2010 ONSC 6309, 2010 ONSC 6309

CITATION : Omcon Investments Ltd. v. 1100828 Ontario Limited, 2010 ONSC 6309 COURT FILE NO.: 71957/04 DATE: 2010/12/06 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) Omcon Investments Ltd. ) G. Roberts, for the Plaintiff ) Plaintiff ) ) - and - ) ) 1100828 Ontario Limited, Ron A.V. Guidolin, David Guidolin, R. Guidolin Industries Limited, 530547 Ontario Limited, Jacinta Investments Limited and Katharina Karen Tarantino, Estate Trustee of the Estate of Ron Guidolin ) ) )))) V. Scalisi, for the Defendants ) Defendants ) ) ) HEARD: July 5, 6, 7, 8, 9, 2010 REASONS FOR DECISION EDWARDS J.

OVERVIEW [ 1 ] Hardworking immigrants from Italy arrived in Canada and were successful in their fields of endeavour. Unfortunately, as two of the principles of the plaintiff corporation, Lou Querin (“Lou”) and Joe Bottoni (“Joe”), ran into financial difficulties in 1994 and sought the assistance of one of the defendants Ron Guidolin Sr. (“Ron Sr.”). Lou and Joe were shareholders in a corporation Trecom Properties Inc. (Trecom), which owned a plaza located at 383 Elgin St., North, in Cambridge, Ontario (the “Plaza”). The TD Bank (the “Bank”) held a first mortgage on the Plaza property.

On October 31, 1994, the Bank commenced proceedings against Trecom and others including Lou and Joe. The claim against Trecom was for approximately $1,100,000; the claim against Lou was on a guarantee for a like amount and as against Joe the claim was on a guarantee limited to $116,667 plus accrued interest.

It was clear to me that Trecom, Lou and Joe, as well as the other shareholders of Trecom were financially stressed and needed the help of a white knight, failing, which they stood to not only loose the Plaza property to the Bank, but also were personally exposed-Lou more so than Joe. [ 2 ] After a number of aborted attempts to sell the Plaza to Ron Sr., ultimately, a sale did take place in November 1994. Title to the Plaza was taken in the name of 1100828 Ontario Limited, one of the defendants in these proceedings and which I will hereinafter refer to as the Numbered Company.

The purchase price was $1,200,000 which was used to pay off the Bank. The funding for the purchase price was made up of a $400,000 payment from one of Ron Sr.’s corporations and a first mortgage funded by the Bank of Montreal. No monies were expended by Lou, Joe, or the plaintiff, Omcon Investments Inc. (“Omcon”). Omcon has as two of its principle shareholders Lou and Joe and was also a shareholder of Trecom. [ 3 ] The claim in this matter by Omcon is based on what is described as a Trust Declaration and which I will hereinafter refer to as

the Agreement. An original of the Agreement was not produced at trial. A number of copies of the Agreement were entered into evidence. The Agreement purports amongst other things to give Omcon a 50 percent interest in the Plaza despite the fact that Omcon did not contribute any cash towards the purchase price of $1,200,000. The Agreement provides that while the purchase price for the Plaza was $1,200,000, that nonetheless, the value of the Plaza was $1,400,000.

The Agreement further provided that the difference between the purchase price and the so called value of the plaza would be reflected as Omcon’s contribution towards the purchase. I am asked now to give effect to the Agreement. For the reasons that follow I decline to do so. The Theory of the Plaintiffs’ Case [ 4 ] Lou and Joe both testified in this matter. They acknowledged the precarious financial position that Trecom was in and somewhat reluctantly in cross-examination also acknowledged that they were also personally exposed if the Bank proceeded with its claim.

Lou and Joe had known Ron Sr. for quite some time prior to 1994, as they were all tenants in an industrial mall in the Toronto area. Lou and Joe operated a plumbing company in this industrial mall while Ron Sr. owned and operated R Guidolin Industries Limited. Ron Sr., Lou and Joe were all of Italian descent and while the evidence would not suggest they were close friends, I did form the impression that certainly up to 1998 they enjoyed more than just a business relationship, i.e. their families would enjoy social occasions together.

