2018 QCCQ 9471, 2018 QCCQ 9471

Laurendeau Rasic c. 3294421 Canada inc. 2018 QCCQ 9471 COURT OF QUEBEC (Practice Division) CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-22-242078-171 DATE: December 13, 2018 ______________________________________________________________________ BEFORE THE HONOURABLE ENRICO FORLINI, J.C.Q. ______________________________________________________________________ LAURENDEAU RASIC s.e.n.c. Plaintiff v. 3294421 CANADA INC. d.b.a. OLA DISPLAY And 8725535 CANADA INC. d.b.a. INNOVATIVE SOLAR POWER Defendants And DATAWIND INC.

And 4002962 CANADA INC. (formely Datawind Research Inc.) Opposants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Datawind Inc. (“ Datawind ”) and 4002962 Canada Inc. (“ Datawind Research ”, collectively, the “ Opposants ”) bring Third Party Oppositions pursuant to

article 735 of the Code of Civil Procedure to a seizure in execution of movable property carried out by Plaintiff Laurendeau Rasic s.e.n.c. (“ Laurendeau ”). [ 2 ] The Opposants argue that they are the owners of all of the movable property that was seized. [ 3 ] Laurendeau contests the Opposants’ claim of ownership. Subsidiarily, it argues that the Court should apply the alter ego theory as between the Defendants and the Opposants and thereby maintain the seizure. Issues

a) Have the Opposants proved that they have ownership rights over the property seized?

b) Are the Defendant companies the alter egos of the Opposants? Context [ 4 ] On December 12, 2017, the Court issued a default judgment condemning the Defendants to pay Laurendeau $5,697.44 with interest. [ 5 ] On February 21, 2018, Laurendeau carried out a seizure in execution of various movables in an office in a building located on St.

Laurent Boulevard in Montréal. [ 6 ] The seizure was carried out at the head office of Defendant 8725535 Canada Inc., doing business as Innovative Solar Power (“ ISP ”). [1] [ 7 ] The bailiff seized a number of movable items of property including office furniture (chairs, desks, worktables, dividers) and office equipment (computers, printers, photocopier machines, filing cabinets, etc.) (“ Property Seized )”. [2] [ 8 ] On April 13, 2018, the Opposants Datawind and Datawind filed their Application for Opposition to the Seizure in Execution. [ 9 ] On April 16, 2018, a judge of this Court issued an interim order suspending the judicial sale of the seized property which was scheduled for April 17, 2018 pending a hearing of the merits of the present Application for Opposition. [ 10 ] Datawind and Datawind Research ask this Court to quash the February 21, 2018 seizure in execution and to declare that they are the owners of the Property Seized. [ 11 ] Laurendeau contests and argues that Datawind and Datawind Research have failed to prove that they are the owners of the

Property Seized. Subsidiarily, they argue that the Defendant companies and the Opposants should be treated as one and the same corporations based on the alter ego theory. Analysis and Decision

a) Have the Opposants proven that they have ownership rights over the property seized? The Parties [ 12 ] Laurendeau operates a law firm. It alleges in its Motion introductory of Suit that its services were retained by the Defendants to represent them in relation to 2 claims for unjust dismissal and unpaid salary brought by one of ISP’s former employees before the Commission des normes, de l’équité, de la santé et de la sécurité du travail (“ CNESST ”). [ 13 ] It further alleges that it performed the legal work and obtained the dismissal of the claims.

It sent the Defendants invoices totalling $5,697.44 in April and June 2017, but these invoices remain unpaid. [3] [ 14 ] On December 12, 2017, the special clerk of this court issued his judgment and condemned the Defendants to pay solidarily to Laurendeau $5,697.44 with interest. [4] [ 15 ] On February 21, 2018, Laurendeau carried out a seizure in execution of the Property Seized in an office located at 407 St. Laurent Boulevard, suite 500 in Montréal. [ 16 ] Datawind is a public company listed on the Toronto Stock Exchange which markets tablets. It has a head office in Toronto as well as offices elsewhere.

Its Montréal office is located at 407 St. Laurent Boulevard, suite 500 & 501 (“ Office ”). [ 17 ] Datawind Research is a separate legal entity from Datawind and is its research and development division. It shares the Office with Datawind. [ 18 ] The Defendant ISP was created in December 2013. It operates as a research and development corporation in the solar technology field.

