COURT OF APPEAL FOR ONTARIO
MCMURTRY C.J.O., BORINS AND MACPHERSON JJ.A.
B E T W E E
DOWNTOWN EATERY (1993) LTD.
- and -
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO and JOSEPH ALOUCHE
A N D B E T
W E E N:
- and -
LANDING STRIP INC., THE LANDING RESTAURANT
THE LANDING RESTAURANT (1993)
LIMITED, DOWNTOWN EATERYLIMITED, DOWNTOWN
LIMITED, BEST BEAVER MANAGEMENT INC. (OntarioCorporation
#971712), BEST BEAVER MANAGEMENT INC. (OntarioCorporation
#1042788), TWIN PEAKS INC., HERMAN GRAD and BEN GROSMAN
6 and 7, 2001
his valuable text, Canadian
Employment Law (Aurora: Canada
Law Book, 1999), Stacey Ball states, at p. 4-1:
The courts now recognize
that, for purposes of determining the contractual and fiduciary
obligations which are owed by employers and employees, an
individual can have more than one employer. The courts now
regard the employment relationship as more than a matter of form
and technical corporate structure. Consequently, the present
law states that an individual may be employed by a number of
different companies at the same time.
mechanism whereby the law concludes that an employee may be
employed by more than one company at the same time is the common
employer doctrine. The doctrine has a well-recognized statutory
pedigree in most jurisdictions. For example, in Ontario s.
12(1) of the Employment
Standards Act, R.S.O.
1990, c. E.14, deems associated or related businesses to be
“one employer” for the purpose of protecting the benefits to
which employees are entitled under the Act.
major issue in this appeal is the definition and application of
the common employer doctrine in a common law context. A
dismissed employee sued his employer for wrongful dismissal.
Following a trial, he was awarded substantial damages.
Unfortunately, the employer company had no assets and
consequently the employee was unable to enforce his judgment.
In a subsequent action, the employee sued related companies and
the two main principals of all the companies in an attempt to
widen its net of potential sources of recovery. His principal
legal submission in support of his attempt was, and is on this
appeal, the common employer doctrine. In Canadian
Employment Law, Mr. Ball states that “[t]he finding that
more than one corporation is the employer may be a benefit when
parts of the corporate group are more solvent than others . . .
.” (p. 4-1). That is precisely the benefit the dismissed
employee seeks to achieve in this litigation.
second important issue in this appeal is the availability of an
oppression remedy to a dismissed employee in the context of a
corporate reorganization shortly before a wrongful dismissal
trial which has the effect of denying the employee any recovery
on a judgment he obtains at the trial.
parties and the events
1992, the respondents Herman Grad (“Grad”) and Ben Grosman
(“Grosman”) were in the nightclub business in Toronto. They
owned and operated two nightclubs, The
Landing Strip at
191 Carlingview Drive and For
Your Eyes Only at
557/563 King Street West.
appellant, Joseph Alouche (“Alouche”), was born in Egypt and
came to Canada in 1974. He attended the Toronto School of
Business, took courses in hotel management and received a
diploma. He also took correspondence courses relating to the
hospitality industry and computers.
December 1992, Grad offered Alouche a position as manager of the
nightclub For Your
Eyes Only. The only entity specifically identified in the
written employment contract was For
Your Eyes Only. However, the contract also provided that
Alouche would receive the health care and insurance benefits
available “in our sister organization”, which was not identified
commenced work on December 29, 1992. During the next few
months, he received his pay cheques from Best Beaver Management
Inc. (“Best Beaver”), a company controlled by Grad and Grosman.
In May 1993,
Alouche was sent a formal Notice of Discipline on the letterhead
of For Your Eyes
committing several infractions, including:
employee, while soliciting in excess of $1,000.00 gratuity only
generated sales of $250.00 for the employer.
employee allowed numerous waitresses to abandon their assigned
sections to solicit gratuities in the amount of $2,800.00.