While Lou had the equivalent of a high school education in Italy and Joe had obtained the equivalent of a grade 5 education in Italy, I was very impressed with their business acumen. These gentlemen while plumbers by profession, were also good business men. They had worked hard and built a thriving business until things went downhill in 1994. [ 5 ] When it became apparent in 1994 that Lou and Joe, together with the other shareholders in Trecom, might lose the plaza by power of sale, discussions did take place with Ron Sr. that may have led to Omcon retaining an interest in the Plaza.

This was confirmed by Ron Sr.’s sons who testified. Both Ron Guidolin Jr. (“Ron Jr.”) and David Guidolin (“David”) confirmed that they had heard from their father that Lou and Joe wanted to keep a financial stake in the Plaza. Ron Sr. did not testify as he passed away in January 2004. While both Lou and Joe testified that the original draft of the Agreement was prepared by Ron Sr.’s lawyer it was clear to me from the evidence of Mr. Hall, a lawyer retained by Ron Sr. and a partner at the law firm of Loopstra, Nixon, and McLeish, that the first draft was not prepared by lawyers retained by Ron Sr..

Ron Sr. did ask Hall to review the draft Agreement and some minor changes were made by Hall. After those changes were made Hall never heard about the Agreement again until these proceedings commenced in 2004. [ 6 ] Both Lou and Joe confirmed that the Agreement was not complete on its face. Significant, additional terms were allegedly agreed to between Lou, Joe and Ron Sr.. Amongst those terms was an Agreement that Jacinta, which for our purposes now we can essentially describe as Ron Sr., would be entitled to a management fee for its services in running the Plaza.

Lou and Joe also testified that if they had been called upon to make up any losses at the Plaza, post closing, that this would have been reconciled once the Plaza was sold. The inference to be drawn from this evidence is that Ron Sr. and his company would have all the risk of continuing post closing as far as the Plaza was concerned. It was suggested to me in closing argument that while not all of the essential terms of the partnership between the parties were to be found in the Agreement, that nonetheless, Lou, Joe and Ron Sr. were gentlemen and trusted each other.

Regrettably, I have to disagree. [ 7 ] The Agreement, in addition to being silent on such essential so called oral terms as the management fee, accrued interest on the extra monies paid by Ron Sr. onwards, and the Plaza’s expenses, was silent as to when the property would or could be sold. Lou and Joe both testified that by 1998 they were again experiencing financial problems to the point that they approached Ron Sr. about making an investment in another property that they owned. If they were in such financial difficulty, one may ask why Lou and Joe did not ask for an accounting as to how the Plaza was doing.

They both suggested to me that they believed the Plaza had a positive cash flow in this time period when they were in financial peril. If that was the case and they were in fact a 50 percent partner in the Plaza, one may ask why they never asked for an accounting from Ron Sr. and why they never asked for their share of the profits. To my mind, the fact that they did not ask for an accounting and their share of the profits speaks volumes. The only logical explanation for the absence of evidence relating to a sharing of profits in the 1994-1998 time period, can be found in my conclusion that there was no Agreement.

The plaintiff never did have a 50 percent interest in the Plaza after the closing in November 1994. [ 8 ] Much time was spent at trial comparing the various copies of the Agreement. None of the copies contained a fully executed original with original signatures of the parties. While the absence of an original fully executed copy is not fatal to the plaintiffs’ claim, it seems inconceivable to me that Lou and Joe would not have kept their copy of a fully executed original. Both Lou and Joe struck me as intelligent business people who would have understood the importance of retaining an original of the Agreement.

They were intelligent enough in my opinion not to have left out of the Agreement the various so called oral agreements that are referenced above. The fact that these oral terms are not in the Agreement, has amongst other things, led me to the conclusion that the Agreement marked as Exhibit 7 is not enforceable as there never was an Agreement concluded with Ron Sr.. The Defendants’ Theory [ 9 ] The plaintiff argued that without the involvement of Lou and Joe in introducing the opportunity to buy the Plaza, Ron Sr. would not have had a chance to buy it. That of course is true.

However, to then suggest that Lou and Joe through Omcon should be a silent partner owning 50 percent of the Plaza by reason of their introduction of the opportunity to Ron Sr., together with a $200,000 notional contribution towards a valuation of the plaza at $1,400,000, is in my opinion, very difficult to accept. The evidence is incontrovertible that if Ron Sr. had not interceded in November 1994, Ron and Lou would have lost everything and been subject to possible personal liability to the Bank.

