50,000 and for the proceedings below
    in the amount of $541,335.14. Chevron is entitled to security for costs of the
    appeal in the amount of $30,000 and for the proceedings below in the amount of
    $321, 616.33.

[72]

Chevron and Chevron Canada have
    been entirely successful. They are entitled to their costs of this motion fixed
    in the amount agreed upon by counsel of $4,000, including interest and costs,
    to each of the moving parties.

Released: GE SEP 21,
    2017

Gloria Epstein J.A.

[1]

The judgment was originally in the amount of approximately US
    $18 billion before being reduced to approximately US $9.5 billion by the
    National Court of Justice of Ecuador in November 2013.

[2]
The motion to strike is no longer relevant, as in a decision dated April 11,
    Nordheimer J. (as he then was) refused leave to appeal that aspect of the
    order. I will make no further reference to it in these reasons.

[3]
In what follows, I will only consider the appeal in respect of Chevron Canada.
    CCCC is essentially in the exact same position as Chevron Canada vis-à-vis
    Chevron. Accordingly, if the motion judge correctly concluded that summary
    judgment should be granted in respect of the appellants' claim for relief
    against Chevron Canada, he was also correct in concluding that there was no
    basis upon which to add CCCC as a defendant.

[4]
The corporate veil can also be pierced where "the corporation has acted as
    the authorized agent of its controllers, corporate or human", or "where
    a statute or contract requires it". I see nothing to indicate the
    appellants relied on either of these bases, and the motion judge states at
    para. 16 that "the plaintiffs do not allege that Chevron Canada is an
    agent of Chevron".


COURT OF APPEAL FOR ONTARIO

CITATION: Zeleny v. Canada (Attorney General), 2017 ONCA 745

DATE: 20170925

DOCKET: C63570

Doherty, LaForme and Miller JJ.A.

BETWEEN

Deryl Clayton Zeleny,
in Personam
,
    Beneficiary, Trustee

Applicant (Appellant)

and

Attorney General of Canada, Canada CIK
    #0000230098, Justin Trudeau, acting as Prime Minister of Canada, in
Personam
,
    Department of Finance, William Francis Morneau, acting as Minister of Finance Canada,
in Personam
, Richard Dupas, acting as RCMP Liaison Officer Thailand,
in
    Personam

Respondent (Respondent)

Deryl Clayton Zeleny, self-represented

Mathew Johnson, for the respondent, Attorney General of
    Canada

Heard:  September 22, 2017

On appeal from the order of Justice Timothy Minnema of
    the Superior Court of Justice, dated March 29, 2017.

APPEAL BOOK ENDORSEMENT

[1]

The appellant has not demonstrated any error in the court below.

[2]

The appeal is dismissed.

[3]

No costs.


COURT OF APPEAL FOR ONTARIO

CITATION: 2122994 Ontario Inc. v. Lettieri, 2017 ONCA 830

DATE: 20171030

DOCKET: C62827

MacFarland, Hourigan and Pardu JJ.A.

BETWEEN

2122994 Ontario Inc. and Raisa Baila

Plaintiffs (Respondents)

and

John Lettieri
, Jim Papadopoulos and
Lettieri
    Bars Ltd.

Defendants (
Appellants
)

AND BETWEEN

Lettieri Bars Ltd.

Plaintiffs by counterclaim

and

Raisa Baila

Defendant to the counterclaim

Morris Cooper, for the appellants

Adrienne Boudreau and Krishana Persaud, for the
    respondents

Heard and released orally: October 25, 2017

On appeal from the judgment of Justice Michael A. Penny
    of the Superior Court of Justice, dated October 7, 2016, with reasons reported
    at 2016 ONSC 6209.

REASONS FOR DECISION

[1]

The appellant argues that the trial judge erred in failing to permit him
    to cross-examine the respondent about the arrangement she had with Toronto
    Dominion Bank (TD), the entity said to have loaned her the money to fund the
    cost of leasehold improvements made to the property.

[2]

In the same vein, it is argued that the trial judge erred in permitting
    respondents counsel to inform the court that TD had a judgment in excess of
    $300,000 against the respondent, and that an arrangement had been made between
    the bank and the respondents.

