Powder House Hill Investments Ltd. Applicant And: Office of the High Sheriff Respondent, 2018 NLSC 121

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Powder House Hill Investments Ltd. v. Office of the High Sheriff , 2018 NLSC 121 Date : June 4, 2018 Docket : 201701G8538 Between: Powder House Hill Investments Ltd. Applicant And: Office of the High Sheriff Respondent Before: Justice Rosalie McGrath Place of Hearing: St. John’s, Newfoundland and Labrador Date(

s) of Hearing: April 17, 2018

Summary: The non-lawyer sole shareholder and director of the Applicant requested leave to represent the corporate Applicant. The Court held that it could not allow the corporate Applicant to be represented by someone who was not a solicitor. Such representation would be contrary to Rule 5.07(2) of the Rules of the Supreme Court, 1986 and section 76(1) (

a) of the Law Society Act, 1999 . Appearances: William Clarke Appearing and seeking to represent the Applicant

Mark P. Sheppard Appearing on behalf of the Respondent Maeve A. Baird Appearing on behalf of the Judgment Creditor, Canada Revenue Agency Authorities Cited: CASES CONSIDERED: Leyson Holdings Inc. v. Newfoundland & Labrador (Department of Works, Services & Transportation), 2008NLCA 66; Rockwood v. Newfoundland & Labrador, 2007 NLCA 68; Trifidus Inc. v. Samgo Innovations Inc., 2011 NBCA 59;Kosmopoulos v. Constitution Ins. Co. of Canada, (SCC), [1987] 1 S.C.R. 2; Petten v. E.Y.E. Marine Consultants (1998), (NL SC), 180 Nfld. & P.E.I.R. 1, 548 A.P.R. 1 (Nfld. S.C. (T.D.)); Brace v.

Canada (Customs & Revenue Agency),2007 NLTD 149 STATUTES CONSIDERED: Judgment Enforcement Act, S.N.L. 1996, c. J-1.1; Law Society Act, 1999, S.N.L. 1999 c. L-9.1; CanadianCharter of Rights and Freedoms,

Part I of the Constitution Act, 1982, being

Schedule B to the Canada Act 1982 (U.K.), 1982 c. 11 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT McGrath, J.: INTRODUCTION [1] This decision arises from a request that the Court make a preliminary determination as to whether a sole shareholder anddirector of a corporation is entitled to represent that body corporate before this Court. This issue has been dealt with in prior decisions ofthe Newfoundland and Labrador Court of Appeal which upheld the prohibitions against such representation.

However, the soleshareholder and director seeks to distinguish these prior decisions, submitting that I retain discretion to allow such representation. background [2] The dispute between the parties arose when the Office of the High Sheriff (the “Sheriff”) gave notice of its intention to takeenforcement proceedings on a judgment registered by Canada Revenue Agency (“CRA”) against Powder House Hill Investments Ltd.(“Powder House”). The enforcement proceedings involved the Sheriff’s sale of property of Powder House located at Port Blandford, inthe Province of Newfoundland and Labrador. Mr.

Clarke, who is the sole shareholder and director of Powder House, filed an objectionto the sale under

section 159 of the Judgment Enforcement Act, S.N.L. 1996, c. J-1.1 (the “JEA”). This objection was rejected by theSheriff on the basis that the notice of objection was frivolous or intended merely to delay or prolong enforcement proceedings. [3] Mr. Clarke, on behalf of Powder House, then filed an appeal of the Sheriff’s decision with this Court pursuant to section163(1) of the JEA. That

section allows the Court to determine the issue of whether a notice of objection to enforcement proceedings iseffective under

section 159. In his notice of appeal, Mr. Clarke, who is not a lawyer, also asked for leave of the Court to representPowder House “as a Director on the grounds that the Corporation has insufficient funds to hire a solicitor, and it is in the interests ofjustice that the appeal is heard on its merits”. [4] While this proceeding was styled as an appeal, section 163(1)(

b) of the JEA allows a third party or the debtor to “apply” tothe Court within 15 days of a decision of the Sheriff for a determination of the effectiveness of a notice of objection. Section 163(1)(c)specifically refers to the determination proceeding by way of application. However, in determining the preliminary issue of Mr. Clarke’sentitlement to represent Powder House, I am prepared to proceed as if the matter had been initiated as an application instead of an appeal. [5] While Mr.