Ron and Lou did not contribute anything towards the purchase of the Plaza, nor did they make any financial contributions post closing. If they had been a silent partner it is inconceivable that Ron Sr. would be paying off the $800,000 without looking to Lou and Joe for their proportionate share of this cost [ 10 ] Both Ron Jr. and David testified that their father’s game plan (with which they agreed) was to pay off the $800,000 as quickly as possible. Lump sum payments were made by the numbered company of $12,000 and $90,000 in April and July 1995.

The monthly payments incorporated a larger component towards the principal of the mortgage than what the Bank would otherwise require. It is again quite inconceivable to me that Ron Sr. and the numbered company would be making these types of payments without looking to the plaintiff for a similar contribution if they were in fact 50 percent partners as argued by the plaintiff.

[11] In looking at the evidence of whether the parties ever concluded an agreement that would lead one to the conclusion that theplaintiff was intended to be a 50 percent owner of the Plaza, it is open to me to look not only at the direct evidence, but also the evidencefrom which inferences can be drawn. [12] Ron Sr.’s lawyer was called to give evidence. Mr. Hall testified that while he had marked up a draft of the Agreement, he neversaw a fully executed copy of the Agreement.

Hall did however request his client Ron Sr., to return a signed copy to him when he faxedback the amendments that he had made to the draft Agreement (see Tab 21 of Exhibit 1). Hall testified that he needed a signed copy forhis records as it would have been something material that he would have reported on, not only in his reporting letter to Ron Sr., butequally and perhaps more importantly, he would have been obliged to report on the Agreement to his other client the Bank of Montreal.

As Hall indicated, he had two clients and if one of his clients that had executed a mortgage in favour of the Bank of Montreal had a silentpartner that was a beneficial owner of 50 percent of the plaza property, this would have been something he would have had to report onto the Bank of Montreal. The fact that there is no reference to the Agreement in Hall’s reporting letter to either Ron Sr. (see Exhibit 10,Tab 2) or the Bank of Montreal is compelling evidence that there never was an Agreement concluded between Ron Sr. and Lou and Joe.

For me to find otherwise, would require making a finding that Ron Sr. kept the fact that the Agreement had been finalized and fullyexecuted from his lawyer. Either that or it was an oversight that he never returned a fully executed copy to Hall when he was requestedto do so. There is, in my opinion, no evidence that Ron Sr. either purposely or by mistake did not return an executed copy of theAgreement to Hall. None was found in Hall’s file because there never was a finalized Agreement.

The Meeting of February 1998 [13] Both Ron Jr. and David gave evidence of a meeting that took place at their father’s office in February 1998. I will refer to this as“the meeting”. Much of Ron and David’s evidence about the meeting (and for that matter, other issues in the lawsuit) was hearsayevidence. While there was an initial objection taken by plaintiff’s counsel to the hearing of the hearsay evidence, in closing argumentplaintiff’s counsel conceded he was not maintaining his objection.

Despite that concession, in my opinion, as the “gatekeeper” of theevidence, it is still incumbent on me to examine the evidence to determine if the hearsay evidence is admissible. In my opinion, theevidence that I heard from both Ron Jr. and David about what their father told them concerning his dealings with Lou and Joe wasadmissible.

I advised counsel at the beginning of the trial that I would hear the evidence of Ron and David and ultimately decide itsadmissibility at the end of the trial [14] The Supreme Court of Canada in the case of R v U (F.J.) (1995) (SCC), 3 S.C.R. 764 ruled on the issue ofreliability as follows: “The function of the trial judge is limited to determining whether the particular hearsay statement exhibits sufficient indicia of reliabilityso as to afford the trier of fact a satisfactory basis for evaluating the truth of the statement.” [15] Because Ron Sr. was not available to testify given his passing in 2004, the question of necessity is answered.

I need thereforeonly concern myself with the issue of reliability before admitting the hearsay evidence of Ron Sr.’s sons. I was referred to the twoleading cases on hearsay and reliability; R. v Starr (2000), 2000 SCC 40 , 2 S.C.R. 144 and R. v. Khelawon (2006), 2006 SCC57 , 2 S.C.R. 787.