[3]

We do not accept this submission. In our view, whatever the arrangements
    were between TD and its customer, they are irrelevant to the issue between the
    franchisor and the franchisee. The only relevant fact for the purpose of
    compensation under the
Arthur Wishart Act (Franchise Disclosure)
,
    2000, S.O. 2000, c. 3 (the Act) is the amount the franchisee paid to the
    franchisor under this category and here the number $287,289 is not in dispute.

[4]

The language of the statute is clear. On rescission the franchisor is,
    under ss. 6(6)(a), to
refund to the franchisee any money
    received from or on behalf of the franchisee, other than money for inventory,
    supplies or equipment
. Whether the franchisee paid these monies from
    her funds, borrowed funds or inherited funds is irrelevant to her claim against
    the franchisor. Her entitlement is statutory and the language of the
    legislation is clear. Whatever she paid to him, he must pay back.

[5]

Unlike legislation in other jurisdictions, as the respondent points out
    in her factum, Ontario has a specific legislated payback scheme. It is not a
    net loss regime. And whether the leasehold improvements are properly categorized
    under s. 6(6)(a) or s. 6(6)(c) is immaterial from the appellants perspective.
    No matter the category, the result is the same: pay back what the franchisee
    paid.

[6]

We agree with the trial judge. Any argument on the categorization of
    this claim is really about form over substance and is quite immaterial. In our
    view, the trial judge was correct in categorizing this claim as he did.

[7]

Secondly, there is no breach of the s. 3 duty of fair dealing. This
    courts decision in
Personal Service Coffee Corp. v. Beer

(2005)
,
256 D.L.R. (4th) 466 (C.A.)

is dispositive of this argument.

[8]

And lastly, the respondent Baila was required to provide the franchisor
    with her personal guarantee of both the franchise agreement and the sublease.
    In light of the way the arguments were presented at trial, it was appropriate
    for judgment to be granted in her favour as well.

[9]

The appeal is dismissed. Costs are awarded to the respondent fixed in
    the amount of $25,000, inclusive of disbursements and HST.

J. MacFarland J.A.

C.W. Hourigan J.A.

G. Pardu J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: 2395446 Ontario Inc. v. Kings and Queens Custom
    Homes Inc., 2017 ONCA 782

DATE: 20171013

DOCKET: C62997

Doherty, LaForme and Miller JJ.A.

BETWEEN

2395446 Ontario Inc. and Nikolay Chsherbinin

Plaintiffs (Appellants)

and

Kings and Queens Custom Homes Inc. and Sula
    Kogan

Defendants (Respondents)

Gregory M. Sidlofsky, for the appellants

Benjamin Salsberg, for the respondents

Heard: September 19, 2017

On appeal from the judgment of Justice Sean F. Dunphy of
    the Superior Court of Justice, dated October 20, 2016.

REASONS FOR DECISION

BACKGROUND

[1]

The appellant, Nikolay Chsherbinin, entered into a construction
    management contract with the respondent Kings and Queens Custom Homes Inc.
    (KQ), in which KQ agreed to manage the construction of improvements at Chsherbinins
    new law office. After the completion of the work, the appellants brought an
    action to recover alleged overpayments to the respondents, and for damages pursuant
    to a penalty clause for construction delays.

[2]

The appellants motion for summary judgment was unsuccessful and the
    motion and action were both dismissed.

[3]

The appellants raised two substantive issues on appeal: that the motion
    judge erred in finding: (1) there was no overpayment to KQ; and (2) the penalty
    clause for delay did not apply to the construction of a feature wall in the
    reception area. A third, overarching issue is whether the appellants received a
    fair hearing. The motion judge made significant, adverse findings of
    credibility against Chsherbinin. The substantive issues were questions of fact
    and mixed fact and law, and the motion judges credibility assessment must have
    influenced his decision. Unfortunately, that credibility assessment rested at
    least in part on significant misapprehensions of evidence.

[4]

These misapprehensions would be sufficient reason to allow the appeal,
    but the motion judge made an additional error: by dismissing the action in its
    entirety on his own motion, he denied Chsherbinin judgment even for a small portion
    of the alleged overpayment that the respondents conceded as owing.

