Shoppers Drug Mart Inc. v. 6470360 Canada Inc. et al.,

• Jurisdiction: Ontario
• Judge: Goudge, Watt and Pepall, JJ.A.
• Neutral Citation: 2014 ONCA 85
• Date: 19 August 2013
• Court: Court of Appeal (Ontario)

Shoppers Drug Mart v. 6470360 Can. (2014), 314 O.A.C. 341 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. FE.001

Shoppers Drug Mart Inc. (plaintiff/appellant) v. 6470360 Canada Inc., c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc. and Michael Wayne Beamish (defendants/ respondent )

Shoppers Drug Mart Inc. (plaintiff/respondent by way of cross-appeal) v. 6470360 Canada Inc. c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc. and Michael Wayne Beamish (defendants/appellants by way of cross-appeal)

(C56117; 2014 ONCA 85)

Indexed As: Shoppers Drug Mart Inc. v. 6470360 Canada Inc. et al.

Ontario Court of Appeal

Goudge, Watt and Pepall, JJ.A.

January 31, 2014.

Summary:

In October 2005, Shoppers Drug Mart Inc. contracted with "Energyshop Consulting Inc." to manage and pay utility bills for Shoppers' stores. At the time, Energyshop was not incorporated. The contract was negotiated on behalf of Energyshop by Beamish. Several weeks later, Beamish incorporated 6470360 Canada Inc. ("647"). He was its sole officer, director and shareholder. A bank account in the joint names of 647 and Beamish was used to receive funds from Shoppers. 647 either used the funds to pay Shoppers' utility bills or transferred them to a separate account in the joint names of 647 and Beamish that was used to pay 647's operating expenses. After the parties' relationship terminated in February 2009, Shoppers sued 647 and Beamish to recover funds that it alleged had been misappropriated. Shoppers moved for summary judgment against 647 and Beamish. Beamish moved for summary judgment to dismiss the action against him personally. He also brought a motion pursuant to rule 21, asserting that Shoppers' action against him disclosed no reasonable cause of action.

The Ontario Superior Court, in a decision reported at [2012] O.T.C. Uned. 5167, awarded Shoppers summary judgment in the amount of $2,236,585.14 against 647, but dismissed Shoppers' claim for summary judgment against Beamish. The court granted Beamish's motion for summary judgment and dismissed Shoppers' claim against him, but awarded costs to Shoppers against 647 and Beamish on a joint and several basis. The court dismissed Beamish's rule 21 motion. Shoppers appealed the dismissal of its summary judgment motion and action against Beamish in his personal capacity. Beamish and 647 cross-appealed asking that the motions judge's order granting summary judgment against 647 be set aside along with the costs order against Beamish and the dismissal of Beamish's rule 21 motion.

The Ontario Court of Appeal, on consent, varied the quantum of the damages awarded against 647 from $2,236.585.14 to $1,873,372.14. The court allowed Shoppers' appeal, set aside the dismissal of its summary judgment motion against Beamish and substituted an order granting summary judgment against Beamish in the amount of $1,873,372.14. The court dismissed 647 and Beamish's appeal except insofar as the sum of $9,568.13 was to be deducted from the aforesaid amount of $1,873,372.14. Beamish was refused leave to appeal the costs award against him. 647 and Beamish were ordered to pay Shoppers $40,000 inclusive of disbursements and applicable taxes on a partial indemnity scale on account of Shoppers' appeal and the cross-appeal on a joint and several basis.

