QUEEN’S BENCH FOR SASKATCHEWAN Citation: 2012 SKQB 338 Date: 2012 08 24 Docket: Q.B.G. No. 519 of 2009 Judicial Centre: Saskatoon BETWEEN: WAYNE CHALAZAN and BRANDON CHALAZAN, and URBAN OASIS HOMES INC., Counsel: Michael R. Scharfstein for the plaintiffs Orion Morgan for the defendant, as President of Urban Oasis Homes Inc. FIAT DOVELL J. August 24, 2012 [1] The plaintiffs commenced their statement of claim under Part 40 of The Queen’s Bench Rules of Saskatchewan on April 27, 2009. Their claim is with respect to construction residential contract of purchase and sale. The plaintiffs are claiming the return of their deposit of $25,000.00 and the costs of plans that were prepared for them at cost of $3,533.25. The defendant corporation filed statement of defence on September 17, 2009, denying the claim of the plaintiffs. [2] The parties exchanged the affidavits filed in support of their claims as well as their affidavit of documents and witnesses and the matter was set down for simplified trial to proceed on May 24, 2012. On February 9, 2012, counsel for the defendant corporation withdrew and Orion Morgan, president of the defendant corporation, asked for an adjournment of the simplified trial which was granted on May 2, 2012. [3] The trial was then scheduled to proceed on June 28, 2012. On June 21, 2012, a conference call was held with the parties at which time a request was made to myself as the trial judge, by Orion Morgan that he be allowed to represent his corporation pursuant to Rule 10(2) of The Queen’s Bench Rules. Then counsel for the plaintiffs did not object to that request and accordingly the Court ordered that Orion Morgan could represent his corporation at the upcoming simplified trial pursuant to Rule 10(2). It was at that time that Orion Morgan advised counsel for the plaintiffs and the Court that his corporation had recently been dissolved. [4] That was later confirmed when certificate of dissolution pursuant to The Business Corporations Act, R.S.S. 1978, c. B-10, effective June 20, 2012 was filed with the Court. [5] As result of the dissolution of the defendant corporation three preliminary issues must be decided by the Court before the simplified trial can proceed on September 5, 2012. Those issues include:(a) Does the Court have jurisdiction to hear this simplified trial?(b) What is the status of the dissolved corporate defendant?(c) What is the appropriate process during the simplified trial? (a) Jurisdiction of the Court [6] As agreed by both parties, this Court has jurisdiction to hear the simplified trial despite the defendant corporation being dissolved as at June 20, 2012. That is confirmed by s. 219(2)(a) of The Business Corporations Act which provides: 219(2) Notwithstanding the dissolution of corporation under this Act: (a) civil, criminal or administrative action or proceeding commenced by or against the corporation before its dissolution may be continued as if the corporation had not been dissolved. [Emphasis of the Court] [7] It is clear that this action which was commenced on April 27, 2009 against the defendant corporation may be continued as if the corporation, Urban Oasis Homes Inc., had not been dissolved. (b) Status of the dissolved defendant corporation [8] Although counsel for the plaintiffs agreed that their action should continue against the dissolved corporate defendant their counsel argued that as the defendant corporation was dissolved it ceased to exist as at June 20, 2012 and thus had no status whatsoever to actively defend this action. In support of that argument the plaintiffs relied upon several sections of The Business Corporations Act including s. 203(5). That section provides: Effect of certificate (5) The corporation ceases to exist on the date shown in the certificate of dissolution. Accordingly, the plaintiffs argued that as at June 20, 2012, Urban Oasis Homes Inc. ceased to exist and therefore was incapable of defending the claim against it. [9] Also in support of their position the plaintiffs relied upon s. 275 of The Business Corporations Act which they argued would prohibit the dissolved defendant corporation from advancing its defence in this matter. That section provides: Unregistered corporation incapable of maintaining actions 275(1) corporation that is not registered under this Act is not capable of commencing or maintaining any action or other proceeding in court in respect of contract made in whole or in part in Saskatchewan in the course of, or in connection with, its business. [10] The plaintiffs’ position was that as soon as the defendant corporation was dissolved it was not registered under the Act and the word “maintain” within s. 275 of the Act would include “defending” any action. The defendant dissolved corporation would therefore be incapable of defending