Clarke’s initial filing identified the financial inability of Powder House to hire a lawyer and the interests of justiceas reasons for allowing representation by a non-lawyer, Mr. Clarke made additional submissions in writing and at the hearing as to whysuch representation should be allowed. [6] The Sheriff and CRA both took the position that Mr. Clarke’s request to represent Powder House must be dismissed as thelaw in this Province is clear that only a lawyer can represent a corporation.

issue 1. The issue for determination is whether Mr. Clarke is permitted to act for Powder House in this matter. Law and Analysis [ 7 ] In deciding this issue, I must consider Rule 5.07(2) of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D (“ Rules of Court ”) which states:

(2) A body corporate may not commence, carry on or defend a proceeding otherwise than by a solicitor. [ 8 ] I must also consider section 76(1) of the Law Society Act, 1999 , S.N.L. 1999, c. L-9.1 (“ Law Society Act ”) which states that only a member in good standing of the Law Society or a professional law corporation holding a valid licence may practice law in the Province. [1] However, there is an exception in section 76(1) (

a) for individuals representing themselves as a party in an action. That

section reads as follows: 76.

(1) A person, other than a member in good standing or a professional law corporation holding a valid licence, shall not engage in the practice of law, except (

a) an individual acting on his or her own behalf in a proceeding to which he or she is a party other than a person to whom a debt has been assigned for collection only; [ 9 ] Mr. Clarke asserted at the hearing that the exception in this

section is applicable to this proceeding.

In his written submissions, he stated that this exception applies because he “has been assigned a portion of this debt as per an audit of his personal income tax as a benefit and therefor [sic] he should be permitted to represent the Corporation and his portion of the asset.” In oral submissions, he clarified that CRA has treated mortgage payments made by Powder House on the property proposed to be sold as a personal benefit to him, thereby increasing the taxable income on his personal income tax return. [ 10 ] Neither counsel for the Sheriff nor counsel for CRA had knowledge of any such tax treatment.

Counsel for CRA further noted that no evidence, affidavit or otherwise, was presented to support this assertion. It was also unsupported by any documentation. I agree that this position was not supported by any evidence placed before the Court. However, even if it had been so supported, I find that this assertion is not relevant to the issue of whether the exception in section 76(1) (

a) applies. [ 11 ] Mr. Clarke’s position appears to be that since CRA attributed income to him in the amount of the mortgage payments made by Powder House, this equated to an assignment of a debt to him for collection purposes, thereby triggering the exception in section 76(1) (

a) of the Law Society Act . [ 12 ] However, such a position is not supported by a proper

interpretation of that section. The

section is drafted such that it contains an exception within an exception, which I appreciate could create some confusion on a first reading. A proper reading of the

section reveals that the exception in section 76(1)(

a) allows an individual to self-represent if that individual is a party to the proceeding. However, if that individual is a party because that person has been assigned a debt for collection purposes only, (eg., a collections officer), the exception does not apply and that individual assignee must still be represented by a solicitor. Further, even if I were to read section 76(1) (

a) in the manner suggested by Mr. Clarke, the debt in question is owed to CRA. He does not assert that CRA has entered into an assignment agreement with him whereby he is to collect the tax debt from Powder House. [ 13 ] As such, I find that Rule 5.07(2) and section 76(1) both apply to this proceeding. The application and validity of both these rule-based and statutory prohibitions on a non-lawyer’s representation of a body corporate has previously been considered and conclusively decided by the Newfoundland and Labrador Court of Appeal, most recently in Leyson Holdings Inc. v.

Newfoundland & Labrador (Department of Works, Services & Transportation) , 2008 NLCA 66 . [ 14 ] Leyson was the culmination of a series of court actions and appeals referenced below in which attempts were made by an individual director to represent a corporation controlled by him. In these court actions, Rule 5.07(2) and section 76(1)(

a) of the Law Society Act were challenged on the basis that they violated section 15(1) of the Canadian Charter of Rights and Freedoms ,

Part I of the Constitution Act, 1982 , being

Schedule B to the Canada Act 1982 (U.K.), 1982 c. 11 (the “ Charter ”) and on the basis that this Court has the inherent and rule-based discretion to allow such representation. These arguments were rejected by the Court of Appeal. [ 15 ] The individual seeking to represent the corporation in Leyson was the same individual who had previously challenged the validity of these provisions on the basis of a Charter violation in Rockwood v. Newfoundland & Labrador , 2007 NLCA 68 . In Rockwood , the Court of Appeal made it clear that section 15(1)(

a) of the Charter did not apply to a corporation and the Court was bound by Rule 5.07(2) and section 76(1)(