June 15, 1993,
Alouche was dismissed. On October 13, 1993,
he commenced an action against Best Beaver. In subsequent
proceedings which form the basis for this appeal, Alouche
explained the choice of Best Beaver as the defendant in the
first action: “I sued Best Beaver . . . because the paycheque
that they gave me in For
Your Eyes Only, it says Best Beaver Management Inc.”
spring of 1996, there was a major reorganization of the
Grad-Grosman companies. Best Beaver ceased to do business. In
July 1996, Grad discharged Best Beaver’s counsel. Shortly
before the start of the trial in his wrongful dismissal action
in August 1996, Alouche, worried about recovery if successful in
the action, moved to add Grad and Grosman as co-defendants to
his claim against Best Beaver. Faced with a potential
adjournment of the trial to permit Grad and Grosman to retain
counsel, Alouche withdrew the motion.
trial proceeded with Best Beaver as the only defendant. Grad, a
director of Best Beaver, represented it throughout the trial.
The trial judge, Festeryga J., found in favour of Alouche. He
awarded Alouche damages of $59,906.76, plus pre-judgment
interest of $8,608.36 and costs of $15,387.79.
Beaver paid Alouche nothing pursuant to the judgment. Two
sheriffs, in purported execution of the judgment, attended at
the premises of For
Your Eyes Only and
seized $1,855 in cash. This provoked Downtown Eatery (1993) Ltd.,
which claimed that the money belonged to it, to commence an
action against Alouche.
Alouche defended the action and counterclaimed against all of
the companies controlled by Grad and Grosman and against Grad
and Grosman personally. In December 1997, Kiteley J. ordered
that the $1,855 seized by the sheriffs be paid into court to the
credit of the action.
are other facts relevant to the disposition of the appeal,
including two reorganizations of the Grad-Grosman companies.
However, we find it convenient to describe those facts in the
context of the specific issues to which they relate.
trial proceeded before C. Campbell J. in February 2000. The
essence of the trial was Alouche’s counterclaim in which he
sought to recover against any or all of the defendants for his
unsatisfied judgment against Best Beaver.
advanced several bases for recovery of his earlier judgment
against the new defendants.
The trial judge addressed three of them in his reasons for
judgment – the common employer doctrine, oppression relief under
the Ontario Business
1990, c. B.16, and a tracing remedy associated with a
trial judge dismissed Alouche’s counterclaim in its entirety.
On the common employer issue, the trial judge rejected Alouche’s
submissions, both on the merits and because of the concept of
estoppel. With respect to a potential oppression remedy, the
trial judge held that such a remedy would not be appropriate
because the reorganization of the Grad-Grosman companies was not
undertaken for the purpose of depriving Alouche of recovery of
his judgment against Best Beaver. For similar reasons, he held
that the defendants had not made any fraudulent conveyance, and,
therefore, a tracing order was not appropriate.
appellant appeals from the trial judge’s decision on the common
employer and oppression remedy issues. At the hearing of the
appeal, the appellant abandoned his appeal on the fraudulent
issues on the appeal are:
the trial judge err in failing to find that some or all of the
respondents were a common employer of the appellant?
the trial judge err in failing to find that the conduct of the
respondents was “oppressive” or “unfairly prejudicial” as those
terms are used in the Ontario Business
common employer issue
trial judge decided this issue against Alouche for two reasons:
(1) Alouche was estopped from raising the issue in his
counterclaim action to enforce his previous judgment because he
had not raised it in his original wrongful dismissal action; and
(2) Alouche had not established the prerequisites necessary to
identify any of the respondents as a common employer, along with
be recalled that shortly before the wrongful dismissal trial,
Alouche brought a motion to add Grad and Grosman as defendants
because he was concerned that Best Beaver might not respond to a
judgment against it. Because this motion would have resulted in
an adjournment of the trial, Alouche decided to abandon it. The
respondents submit that these steps precluded Alouche from
raising the issue in the subsequent proceedings. The trial
judge briefly reviewed the doctrines of res
judicata, cause of action estoppel and issue estoppel. It
is not entirely clear which of these doctrines he applied.
However, it is clear that he agreed with the respondent’s
essential submission on this issue. He concluded:
I am satisfied on the
evidence before me that Alouche was content in his wrongful
dismissal action to allege that Best Beaver was his employer and
to be bound by that conclusion, notwithstanding the possibility
of some responsibility on the part of Messrs. Grad and Grosman.
On that basis, Alouche
is now estopped from alleging a different or expanded employment
obligation when he is now unable to recover on the first
say candidly that this is a plausible analysis and conclusion.