Company Law - Topic 312

Nature of corporations - Lifting the corporate veil - Principals - "Directing mind and will" of company - In October 2005, Shoppers Drug Mart Inc. contracted with "Energyshop Consulting Inc." to manage and pay utility bills for Shoppers' stores - At the time, Energyshop was not incorporated - The contract was negotiated on behalf of Energyshop by Beamish - Several weeks later, Beamish incorporated 6470360 Canada Inc. ("647") - He was its sole officer, director and shareholder - A bank account in the joint names of 647 and Beamish was used to receive funds from Shoppers - 647 either used the funds to pay Shoppers' utility bills or transferred them to a separate account in the joint names of 647 and Beamish that was used to pay 647's operating expenses - After the parties' relationship terminated in 2009, Shoppers sued 647 and Beamish to recover funds that it alleged had been misappropriated - A motions judge awarded Shoppers summary judgment in the amount of $2,236,585.14 against 647, but dismissed Shoppers' motion for summary judgment against Beamish - The motions judge determined that there had been a wrongful misappropriation of funds and Shoppers had established a claim of unjust enrichment - Shoppers appealed the dismissal of its motion for summary judgment against Beamish - Shoppers argued that the motions judge erred in finding that Beamish had not been unjustly enriched by the misappropriation and in failing to pierce the corporate veil - The Ontario Court of Appeal allowed the appeal - The court stated that "Fleischer is the appropriate test to apply to piercing the corporate veil in Ontario. In Fleischer, Laskin J.A. stated that only exceptional cases that result in flagrant injustice warrant going behind the corporate veil. It can be pierced if those in control expressly direct a wrongful act to be done. ... There can be no doubt that Beamish was the directing mind and caused the misappropriation and misrepresentation by 647 and the ensuing unjust enrichment. ... There was an unjust enrichment and the corporate veil should be pierced" - See paragraphs 38 to 47.

Company Law - Topic 1262

Incorporation and organization - Pre-incorporation contracts - Determination of liability - In October 2005, Shoppers contracted with "Energyshop Consulting Inc." to manage and pay utility bills for Shoppers' stores - At the time, Energyshop was not incorporated - The contract was negotiated on behalf of Energyshop by Beamish - Several weeks later, Beamish incorporated 6470360 Canada Inc. ("647") - He was its sole officer, director and shareholder - A bank account in the joint names of 647 and Beamish was used to receive funds from Shoppers - 647 either used the funds to pay Shoppers' utility bills or transferred them to a separate account in the joint names of 647 and Beamish that was used to pay 647's operating expenses - After the parties' relationship terminated in 2009, Shoppers sued 647 and Beamish to recover funds that it alleged had been misappropriated - A motions judge awarded Shoppers summary judgment in the amount of $2,236,585.14 against 647, but dismissed Shoppers' motion for summary judgment against Beamish - Shoppers appealed - Shoppers argued that the motions judge erred in not finding Beamish personally liable under the 2005 contract pursuant to s. 14 of the Canada Business Corporations Act (CBCA) - Shoppers argued that there was no evidence to support a finding that 647 had adopted the contract - The Ontario Court of Appeal rejected the argument - Pursuant to s. 14(2) of the CBCA, formal adoption was not required; it was enough for the corporation by its conduct to signify its intention to be bound - It was implicit from the motions judge's reasons that he considered that 647 had, by its conduct, signified its intention to be bound and in substance had adopted the contract - According to the motions judge's findings, 647 performed the work of collecting utility bills, sending remittance summaries to Shoppers and paying the bills - In performing those contractual obligations, 647 effectively adopted the 2005 contract - See paragraphs 31 to 37.

Company Law - Topic 1263

Incorporation and organization - Pre-incorporation contracts - Personal liability of agents - [See Company Law - Topic 1262 ].

Company Law - Topic 1266

Incorporation and organization - Pre-incorporation contracts - Transfer of pre-incorporation contracts to new corporation - [See Company Law - Topic 1262 ].

Fraud and Misrepresentation - Topic 6

Fraudulent misrepresentation (deceit) - General principles - What constitutes deceit or fraudulent misrepresentation - [See Fraud and Misrepresentation - Topic 2707 ].

Fraud and Misrepresentation - Topic 11

Fraudulent misrepresentation (deceit) - Deceit by silence - [See Fraud and Misrepresentation - Topic 2707 ].

