Downtown Eatery (1993) Ltd. v. Ontario et al.,

• Jurisdiction: Ontario
• Judge: McMurtry, C.J.O., Borins and MacPherson, JJ.A.
• Citation: (2001), 147 O.A.C. 275 (CA),2001 CanLII 8538 (NS CA),2001 CanLII 8538 (ON CA),54 OR (3d) 161,200 DLR (4th) 289,14 BLR (3d) 41,[2001] CarswellOnt 1680,[2001] OJ No 1879 (QL),147 OAC 275,8 CCEL (3d) 186
• Court: Court of Appeal (Ontario)
• Date: 22 May 2001

Downtown Eatery Ltd. v. Ont. (2001), 147 O.A.C. 275 (CA)

MLB headnote and full text

Temp. Cite: [2001] O.A.C. TBEd. JN.001

Downtown Eatery (1993) Ltd. (respondent/plaintiff) v. Her Majesty The Queen in Right of Ontario and Joseph Alouche (appellant/defendants)

Joseph Alouche (appellant/plaintiff by counterclaim) v. The Landing Strip Inc., The Landing Restaurant Inc., The Landing Restaurant (1993) Limited, Downtown Eatery Limited, Downtown Eatery (1993) Limited, Best Beaver Management Inc. (Ontario Corporation #971712), Best Beaver Management Inc. (Ontario Corporation #1042788), Twin Peaks Inc., Herman Grad and Ben Grosman (respondents/defendants by counterclaim)

(C33989)

Indexed As: Downtown Eatery (1993) Ltd. v. Ontario et al.

Ontario Court of Appeal

McMurtry, C.J.O., Borins and MacPherson, JJ.A.

May 22, 2001.

Summary:

Alouche obtained a judgment against Best Beaver (his employer) for breach of an employment contract. Best Beaver acted as the paymaster for establishments owned by Grad and Grosman through a group of interrelated companies. A subsequent amalgamation and corporate reorganization resulted in Alouche being unable to enforce his judgment. Alouche claimed against Grad and Grosman and the other interrelated companies (defendants). Alouche claimed that the defendants were liable as common employers, that he was entitled to oppression relief under the Ontario Business Corporations Act or that he was entitled to a tracing remedy for fraudulent conveyance.

The Ontario Superior Court, in a judgment reported [2000] O.T.C. 141, dismissed Alouche's action. The 1993 amalgamation and 1996 corporate reorganization occurred before Alouche obtained judgment and were not undertaken to defeat any judgment he might obtain. Although more than one entity could be Alouche's employer, where Alouche sued and obtained judgment against only Best Beaver (withdrew a motion to add the other defendants), he was now estopped from claiming any other person or corporate entity was liable as an employer. While judgment creditors were entitled in certain circumstances to apply for an oppression remedy, claims for damages for wrongful dismissal and related relief were not appropriate for redress using the oppression remedy (unless the reorganization and amalgamation had been intentionally undertaken to defeat his claims). Finally, there was no fraudulent conveyance and Alouche failed to meet the requirements for a tracing order. Alouche appealed the common employer determination and the denial of an oppression remedy.

The Ontario Court of Appeal allowed the appeal. The interrelated companies were common employers and the trial judge erred in failing to grant an oppression remedy.

Company Law - Topic 9783

Actions against corporations and directors - Action for oppressive conduct - Persons entitled - Alouche obtained judgment against Best Beaver for wrongful dismissal - Best Beaver acted as the paymaster for establishments owned by Grad and Grosman through a group of interrelated companies - A reorganization, several months before the wrongful dismissal trial date, resulted in Best Beaver ceasing operations and transferring all of its assets to the other interrelated companies - The trial judge denied an oppression remedy under s. 248 of the Ontario Business Corporations Act because the reorganization was for a valid business purpose and not intentionally undertaken to defeat Alouche's claims - The Ontario Court of Appeal held that the trial judge erred in requiring intentional harm as a prerequisite to an oppression remedy - The court stated that "there is no question that the acts of Grad and Grosman, as directors of Best Beaver, in causing the company to go out of business and transferring its assets to other companies ... in the face of a trial scheduled to begin a few months later, effected a result that was unfairly prejudicial to, or that unfairly disregarded the interests of Alouche ... It was the reasonable expectation of Alouche that Grad and Grosman, in terminating the operations of Best Beaver and leaving it without assets to respond to a possible judgment, should have retained a reserve to meet the very contingency that resulted." - See paragraphs 46 to 63.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See Company Law - Topic 9783].