On the eve of the wrongful dismissal trial, Alouche was
concerned that the corporate reorganization about which he had
recently learned might mean that Best Beaver no longer had
assets which could potentially satisfy any judgment he
obtained. Alouche’s response was to consider, initiate and then
abandon adding Grad and Grosman as defendants. In light of
these steps, it is plausible to conclude, as the trial judge
did, that Alouche considered the general question of whom he
should sue and decided to proceed against only Best Beaver.
in the end we do not think that this conclusion is correct. A
particularly valuable discussion of res
judicata and of
issue estoppel is found in this court’s decision in Minott v.
O’Shanter Development Co. 1999
CanLII 3686 (ON C.A.), (1999), 42 O.R. (3d) 321 (C.A.) (“Minott”).
Laskin J.A. articulated the underlying purpose of the concept of
issue estoppel in this fashion, at p. 340:
Issue estoppel is a rule
of public policy, and, as a rule of public policy, it seeks to
balance the public interest in the finality of litigation with
the private interest in achieving justice between litigants.
Sometimes these two interests will be in conflict, or, at least
there will be tension between them. Judicial discretion is
required to achieve practical justice without undermining the
principles on which issue estoppel is founded. Issue estoppel
should be applied flexibly where an unyielding application of it
would be unfair to a party who is precluded from relitigating an
view, the issue Alouche considered on the eve of his wrongful
dismissal trial was whether to sue Grad and Grosman in their
personal capacities as potential employers because of his
concern that Best Beaver, the corporate entity which he regarded
as his employer (because it paid him), might have no assets.
Alouche considered this option because, as he testified at the
second trial, he regarded them as his employer:
the time you signed this agreement that appears at Tab 1 [the
employment contract], who did you believe to be your employer?
A. It was Herman
Grad. I started working at For Your Eyes Only. That’s the only
place I know there.
However, in the end,
Alouche made a conscious decision not to join Grad and Grosman
in the wrongful dismissal action because it would have delayed
the trial. Taking account of that decision, the trial judge
concluded that Alouche was estopped from suing Grad and Grosman
personally as potential employers in his subsequent action. We
see no reason to interfere with this component of the trial
the issue of a potential common employer for Best Beaver, drawn
from the stable of Grad-Grosman companies that were closely
connected with the operation of the For
Your Eyes Only nightclub,
was not considered by Alouche on the eve of the wrongful
dismissal trial. He did not think about adding other companies
at that juncture because the only entities of which he was aware
were the nightclub, For
Your Eyes Only, with which he had a contract of employment,
and Best Beaver, which issued his pay cheques. He decided to
sue Best Beaver “because the paycheque that they gave me in For
Your Eyes Only, it says Best Beaver Management Inc.” This
was a perfectly sensible reason for suing Best Beaver.
later, after he had won a substantial judgment at trial and had
been unable to collect on it from Best Beaver, did Alouche begin
to think of other companies which might have been closely
connected with For
Your Eyes Only and
Best Beaver. That inquiry led him, for
the first time, to the respondent corporations.
summary, we cannot say that the trial judge erred by concluding
that Alouche was estopped from pursuing Grad and Grosman
personally as potential common employers in the counterclaim
relating to the enforcement of the previous judgment in the
wrongful dismissal action. However, we do not think that the
common employer issue, as it relates to the corporate
respondents, constitutes, in the language ofMinott,
“relitigating an issue”. In this appeal, the balance between
finality of litigation and achieving justice between litigants
should be struck in favour of the latter. The common employer
issue relating to the corporate respondents should be determined
on the merits.
Your Eyes Only was
a simple entity, a single site nightclub in downtown Toronto.
Yet, beneath the surface of lights, liquor and entertainment,
there was a fairly sophisticated group of companies involved in
the operation of the nightclub. Twin Peaks Inc. (“Twin Peaks”)
was the owner and lessor of the nightclub premises. The Landing
Strip Inc. (“The Landing Strip”) leased the premises from Twin
Peaks. It also owned the trademark for For
Your Eyes Only and
held the liquor and adult entertainment licences. Downtown Eatery Limited
owned the chattels and equipment at the nightclub and operated
it under a licence from The Landing Strip. Best Beaver paid the
nightclub employees, including Alouche. In June 1993,
all of these companies were owned and controlled by Bengro Corp.
and Harrad Corp., the holding companies for Grosman and Grad.
trial judge considered Alouche’s common employer argument on the
merits. He concluded that Downtown Eatery was
“the most logical of the companies to be treated as a
co-employer”, but that this did not help Alouche because Downtown Eatery amalgamated
with Best Beaver in September 1993,
and there was nothing fraudulent or even suspicious about the
trial judge then considered The Landing Strip:
Counsel for Alouche
suggests that Landing Strip Inc., which held the lounge license
and the franchise trademark, would be logical co-employers.