[5]

For these reasons, we allow the appeal. In setting out our reasoning
    below, it is unnecessary, and we think unadvisable, for us to comment on the
    substantive issues on appeal. We set them out below only to provide the context
    for these reasons.

ANALYSIS

(1)

Overpayment

[6]

Chsherbinin claims to have overpaid KQ by $9,322.29. The basis of the
    claim is that advance payments made by Chsherbinin at KQs request exceeded the
    amounts ultimately invoiced by KQ.

[7]

Some months after the job was complete, KQ provided an account
    reconciliation via email to Chsherbinin. The reconciliation applied Chsherbinins
    advance payments against four invoices that had been issued by KQ, and noted a
    discrepancy of $9,322.29. The reconciliation then set out the extra work requested
    by Chserbinin that largely accounted for the discrepancy: specifically, upgrades
    to door jambs, and hardware. KQ concluded that after the extra work was taken
    into account, there remained only a modest overpayment from Chsherbinin of $677.79.

[8]

Chsherbinin, however, claimed the full $9,322.29 as an overpayment on
    the basis that the items referenced in the reconciliation email were not extras,
    as they had been included in the original contract. Further, he argued, he had
    not approved any extras in writing, as required by the contract.

[9]

The motion judge rejected this argument. In the motion judges view,
    there was clear evidence that Chsherbinin had requested numerous modifications
    as the project unfolded, and had paid for those modifications without complaint
    or reservation of rights. In any event, the motion judge found that Chsherbinin
    requested the work, received exactly what he asked for, and paid for what he
    received.

(2)

The Penalty Clause

[10]

The
    penalty clause for delayed construction reads as follows:

Any delays that are the sole fault of kings and queens homes
    inc. past April 2, 2015 for work related to this contract only will be subject
    to a penalty of $200.00 per day to be paid by kings and queens homes inc.

[11]

On
    the motion judges reading, the penalty clause related to delay in turning the
    premises over to Chsherbinin for painting and moving in on April 2, 2015. It
    did not relate to warranty claims or satisfaction of minor deficiencies. The
    purpose of the penalty clause, the motion judge found, was to avoid Chsherbinin
    having to continue to pay rent in his former premises while waiting for his new
    premises to become move-in ready. The motion judge found, and it was
    uncontested, that Chsherbinin did move in to the new premises on April 2.

[12]

The
    basis of Chserbinins delay claim is primarily that a feature wall in the
    reception area was not completed by April 2.

[13]

The
    motion judge made a finding that the contract did not require the installation
    of the feature wall by April 2. This finding was supported by the motion
    judges review of the parties subsequent conduct, specifically correspondence
    between the parties (and from Chsherbinin to third parties) throughout April
    and early May 2015, none of which expressed the expectation that the feature
    wall would be installed by April 2, and none of which expressed any concern
    when it was not.

[14]

Because
    the motion judge did not accept that the penalty clause applied to work that
    was not intended to be completed by April 2, the fact that there was,
    ultimately, delay in the installation of the feature wall, was immaterial. An
    additional ground for the penalty clause not applying to this latter delay, the
    motion judge found, was that the delay was not the sole fault of KQ as
    required by the contract. He would also have granted KQ relief from forfeiture
    even if the penalty clause applied, as the claimed penalty [was] out of all
    proportion to the harm attributable to the delay.

(3)

Credibility findings

[15]

The
    motion judge was highly critical of Chsherbinin. With respect to his conduct of
    the litigation, he objected that Chsherbinin had made a mountain out of a
    molehill. He criticized Chsherbinin at length for adding KQs principal Sula
    Kogan as an individual defendant, suggesting it was done for improper reasons.
    However, the propriety of joining Kogan was not in issue in the summary
    judgment motion, and Kogan had not at any point brought a motion to dismiss the
    action against her. The criticism was thus gratuitous.  The motion judge also
    criticized Chsherbinin for over-reaching in claims made in his affidavit
    about the drafting of the penalty clause. In making his assessment of
    Chsherbinins credibility, the motion judge said: (h)is tendency to exaggerate
    or overstate, if not deliberately misstate, is simply too evident for me safely
    to credit his evidence with any weight unless corroborated.

