Tuesday, 14 April 2015

Ontario Judges Finds Individual Director Liable for Unpaid Wages Pursuant to Oppression Remedy

Are employees who are owed wages “creditors” for the purposes of advancing a claim pursuant to the oppression remedy provisions of Canada’s business corporations laws?

In a recent, unprecedented decision from the Ontario Superior Court of Justice, El Ashiri v. Pembroke Residence Ltd., 2015 ONSC 1172 (CanLII), at least one judge has said that the answer is “yes.”

Facts

As set out in Justice Boswell’s reasons for decision, the plaintiffs were both former employees of the defendants. They worked as hotel managers at the Red Carpet Inn & Suites in Niagara Falls, which was owned by Canuck Resorts Inc., and the Downtowner Inn in Toronto, which was owned by Pembroke Residence Inc. They were hired by, and received their instructions from the defendant, Mehboob Dewji, who was the sole director and officer of the two corporate defendants. Mr. Dewji held himself out as the director of the “Dewji Group of Hotels”.

The plaintiffs were both constructively dismissed, by virtue of the failure on the part of the employer to pay their wages over extended periods of time. They each sued the defendants for back wages and other relief. Mr. Dewji died in May 2013 and the plaintiffs each obtained an order to continue their actions against his wife, as trustee of his estate.

The plaintiffs move for summary judgment on their claims. The motions were not defended. The plaintiffs sought an assessment of their losses of wages and related expenses, as well as punitive damages and an order that Mr. Dewji be personally responsible for their losses.

Decision

On the issue of whether Mr. Dewji should be held personally liable for the corporate defendants’ debts, Justice Boswell found that he should writing on this point:

[12] The assertion that Mr. Dewji has personal liability is founded in the oppression remedy provisions of the Ontario Business Corporations Act (the “OBCA”), R.S.O. 1990, c. B.16, specifically, s. 248.

[13] Section 248(2) provides as follows:

248 (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.

[14] A “complainant” for the purposes of s. 248 includes any person that the court considers to be a proper person to make an application under this section. This includes creditors of the corporation: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68.

[15] I am satisfied that the plaintiffs are creditors of the defendant corporations and that they are proper complainants within the meaning of s. 248 of the OBCA.

[16] Section 248(3) provides for the remedies that the court may impose, in its discretion, should it find that the powers of the directors of the corporation have been exercised in an oppressive fashion. Those powers include ordering compensation to the aggrieved complainant.

[17] The oppression remedy is an equitable remedy. It gives the court a broad discretion to enforce what is right and what is just and fair. To determine what is just and reasonable in the context of a particular factual matrix, the court must determine what the reasonable expectations of the claimant were and whether the conduct of the corporation (or the directors of the corporation) violated those reasonable expectations by conduct that was oppressive, or unfairly prejudicial, or which disregarded the interests of the complainant. See BCE v. 1976 Debentureholders, 2008 SCC 69, paras. 58 – 68.

[18] Where the court finds that there has been oppressive conduct on the part of the directors of the corporation, one of the remedial tools available to the court to effect a just and equitable result, is a finding that the directors are personally liable for the claim: see SCI Systems Inc. v. Gornitzki Thompson & Little Co., 1997 CanLII 12435 (ON SC), 1997 CanLII 12435 (S.C.J.); Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc., 1998 CanLII 5847 (ON CA), 1998 CanLII 5847 (C.A.).

[19] In Budd v. Gentra Inc. 1998 CanLII 5811 (ON CA), [1998] O.J. No. 3109 (C.A.), Doherty. J.A. confirmed that the court has broad discretion to fashion a remedy that “is fit” under the oppression remedy section. A fit remedy may include a monetary judgment against a director of the corporation. He described, generally, the circumstances in which a remedy may lie against a corporate director personally as follows:

To maintain an action for a monetary order against a director or officer personally, a plaintiff must plead facts which would justify that kind of order. The plaintiff must allege a basis upon which it would be "fit" to order rectification of the oppression by requiring the directors or officers to reach into their own pockets to compensate aggrieved persons. 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 benefitted 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. (para. 52).

[20] In this case, the corporate defendants are closely held. Indeed, Mr. Dewji is the only officer and director and had total control over the companies.

[21] This is not a case where the plaintiffs were hired, had a long history with the defendants and where the defendants ran into financial difficultly, leaving the plaintiffs as creditors. Mr. Dewji hired the plaintiffs and put them to work in responsible positions in his hotels and never, from the “get go” paid them what they were due. He must have known when he hired them that he was not in a position, financially, to pay them what they were due. They provided their labour and services in good faith and in return were treated callously and as though they were his personal servants.