There is nothing in the record before me that would suggest that
Alouche ever had a contractual relationship with Landing Strip
Then, speaking more
generally, the trial judge observed that “there has been no
holding out here by either the employee or the employer of joint
and several liability of more than one company”.
common employer doctrine, in its common law context, has been
considered by several Canadian courts in recent years. The
leading case is probably Sinclair v.
Dover Engineering Services Ltd. 1987
CanLII 2692 (BC S.C.), (1987), 11 B.C.L.R. (2d) 176 (S.C.),
CanLII 3358 (BC C.A.), (1988), 49 D.L.R. (4th) 297
(B.C.C.A.) (“Sinclair”). In that case, Sinclair, a
professional engineer, held himself out to the public as an
employee of Dover Engineering Services Ltd.
(“Dover”). He was paid by Cyril Management Limited (“Cyril”).
When Sinclair was dismissed, he sued both corporations. Wood J.
held that both companies were jointly and severally liable for
damages for wrongful dismissal. In reasoning that we find
particularly persuasive, he said, at p. 181:
The first serious issue
raised may be simply stated as one of determining with whom the
plaintiff contracted for employment in January of 1973. The
defendants argue that an employee can only contract for
employment with a single employer and that, in this case, that
single entity was obviously Dover.
I see no reason why such
an inflexible notion of contract must necessarily be imposed
upon the modern employment relationship. Recognizing the
situation for what it was, I see no reason, in fact or in law,
why both Dover and Cyril should not be regarded jointly as the
plaintiff’s employer. The old-fashioned notion that no man can
serve two masters fails to recognize the realities of modern-day
business, accounting and tax considerations.
There is nothing
sinister or irregular about the apparently complex
intercorporate relationship existing between Cyril and Dover.
It is, in fact, a perfectly normal arrangement frequently
encountered in the business world in one form or another.
Similar arrangements may result from corporate take-overs, from
tax planning considerations, or from other legitimate business
motives too numerous to catalogue.
As long as there exists
a sufficient degree of relationship between the different legal
entities who apparently compete for the role of employer, there
is no reason in law or in equity why they ought not all to be
regarded as one for the purpose of determining liability for
obligations owed to those employees who, in effect, have served
all without regard for any precise notion of to whom they were
bound in contract. What will constitute a sufficient degree of
relationship will depend, in each case, on the details of such
relationship, including such factors as individual
shareholdings, corporate shareholdings, and interlocking
directorships. The essence of that relationship will be the
element of common control.
See also: Bagby v.
Gustavson International Drilling Co. reflex,
(1980), 24 A.R. 181 (C.A.); Olson v.
Sprung Instant GreenhousesLtd. 1985
CanLII 1257 (AB Q.B.), (1985), 64 A.R. 321 (Q.B.); Johnston v.
(1988), 23 C.C.E.L. 285 (Ont. Dist. Ct.);MacPhail v.
Tackama Forest Products Ltd. 1993 CanLII
263 (BC S.C.),
50 C.C.E.L. 136 (B.C.S.C.); and Jacobs v.
Harbour Canoe Club Inc., 
B.C.J. No. 2188 (S.C.).
the common employer doctrine has been considered in several
cases. In Gray v.
Standard Trustco (Trustee of) reflex,
(1994), 8 C.C.E.L. (2d) 46 (Ont. Gen. Div.), Ground J. said, at
. . . it seems clear
that, for purposes of a wrongful dismissal claim, an individual
may be held to be an employee of more than one corporation in a
related group of corporations. One must find evidence of an
intention to create an employer/employee relationship between
the individual and the respective corporations within the group.
In Jones v.