a) of the Law Society Act . [ 16 ] In Leyson , this same individual once again sought to represent a corporation. The individual asserted that, notwithstanding the wording of Rule 5.07(2) and section 76(1)(

a) of the Law Society Act , the Court had discretion under Rule 2.01(1) of the Rules of Court , or could use its inherent jurisdiction, to allow such representation. Writing for the unanimous court, Rowe J.A., as he then was, stated at paragraphs 23 to 26: 23 It is clear that both s. 76(1)(

a) of the Law Society Act and rule 5.07(2) prohibit Mr. Rockwood from appearing for Leyson Holdings Inc. To me, that disposes of the matter. 24 I do not agree that rule 2.01 allows any leeway to over-ride Rule 5.07. The latter is clear and deals directly with the issue. The

former is general and is intended to avoid nullities. (See, for example, Clancey v. Clarke Transport Canada Inc. (1998), (NL CA), 163 Nfld. & P.E.I.R. 188 (Nfld. C.A.) per Green, J.A., for the Court, at paras. 32-54). Thus, rule 5.07 governs. 25 Regarding inherent jurisdiction, I would agree with Freeman, J.A. (quoted above at para. 14) that, Inherent jurisdiction cannot, of course, be exercised so as to conflict with a statute or rule.

See also Nixon, supra, at para. 41, per Gushue, J.A., for the majority: Those inherent powers [to regulate procedure] apply, however, only insofar as they do not conflict with relevant statutes or the rules ofcourt. 26 Mr. Rockwood cannot represent Leyson Holdings Inc. because, first, the Law Society Act says he cannot and, second, because rule5.07 says he cannot. Inherent jurisdiction cannot be exercised so as to conflict with either “relevant statutes or the rules of court”. [17] The facts in Leyson and in the current action are very similar.

In Leyson, a small corporation initiated an action against theProvince. The sole shareholder and director applied for leave to represent the corporation, the core reason for which was that neither hepersonally, nor the corporation, could pay for representation. [18] In the current proceedings, Powder House has initiated a proceeding against the Sheriff. Mr. Clarke, as sole director, seeksleave to represent the corporation because he says neither he personally, nor the corporation, can pay for legal representation.

He furthersays it is important that he be permitted to present evidence on the objection application to show that the debt is part of a much largeraction presently before the Court. In addition, as noted earlier, he says such representation should be allowed as CRA is treating theproperty of Powder House as his personal property by adding mortgage payments made by the corporation to his personal taxableincome. He says these are all matters for the Court to consider in exercising its rule-based discretion or inherent jurisdiction to allowsuch representation. [19] Mr.

Clarke has referred me to a decision of the New Brunswick Court of Appeal in Trifidus Inc. v. Samgo Innovations Inc.,2011 NBCA 59, in which the majority of the New Brunswick Court of Appeal held that there was a rule-based discretion to allow anindividual to represent a corporation despite a similar rule (Rule 17.01) prohibiting such representation in the New Brunswick Court ofQueen’s Bench Rules of Court. In that case, Quigg, JJ.A., writing for the majority, held that Rule 2.01 of the New Brunswick Rules ofCourt gave a judge discretion to override the requirement in Rule 17.01.

The majority did note that such discretion should be rarelyexercised, with the onus resting on the person seeking a dispensation of the requirement in Rule 17.01. [20] However, a similar submission in respect of Rule 2.01 of this Court’s Rules of Court was considered by the Newfoundland andLabrador Court of Appeal in Leyson three years earlier and it was expressly rejected.

It is the decision of the Court of Appeal of thisProvince that is binding on me, not the decision of the Court of Appeal of another province dealing with the Rules of Court applicable toa trial court in that province. [21] In addition, I note that New Brunswick’s Rule 2.01 is worded differently from our Rule 2.01.

The New Brunswick rule allowsa court to “at any time dispense with compliance with any rule, unless the rule expressly or impliedly provides otherwise.” Rule 2.01(1)in this Province states that “A failure to comply with any requirement of these rules shall, unless the Court otherwise orders, be treated asan irregularity and shall not nullify the proceeding, any step taken in the proceeding, or any document or order therein.” [22] There is a significant difference in the wording of these two rules.