[16]

However,
    the motion judges assessment of Chsherbinins evidence is impaired by two serious
    errors.

[17]

First,
    although the motion judge stated that there were several examples of
    over-reaching in Chsherbinins affidavit, he listed only the one that he said
    was the most glaring: that although Chsherbinin, in asking for the penalty
    clause to be construed against KQ, claimed in his affidavit that it was Kogan who
    drafted the penalty clause, he later contradicted himself on cross-examination
    by stating that he amended the penalty clause on his own computer in his office
    after discussions with Kogan.

[18]

The
    apparent contradiction, however, is the product of the motion judges error in
    mixing up Chsherbinins and Kogans evidence on cross-examination. It was Kogan
    who testified in cross-examination that
she
typed out the amended
    penalty clause in
her
office on
her
computer after
    discussions with Chserbinin and with Chsherbinin present. Chsherbinin said
    nothing to the contrary in his cross-examination.

[19]

Second,
    the motion judge faulted Chsherbinin for not disclosing a fifth invoice from KQ,
    thought to be material to the question of whether KQ had been paid in excess of
    the amount it had invoiced. However, there was, the respondent concedes, no
    fifth invoice from KQ, and the motion judge erred not only in finding there
    was, but in drawing an adverse inference against Chsherbinin for not producing
    it.

[20]

It
    is arguable that the motion judges serious misapprehensions of the evidence
    did not directly impact on his interpretation of the penalty clause in the
    contract. It is also arguable that his interpretation was a reasonable one.
    However, we are satisfied that the motion judges strong, but unsupported
    findings against Chsherbinins credibility would have inevitably influenced his
    assessment of all of the issues before him. This conclusion is supported by the
    motion judges inexplicable outright dismissal of Chsherbinins overpayment
    claim, despite KQs concession that there had been a small overpayment that was
    recoverable by Chsherbinin.

DISPOSITION

[21]

The
    appeal is allowed. The orders for summary judgment and costs are set aside. The
    costs of the summary judgment motion below are reserved to the trial judge. The
    appellants are awarded costs of the appeal in the amount of $2,000 inclusive of
    disbursements and HST.

Doherty J.A.

H.S. LaForme J.A.

B.W. Miller J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Abdikarim (Re), 2017 ONCA 793

DATE: 20171017

DOCKET: C63197

Pepall, Benotto and Nordheimer JJ.A.

IN THE MATTER OF:  Mohamed Abdikarim

AN APPEAL UNDER PART XX.1 OF THE
CODE

Ken J. Berger, for Mohamed Abdikarim

Erica Whitford, for the Attorney General of Ontario

Michele Warner, for the Person in Charge of the Centre
    for Addiction and Mental Health

Heard:  October 10, 2017

On appeal against the disposition of the Ontario Review
    Board dated December 14, 2016.

REASONS FOR DECISION

[1]

Mohamed Abdikarim appeals from the December 14, 2016 disposition of the
    Ontario Review Board (the Board), ordering his detention at the General
    Forensic Unit of the Centre for Addiction and Mental Health (CAMH). The
    hearing before the Board was held on December 9, 2016.

[2]

The appellant is a 33 year-old man born in Mogadishu, Somalia. His
    family lived in Saudi Arabia during his early years. He moved to Canada at age
    four with his mother and siblings. The appellant currently resides in Toronto,
    Ontario. He is single and does not have any children.

[3]

The appellant is diagnosed with bipolar disorder  not otherwise
    specified; substance-use disorder, in partial remission; and
    personality-disorder  not otherwise specified.

[4]

The index offences occurred in 2004. On March 26, 2004, the appellant
    was charged with robbery and possession of property obtained by crime, for grabbing
    the purse of a woman on the sidewalk. Though there was a brief struggle, there
    was no serious harm reported as a result of the incident. Days later, on March
    30, 2004, the appellant was charged with theft over $5,000, theft under $5,000,
    robbery and possession of property obtained by crime for stealing a motor
    vehicle, and later, entering a bank with a threatening note and fleeing the
    scene with $2,600 given to him by the bank teller. A few months later, on July
    14, 2004, the appellant was charged with robbery and failure to comply for
    attempting to rob another bank using a threatening note. He had no weapons on
    him and there was no reported serious harm from this incident.