CAE Industries Ltd. reflex,
(1991), 40 C.C.E.L. 236 (Ont. Gen. Div.) (“Jones”), Adams
J. reviewed many of the leading authorities and observed, at p.
The true employer must
be ascertained on the basis of where effective control over the
employee resides . . . . I stress again that an employment
relationship is not simply a matter of form and technical
Harbour Canoe Club Inc. and Jones were
all cases involving a ‘paymaster’ company closely connected with
another corporate entity, with both being controlled by the same
principals. In all three cases, the courts found that the other
company was a common employer. Similarly, in the present
appeal, Best Beaver served only as a paymaster for the employees
of the nightclubs owned and operated by other Grad and Grosman
companies. Accordingly, the question becomes, in Adams J.’s
language in Jones,
“where effective control over the employee resides”.
view, in June 1993 when
Alouche was dismissed, there was a highly integrated or seamless
group of companies which together operated all aspects of the For
Your Eyes Only nightclub.
Twin Peaks owned the nightclub premises and leased them to The
Landing Strip which owned the trademark for For
Your Eyes Only and,
significantly for a nightclub, held the liquor and entertainment
licences. DowntownEatery operated
the nightclub under a licence from The Landing Strip and owned
the chattels and equipment at the nightclub. Best Beaver served
as paymaster for the nightclub employees. Controlling all of
these corporations were Grad and Grosman and their family
holding companies, Harrad Corp. and Bengro Corp.
Grosman could easily have operated the nightclub through a
single company. They chose not to. There is nothing unlawful
or suspicious about their choice. As Wood J. said in Sinclair,
“it is a perfectly normal arrangement frequently encountered in
the business world”.
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. At
the end of the day, Alouche’s situation is a simple, common and
important one – he is a man who had a job, with a salary,
benefits and duties. He was fired – wrongfully. His employer
must meet its legal responsibility to compensate him for its
unlawful conduct. The definition of “employer” in this simple
and common scenario should be one that recognizes the complexity
of modern corporate structures, but does not permit that
complexity to defeat the legitimate entitlements of wrongfully
trial judge focussed on the absence of a contract between
Alouche and any of the potential common employers. With
respect, we think this focus is too narrow. A contract is one
factor to consider in the employer-employee relationship.
However, it cannot be determinative; if it were, it would be too
easy for employers to evade their obligations to dismissed
employees by imposing employment contracts with shell companies
with no assets.
trial judge also observed that there was no holding out by the
employer of joint and several liability of more than one
company. Again, with respect, we do not attach much
significance to this factor. After all, the contract of
employment that Alouche signed was with For
Your Eyes Only, which was only a name, not a legal entity.
circumstances, when he was wrongfully dismissed, Alouche did his
best – he sued the company which had paid him. Later, it turned
out that that company had no assets. Yet the nightclub
continued in business, various companies continued to operate it
and, presumably, Grad and Grosman continued to make money. In
these circumstances, Alouche decided to try to collect the money
to which a superior court of justice had determined he was
entitled. In our view, the common employer doctrine provides
support for his attempt.
conclusion, Alouche’s true employer in 1993 was
the consortium of Grad and Grosman companies which operated For
Your Eyes Only. The contract of employment was between
Alouche and For
Your Eyes Only which
was not a legal entity. Yet the contract specified that Alouche
would be “entitled to the entire package of medical extended
health care and insurance benefits as available in our sister
organization”. The sister organization was not identified. In
these circumstances, and bearing in mind the important roles
played by several companies in the operation of the nightclub,
we conclude that Alouche’s employer in June 1993 when
he was wrongfully dismissed was all of Twin Peaks, The Landing
Strip, Downtown Eatery and
Best Beaver. This group of companies functioned as a single,
integrated unit in relation to the operation of For
Your Eyes Only.
a final matter to be considered on the common employer issue.
Alouche was dismissed in June 1993.
There was a reorganization of Grad and Grosman companies in
A second reorganization took place in May 1996, three months
before the trial in Alouche’s wrongful dismissal action. The
trial judge found that there was nothing nefarious about these
reorganizations; they were undertaken for business reasons
unrelated to Alouche’s action. We see no reason to disagree
with this conclusion.
question which the reorganizations pose is whether Alouche’s
judgment, which we have determined should be enforced against
all of the companies involved in June 1993 in
the operation of For
Your Eyes Only, should also be enforced against the
successor or merged companies which have been created by the
no hesitation answering this question in the affirmative. Grad
testified at the trial that he was very careful to protect the
positions, seniority and benefits of current employees when he
and Grosman were accomplishing the reorganizations. He said:
Everyone had a job . .
