Droid Media Communications Inc. v. QMI Manufacturing Inc., 2022 BCPC 280

Citation: Droid Media Communications Inc. v. QMI Manufacturing Inc. 2022 BCPC 280 Date: 20221207 File No: C-210264 Registry: Victoria IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: DROID MEDIA COMMUNICATIONS INC. CLAIMANT AND: QMI MANUFACTURING INC. DEFENDANT RULING ON APPLICATION OF THE HONOURABLE JUDGE L. MROZINSKI Appearing for the Claimant: D. Dobbie Counsel for the Defendant: E. Clausen Place of Hearing: Victoria, B.C. Date of Hearing: December 2, 2022 Date of Judgment: December 7, 2022 I. Introduction

[ 1 ] This is an application by the claimant, Droid Media Communications Ltd. (“DMC”), for various orders including that Avcom Systems Inc. (“Avcom”) produce banking and other financial and corporate documents. Mr. Dobbie, director for DMC, also seeks an order to “pierce the corporate veil of both QMI Manufacturing Inc. (“QMI”), and Avcom Systems and to hold Mr. Wood (a director of both corporations) personally liable” for payment of default judgment in this case in the amount of $35,216. [ 2 ] Mr. Raymond Wood and Avcom, neither of whom are named parties in this small claims action, oppose these applications.

On their behalf Mr. Clausen submits it is inappropriate at this stage of the legal proceedings to litigate whether the corporate veil of a company should be pierced. Moreover, counsel submits that given the test for piercing the corporate veil, there is no basis for such an order on the pleadings in this case. II. Issue [ 3 ] At issue in this application is whether it is open to the court at this stage of proceedings to order third party production of documents in aid of an application to pierce a corporate veil. III.

The Background [ 4 ] On July 3, 2021, DMC filed a Notice of Claim seeking damages well over the small claims limit of $35,000. There is no question of DMC’s intention to waive any amounts that might otherwise be recoverable in a civil claim over this court’s small claims limit. Still, the claim is not insignificant. Among other things, DMC sought a return of a $20,000 deposit, “damages” totalling $8,699, other sundry items, and finally a loss of profit in the amount of $35,000. [ 5 ] The claim alleges that in or about April 28, 2020, Mr.

Dobbie, on behalf of DMC, entered into an agreement with QMI for the exclusive distribution rights of a product manufactured by QMI designed to close water and gas valves in the event of a leak. In the contract, DMC paid $10 for the exclusive distribution rights for QMI products on Vancouver Island, and deposited $20,000 towards DMC’s first commercial purchase from QMI. [ 6 ] Thereafter, the claimant describes over many pages various efforts made to both market and find buyers for QMI products on Vancouver Island. Throughout, the claimant submits it dealt with “Mr.

Wood” of QMI. [ 7 ] In or around May 2021, the claimant alleges the relationship with QMI began to ebb just as DMC was making inroads in the sale of QMI products on the Island. The claim alleges that Mr. Dobbie, on behalf of DMC, asked for the return of the $20,000 deposit, minus the amount due for a commercial order totalling $10,320. Ultimately Mr. Dobbie is alleged to have cancelled that order and the claimant sought the return of its whole deposit. [ 8 ] In reply, the defendant QMI alleged the deposit was intended for valves requested by DMC, which materials would be provided per the contract.

QMI denied DMC lost any profit as it sold no product and, due to its inflated prices of QMI products, was unlikely to sell any product. The defendant claimed DMC’s pricing model of QMI products was flawed and would not result in sales. [ 9 ] The matter appears to have proceeded through the usual small claims processes including a settlement conference. It was ultimately set for a two day trial commencing October 5, 2022.

On that day, no one from the defendant appeared and default judgment was granted in the amount of $35,000, plus filing and service fees. [ 10 ] On October 7, 2022, DMC filed a summons to a payment hearing, seeking the usual documents such as banking statements and so forth in the possession of the defendant QMI. The payment hearing proceeded on November 21, 2022. Supporting documents filed by QMI included income tax returns and assessments. In one such document, QMI had listed Avcom Systems Inc., as an Associated Company.

In support of this application, DMC has filed materials indicating that Raymond Wood is a director and shareholder of both QMI and Avcom. [ 11 ] While Mr. Wood figures largely in the allegations in the Notice of Claim, Avcom Systems is mentioned but once where the claimant references learning of a dispute between Mr.

Wood and another party over intellectual property of Avcom Systems: property or systems “almost identical to QMI products.” Elsewise the claim is essentially between DMC and QMI for damages for breach of contract and/or justifiable termination of a contract and failure to return a deposit upon the lawful termination. [ 12 ] In his materials filed in support of this application for documents from Avcom, Mr. Dobbie writes that the deposit for $20,000 was deposited in an Avcom account number. Mr.