this action against it. [11] As well, the plaintiffs argued that curative provisions of s. 276 of The Business Corporations Act should not be implemented by the Court as the defendant corporation in this case had taken active steps to stonewall this action by dissolving itself just week before the trial as opposed to just becoming unregistered for some innocuous reason. [12] Accordingly, the plaintiffs submitted that the simplified trial should proceed pursuant to Rule 269, the dissolved corporate defendant not being allowed to partake in the process. That would include not being allowed to either cross‑examine the plaintiffs’ witness or to present its own case. [13] The dissolved defendant corporation represented by its former president and sole director and shareholder, Orion Morgan, argued that plain reading of s. 219 of The Business Corporations Act would allow his dissolved company to defend the action initiated against it before its dissolution. [14] The crux of this issue before the Court is the proper interpretation of s. 219(2)(a) of The Business Corporations Act. [15] The Court has concluded that plain reading of s. 219 of The Business Corporations Act implies that this matter would and should proceed “as if the corporation had not been dissolved”, that is, as if the corporation was not dissolved and still existed. If this corporation still existed, it would be registered entity in Saskatchewan and it would be entitled to defend an action against it. That would result in the provisions of s. 275 not being contrary to the provisions of s. 219(2)(a) when one considers trial fairness. [16] All of the provisions of The Business Corporations Act must be considered when the Court is considering and ensuring trial fairness. [17] As an example, s. 291 confirms that liability of an unregistered corporation which would include dissolved corporation continues notwithstanding the corporation being struck. That section reads: 291 Where the name of corporation is struck off the register, the liability of the corporation and of every director or officer or shareholder of the corporation shall continue and may be enforced as if the name of the corporation had not been struck off the register. [18] If liability of the struck or dissolved corporation continues it is only fair that the struck or dissolved corporation should be allowed to defend itself in an action commenced before the dissolution of the corporation. [19] While the Court is aware that there is case law authority that has found contrary interpretation to similar provisions in other provinces, the Court is not prepared to follow those decisions but to follow other case law that supports the interpretation the Court has made in this case of s. 219 of The Business Corporations Act. [20] That case law includes ADI Ltd. v. 052987 N.B. Inc., 2000 NBCA 55 (CanLII), 232 N.B.R. (2d) 47, in which the equivalent provision in the New Brunswick legislation was found to allow dissolved corporate defendant to have standing to launch an appeal. At para. 81 the Court of Appeal held: If plaintiff is entitled to continue with an action initiated prior to dissolution of the corporate defendant, it should follow that that plaintiff is also entitled to pursue an appeal. No legal authority is needed for the proposition that right of appeal is part of civil proceeding. At the same time, reciprocity demands that dissolved corporation have the right to respond to or file an appeal. The broad language of subsection 152(2) and basic principles of fairness demand such an interpretation. If plaintiff is entitled to continue with an action initiated prior to the defendant’s dissolution, surely that defendant must be entitled to defend the action and by necessary implication to respond to or lodge an appeal. [21] Also in Malamas v. Crerar Properties Corp. (2009), 65 B.L.R. (4th) 277, [2009] O.J. No. 4726 (QL) (Ont. Sup. Ct.), Justice Matlow made the following remarks about Ontario’s equivalent provision at paras. and 9: It is also clear that section 242(1)(a) expressly authorizes the continuation of an action brought against corporation that is subsequently dissolved “as if the corporation had not been dissolved”. Having regard to the large gaps in the wording of the legislation, have come to the conclusion that this motion should be decided on an interpretation of the legislation that is based on presumption against absurdity and that should strive to interpret the legislation textually and reasonably based on presumption of knowledge and competence on the part of the Legislature. have, in this way, come to the conclusion that section 242(1)(b), which authorized the bringing of this action, should be interpreted to include an implicit recognition of the right of Crerar to defend it. It would be