. Everyone that worked for one had a job in the other . . .
No one would lose anything . . . The employees were not to
lose anything, were not to be hurt.
was, of course, admirable treatment of the current employees of
the Grad and Grosman companies. It commends itself, in our
view, as a just basis for consideration of Alouche’s position
after the reorganizations. If, as Grad explained, his current
employees were not to be hurt in any way by the reorganizations,
it seems obvious and fair that a similar result should flow for
Alouche, a man who might also be a current employee but for the
fact of his wrongful dismissal.
conclude, therefore, that the list of the original common
employers should be expanded to include the other corporate
contends that the conduct of the respondents, specifically the
corporate reorganizations which resulted in Best Beaver ceasing
to exist, was “oppressive” or “unfairly prejudicial” as those
terms are used in the Ontario Business
Corporations Act (“OBCA”).
Section 248 of the OBCA provides:
A complainant . . . may apply to the court for an order under
upon an application under subsection (1), the court is satisfied
that in respect of a corporation or any of its affiliates,
act or omission of the corporation or any of its affiliates
effects or threatens to effect a result;
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
the powers of the directors of the corporation or any of its
affiliates are, have been or are threatened to be exercised in a
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.
A “complainant”, in
addition to being a current or former shareholder, director or
officer of the company, is defined in s. 245 to include:
other person who, in the discretion of the court, is a proper
person to make an application under this Part.
Although it appears from
the pleadings and the factum that Alouche is advancing the
oppression argument against all of the respondents, in oral
argument counsel made it clear that the focus of Alouche’s claim
on this issue is the respondents Grad and Grosman.
preliminary matter, we note that there is no question of res
estoppel with respect to the appellant’s oppression claim.
There was nothing about this claim in the pleadings in the first
action, the trial judge in the second action dealt with the
claim on the merits, and the respondents in this appeal do not
contend that the oppression claim was barred by these doctrines.
to the merits, in the Agreed Statement of Facts, facts
pertaining to the oppression remedy are sparse. These facts
are: Grad and Grosman were directors and officers of Best Beaver
at all material times; in September 1993,
there was a corporate reorganization of Best Beaver and several
of the other corporate respondents in response to apprehended
union activities; and in or about March 1996, Best Beaver ceased
trial testimony, Grad stated that because the “union threat” had
disappeared in 1996 there was no need to retain Best Beaver as a
separate company. This resulted in Best Beaver ceasing
operations in March 1996, followed by a corporate reorganization
in May 1996. He testified that these events were not influenced
by the pending litigation involving Alouche. Indeed, it was
Grad’s belief that Best Beaver would win the lawsuit. He
described what occurred as “a business decision”. Grad
confirmed that he and Grosman were the owners of Best Beaver and
all of the corporate respondents. He also confirmed that “the
role and function” of Best Beaver were to pay the employees of
the corporations that he and Grosman owned and that the company
carried out this role “based on advice from [his] accountants”.
Grad testified that Alouche’s pending claim did not influence
his decision to terminate the operations of Best Beaver in March
1996, he acknowledged that at that time a summer trial date had
been fixed for the wrongful dismissal trial. He stated that he
discharged Best Beaver’s lawyer about two weeks before the trial
began “because there was no money in the account and [Best
Beaver] could not afford to pay” the lawyer. At the trial, Grad
acted as Best Beaver’s legal representative.
Bojarski (“Bojarski”) was a partner in the accounting firm that
acted for the corporate respondents and Grad and Grosman. He
provided extensive evidence concerning the corporate and
financial affairs of these entities. He testified that in each
year of its existence, Best Beaver earned a profit. He agreed
with counsel for Alouche that Best Beaver’s accumulated profits
were available to pay “whatever obligations [Best Beaver] had”.
He further agreed that if that company had continued its
operations its accumulated profit could have been applied “to
satisfy unexpected claims arising from employment [contracts]”.
following questions and answers Grad was asked to comment on
Q. Mr. Bojarski
gave evidence that it was the role and function of Best Beaver
Management as a corporation to pay employees until, of course,
until it ceased to do that. But that was its obligation,
Q. Do you agree
with Mr. Bojarski that its obligation was also to pay any claims
that individual employees might have against it as employer?