The New Brunswick rule speaks of dispensing with arequirement while the Newfoundland and Labrador rule speaks of merely treating non-compliance as an irregularity that does not nullifya proceeding, suggesting that an irregularity may be cured or excused as opposed to being dispensed with. Rowe, J.A., in Leyson,specifically noted the purpose of Rule 2.01 as being to avoid a nullity. [23] As well, I note that in Trifidus, the New Brunswick Court of Appeal did not opine on whether Rule 2.01 of that Province’sQueen’s Bench Rules of Court could be applied to overcome

section 33 of New Brunswick’s Law Society Act which contains wordingsimilar to section 76(1)(

a) of the Newfoundland and Labrador Law Society Act. That issue was left for another day. However, in Leyson,Rowe, J.A., as he then was, specifically determined that such a statutory provision could not be overridden by Rule 2.01 or the Court’sinherent jurisdiction. [24] In any event, even if I am incorrect and I do retain discretion to allow Mr. Clarke to represent Powder House, applying therelevant circumstances set out in Trifidus for dispensing with the requirement that a corporation be represented by a solicitor, I would notexercise my discretion to allow such representation in these circumstances.

At paragraph 37 of Trifidus, the court identified thefollowing as non-inclusive considerations:

(1) Is the individual seeking waiver of the requirement a sole shareholder and sole director of the corporation?

(2) If not, is it a closely held corporation, such as a family owned company, making the request with the consent of the other

shareholders?

(3) Does the corporation lack the financial resources to pursue or defend the action in question?

(4) Is there merit to the action or defence (a higher threshold than raising a serious issue)?

(5) Is the matter being considered a narrow issue of law, or do the complexities of the case require a trial?

(6) Is the representative proposed by the corporation capable of pursuing or defending the action having regard to the complexity of thematter?

(7) Is the corporation capable of and willing to pay costs, if ordered (not impecunious)?

(8) Would the other party potentially be exposed to greater costs, if represented by a solicitor? [25] The court noted that the purpose of the dispensation is to prevent an injustice but that an injustice may also result if the rule isdisregarded. This, therefore, requires a balancing exercise by the presiding justice with the threshold for dispensation being high. [26] While I acknowledge that (

i) Mr. Clarke is the sole shareholder and director of Powder House; (ii) the corporation has no fundsto retain a solicitor; and (iii) the application for determination of the objection is not particularly complex, the remainder of the factorsweigh against me exercising discretion to allow such representation. [27] In this case, Mr. Clarke has acknowledged his impecuniosity and that of Powder House.

As such, this impecuniosity couldcause an injustice to CRA and the Sheriff if the application is not determined in favour of Powder House. [28] Further, while these are matters to be determined on the hearing of the application, a review of the original objection and thegrounds raised in this proceeding indicate there is questionable merit to the application. The objection largely seems to tie payment ofthe CRA debt to actions in which CRA has no apparent involvement as they deal with third party power of sale proceedings over anotherproperty. As well, Mr.

Clarke has filed copies of pleadings involving unrelated parties with no clear explanation as to how this mayrelate to his objection, other than to support his assertion that he or companies related to him may receive monies from an unrelatedjudgment in the future. A creditor should not be frustrated in judgment enforcement by late attempts to delay payment or to negotiate asettlement. [29] The only other objection is an assertion that the property the Sheriff intends to sell was not appraised correctly.

However, Mr.Clarke has not referred me to any facts to support this. [30] Further, as noted above, the submissions made in the written brief and orally relating to the attribution of a personal taxablebenefit to Mr. Clarke from Powder House were not raised as an objection and have questionable relevance. [31] I am also mindful of the fact that it was Mr. Clarke who chose to incorporate. Counsel for the Sheriff has noted the commentsof Justice Wilson in Kosmopoulos v. Constitution Ins.

Co. of Canada, (SCC), [1987] 1 S.C.R. 2, at page 11, citedfavorably by the Court of Appeal in Rockwood: There is a persuasive argument that “those who have chosen the benefits of incorporation must bear the corresponding burdens, so that ifthe [corporate] veil is to be lifted at all that should only be done in the interests of third parties who would otherwise suffer as a result ofthat choice.” Gower [Modern Company Law, 4th edition (London: Stevens & Sons, 1979)], at p. 138. … Having chosen to receive the benefits of incorporation, he should not be allowed to escape its burdens. [32] This application relates to enforcement against a property in Port Blandford in which title is held by Powder House.

Even ifCRA has treated the corporation’s payment of mortgage payments on that property as a personal benefit to Mr. Clarke for income taxpurposes, this does not change the fact that a decision was made to have title to the property held by the Corporation. The propertyremains that of the corporate debtor and CRA has a registered judgment against that corporate debtor. One of the burdens associatedwith incorporation is the requirement for a corporation to be represented by a solicitor in court. The law is clear that a person such asMr.