Its head office is located within the Office, in suite 500. [5] The Office & the Seized Property [ 19 ] In December 2013, Datawind Research entered into a commercial lease agreement whereby it agreed to lease the Office (“ Lease ”). [6] The Lease was amended shortly thereafter to reflect that the lessee is Datawind. The Lease was renewed on May 24, 2017 for a five year term. [7] [ 20 ] According to Mr.

Raja Tuli, chief technology officer and director of Datawind, and president of Datawind Research, approximately 35 Datawind employees as well as a small number of Datawind Research employees work from the Office. [ 21 ] Datawind and Datawind Research moved into the Office in December 2012. They furnished the premises in part with office furniture and office equipment that it owned and moved from premises it previously occupied, as well as new furniture and equipment that was purchased from various suppliers such as Ikea and Bureau en Gros . [ 22 ] Mr.

Tuli describes the Office as a typical office of a tech company, with numerous work stations, desks, chairs, dividers, laptop computers, routers, coffee machines, photocopiers, a conference room, etc. [ 23 ] The pictures entered into evidence by Datawind corroborate his testimony. [8] [ 24 ] In 2017, ISP occupied a small room within suite 501 of the Office. This room was furnished with office equipment and furniture belonging to Datawind. [ 25 ] ISP had at most 4 employees working out of this small room in the Office.

ISP ceased all activities in March or April 2018. [ 26 ] The uncontested evidence establishes that Datawind was the lessee and occupant of the Office when the seizure was practiced on February 21, 2018. Datawind Research also occupied the premises. [ 27 ] In the Court’s view, the Lease and the occupancy of the Office premises by Datawind and Datawind Research triggers the application of

article 928 of the Civil Code of Québec (C.C.Q.) : 928. A possessor is presumed to hold the real right he is exercising. A person contesting that presumption has the burden of proving his own right and, as the case may be, that the possessor has no title, a defective title, or defective possession. [ 28 ] Datawind’s and Datawind Research’s occupancy of the Office is peaceful, continuous, public and unequivocal. [9] [ 29 ] The fact that ISP occupied one small room within the Office does not change the Court’s conclusion that the presumption of

article 928 C.C.Q. applies [ 30 ] There is no doubt that Datawind and Datawind Research had possession over the Seized Property when the seizure in execution

was carried out. [ 31 ] Based on

article 928 C.C.Q. , Datawind and Datawind Research are presumed owners of the Seized Property. They did not have the burden of proving that they are the owners of the Seized Property. Rather, it is Laurendeau who bore the burden of proving on the preponderance of evidence that the Seized Property belonged to the Defendants. [10] [ 32 ] Laurendeau adduced no evidence to prove that the Defendants are the owners of the Seized Property. [ 33 ] The Court concludes that Laurendeau has failed to rebut the presentation of ownership flowing from

article 928 C.C.Q. and has not proved on the preponderance of evidence that the Defendants are the owners of the Seized Property. [ 34 ] The Courts adds that even if the presumption of

article 928 C.C.Q. is not applicable, it would rule in the same manner. Datawind’s and Datawind Research’s evidence, through the testimony of Mr. Tuli and the invoices it adduced into evidence, convinces the Court that the Defendants are not the owners of the Seized Property [11] . [ 35 ] While Laurendeau’s lawyer cross-examined Mr.

Tuli at length, his credibility was not affected and the Court believes the witness when he asserts that the Seized Property belongs to Datawind and Datawind Research. [ 36 ] While Datawind did not enter into evidence the proofs of purchase and payment for every single one of the items seized, it is understandable that a person does not have in his possession all of the proofs of purchase of movable items which have been purchased many years before the litigation arises. [12] [ 37 ] In conclusion, Laurendeau has failed to prove that the Seized Property belongs to the Defendants.

Moreover, the Opposants have proved that the property belongs to them.

b) Are the Defendant companies the alter egos of the Opposants? [ 38 ] Laurendeau argues that the Defendant companies, ISP and Ola Display, should be treated as the alter egos of Datawind and Datawind Research such that the Court should set aside the principle of the distinct juridical personality of each corporation and treat them as one and the same person. Based on the alter ego theory, the Court should conclude that Datawind’s property is also the Defendants’ property. [ 39 ] The Opposants argue that the Defendants are not their alter ego s.