A. It was
responsible for all the employees and the management of those
dismissing Alouche’s claim for an oppression remedy, the trial
judge accepted Grad’s reasons for the corporate reorganizations
of September 1993 and
May 1996 and for Best Beaver’s cessation of operations in March
1996. He provided the following reasons for dismissing
Alouche’s claim for an oppression remedy:
In the case before me,
if I had been satisfied that the amalgamation of 1993 or
the reorganization of 1996 had been undertaken with the
intention of depriving Mr. Alouche of the opportunity to recover
against Best Beaver, then an oppression remedy might have been
appropriate. In the circumstances where the amalgamation and
reorganization took place before he obtained the status of a
judgment creditor and those actions were not undertaken for the
purpose of depriving him of recovery of judgment, then it would
appear that the oppression remedy is not appropriate.
trial, C. Campbell J. also dismissed a claim by Alouche based on
the submission that the May 1996 corporate reorganization
constituted a fraudulent conveyance resulting in Best Beaver
having no assets in the event that he recovered judgment against
it. No appeal was taken from this aspect of the judgment.
However, the following findings of fact made by the trial judge
in deciding this issue are relevant to the oppression remedy
As noted previously, I
am satisfied on the evidence, the reorganization was not entered
into for the purpose or with the intent of depriving Alouche
from recovering on an anticipated judgment.
I do recognize, however,
that the effect of the reorganization left Best Beaver
essentially as a non-operating company and that Grad took
advantage of this, when faced with the pending trial (by
discharging counsel) and by non-payment of the judgment.
view, this case is similar to Sidaplex-Plastic
Suppliers Inc. v.
Elta Group Inc. 1995
CanLII 7419 (ON S.C.), (1995), 131 D.L.R. (4th)
399 (Ont. Gen. Div.), varied 1998
CanLII 5847 (ON C.A.), (1998), 40 O.R. (3d) 563 (C.A.) (“Sidaplex-Plastics”).
As in Sidaplex-Plastics,
Alouche, as a judgment creditor of a corporate party, seeks an
oppression remedy in the absence of bad faith or want of probity
on the part of individuals who were the directors and
shareholders of the corporation. As in Sidaplex-Plastics,
the corporation, Best Beaver, is no longer in business, having
ceased operations in March 1996, at a time when a trial date of
August 1996 had been fixed for the wrongful dismissal action
against it. Thus, Alouche seeks to invoke the oppression remedy
provisions of the OBCA against
Grad and Grosman in order to rescue himself from the inability
of Best Beaver to pay his judgment which resulted from their
decision to terminate its business operations and to render it
without assets capable of responding to a possible judgment
application of the principles governing s. 248(2) of the OBCA to
the trial judge’s findings of fact and to the evidence in the
trial record leads to the conclusion that the trial judge erred
in failing to grant an oppression remedy against Grad and
Grosman. In our view, the trial judge failed to appreciate that
the “oppressive” conduct that causes harm to a complainant need
not be undertaken with the intention of harming the
complainant. Provided that it is established that a complainant
has a reasonable expectation that a company’s affairs will be
conducted with a view to protecting his interests, the conduct
complained of need not be undertaken with the intention of
harming the plaintiff. If the effect of the conduct results in
harm to the complainant, recovery under s. 248(2) may follow.
Blair J. provided a careful and thorough analysis of the
principles governing the award of an oppression remedy that was
accepted by this court. At p. 403, he stated that it “is well
established … that a creditor has status to bring an application
as a complainant, pursuant to s. 245(c).” At pp. 403-404, he
Moreover, while some
degree of bad faith or lack of probity in the impugned conduct
may be the norm in such cases, neither is essential to a finding
of “oppression” in the sense of conduct that is unfairly
prejudicial to or which unfairly disregards the interests of the
complainant, under the OBCA.
Blair J. continued, at
What the OBCA proscribes
is “any act or
omission” on the part of the corporation which “effects”
a result that is unfairly prejudicial to or that unfairly
disregards the interests of a creditor. [Emphasis in original.]
404, Blair J. adopted the following factors to be assessed in
considering whether an oppression remedy should lie, as
described by McDonald J. in First
Edmonton Place Ltd. v.
