460635 Ontario Limited v. 1002953 Ontario Inc.

460635 Ontario Limited v. 1002953 Ontario Inc. Collection Decisions of the Court of Appeal Date 1999-11-02 Docket numbers C29271 Judges Labrosse, Jean-Marc; Goudge, Stephen Thomas; MacPherson, James C. Subject Civil Decision Content DATE: 19991102 DOCKET: C29271 COURT OF APPEAL FOR ONTARIO LABROSSE, GOUDGE and MacPHERSON JJ.A. BETWEEN: ) ) Anthony J. B. Powell, 460635 ONTARIO LIMITED ) for the appellants ) Plaintiff ) (Appellant) ) ) - and - ) Alfred Schorr, ) for the respondents 1002953 ONTARIO INC. and ) HARRY KIOUSSIS ) ) Defendants ) (Respondents) ) ) Heard: September 22, 1999 ) AND BETWEEN: ) ) 1002953 ONTARIO LIMITED and ) HARRY KIOUSSIS ) ) Plaintiffs ) (Respondents) ) ) - and - ) ) 460635 ONTARIO LIMITED and ) JOHN KALLINIKOS ) ) Defendants ) (Appellants) ) ) On appeal from the judgment of Mr. Justice W. Somers dated February 4, 1998 LABROSSE J.A.: [1] This is an appeal from the judgment of Somers J. allowing damages to the respondents against the appellants. [2] The actions referred to in the style of cause were based on a lease agreement and the purchase and sale of certain business assets between 460635 Ontario Inc. (460) and 1002953 Ontario Inc. (100). As a result of alleged breaches of the lease and the transfer of the assets, actions for damages were commenced by both sides and the actions were consolidated and tried together. The claims of 460 against 100 and Harry Kioussis were dismissed and the claims of 100 and Harry Kioussis against 460 and John Kallinikos were allowed. [3] The finding of the trial judge that 460 was liable for damages to 100 is well founded in the evidence and we agree with his analysis and conclusion. [4] The only real issue on this appeal is with respect to the finding that the appellant Kallinikos, the sole shareholder and director of 460, was personally liable for the damages awarded to the respondents. [5] The trial judge’s decision that Kallinikos was equally liable with his company for the damages awarded to the respondents was based, essentially, on his finding that the appellant had wrongfully induced breaches of contract between his company and 100. Nowhere in their statement of claim do the respondents seek damages from Kallinikos, in his personal capacity, on the basis that he wrongfully induced breaches of contract by the appellant 460. (In fact, it is correctly conceded that the trial judge was in error in finding personal liability on the basis of inducing breaches of contract. See Said v. Butt, [1920] 3 K.B. 497.) However, the respondents maintain that there was nevertheless a proper basis for personal liability although wrongfully labeled by the trial judge as inducing breach of contract. [6] The only paragraphs of the statement of claim of the respondents that are alleged to be capable of supporting the respondents’ argument for a proper basis for the personal liability of Kallinikos are the following: (13) The plaintiffs state and it is a fact that subsequent to the completion of the aforementioned agreement of purchase and sale the plaintiffs discovered that the defendants had been responsible of the aforementioned misrepresentations by the defendants, such misrepresentations were either deliberate and/or negligent and/or innocent and in addition breached the aforementioned agreement of purchase and sale and lease, chattel mortgage, and the declarations and undertakings and warranties aforementioned the particulars of which are as follows... (Note: 5 sub-paragraphs follow, in which all acts are stated in terms of ‘the defendants” and no separate account of the appellant’s activities in his individual capacity is made or singled out). (15) The plaintiffs state and it is a fact that they attempted through their solicitors to negotiate a settlement with respect to the outstanding differences between them and the defendants through the defendant solicitors in February of 1993, and notwithstanding the aforementioned right of set off with respect to the payment of rent and chattel mortgage payments notwithstanding the plaintiffs agreement to provide to their solicitors the rent due and owing for February of 1993 in their solicitors’ trust account pending such negotiations, the defendants without any prior notice and without any knowledge or consent by the plaintiffs whatsoever retained the services of the bailiff and instructed the said bailiff to attend at 635 Danforth Avenue on the 15th day of February, 1993 during the night time and changed the locks of the said lands and premises and retained in the