[22] Mr. Dewji did not have the decency to let the plaintiffs know of his financial circumstances and repeatedly put them off and/or persuaded them to remain working, on false promises. Mr. Dewji made cash payments to preferred creditors, while leaving the plaintiffs high and dry.

[23] I am satisfied, on the basis of the affidavits filed by the plaintiffs, that Mr. Dewji operated his hotels – and treated the staff - in a manner that was oppressive to the plaintiffs. They are proper complainants within the meaning of s. 248 of the OBCA. Their expectations of payment for services rendered were eminently reasonable. I am satisfied that Mr. Dewji’s conduct, as the sole director and officer of the defendant corporations, was oppressive, high-handed, callous and unfairly prejudicial to the rights and interests of the plaintiffs. He was the sole controlling director and officer of the corporations. He benefitted, whether directly or indirectly from the labours of the plaintiffs. Their labour and efforts enabled the hotels to remain open and viable.

Damages were thus assessed on a joint and several basis as against all the defendants, including the individual defendant, Mr. Dewji.

Of note with respect to the issue of damages is that the court declined to award punitive damages, notwithstanding Justice Boswell’s finding, in paragraph 23 of his reasons for decision, that, “Mr. Dewji’s conduct, as the sole director and officer of the defendant corporations, was oppressive, high-handed, callous and unfairly prejudicial to the rights and interests of the plaintiffs.” In rejecting the claim for punitive damages, Justice Boswell wrote the following:

[31] Punitive damages are an extraordinary remedy. The Supreme Court has held that they should receive “the most careful consideration” and their award “should be most cautiously exercised”. Further, “conduct meriting punitive damages awards must be "harsh, vindictive, reprehensible and malicious", as well as "extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment": Honda Canada Inc. v. Keays, 2008 SCC 39 at para. 68.

[32] I am not satisfied, on the facts of this case – leaving aside for the moment whether there is an independent actionable wrong present here apart from the breach of contract – that the conduct complained of meets the high threshold of harsh, vindictive, reprehensible and malicious. It is high-handed and very poor conduct indeed, as I have expressed above. But in view of the damage awards which will make the plaintiffs whole, I am not satisfied, on the material in the record, that punitive damages are warranted.

Damages were fixed at a total of approximately $60,000.00, plus costs.

Commentary

As others have commented, the decision in El Ashiri is unprecedented and there is no guidance in Justice Boswell’s reasons for decision as to why His Honour elected to proceed under the oppression remedy; especially when so many other options were available to the court to make the findings that it did.

Typically, employees have not been thought to be “creditors” for the purposes of the oppression remedy. Speaking more broadly with respect to the oppression remedy, the Quebec Superior Court in the case of Burnett v. AXXA Realties, 2004 CanLII 39752 (QC CS) said the following:

All creditors of a sum of money are in the same situation: to be deprived from one's resources or assets is never a very pleasant expectation. If the Court were to hold that [an individual who was owed commissions] is “oppressed” (within the meaning of the Act) as a result of this element only, it would be tantamount to say that any person or corporation having a claim to assert against a corporation would automatically qualify an “oppressed creditor.” This is not what the remedy of sec. 241 CBCA is envisaging.

Perhaps this decision arises because it was undefended. It is difficult to know whether the argument would have been sucessful had the net been minded. Also, given that the motion was not defended it is unlikely that any appeal will be taken. Accordingly, the decision will likely stand for some time.

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that it may be possible to obtain more money from individual directors of corporations than simply what is permitted by virtue of being an employee. While Canada’s Business Corporations Acts do typically include provisions protecting unpaid wages, (see for example section 119 of the Canada Business Corporations Act), those provisions are typically limited. The oppression remedy is generally considered to be unlimited.

If you are an employee in Ontario and are having difficulty obtaining money from your employer, it may be prudent to speak with a lawyer. The professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you.

Takeaways for Employers with Labour Pains

I am not entirely sure what the takeaway for employers is from this case. Directors have always had to be cautious with respect to paying their employees, especially given the other statutory powers available to both the Ontario Ministry of Labour and the courts.

One supposes that the takeaway for employers, directors especially, is that it would be prudent not to treat one’s employees in a manner that is “oppressive, high-handed, callous and unfairly prejudicial” to the rights and interests of one’s employees. There is little doubt in my mind that the employer’s actions in this case motivated the judge to make the findings that he did.

If you are an employer in Ontario and find yourself defending claims of unpaid wages or otherwise, it may be prudent to speak with a lawyer. The professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260. You may also use the contact box at the top of this page.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

Sean Bawden, publisher of Labour Pains, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He is also a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.



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