Clarke who has chosen to receive the benefits of incorporation should not escape its burdens. [33] In light of these circumstances, even if I had the discretion to allow Mr. Clarke to represent Powder House, I would not

exercise such discretion as it would cause an injustice to the other parties to do so. [34] In light of my finding that Powder House must be represented by a solicitor, the question becomes what is the appropriate orderto make as a result of this determination. I note that a decision on whether this application may proceed should be made now as section163(1)(

d) of the JEA says that, where a notice of objection is not effective, the property shall not be sold by way of enforcementproceedings until any application for a determination of the issue of the effectiveness of the objection is discontinued or dismissed or thecourt otherwise orders. As a result, the continued existence of this proceeding effectively stays the enforcement action. [35] I have been referred to reported cases in which an action has continued despite the fact that a corporation was unrepresented. However, the facts in those cases are distinguishable. [36] In Petten v. E.Y.E.

Marine Consultants (1998), (NL SC), 180 Nfld. & P.E.I.R. 1, 548 A.P.R. 1 (Nfld. S.C.(T.D.)), Mr. and Mrs. Petten were the sole shareholders and directors of two corporations. Their counsel initiated actions on behalf ofthe Pettens and corporations controlled by them. After counsel had presented their case, but before the Defendants’ arguments, thePettens’ counsel became ill and had to withdraw, with the Pettens and the Plaintiff corporations being unable to retain new counsel.

TheDefendants subsequently filed an application to have the corporate Plaintiffs removed as parties and to have their claims struck, citingRule 5.07. The Pettens, acting for themselves and the plaintiff corporations during the application, argued that Rule 2.01(2) or theinherent jurisdiction of the court gave the court discretion to allow them to represent the corporate entities. This is the same argumentthat was rejected in Leyson twelve years later.

Justice Green declined to rule on these arguments and instead held that Rule 5.07(2) didnot preclude the corporations from remaining on the record in a passive capacity with no representation. However, it is notable that, inthat case, the corporate Plaintiffs’ evidence had already been presented by counsel. [37] In a similar case, Brace v. Canada (Customs and Revenue Agency), 2007 NLTD 149, Canada Revenue Agency made a claimfor goods under the JEA against a third party. The Applicants filed an objection claiming that they owned the goods. The Applicantswere two individuals, Brace and Curl, and a corporation, D.L.

Brace Ltd. All parties had counsel at the outset of litigation but, during thecourse of proceedings, counsel for the Applicants was allowed to withdraw. The individuals Brace and Curl then became self-represented.

The Court followed Petten and endorsed the proposition that it is not a violation of Rule 5.07 for an unrepresentedcorporation to remain a party to a proceeding as long as its participation is passive, not active, participation. [38] What is distinguishable in those cases from the matter before me is that in both Petten and Brace, the corporate entitiesremained as parties to the proceedings in a passive manner only, not as active participants. As there were individual parties who couldcarry the litigation on their own behalf, there was no need for the corporate parties to present evidence or make submissions.

In thiscase, Powder House wishes to be and must be an active participant in order for the application to proceed. [39] Counsel for the Sheriff submitted that the Notice of Appeal must therefore be struck out as Mr. Clarke had no right to file it as anon-lawyer. He says it is void ab initio. On the other hand, if I find that Powder House must be represented by counsel, Mr. Clarkeasks that I allow him some time to determine whether he can arrange for legal representation.

Counsel for CRA agreed that this could bean acceptable alternate approach and suggested that a period of two to three weeks would be sufficient time to allow for legalrepresentation. [40] Having considering the parties’ positions, in light of the fact that Rule 2.01 allows me to avoid nullifying a proceeding becausethere was a failure to comply with a Rule, I will exercise my discretion to provide Powder House a period of three weeks from today’sdate to comply with Rule 5.07 by retaining legal counsel to represent it in these proceedings.

The parties shall have leave to contact theSupreme Court Registry to obtain a date for this matter to be called after the expiry of this three-week period. At that time, the partiesare to provide a status update. The Court may then set the matter down for a hearing if Powder House has retained counsel or take suchother step or make such order as is appropriate.

summary and disposition [41] It is ordered that Mr. Clarke may not represent Powder House in respect of this proceeding as such representation would becontrary to Rule 5.07(2) of the Rules of Court and section 76(1)(

a) of the Law Society Act. Powder House has a period of three weeksfrom today’s date to retain legal counsel, with the parties having leave to set a date for a status hearing following that three-week period. As the parties did not address the issue of costs, I grant leave to the parties to address this issue before me. _____________________________ Rosalie McGrath Justice