315888 Alberta Ltd. 1988
CanLII 168 (AB Q.B.), (1988), 40 B.L.R. 28 (Alta. Q.B.) at
More concretely, the
test of unfair prejudice or unfair disregard should encompass
the following considerations: the protection of the underlying
expectation of a creditor in its arrangement with the
corporation, the extent to which the acts complained of were
unforeseeable or the creditor could reasonably have protected
itself from such acts, and the detriment to the interests of the
creditor. The elements of the formula and the list of
considerations as I have stated them should not be regarded as
exhaustive. Other elements and considerations may be relevant,
based upon the facts of a particular case.
248(2)(c) of the OBCA,
the legislature has included the exercise of the powers of a
company’s directors in targeting the kinds of conduct
encompassed by an oppression remedy. In this regard, Blair J.
stated, at pp. 405-406:
Courts have made orders
against directors personally, in oppression cases: see, for
Euro-American Motor Cars, supra; Prime Computer of Canada Ltd. v.
Jeffrey, supra; Tropxe Investments Inc. v.
Ursus Securities Corp., 
O.J. No. 1736 (QL) (Gen. Div.) [summarized 41
A.C.W.S. (3d) 1140]. These cases, in particular, have involved
small, closely held corporations, where the director whose
conduct was attacked has been the sole controlling owner of the
corporation and its sole and directing mind; and where the
conduct in question has redounded directly to the benefit of
the trial judge found that the cessation of Best Beaver’s
operations in March 1996 and the subsequent corporate
reorganization were not undertaken with the intention of
depriving Alouche of the ability to recover against Best Beaver
if he were to succeed in his forthcoming action against the
company, he went on to find that the effect of this conduct
“left Best Beaver essentially as a non-operating company and
that Grad took advantage of this, when faced with the pending
trial (by discharging counsel) and by non-payment of the
judgment”. In our view, there is no question that the acts of
Grad and Grosman, as the directors of Best Beaver, in causing
the company to go out of business and transferring its assets to
other companies within the group of companies they owned and
operated in the spring of 1996 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 as a person who stood to obtain a judgment against Best
Beaver. Moreover, there was nothing that Alouche could have
done to prevent the effective winding-up of Best Beaver.
view, the evidence of Bojarski, with which Grad agreed, is
relevant to whether an oppression remedy is appropriate. From
Bojarski’s testimony, it is clear that when Best Beaver went out
of business it was profitable and that its accumulated profits
were available to satisfy any claims arising from employment
contracts. The inference can be drawn from this evidence that
even though it was abundantly clear to Grad that Alouche’s
pending claim might result in a judgment against Best Beaver, he
took no steps to ensure that Best Beaver retained a reserve to
meet that contingency. Rather, believing that Alouche’s action
would fail, he discharged the company’s lawyer and personally
assumed its defence at trial. As in Sidaplex-Plastics at
p. 405, it was Alouche who was entitled to be protected, and, in
our view, it was Grad and Grosman who had the obligation to
ensure that such protection continued. See Christopher C.
Nicholls, “Liability of Corporate Officers and Directors to
Third Parties” (2001),
35 C.B.L.J. 1 at 30 et
view, there are additional inferences that can be drawn from the
trial judge’s findings of fact and from the evidence at the
trial. 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. In failing to do so, the benefit to Grad and Grosman,
as the shareholders and sole controlling owners of this small,
closely held company, is clear. By diverting the accumulated
profits of Best Beaver to other companies that they owned, they
were able to insulate these funds from being available to
satisfy Alouche’s judgment.
foregoing reasons, it is our opinion that Alouche has
demonstrated his entitlement to an oppression remedy against
Grad and Grosman.
allow the appeal against all of the respondents. The appellant
is entitled to recover from the respondents the amounts he was
awarded in the wrongful dismissal action, namely damages of
$59,906.76, pre-judgment interest of $8,608.36 and assessed
costs of $15,387.79 totalling $83,902.91, together with
post-judgment interest thereon from the date of Festeryga J.’s
judgment to the date of this order and post-judgment interest
thereafter. He is also entitled to recover his costs of the
second trial before C. Campbell J. and his costs of the appeal.
Released: May 22, 2001
“S. Borins J.A.”
“J. C. MacPherson J.A.”
“I agree R. Roy McMurtry