Alpine Insulation v. Eagleye Restoration et al, 2018 BCPC 176

Citation: Alpine Insulation v. Eagleye Restoration et al 2018 BCPC 176 Date: 20180514 File No: 150318 Registry: Victoria IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: ALPINE INSULATION LTD. CLAIMANT AND: EAGLEYE RESTORATION SERVICES LTD., EAGLEYE RESIDENTIAL SERVICES LTD., DOUGLAS DOWNS, DOUGLES CONSULTING SERVICES INC. AND BRADLEY ROTTO DEFENDANTS ORAL REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE L. MROZINSKI Counsel for the Claimant: D. O'Brien Appearing on his own behalf for Eagleye Residential Services Ltd. and DougLes Consulting Services Ltd.: D. Downs Place of Hearing: Victoria , B.C.

Date of Hearing: May 14, 2018 Date of Judgment: May 14, 2018 [ 1 ] THE COURT: This is a claim for payment for work performed by Alpine Insulation Limited (“Alpine”) on behalf of Eagleye

[ 1 ] THE COURT: This is a claim for payment for work performed by Alpine Insulation Limited (“Alpine”) on behalf of Eagleye Restoration Services Limited. There is no dispute that Alpine provided insulation services at two sites which were under construction by Eagleye Restoration. Work done on one site, known as the Larabie site, resulted in an invoice in the amount of $1,029. The other, known as the Quadra site, resulted in two invoices; one in the amount of $3,150, and the other in the amount of $1,123.50, for a total of $4,273.50.

In addition to the claim for payment for work performed, Alpine seeks interest at the rate of two percent per month after the date on which payment on each of the invoices was due. [ 2 ] Mr. Downs appears on his own behalf and on behalf of Eagleye Restoration Services Limited, Eagleye Residential Services Limited, and DougLes Consulting Services Limited. Mr. Downs does not dispute the invoice amounts. He acknowledges that those amounts are owed to Alpine Insulation Limited by Eagleye Restoration Services Limited. Mr.

Downs does however dispute Alpine's claim for interest. [ 3 ] At issue in this case is not what should be paid - leaving aside the issue of interest - but who should pay. It really is a question of whether the circumstances of this case amount to a fraudulent conveyance or would otherwise justify the piercing of the corporate veil. Even if a fraudulent conveyance as that is defined in Fraudulent Conveyance Act , R.S.B.C. 1996, c. 163, is made out, the first question is whether this court has jurisdiction to apply that legislation.

Assuming it does, whether or not the claimant makes out a case for a fraudulent conveyance or the piercing of the corporate veil, the same question arises: that is whether the transfer of assets from Eagleye Restoration to DougLes Consulting was a good-faith transfer done in accordance with the law or a transfer done to delay, hinder, or otherwise defraud creditors as Alpine submits? [ 4 ] The facts in the trial are not, for the most part, in dispute. Eagleye is operated by Mr. Downs and his former partner and former co-defendant, Mr. Brad Rotto. Mr.

Downs had incorporated Eagleye Restoration Services Limited first, but he was later joined by Mr. Rotto. The company, and by that I am referring to Eagleye Restoration Services Limited, had in its infancy a big setback as Mr. Downs described. It lost money when a former associate apparently absconded with funds. Still Mr. Downs and Mr. Rotto decided to keep the company going, although Mr. Downs indicated at that point it would have been better to have simply packed it up. [ 5 ] The company struggled, according to Mr. Downs, on a daily basis. He and Mr. Rotto built a house in order to draw in business.

For a time, the house caused Eagleye Restoration Services Limited to look healthy, at least on its balance sheet: it was at one point estimated to have a value of $1.4 million. Unfortunately, as Mr. Downs testified, the company was not able to quickly sell the house. It was at times rented, and at other times the company took steps to reduce its mortgage payments. The house was ultimately sold and Mr. Downs testified that the company took a loss of nearly $400,000. [ 6 ] Around 2014, or thereabouts, Mr. Rotto began having some health and personal issues.

At the same time, the company had many ongoing projects and it had a number of assets as evidenced in this trial. Those assets included tools and vehicles including a Lexus, and some high-end trucks. There were lines of credit available to the company. The company did ultimately owe Canada Revenue Agency, it had payroll debts, it had debts on lines of credit and, of course, it owed for various vehicles. Some of those debts and some of those loans were secured personally by Mr. Downs. [ 7 ] The work at issue was done by Alpine in 2014.