said lands and premises all of the chattels, fixtures, and equipment purchased by the plaintiffs pursuant to the aforementioned agreement of purchase and sale together with other chattels, fixtures, and equipment that belonged to the plaintiffs and prevented the plaintiffs from gaining access to the said lands and premises (17) The plaintiffs state and it is a fact that the defendants by their conduct in terminating the aforementioned lease as aforementioned have committed a trespass, have derogated from the plaintiffs rights with respect the lease, have converted to their own use the chattels, fixtures, and equipment belonging to the plaintiffs, and in general are in breach of the agreement of purchase and sale, and chattel mortgage, and lease, and breached their undertakings and warranties and declarations aforementioned. [7] The personal liability of directors, officers and employees has recently been extensively reviewed by this court in ScotiaMcLeod v. Peoples Jewellers Ltd. (1995), 26 O.R. (3d) 481, and Agda Systems International Ltd. v. Valcom Ltd, et al. (1999), 43 O.R. (3d) 101. In Agda, Carthy J.A. (at p.112) accepted Finlayson J.A.’s reasoning in ScotiaMcLeod (at p. 491) that in “those cases in which the corporate veil has been pierced … the facts giving rise to personal liability were specifically pleaded”. Carthy J.A. then concluded (at p.113) that “where properly pleaded, a claim may be asserted for the tortious conduct of individuals where the defence in Said v. Butt [inducing breach of contract] is not available”. See also Craik v. Aetna Life Insurance Co. of Canada, [1996] O.J. No. 2377, where this court affirmed Cummings J.’s decision striking out a claim against employees because while the pleadings asserted that the corporation acted tortiously, they did not assert that the employees acted in any personal capacity. All these cases emphasized the importance of a proper pleading. [8] In the present case, it is not clear on the face of the statement of claim that Kallinikos was being sued in his personal capacity. The allegations are general in nature: they are against “the defendants” (i.e. 460 and John Kallinikos). The pleadings did not allege any negligence against Kallinikos personally. Where the pleading asserted that the defendants acted tortiously, they did not assert that Kallinikos acted in his personal capacity. No attempt was made in the pleadings to single out Kallinikos’ activity as an individual. Pleadings of such a general nature cannot properly serve as the basis for an independent claim against Kallinikos in his personal capacity. In my view, ‘properly pleaded’ as it relates to personal liability of corporate directors, officers and employees must be read as ‘specifically pleaded’, a separate claim must be stated against the individual in his personal capacity. [9] As correctly pointed out by counsel for the appellants, the parties to a legal suit are entitled to have a resolution of their differences on the basis of the issues joined in the pleadings. A finding of liability and resulting damages against a defendant on a basis that was not pleaded in the statement of claim cannot stand. It deprives the defendant of the opportunity to address that issue in the evidence at trial. See Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. (1998), 41 O.R. (3d) 528 (C.A.). [10] Furthermore, it is not clear from a review of counsel’s opening statement and from the examinations and cross- examinations of Kallinikos and Kioussis that the respondents were claiming against Kallinikos in his personal capacity. I cannot find any indication in the evidence where Kallinikos seemed to be defending himself against a claim for personal tortious conduct. Consequently, I have concluded that Kallinikos’ personal liability was not a live issue at trial. [11] In my view, the trial judge was in error in finding Kallinikos personally liable for the damages awarded to the respondents. [12] The appeal is allowed in part. The words “defendants” in paragraphs 2,3 and 4 of the judgment are varied to read “the defendant 460635”. In his reasons, the trial judge had harsh words for Kallinikos. He found lack of good faith and dishonesty on the part of Kallinikos. These findings are reasonable on the basis of the evidence. In light of this reprehensible conduct and the divided success on the appeal, I would therefore make no order with respect to the costs of the appeal. (signed) "J. M. Labrosse J.A." (signed) "I agree S. T. Goudge J.A." (signed) "I agree J. C. MacPherson J.A." RELEASED: November 2, 1999