Dobbie submits as well that DMC received product from QMI, which was essentially Avcom product. [ 13 ] At the payment hearing on November 21, 2022, Mr. Wood and QMI’s accountant, Mr. Lenos, advised the court that QMI was effectively insolvent. Materials in support of that position were filed, though Mr. Dobbie may not have received them before the hearing. In any event, as Mr. Dobbie emphasized in the hearing of this application, in the payment hearing, Mr. Wood on behalf of QMI clearly evidenced an intention to pay nothing on the default judgment because QMI had no money and no assets.

As I understand what transpired at that proceeding, no payment order was made. Rather, as Mr. Dobbie indicates in his written submissions filed in support of this application, it appears that DMC is taking steps toward an Order for Seizure and Sale of property at which Mr. Wood would otherwise have been served. [ 14 ] Still, Mr. Dobbie brings this application on behalf of DMC for an order for production of documents and a piercing of the corporate veil in order to hold Mr. Raymond Wood and/or Avcom liable for the damages suffered by DMC in its business arrangement with QMI. IV.

Should the Orders be made at this stage of proceedings? [ 15 ] The respondents to this application, Mr. Raymond Wood and Avcom, submit it is not appropriate at this stage of this small claims proceeding to order production of documents or make an order piercing the corporate veil. In support, counsel relies on the

reasons of Justice Harris, as he then was, in Warke v. Jouhari-Sardasht , [2014] B.C.J. No. 933 at paras 43 to 50 . This is a decision on appeal from the Small Claims Court. As Justice Harris describes it in Warke , the lower court, presiding over a payment hearing, allowed an application that judgment be awarded not only against the corporate defendant but also against its sole shareholder and director on the basis the company had been operated as a sham and was little more than the shareholder’s alter ego.

At para 44 of Warke , Justice Harris writes that the judge below lacked jurisdiction to turn a payment hearing into an inquiry as to whether the veil of the company should be pierced.

Among other reasons, Justice Harris writes that the claimants had pled no material facts to support a claim for the lifting of the corporate veil; that the hearing as to whether to lift the veil was held after judgment was rendered against the company based on evidence at trial, and importantly, that the purpose of the payment hearing as set out in the Rules does not contemplate a hearing into the lifting of the corporate veil. [ 16 ] Warke is clear authority for the proposition that this court has no jurisdiction to embark on a hearing to pierce the corporate veil in a payment hearing.

This is particularly apt in cases where the pleadings disclose no basis for the embarkation of such an inquiry. [ 17 ] If we were in a payment hearing, I would have no difficulty denying this application on this ground alone notwithstanding, as Mr. Dobbie noted in this hearing, that unlike the case in Warke , there was no trial in this matter. Rather, DMC is seeking to enforce a default judgment. That is the case I accept, but it is also a fact that the Notice of Claim contains no allegations that would support an order lifting the corporate veil.

As I have noted, there is a bare mention of Avcom, and though much mention of Mr. Wood, nothing is alleged to justify the consideration of such an order, let alone the granting of it in default. [ 18 ] The respondents have provided several authorities which stand as guides for the consideration of the lifting of the corporate veil. In Edginton v. Mulek Estate , 2008 BCCA 505 , the court writes at para 21 that the “the separate legal personality of the corporation will not lightly be disregarded.” In SPC Holdings v.

Gabriel , 2013 BCPC 31 , the court writes at para 16 that the party seeking an order to lift the corporate veil that presumptively protects a corporation’s directors from personal liability for corporate obligations, must persuade the court “through proven facts either directly or indirectly or by necessary inference that it is more likely than not” the conduct of those behind a corporation was wrong or illegitimate. [ 19 ] In this case, at this stage, it is not even a question of proof; rather, there is nothing in the pleadings filed that could support a claim for the piercing of the corporate veil. [ 20 ] Warke outlines the difficulties an applicant will have trying to obtain an order piercing the corporate veil at the payment hearing stage.

In this case, matters are much worse. In my view, DMC’s difficulty is compounded by the fact that we are not here concerned with a payment hearing. That hearing concluded on November 21, 2022 and no payment order was made. This application is not brought in the context of a payment hearing, nor can it be considered to have been brought in the course of a default hearing since no payment order has been made. Rather, it is an application anchored to no process, brought post judgment against non-parties. At best, it is an attempt to re-litigate the claim post judgment in a manner not authorized under the Rules .

The claim, as pleaded, in no way justifies an order lifting the veil of either corporation. It would not have been possible for the judge granting the default order to explore the possibility of such an order, let alone grant it. It is even less possible at this point in this particular small claims action given that a default order has been made. [ 21 ] There is no possibility this court can grant an order lifting the corporate veil on a mere application. That application is denied. It follows that the application for production of Avcom’s banking and other financial and corporate records must also be denied.

The applicant’s request for an order for substitutional service on QMI and Mr. Wood has been overtaken by Mr. Clausen’s having assumed conduct of this file and having agreed to accept service on matters related to this claim. I make no further orders in that regard. [ 22 ] Finally, DMC also seeks an order that QMI produce its tax return for the year 2021. As there is no payment hearing set or payment order in this matter, and given default judgment has been granted, I see no basis for an order for production at this juncture. That application is also denied. ______________________________ The Honourable Judge L.

Mrozinski Provincial Court of British Columbia