Specifically, the following comments of Iacobucci J. in Starr are appropriate to this case: “In some rare cases, it may also be possible under the particular circumstances of a case for evidence clearly falling within an otherwisevalid exception nonetheless not to meet the principled approach’s requirements of necessity and reliability. In such a case, the evidencewould have to be excluded.

However, I wish to emphasize that these cases will no doubt be unusual, and that the party challenging theadmissibility of evidence falling within a traditional exception will bear the burden of showing that the evidence should nevertheless beinadmissible. The trial judge will determine the procedure (whether by voir dire or otherwise) to determine admissibility under theprincipled approach’s requirements of reasonable necessity and reliability. In this connection, it is important when examining the reliability of a statement under the principled approach to distinguish betweenthreshold and ultimate reliability.

Only the former is relevant to admissibility: see Hawkins, supra, at p. 1084. [page 254] Again, it isnot appropriate in the circumstances of this appeal to provide an exhaustive catalogue of the factors that may influence thresholdreliability. However, our jurisprudence does provide some guidance on this subject. Threshold reliability is concerned not with whetherthe statement is true or not; that is a question of ultimate reliability. Instead, it is concerned with whether or not the circumstancessurrounding the statement itself provide circumstantial guarantees of trustworthiness.

This could be because the declarant had no motiveto lie (see Khan, supra; Smith, supra), or because there was safeguards in place such that a lie could be discovered (see Hawkins, supra;U. (F.J.), supra; B. (K.G.), supra).” [16] Equally applicable are the following comments of Charron J. in R. v.

Khelawon: “Since the central underlying concern is the inability to test hearsay evidence, it follows that under [page 821] the principled approachthe reliability requirement is aimed at identifying those cases where this difficulty is sufficiently overcome to justify receiving theevidence as an exception to the general exclusionary rule. As some courts and commentators have expressly noted, the reliabilityrequirement is usually met in two different ways: see, for example R.v. Wilcox (2001), 152 C.C.C. (3d) 157, 2001 NSCA 45; R. v.Czibulka (2004), (ON CA), 189 C.C.C. (3d) 199 (Ont. C.A.); D.M.

Paciocco, “The Hearsay Exceptions: A game of‘Rock, Paper, Scissors’”, in Special Lectures of the Law Society of Upper Canada 2003: The Law of Evidence (2004), 17, at p. 29.” One way is to show that there is no real concern about whether the statement is true or not because of the circumstances in which it cameabout. Common sense dictates that if we can put sufficient trust in the truth and accuracy of the statement, it should be considered by thefact finder regardless of its hearsay form.

Wigmore explained it this way: There are many situations in which it can be easily seen that such a required test [i.e., cross-examination] would add little as a security,because its purposes had been already substantially accomplished. If a statement has been made under such circumstances that even askeptical caution would look upon it as trustworthy (in the ordinary instance), in a high degree of probability, it would be pedantic toinsist on a test whose chief object is already secured. [s. 1420, p. 154].”

Another way of fulfilling the reliability requirement is to show that no real concern arises from the fact that the statement is presented in hearsay form because, in the circumstances, its truth and accuracy can nonetheless be sufficiently tested. Recall that the optional way of testing evidence adopted by our adversarial system is to have the declarant state the evidence in court, under oath, and under the scrutiny of contemporaneous cross-examination. This preferred method is not just a vestige of past traditions. It remains a tried and true method, particularly when credibility issues must be resolved.

It is one thing for a person to make a damaging [page 822] statement about another in a context where it may not really matter. It is quite another for that person to repeat the statement in the course of formal proceedings where he or she must commit to its truth and accuracy, be observed and heard, and be called upon to explain or defend it. The latter situation, in addition to providing an accurate record of what was actually said by the witness, gives us a much higher degree of comfort in that statement’s trustworthiness.

However, in some cases it is not possible to put the evidence to the optimal test, but the circumstances are such that the trier of fact will nonetheless be able to sufficiently test its truth and accuracy. Again, common sense tells us that we should not lose the benefit of the evidence when there are adequate substitutes for testing the evidence. [ 17 ] In this case, looking at all of the evidence, I am satisfied that there is sufficient evidence that allows me to test the trustworthiness of the evidence given by Ron Jr. and David.