[5]

The appellant was eventually found to be not criminally responsible
    (NCR) in respect of these offences.  The appellant was admitted to the Medium
    Secure Forensic Unit at CAMH on November 18, 2005. Since his initial admission,
    the appellant has been in and out of CAMH on numerous occasions.

[6]

It is unnecessary to review in extensive detail the last twelve years of
    the appellants interaction with CAMH.  It is sufficient to note that he has
    consistently had to return to CAMH because of problems that he has experienced
    living in the community.  Frequently these problems are caused by substance
    abuse involving alcohol, marijuana or both.  These problems, when they arise,
    often involve concerns about the potential for physical violence that the
    appellant, himself, admits to.  That said, there are very few instances of any
    actual physical violence being inflicted by the appellant.

[7]

The appellant continued to pose these same problems in the year leading
    up to the Boards decision that is the subject of this appeal.  The appellant
    would not follow rules, he would abuse privileges extended to him and, when
    outside of CAMH, he would continue his substance abuse.

[8]

On December 9, 2016, a hearing was held to review the decision of CAMH
    to significantly increase the restrictions of liberty of the appellant, and to
    review the appellants most recent disposition, to determine whether he
    remained a significant threat to the safety of the public. The evidence before
    the Board consisted of various hospital reports, the expert evidence of Dr.
    Walton, the appellants treating psychiatrist, and the evidence of the
    appellants mother, his cousin, and a local mental health worker.

[9]

The Board essentially accepted the evidence of Dr. Walton that the
    appellant remained a significant risk to public safety due to his continued
    substance use and manic symptoms. Dr. Waltons opinion was that a detention
    order was necessary.  Dr. Walton also noted that the appellant required
    supervised housing and that a conditional discharge to the family home was not
    viable since the appellant had consistently struggled there, resulting in
    several readmissions to hospital.

[10]

On
    appeal, the respondent, Person in Charge of CAMH, sought to introduce fresh
    evidence. The fresh evidence relates to conduct of the appellant since the
    Boards decision.  More specifically, it reveals that the appellant had to be
    transferred to a Secure Forensic Unit at CAMH as a result of his disruptive
    conduct.  Included in that conduct was an attempt to smuggle cigarettes into
    CAMH, aggressive and threatening behaviour, shoving or punching another patient,
    and verbal altercations.  Security staff had to intervene with the appellant on
    more than one occasion.

[11]

We
    would admit the fresh evidence as it is trustworthy and touches on the issue of
    risk to public safety. It goes directly to the concerns regarding the
    appellants likely future conduct. It is also necessary to receive and consider
    that evidence in the interests of justice:
R. v. Owen
, [2003] 1
    S.C.R. 779, at para. 71.

[12]

The
    Boards obligation is set out in s. 672.54 of the
Criminal Code
which
    reads:

When a court or Review Board makes a disposition under
    subsection 672.45(2), section 672.47, subsection 672.64(3) or section 672.83 or
    672.84, it shall, taking into account the safety of the public, which is the
    paramount consideration, the mental condition of the accused, the reintegration
    of the accused into society and the other needs of the accused, make one of the
    following dispositions that is necessary and appropriate in the circumstances:

(a) where a verdict of not criminally
    responsible on account of mental disorder has been rendered in respect of the
    accused and, in the opinion of the court or Review Board, the accused is not a
    significant threat to the safety of the public, by order, direct that the
    accused be discharged absolutely.

(b) by order, direct that the accused be discharged subject to
    such conditions as the court or Review Board considers appropriate; or

(c) by order, direct that the accused be detained in custody in
    a hospital, subject to such conditions as the court or Review Board considers
    appropriate

[13]

A
    significant threat to the safety of the public is defined in s. 672.5401 as a
    risk of serious physical or psychological harm to members of the public

including any victim of or witness to
    the offence, or any person under the age of 18 years

resulting from conduct that is criminal in nature
    but not necessarily violent.