Estoppel - Topic 386

Estoppel by record (res judicata) - Res judicata as a bar to subsequent proceedings - Issues decided in prior proceedings - Alouche obtained judgment against Best Beaver for damages for wrongful dismissal - Best Beaver was an employment agent for interrelated companies owned by Grad and Grosman - An amalgamation and corporate reorganization made Best Beaver judgment proof - At trial, Alouche had brought a motion to add Grad and Grosman as defendants, but withdrew the motion because of potential trial delays - Alouche claimed against Grad, Grosman and the interrelated companies as common employers liable to pay his damage award - The Ontario Court of Appeal agreed that Alouche was estopped from pursuing Grad and Grosman as common employers - However, whether the interrelated companies were common employers was not res judicata - That issue was not previously litigated where Alouche only became aware of their existence after obtaining the judgment - See paragraphs 20 to 26.

Estoppel - Topic 387

Estoppel by record (res judicata) - Res judicata as a bar to subsequent proceedings - Matters or claims available in prior proceedings - [See Estoppel - Topic 386].

Master and Servant - Topic 1024

Contract of hiring (employment contract) - Parties - Employer - What constitutes - Alouche was employed by a nightclub (not a legal entity) - He was paid by Best Beaver, a company set up as the paymaster for establishments owned by Grad and Grosman through a group of interrelated companies - Alouche was awarded damages against Best Beaver for wrongful dismissal - Best Beaver, in a corporate reorganization, ceased operation and was judgment-proof - At issue was whether the interrelated companies owned by Grad and Grosman constituted Alouche's common employers - The Ontario Court of Appeal held that the consortium of Grad and Grosman companies, which operated the nightclub and formed a single integrated unit, were common employers - The court stated that "although an employer is entitled to establish complex corporate structures and relationships, the law should be vigilant to ensure that permissible complexity in corporate arrangements does not work an injustice in the realm of employment law" - See paragraphs 27 to 45.

Cases Noticed:

Minott v. O'Shanter Development Co. (1999), 117 O.A.C. 1; 42 O.R.(3d) 321 (C.A.), refd to. [para. 22].

Sinclair v. Dover Engineering Services Ltd. (1987), 11 B.C.L.R.(2d) 176 (S.C.), affd. (1988), 49 D.L.R.(4th) 297 (C.A.), refd to. [para. 30].

Bagby v. Gustavson International Drilling Co. (1980), 24 A.R. 181 (C.A.), refd to. [para. 30].

Olson v. Sprung Instant Greenhouses Ltd. (1985), 64 A.R. 321 (Q.B.), refd to. [para. 30].

Johnston v. Topolinski (1988), 23 C.C.E.L. 285 (Ont. Dist. Ct.), refd to. [para. 30].

MacPhail v. Tackama Forest Products Ltd. (1993), 50 C.C.E.L. 136 (B.C.S.C.), refd to. [para. 30].

Jacobs v. Harbour Canoe Club Inc., [1999] B.C.T.C. Uned. 387 (S.C.), refd to. [para. 30].

Gray v. Standard Trustco (Trustee of) (1994), 8 C.C.E.L.(2d) 46 (Ont. Gen. Div.), refd to. [para. 31].

Jones v. CAE Industries Ltd. (1991), 40 C.C.E.L. 236 (Ont. Gen. Div.), refd to. [para. 32].

Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. et al. (1995), 131 D.L.R.(4th) 399 (Ont. Gen. Div.), varied (1998), 111 O.A.C. 106; 40 O.R.(3d) 563 (C.A.), refd to. [para. 55].

First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 40 B.L.R. 28 (Alta. Q.B.), refd to. [para. 58].

Statutes Noticed:

Business Corporations Act, R.S.O. 1990, c. B-16, sect. 245(c), sect. 248(1), sect. 248(2) [para. 46].

Authors and Works Noticed:

Ball, Stacey, Canadian Employment Law (1999), p. 4-1 [para. 1].

Nicholls, Christopher C., Liability of Corporate Officers and Directors to Third Parties (2001), 35 C.B.L.J. 1, p. 30 [para. 61].

Counsel:

J. Gardner Hodder, for the appellant;

John Conway, for the respondents.

This appeal was heard on March 6-7, 2001, before McMurtry, C.J.O., Borins and MacPherson, JJ.A., of the Ontario Court of Appeal.

The judgment of the Court of Appeal was delivered jointly by Borins and MacPherson, JJ.A., and released on May 22, 2001.