They ask the Court to apply the fundamental principle that each corporation has a distinct legal personality. [ 40 ] As was recently reiterated by the Supreme Court of Canada in Brunette v. Legault Joly Thiffault s.e.n.c.r.l. , Québec corporate law recognizes that legal persons such as corporations are endowed with a distinct legal personality and a distinct patrimony. [13] It follows that a corporation has a distinct legal personality from that of its shareholders or related corporate entities. [14] [ 41 ] Exceptionally, this distinct legal personality may be set aside.

One of the avenues that has been recognized by the courts as a basis for disregarding the distinct legal personality of corporations and treating two corporations as one is the alter ego theory. [ 42 ] The alter ego theory is an application of the rule expressed in

article 317 C.C.Q.: 317.

The juridical personality of a legal person may not be invoked against a person in good faith so as to dissemble fraud, abuse of right or contravention of a rule of public order. [ 43 ] The courts have on occasion applied this theory and dismissed oppositions to seizures where the evidence establishes that the defendant corporation and the corporation opposing the seizure in execution should be considered as one and the same person. [15] [ 44 ] Laurendeau relies on these cases and invites the Court to apply the alter ego theory to the facts of the present case and to consider the Defendants and the Opposants as one and the same, such that even if this court concludes that the Seized Property belongs to the Opposants, their opposition should nonetheless fail. [ 45 ] Professor Paul Martel, in his treatise

La société par actions au Québec: les aspects juridiques [16] best summarises the theory of alter ego and when it can be applied by the courts: 1-279 …Une société est déclarée être l’ alter ego de son actionnaire, corporative ou non, ou de sa société-sœur, et le tribunal fait abstraction de sa personnalité juridique distincte pour sévir contre cet actionnaire ou cette société-sœur. 1-280 Par « alter ego », l’on entend que la société est si intimement liée à son actionnaire qu’elle n’est en réalité que le reflet, le conduit de celui-ci.

Ainsi que l’a expliqué la Cour suprême du Canada, « Une corporation peut être considérée comme l’ alter ego d’une autre lorsqu’on retrouve entre celles-ci une relation si intime que ce qui, en apparence, relève des affaires de l’une appartient, en réalité aux activités de l’autre. (…) Au niveau le plus élémentaire, la notion d’ alter ego ainsi que les affaires dont nous avons discuté plus haut traitent toutes de l’opportunité de privilégier le fond sur la forme et de considérer deux entités corporatives distinctes comme une seule et même personne…» 1-281 On peut appliquer mutatis mutandis ce passage visant deux sociétés à une société et son actionnaire. …

1-283 (…) Elle sert à identifier la société à son actionnaire, au point notamment de créer un lien de droit entre ce dernier et les tiers transigeant avec la société, ou encore à traiter deux sociétés comme une seule entité, de manière à imposer à l’une d’elles les obligations de l’autre. 1-284 Quand une société est-elle l’ alter ego de son actionnaire ou d’une autre société?

La Cour suprême répond ce qui suit : « Un nombre important de facteurs peut certes être identifié pour déterminer l’existence d’une telle relation; à mon sens toutefois, l’élément le plus explicite et le plus susceptible d’englober la réalité du concept est le contrôle ». … 1-286 Une société à actionnaire et administrateur unique est indubitablement son alter ego , elle ne peut rien faire qui ne soit directement commandé par lui.

S’il y a plus d’un actionnaire ou administrateur, la société ne pourra être qualifiée d’ alter ego d’un ou de plusieurs individus que si la preuve est faite que c’est lui ou eux, de concert, en tant qu’«âmes dirigeantes », qui sont en réalité à la source de toutes les décisions et sous ses gestes. Bien sûr, le lien de parenté entre les individus en cause pourra constituer l’un des éléments importants d’une telle preuve. 1-287 Quant à la relation société-société, nous n’avons énoncé plus avant les six critères dégagés par l’arrêt Smith, Stone & Knight Ltd c. Birmingham Corp.