unthinkable that the law would recognize the right of someone to bring an action against defendant and, at the same time, deny that defendant the right to defend it. [22] An application for leave to appeal was dismissed confirming Matlow J.’s interpretation of the legislation Malamas v. Crerar Property Corp., 2010 ONSC 2883 (CanLII), 70 B.L.R. (4th) 69. [23] The Court has therefore concluded that based on the basic and fundamental principle of trial fairness not only should this trial be allowed to proceed against the dissolved defendant corporation but that the dissolved corporate defendant should be allowed to defend the action commenced before its dissolution. If the liability continues so should the right to defend the action. To decide otherwise would be absurd. (c) What is the appropriate process during the simplified trial? [24] Both the plaintiffs and the defendant have given notice that they wish to cross‑examine the deponents of affidavits filed in each other’s case. Accordingly, on September 5, 2012, the following process shall be implemented during the simplified trial:1. Orion Morgan shall be permitted to represent the defendant corporation during the simplified trial pursuant to Rule 10(2).2. Wayne Chalazan shall be produced for the purpose of cross‑ examination.3. Orion Morgan shall be produced for the purpose of cross-examination. [25] The defendant corporation has also requested that the affidavit of Marilee Fehr be considered by the Court on its behalf. Ms. Fehr’s affidavit was served upon counsel for the plaintiffs and with the Court in June 2012. Counsel for the plaintiffs has filed brief of law opposing the Court accepting that affidavit primarily on the basis that it was filed on the eve of trial. [26] Marilee Fehr was listed on the defendant’s affidavit of documents and witnesses dated August 10, 2011, as person who might reasonably be expected to have knowledge of transactions or occurrences in issue. More than two months have now gone by since the affidavit of Marilee Fehr was provided to counsel for the plaintiffs and accordingly the strength of any argument of the plaintiffs being taken by surprise with the content of any last minute affidavit has been substantially diminished. [27] For the sake of trial efficiency the Court is going to make an interim order subject to further argument by counsel for the plaintiffs on September 5, 2012, if they wish to do so, that the Court accept Ms. Fehr’s affidavit. Accordingly, she should make herself available for the purpose of cross‑examination, if the defendant corporation still wants to file her affidavit in support of its case. If not, the Court will disregard the contents of her affidavit. [28] The Part 40 simplified trial shall continue on September 5, 2012, in compliance with the provisions of Part 40 of the Rules. [29] If any further direction is required of the Court prior to the continuation of the simplified trial on September 5, 2012, arrangements are to be made with the Local Registrar. J. M.L. DOVELL
Under Part 40 of The Queen's Bench Rules (QBR), the plaintiffs commenced an action in 2009 against the defendant for the return of their deposit and the recovery of their costs for plans with respect to a residential construction contract. The defendant denied the claim and affidavits were exchanged before a simplified trial date was set for May 2012. The trial was rescheduled to June when counsel for the defence withdrew. Just before the trial, the president of the defendant corporation requested that he be allowed to represent his corporation pursuant to Rule 10(2) of the QBR and notified the Court and the plaintiffs that his corporation had just been dissolved. This development raised three issues to be decided before the simplified trial could proceed: 1) did the Court have jurisdiction to hear the simplified trial; 2) what is the status of the dissolved corporate defendant?; and 3) what is the appropriate process during the trial? HELD: Regarding the first issue, the Court held that it had jurisdiction pursuant to s. 219(2) of The Business Corporations Act. With respect to the second issue, the Court held that again, pursuant to its interpretation of s. 219 of the Act, that the trial should proceed and that the dissolved corporate defendant be allowed to defend the action on the ground that if liability continues, so should the right to defend the action. As far as the third issue was concerned, the Court held that simplified trial would proceed and that the president of the dissolved corporate defendant would be permitted to represent it. Since the parties had given notice that they wished to cross-examine the deponents of affidavits filed in each other's case, the Court ordered that the deponents be produced for the purpose of cross-examination.