While I did have some reservations about the fact that Ron Jr. remained in the court room when his brother David testified, there was sufficient, other evidence from witnesses like Hall and Mr. Caruso that leads me to the conclusion that their evidence was ultimately reliable and therefore admissible as an exception to the hearsay rule. [ 18 ] In February 1998 both Ron Jr. and David testified that Lou arrived at their father’s office unannounced.

What followed while not directly witnessed by either Ron or David, led them to the conclusion that Lou essentially tried to extort from their father an agreement to purchase a property from Lou on very unfavourable terms in return for which Lou “would make the agreement go away”. Underlying the meeting was the clear fact that Lou and Joe’s company were in financial difficulty. Both Lou and Joe acknowledged this in their evidence. Lou confirmed he did meet with Ron Sr. to see if his friend would be interested in purchasing 99 Strada Dr., located in Vaughan, Ontario.

Clearly there was some interest on Ron Sr.’s part as he commissioned an appraisal (Exhibit 8) of the Strada property. Ron Sr. reported to his two sons the terms proposed by Lou and it was readily apparent that Ron Sr. could never make a profit on the terms offered, and as such, Ron Sr. declined to invest. What then followed is a matter of dispute.

Ron Jr. and David left me with the clear impression that Lou stormed out of the meeting and that their father was taken aback when confronted with a copy of the Agreement that presumably Ron Sr. had forgotten about. [ 19 ] Both Ron Jr. and David asked their father as to whether in fact the Agreement was real and he assured them that it was not. What next happened was an enquiry made by Ron Jr. of Mr. Caruso at the Loopstra Nixon law firm. Ron wanted to know if Caruso had a copy in their file.

Obviously, if there had been a copy at the lawyer’s office, this would have put the lie to Ron Sr.’s assurance that there was no Agreement. Caruso responded, indicating there was no Agreement on file and that the fax copy that he reviewed from Ron Jr. looked like it had been altered.

A number of weeks then elapsed before a response in writing was made by any of the Guidolins to the suggestion made by Lou at the February meeting that there was an Agreement, which purported to give the plaintiff a 50 percent interest in the Plaza. [ 20 ] One may question why it took any of the defendants as long as they did to respond in writing to what, on all accounts, was a clear threat to their investment, in the Plaza especially since by February 1998 much of the mortgage would have been off by the defendants.

One may also question why the defendants chose to respond with a letter on Jacinta letterhead as opposed to a formal letter from their own lawyers confirming there was no Agreement. What is more troubling to me is the fact that when the plaintiff was told in 1998 by the defendants that there was no Agreement we find no documentation refuting this position and perhaps more importantly why it took the plaintiff until 2004 to commence a lawsuit against the defendants.

In my opinion, the inescapable conclusion for this delay is that the plaintiff, represented by Lou and Joe knew that so long as Ron Sr. was alive, he alone could testify as to whether he ever executed the Agreement such that it became a binding Agreement between the parties. With Ron Sr.’s death, the plaintiff then had various copies of the Agreement which on their face make it look like the parties had concluded an Agreement. The reality however when tested with objective evidence points to the opposite conclusion.

CONCLUSION [ 21 ] I do not accept that the Agreement was ever executed by all the parties, such that, it became a binding Agreement. Viewed objectively, it makes no sense that the defendants would assume all of the risk for the purchase of the Plaza and essentially get nothing in return for granting a 50 percent interest to the plaintiff.

Objectively, if there was an Agreement, I would have expected the plaintiff between at least 1994 and 1998 to have been looking for an accounting from the defendants concerning the financial fortunes of the Plaza; this especially at a time when the plaintiff believed the Plaza was making a profit and when the plaintiff (in the form of Lou and Joe) were having financial difficulties. With those financial problems one would have expected them to be making a demand on the defendants for their 50 percent share of the profits. This never occurred during Ron Sr.’s lifetime.

It did not happen because Lou and Joe did not have an Agreement with Ron Sr.. They knew it and waited until Ron Sr. died before commencing this litigation. I reject the arguments advanced on behalf of the plaintiff. The plaintiff’s action is dismissed. [ 22 ] Counsel has provided me their costs submissions. Unless there is good reason why costs should not follow the event on a partial indemnity basis, I will release my costs decision within 10 days from today’s date.

If counsel wish to make costs submissions please provide the court with those submissions limited to 5 pages within 15 days of today’s date. ___________________________ Justice M. Edwards Released: December 6, 2010