À ceux-ci de multiples autres critères ont été ajoutés, dont : le fait que la filiale ne tienne pas de registres corporatifs et comptables appropriés, que la société-mère adopte des résolutions engageant la filiale sans que celle-ci les adopte elle-même, le fait que les sociétés partagent les mêmes locaux, le même personnel, la même ligne téléphonique.

Il faut de plus y ajouter les critères susmentionnés relatifs à la société à actionnaire unique : sous-capitalisation de la filiale, distribution systématique de ses profits, etc. toutefois, même lorsque ces critères sont tous ou presque tous rencontrés et que la société est considérée être l’ alter ego de son actionnaire ou de l’autres société, cela ne signifie nullment qu’un tribunal doive, voire même puisse « soulever le voile corporatif » et faire abstraction de la personnalité juridique de cette société. … 1-289 Dans toutes ces circonstances, aucune référence au « voile corporatif » ou à l’article 317 ne sera requise.

Le recours à la notion de l’ alter ego suffira. L’interrelation de ces deux notions est la suivante : l’article 317 permet le « soulèvement du voile corporatif » lorsque la société est l’ alter ego de son actionnaire ou d’une autre société, et qu’elle est utilisée pour commettre, à l’instigation ou au bénéfice de celui-ci ou de celle-ci, une fraude, un abus de droit ou une contravention à une règle d’ordre public.

En l’absence de ces trois gestes, le fait que la société soit un alter ego n’entraînera pas le non-respect de son identité corporative, ou de l’immunité de son actionnaire . 1-290 Il n’y a en soi rien de mal à ce qu’une société soit un alter ego . Ce n’est pas que si elle est utilisée aux fins répréhensibles énoncées à l’article 317 que le « voile corporatif » peut être soulevé.

La jurisprudence est à l’effet qu’en l’absence de fraude, l’identité corporative d’une société, même alter ego , sera respectée. (Underlining added; references omitted) [ 46 ] The excerpts from Professor Martel’s treatise cited above have been approved and followed by the Québec Court of Appeal on numerous occasions. [17] [ 47 ] In Buanderie centrale de Montréal Inc. v.

Montreal (City) [18] , the Supreme Court of Canada framed the test as follows: In light of the foregoing cases, a corporation may be regarded as the alter ego of another corporation when there is such a close relationship between them that what apparently concerns one actually pertains to the activities of the other. Undoubtedly a large number of factors can be identified to determine the existence of such a relationship: in my opinion, however, the one that is most explicit and most likely to cover all aspects of the concept is control . [ 48 ] Based on the testimony of Mr.

Tuli and the documentary evidence [19] , the corporate structure of the two corporate Defendants and the corporate Opposants is as follows. [ 49 ] The Defendant Ola Display is a research and development company in the field of display technology. It has two shareholders, including Mr. Tuli, who is its majority shareholder and one of its directors. The identity of the other shareholder is unknown. [ 50 ] It operates out of premises that are distinct from Datawind’s or Datawind Research.

It does not share any employees with these two entities nor with ISP. [ 51 ] ISP is also a research and development corporation in the solar technology field and is attempting to develop a patent belonging to Mr. Tuli. Its head office is within the Office. [20] [ 52 ] ISP has 25 shareholders, one of whom is Mr. Tuli. [ 53 ] Datawind is a public company listed on the TSE. It has thousands of shareholders, including Mr. Tuli. He owns approximately 9 % of the outstanding capital stock. [ 54 ] Its head office is located in Toronto where the majority of its employees work from.

Its Montréal office is devoted to research and development and houses approximately 35 employees. [ 55 ] Datawind Research is wholly owned by Mr. Tuli. He acts as its president and director. Datawind Research performs research and development activities for the sole benefit of Datawind. [ 56 ] Datawind and Datawind Research operate from the same office in Montreal, namely the Office where the seizure took place.

[ 57 ] This evidence does not prove on the preponderance of evidence that ISP and Ola Display were the alter egos of Datawind and Datawind Research when the seizure was carried out. [ 58 ] There is no evidence of such a close relationship between the four corporations that what apparently concerns one, actually pertains to the activities of the other. [21] [ 59 ] The Court ignores how the profits of each of the corporations was treated, whether Datawind or Datawind Research appointed the persons conducting the businesses of the Defendants, if Datawind or Datawind Research were the “head and the brain” of the Defendants. [ 60 ] The four corporations work in altogether different fields of activity.