Fraud and Misrepresentation - Topic 2707

Misrepresentation - What constitutes misrepresentation - Falsity by silence - Beamish was the sole officer, director and shareholder of 6470360 Canada Inc. ("647") - 647 provided services to Shoppers Drug Mart Inc. under a 2005 contract to manage and pay utility bills for Shoppers' stores - In February 2009, Shoppers delivered a notice terminating 647's services and Shoppers and 647 signed a Transition Agreement whereby they mutually confirmed the termination of the contract - The Transition Agreement indicated that the parties acknowledged that Shoppers had overpaid 647 by $47,000 - The parties also signed a mutual release as part of the agreement - In March 2009, Shoppers sued 647 and Beamish to recover funds that it alleged had been misappropriated - A motions judge awarded Shoppers summary judgment in the amount of $2,236,585.14 against 647 - The motions judge determined that there had been a wrongful misappropriation of funds and Shoppers had established a claim of unjust enrichment - Shoppers had entered into the Transition Agreement in ignorance of the misappropriation - The mutual release contained in the Transition Agreement was premised on an intentional and fraudulent misrepresentation by 647 and was unenforceable - Beamish and 647 appealed - They submitted that the motions judge erred in finding that there was no genuine issue for trial on whether the Transition Agreement, which contained a full mutual release, was valid and binding - They advanced four sub-issues: Shoppers did not plead fraudulent misrepresentation; silence did not amount to misrepresentation; there was no misrepresentation; and the release was entered into under a unilateral mistake - The Ontario Court of Appeal held that the motions judge was correct in deciding that 647 and Beamish should not be able to avail themselves of the benefit of the release - Although the word "fraudulent" was not used, it was clear that Shoppers was relying on 647's misrepresentation to avoid the application of the release - 647 and Beamish knew or did not care that the actual amount owing to Shoppers did not correspond with the figure contained in the Transition Agreement - That could not be described as a unilateral mistake - In this case, silence amounted to a misrepresentation - 647's failure to disclose the misappropriation of Shoppers' funds impacted on the parties' agreement that Shoppers' had overpaid by $47,000, rendering the statement untrue - See paragraphs 52 to 57.

Releases - Topic 3399

Grounds of invalidity - Lack of disclosure - [See Fraud and Misrepresentation - Topic 2707 ].

Restitution - Topic 62

Unjust enrichment - General - What constitutes - [See Company Law - Topic 312 ].

Cases Noticed:

Sherwood Design Services Inc. et al. v. 872935 Ontario Ltd. et al. (1998), 109 O.A.C. 77; 39 O.R.(3d) 576 (C.A. ), refd to. [para. 35].

Pelliccione v. Hughes (John F.) Contracting & Development Co. et al., [2005] O.T.C. 843; 47 C.L.R.(3d) 104 (Sup. Ct.), dist. [para. 37].

642947 Ontario Ltd. v. Fleischer et al. (2001), 152 O.A.C. 313; 56 O.R.(3d) 417 (C.A.), appld. [para. 39].

Creasey v. Breachwood Motors Ltd., [1992] B.C.C. 638 (Q.B.D.), refd to. [para. 41].

Trustor AB v. Smallbone and others (No. 2), [2001] 3 All E.R. 987 (Ch), refd to. [para. 42].

Statutes Noticed:

Canada Business Corporations Act, R.S.C. 1985, c. C-44, sect. 14 [para. 33].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (6th Ed. 2011), pp. 299, 300 [para. 57].

Counsel:

Kenneth Prehogan and Scott McGrath, for the appellant, Shoppers Drug Mart Inc.;

Joseph Jebreen and Michael Walsh, for the cross-appellants, 6470360 Canada Inc. and Michael Wayne Beamish;

This appeal and cross-appeal were heard on August 19, 2013, before Goudge, Watt and Pepall, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Pepall, J.A., and was released on January 31, 2014.