In regard to Larabie Street, the work appears to have been done around February 2014 and, with regard to the Quadra invoices, the work appears to have been done in the spring of 2014. It was around this time that Eagleye Restoration was teetering on the edge of bankruptcy. The evidence is that the company was ultimately removed from the company registry, but not for reasons of bankruptcy. Rather, it was removed because its directors failed to file an annual report. [ 8 ] Mr. Downs testified with respect to the circumstances in which the company ultimately came to a functional end.

He testified that he spoke to lawyers and determined, firstly, that the company could not afford to declare bankruptcy. Secondly, and more importantly, Mr. Rotto did not want to declare bankruptcy. One of the reasons given by Mr. Downs is that Mr. Rotto's wife is a lawyer and he was under the impression that a bankruptcy by Mr. Rotto would have implications for his wife. [ 9 ] The rationale of the parties’ decision not to declare bankruptcy but rather to organize the termination of the company or the end of the company, is succinctly put by Mr.

Downs at paragraph 7 of his trial statement filed in this court pursuant to the Rules. There, Mr. Downs writes (in the third person) that: Mr. Downs had some real estate assets and knew that the creditors, particularly CRA, would get the monies from him and saw no point in having Mr. Rotto go bankrupt. Mr. Downs was going to continue in construction and agreed with Mr. Rotto that in exchange for Mr.

Downs and DougLes Consulting Services Inc. paying all of the secured debt, that the DougLes Consulting Services would be allowed to use the trade names, take the phone numbers, access the client list and website, own the receivables and any assets of Eagleye Restoration Services Limited. [ 10 ] Effectively, the agreement was that the parties would not declare bankruptcy, though that was certainly a reasonable option at the time; that DougLes Consulting Limited, which is owned by Mr.

Downs, would buy the assets; that DougLes Consulting Limited would pay out the secured creditors and, to that end and following that, Mr. Downs also incorporated Eagleye Residential Services Limited. [ 11 ] Eagleye Residential Services Limited, which also engaged in construction, used trucks transferred from Eagleye Restoration Services Limited to DougLes Consulting Limited. The Eagleye logo was kept, as I indicated. Mr. Downs testified that Eagleye Residential Services Limited took on one commercial construction project in Langford.

It employed no office staff, unlike the situation with respect to Eagleye Restoration Services Limited. Mr. Downs, as a worker for Eagleye Residential Services Limited, worked on site. He maintains that the two companies are entirely different and entirely separate. [ 12 ] Mr. Lewis of Alpine Insulation Limited testified to seeing Mr. Downs at the project I just described. He noted that Mr. Downs was the prime contractor on the site. He saw one employee from Eagleye Restoration Limited also working at the site.

He saw a truck bearing the logo “Eagleye Restoration Limited”, and he noted, as well, the phone number from Eagleye Restoration Limited continued to be in use, although I note that Mr. Downs maintains that it was never used. Alpine Insulation Limited maintains that, effectively, Mr. Downs operated the same company, that he simply restructured things to deprive creditors like Alpine Insulation Limited of the

opportunity to collect the debts owed by Eagleye Restoration Services Limited. [13] In terms of the legal issues, I have indicated at the outset that there is a two-prong attack brought on behalf of the claimant. First, it is submitted that this case falls within the terms of the Fraudulent Conveyance Act. It is alleged that the transfer of assets was afraudulent conveyance done to avoid debt or duty on the part of Mr. Downs and his co-defendant, Mr. Rotto, but specifically by Downs. [14] The Fraudulent Conveyance Act, provides at s. 1 that: If made to delay, hinder or defraud creditors and others of their just and lawful remedies (

a) a disposition of property, by writing or otherwise, (

b) a bond, (

c) a proceeding, or (

d) an order is void and of no effect against a person or the person's assignee or personal representative whose rights and obligations are or might bedisturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary. [15] The first question with respect to the Fraudulent Conveyance Act, before any determination as to whether or not thecircumstances in this case fall within the parameters of that Act, is whether or not this court has any jurisdiction to apply that legislation. [16] In that regard, I have been provided with two cases.