[14]

The
    application of this standard was recently considered by this court in
Wall
    (Re)
, 2017 ONCA 713. That decision, in turn, referred to the earlier
    decision of the Supreme Court of Canada in
Winko v. British Columbia
    (Forensic Psychiatric Institute)
, [1999] 2 S.C.R. 625, where McLachlin J.
    discussed what constitutes a significant threat to public safety at para. 57:

To engage these provisions of the
Criminal Code
, the
    threat posed must be more than speculative in nature; it must be supported by
    evidence: [citation omitted]. The threat must also be significant, both in
    the sense that there must be a real risk of physical or psychological harm
    occurring to individuals in the community and in the sense that this potential
    harm must be serious. A minuscule risk of a grave harm will not suffice.
    Similarly, a high risk of trivial harm will not meet the threshold. Finally,
    the conduct or activity creating the harm must be criminal in nature: [citation
    omitted]. In short, Part XX.1 can only maintain its authority over an NCR
    accused where the court or Review Board concludes that the individual poses a
    significant risk of committing a serious criminal offence. If that finding of
    significant risk cannot be made, there is no power in Part XX.1 to maintain
    restraints on the NCR accused's liberty.

[15]

In
Wall
, this court observed that the significant threat standard is an
    onerous one and that it was not met in that case.  In
Wall
, however,
    the appellant had insight into his mental disorder and his need for medication;
    he had not been physically violent for a period of more than ten years, nor had
    he caused psychological harm; and the evidence before the Board established, at
    best, that the appellants marijuana use was only potentially linked to
    problematic symptoms.  Also, in
Wall
, the Board was divided over
    whether a detention order was justified.

[16]

The
    appellants situation here is different.  The appellant has difficulty
    monitoring and recognizing his symptoms.  There is clear evidence of continual
    substance abuse by the appellant that leads inevitably to problematic conduct
    including at least one instance that caused psychological harm.  These factors
    distinguish this case from the situation in
Wall
.

[17]

Relying
    on the evidence of Dr. Walton and the hospital records, the Board reasonably
    concluded that the appellant posed a significant risk to the safety of the
    public.  That conclusion is bolstered by the fresh evidence.

[18]

The
    decision of the Board is entitled to deference from this court.  In that
    regard, the standard of review applicable to the Boards decision is
    reasonableness, absent an error of law of which none is identified here.  In
    conducting a review, this court must bear in mind the caution expressed by
    McLachlin J. in
Winko
at para. 61:

Appellate courts reviewing the dispositions made by a court or
    Review Board should bear in mind the broad range of these inquiries, the
    familiarity with the situation of the specific NCR accused that the lower
    tribunals possess, and the difficulty of assessing whether a given individual
    poses a significant threat to public safety.

[19]

The
    Board applied the least onerous and restrictive disposition available in the
    circumstances.  The Board determined that discharging the appellant to his
    family home was not viable.  This conclusion was supported by his numerous readmissions
    to CAMH, his history of conflict, the lack of insight on the part of a key
    family member regarding the appellants mental health issues, and his familys
    inability to provide the necessary structure and supervision.  The Board
    considered all of the evidence before it and reached a reasonable conclusion
    based on that evidence.

[20]

We
    appreciate the appellants frustration with the time that he has been subject
    to the supervision of the Board.  On that point, however, we would note the
    following summary from the March 29, 2017 CAMH report, at p. 5:

The treatment team acknowledges that Mr. Abdikarim's course
    under the jurisdiction of the ORB and as a patient at CAMH has been lengthy and
    tenuous. There has not been an ideal setting to facilitate his rehabilitation,
    either as an inpatient, or as an outpatient. His fluctuating mental state has
    impeded his progress. Historically, he has benefitted from a structured
    setting. Considering his struggles, the original goals for re-admission in
    November 2016 were to formulate a relapse prevention plan, to engage in
    structured activities, re-evaluate housing, and to optimize medication
    management. Unfortunately, these goals have not yet been achieved. It is the
    team's opinion these goals remain valid, and are necessary for his successful
    rehabilitation.

[21]

The
    appeal is dismissed.

S.E. Pepall J.A.

M.L. Benotto J.A.

I.V.B. Nordheimer J.A.