There is no evidence that Datawind or Datawind Research exercises any control over ISP or Ola Display. [ 61 ] There is no proof of common ownership between Ola Display and Datawind or Datawind Research that rises to the level required to exercise effectual and constant control of the latter over the former. Other than Mr. Tuli being a shareholder of each of the four corporations, there is no proof of his percentage share ownership in Ola Display or ISP.

More importantly, there is no proof of whether he effectively exercises control over Ola Display or ISP. [ 62 ] The Court ignores whether Datawind is a shareholder of Ola Display or ISP, much less what is its percentage of share ownership in those two corporations. The Court likewise ignores if the corporations share common board members or officers. [ 63 ] In

summary, Laurendeau has failed to prove that Datawind or Datawind Research exercise control over ISP or Ola Display.

The Court does not have sufficient facts to conclude that Ola Display or ISP are the alter egos of Datawind or Datawind Research. [ 64 ] Moreover, even if Ola Display and ISP were considered to be the alter egos of Datawind or Datawind Research, which they are not, Laurendeau’s argument would nonetheless fail because it has not proven one of the essential elements of the alter ego theory. [ 65 ] As professor Martel points out, it is not illegal per se for one corporation to be the alter ego of another.

What is forbidden in Québec corporate law is for one company to be the alter ego of its shareholder or related company and that the corporation is used so as to dissemble fraud, an abuse of right or the contravention of a rule of public order. [22] [ 66 ] There is no evidence that ISP or Ola Display were used by Datawind or Datawind Research to further theses purposes. [ 67 ] It is true that some of the employees of ISP use the domain name of Datawind in their email addresses when they communicated with Laurendeau. [23] [ 68 ] However, such behavior does not constitute fraud or abuse of right. As Mr.

Tuli explains, ISP was a very small company and it was not uncommon for Datawind to share facilities or services with the ISP, including Datawind’s email servers, to minimize expenses. [ 69 ] Likewise, it is true that Mrs. Zhukovskaya’s contract of employment was on Datawind letterhead. [24] However, it is clear form reading the contract that her employer is ISP, not Datawind or Datawind Research. Datawind letterhead was used because ISP was a small company with little assets and it did not have its own office supplies. [ 70 ] Similarly, Mr. Tuli candidly admits that Datawind employees, such as Mrs.

Dobrota or Mr. Tran, were used to render or perform services for ISP. For example, Mr. Tran was the human resources manager for Datawind, but on occasion handled these functions for ISP. Likewise, Mrs. Dobrota was Mr.

Tuli’s assistant and an employee of Datawind, but she sometimes made calls or sent emails on behalf of ISP. [ 71 ] In the circumstances of this case, such behaviour, is not fraudulent or indicative of an attempt to contravene a rule of public order, but rather reflects the reality of operating small to medium sized businesses. [ 72 ] For all these reasons, Laurendeau has not convinced the Court that the alter ego theory applies in the circumstances of the present case such that the property of Datawind and Datawind Research should be considered as the property of the Defendants.

FOR THESE REASONS, THE COURT: [ 73 ] GRANTS the Amended Application in Opposition to a Seizure in Execution; [ 74 ] DECLARES Datawind Inc. and 4002962 Canada Inc. (formerly Datawind Research Inc.) to be the owners of all the movable property which was seized on February 21, 2018 and which is more fully described in the Minutes of the seizure of movable property in execution prepared by the bailiff Eric Laliberté; [ 75 ] QUASHES the seizure practiced in the present file on February 21, 2018 and CANCELS the sale of the seized property; [ 76 ] GRANTS main-levée of the seizure of the movable effects made on February 21, 2018; [ 77 ] WITH LEGAL COSTS. __________________________________ ENRICO FORLINI, J.C.Q.

Me Fadi Riseq

Laurendeau, Rasic Plaintiff’s lawyer Me Mark E. Wener Mark E. Wener Opposant’s lawyer Date of hearing: October 19, 2018