The first is a decision of this court in Canpages Inc. v. Avi Pizza FactorLimited et al, 2009 BCPC 159 , 2009 BCPC 0159. That case involved an application for a payment order following a defaultorder. The court, which was asked to make a payment order, had to determine firstly whether it had the jurisdiction to consider and/orapply the Fraudulent Conveyance Act which was the legislation under which the claim was brought. At paragraph 10, the court wrote: I have considered the Fraudulent Conveyance Act.

It provides for a declaratory order deeming a conveyance to be “void and of noeffect.” A declaratory order is not within this court’s jurisdiction to make; see Evans v. Campbell (1993), (BC CA),77 B.C.L.R. (2d) 211 (C.A.). [17] The question in this case is whether or not this court should follow that decision. I have been provided with the decision ofJudge Watchuk, as she then was, in Modern Decorator Inc. v. White, 2006 BCPC 565 , 2006 BCPC 0565.

In that case, again,the parties proceeded with a claim pursuant to the Fraudulent Conveyance Act. [18] At the end of the day, Judge Watchuk made no order largely because, as a finding of fact, the court did not find there was thesort of impropriety that would invoke the legislation. The submission before me is that but for this finding, Judge Watchuk would havehad no difficulty applying the Act. [19] I find that I agree with the reasons of Judge Dhillon in the Canpages case. The Fraudulent Conveyance Act, while clearly notreferring on its face to any sort of mandated declaration, can result in no other remedy.

The only possible outcome of an applicationpursuant to s. 1 of the Fraudulent Conveyance Act is to make a declaration that a particular disposition, bond, proceeding, or other orderis void and of no effect. That is the effect of the declaration and that, in my view, means unequivocally that that is a piece of legislationwhich requires the issuance of a declaration and no other remedy. I am satisfied that this court has no jurisdiction to issue declaratoryrelief and, therefore, does not have any jurisdiction to apply the Fraudulent Conveyance Act. [20] That, however, does not end the matter.

The second prong of the argument advanced by Alpine Insulation Limited is that this isa case in which this court ought to pierce the corporate veil, that is to say, to take away the shield of corporate liability or limited liabilityfrom Mr. Downs and hold Mr. Downs personally liable for the debt owed to Alpine Insulation Limited. [21] In this regard, the claimant relies on the reasons in Mitchell v. Lewis, 2016 ONCA 903.

That is a case in which the question ofpiercing the corporate veil is discussed and, more importantly, includes an oft cited quote at paragraph 18 of the reasons which is, in fact,a quote from Justice Laskin in Ontario Limited v. Fleischer (2001), O.R. (3d) 417 (C.A.), at paragraph 68 where Justice Laskin wrote: Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can alsobe pierced if when incorporated “those in control expressly direct a wrongful thing to be done”: Clarkson Co. v. Zhelka at p. 578.

Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life AssuranceCo. (1996), (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Ont. Ct. (Gen. Div.)), aff’d [1997] O.J. No. 3754 (C.A.): “thecourts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being usedas a shield for fraudulent or improper conduct.” [22] The issue of whether or not to pierce the corporate veil fundamentally turns on the purpose of the conduct at issue.

In this case,the purpose made, I think clear, at paragraph 7 of Mr. Downs' trial statement, was to avoid bankruptcy and to enable Mr. Downs tocontinue in construction. The effect of the agreement and the scheme of the agreement was that the parties agreed to pay off the secureddebtors, and it bears noting again, that that is a benefit to Mr. Downs. Certainly he would have had some CRA obligations, and he wouldhave had some personal obligations with respect to the lines of credit and the vehicle loans. [23] The effect of the scheme was to prefer secured creditors over unsecured creditors.

Those secured creditors will ultimatelyrecover 100 percent if Mr. Downs continues with his plan to pay off that debt. The scheme enables Mr. Downs to continue inconstruction and that was all at the sacrifice of the remainder of the unsecured creditors. Mr. Downs does say that he, too, was anunsecured creditor; that DougLes had money in Eagleye Restoration, and had some vehicles that were used by Eagleye Restoration thatbelonged to DougLes. DougLes benefited, of that I have no doubt. It was not the best deal, but DougLes, as an unsecured creditor, did

much better than the other unsecured creditors that had provided services to Eagleye Restoration Services Limited. [ 24 ] I find in the circumstances of this case that the assets of Eagleye Restoration Services Limited were transferred to DougLes Consulting Limited for an improper purpose and that was to favour certain creditors over others and to enable Mr. Downs to continue in construction. This is not a case, in my view, where, Mr. Downs should be able to rely on the benefit of the corporate shield or the shield of limited liability. I find it is not open to Mr.

Downs in the circumstances of this case to hide behind the corporate veil of Eagleye Restoration Limited. [ 25 ] I find it is an appropriate case and I do find Mr. Downs personally liable for the debt owing to Alpine Insulation Limited. I award to Alpine Insulation Limited an award in the amount of $5,302.73 which is the total of the two invoices. When the $500 which was paid out by way of settlement by Mr. Rotto is deducted, the final amount that is payable by Mr.

Downs personally to Alpine Insulation Limited is $4,802.73 plus court-ordered interest from the date of filing. [ 26 ] With respect to the interest claims which are made by Alpine Insulation, Mr. Downs' submissions were and his evidence was that he never explicitly or implicitly agreed to pay interest to Alpine Insulation. Mr. Downs gave evidence that the pattern over the years between himself and Alpine Insulation Limited was that no interest was claimed despite numerous late payments.

The only written form of contract in existence and entered into evidence in this trial refers to the interest at the rate of two percent as I have described it. However, it is, as Mr. Downs points out, not signed by Mr. Downs. [ 27 ] In the circumstances, I cannot be satisfied on balance that the parties agreed explicitly or implicitly that Eagleye Restoration Services would pay interest at the rate of two percent per month as described in the document in trial and, for those reasons, I decline to make an award of interest. [ 28 ] Now, what we have to deal with is payment. [ 29 ] MR.

O'BRIEN: I am sorry, we have to deal with? [ 30 ] THE COURT: Payment. [ 31 ] MR. O'BRIEN: Oh, yes. [ 32 ] THE COURT: So there are a number of options here. The order can be payable forthwith. If either party wants, you can seek to set this down for a payment hearing, in which case, if the parties cannot reach an agreement, what the court is required to do under our Rules is to look at all of the financial statements of the parties and determine means of payment and I suppose when payment can be made and how much payment can made.

I do not know if you are able to make the payment forthwith or if you are looking for a payment

schedule and, if you are, if you want to take a few minutes and speak to the claimant about what that might be. [ 33 ] DOUGLAS DOWNS: Can I have a week? [ 34 ] THE COURT: Mr. O'Brien? Surely you do not object. [ 35 ] MR. O'BRIEN: A week before what would happen? Before I would have the -- [ 36 ] THE COURT: For the payment -- [ 37 ] MR. O'BRIEN: -- payment order in my hand that I could then seek to enforce? [ 38 ] THE COURT: No, I am making an order today -- [ 39 ] MR. O'BRIEN: Yes. [ 40 ] THE COURT: -- and the payment order I am going to make is today. [ 41 ] MR.

O'BRIEN: Yes. [ 42 ] THE COURT: The payment order is going to be that this will be paid within seven days -- [ 43 ] MR. O'BRIEN: Oh, I see, yes. [ 44 ] THE COURT: -- of today's date. [ 45 ] MR. O'BRIEN: Sure, fine. Yes. [ 46 ] THE COURT: Right -- [ 47 ] MR. O'BRIEN: So I would not be -- [ 48 ] THE COURT: -- and that means -- [ 49 ] MR. O'BRIEN: -- at liberty to take any additional steps until after that time had gone by? [ 50 ] THE COURT: Well, it is going to be paid. So we are at the 14th of May at this point in time. Are you able to pay on or before May 21st? That is seven days. [ 51 ] DOUGLAS DOWNS: Yes.

[ 52 ] THE COURT: Okay. So what I am going to do, then, is I am going to make an order today. I have made the court order. I am going to make a payment order, then, that payment be made to -- I believe it will be to Mr. O'Brien in trust on behalf of Alpine Consulting Services -- [ 53 ] DOUGLAS DOWNS: Fine, yes. [ 54 ] THE COURT: -- or Insulation Services Limited. That will be payment in the amount that I just set out, $4,802.73 plus court- ordered interest from the date of filing. I can advise that the registry can calculate the court-ordered interest. It is a nominal sum, all right, but it is payable. (REASONS FOR JUDGMENT CONCLUDED)