PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION. SOGELCO INTERNATIONAL INC., and SOGELCO INDUSTRIES INC.

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1 PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION Citation: Sogelco v. Island Sea Products et al Date: PESCTD 03 Docket: S1-GS Registry: Charlottetown BETWEEN: AND: AND: SOGELCO INTERNATIONAL INC., and SOGELCO INDUSTRIES INC. ISLAND SEA PRODUCTS LIMITED DALEY BROTHERS LIMITED and SEA TREAT LIMITED APPLICANTS RESPONDENT RESPONDENTS Before: The Honourable Justice David H. Jenkins (In Chambers) Decision for judgment against Island Sea Products Limited Decision on preliminary matters regarding Daly Brothers Limited and Sea Treat Limited Appearances: David W. Hooley, Q.C. and Karen Campbell, Q.C. for the Applicants John W. Maynard and Bobbi-Jo Dow for the Respondents Place and Date of Hearing Place and Date of Decision Charlottetown, Prince Edward Island December 16, 2005 Charlottetown, Prince Edward Island January 11, 2006

2 Citation: Sogelco v. Island Sea Products et al Date: PESCTD 03 Docket: S1-GS Registry: Charlottetown PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION BETWEEN: AND: AND: SOGELCO INTERNATIONAL INC., and SOGELCO INDUSTRIES INC. ISLAND SEA PRODUCTS LIMITED APPLICANTS RESPONDENT DALEY BROTHERS LIMITED and SEA TREAT LIMITED RESPONDENTS Before: The Honourable Justice David H. Jenkins (In Chambers) Decision for judgment against Island Sea Products Limited Decision on preliminary matters regarding Daly Brothers Limited and Sea Treat Limited Date Heard: December 16, 2005 Date of Decision: January 11, 2006 (13 pages) ARBITRATION: enforcement of award by judgment. CIVIL PROCEDURE: Action v. Application commencement of proceeding material facts in dispute. CORPORATIONS: Corporate identity piercing the corporate veil. STATUTES CONSIDERED: Arbitration Act, R.S.P.E.I. 1988, Cap. A-16; Rules of Court, Prince Edward Island 1996, Rules 1, 14, 38, 39, 60; Supreme Court Act, R.S.P.E.I. 1988, Cap. S-10 TEXT CONSIDERED: Mustill and Boyd, Commercial Arbitration (Butterworths, 2 nd edition) CASES CONSIDERED: Morris v. Bundy, [1989] N.S.J. No. 102 (N.S.C.A.); Canada (Minister of National Revenue) v. Gadbois, [2003] 1 C.T.C. 353 (F.C.A); McKay Estate v. Love (1991), 6 O.R. (3d) 511 (Ont. C.A.); Hughes Land Co. v. Manitoba, [1998] M.J. No. 550 (Man. C.A.); Roxford Enterprises S.A. v. Cuba (T.D.), [2003] 4 F.C (Fed. Ct.T.D.); Kosmopoulos v. Constitution Insurance Co. Of Canada, [1987] 1 S.C.R. 2; Bounderie centrale de Montreal

3 - ii - Inc. v. Montreal (City); Conseil de la sante et des services sociaux de la region de Montreal metropolitain v. Montreal (City), [1994] 3 S.C.R. 29; Smith, Stone & Knight, Ltd. v. Lord Mayor, Alderman and Citizens of the City of Birmingham, [1939] 4 All E.R. 116 (K.B.); Alberta Gas Ethylene Co. v. Canada, [1988] F.C.J. No. 1104; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1995] N.J. No. 150 (Nfld. C.A.); Sun Sudan Oil Co. v. Methanex Corp., [1992] A.J. No (Alta. Q.B.); Transamerica Life Insurance Company of Canada v. Canada Life Assurance Company (1996), 28 O.R. (3d) 423 (Ont. Gen. Div.); B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4 th ) 30 (B.C.C.A.); Toronto v. Famous Players Canadian Corp., [1945] 3 D.L.R. 327 (Ont. C.A.); MacPherson v. West Prince Regional Health Authority, [2001] P.E.I.J. No. 100 PESCTD 83.

4 Jenkins J.: [1] By Notice of Application, the Applicants ( Sogelco ) have applied to the Court for: (a) an Order recognizing and enforcing a commercial arbitration award against the Respondent Island Sea Products Limited ( ISPL ), ISPL having been a party to the agreement pursuant to which the arbitration board was constituted and to the arbitration proceeding. (b) an Order enforcing the above-mentioned commercial arbitration award against the Respondents Daley Brothers Limited ( Daly Brothers ) and Sea Treat Limited ( Sea Treat ) (sometimes Daley Brothers/Sea Treat ) which Sogelco asserts are corporate entities with effective control over the operations, assets and liabilities of the Respondent ISPL. [2] Sogelco was in the business of developing unique lobster and shellfish processed products and marketing those products in Canada, United States, and overseas. By the late 1990's, the Summerside processing plant was owned and operated by Sogelco s wholly-owned subsidiary Summerside Seafood Supreme Inc. ( SSS ). At that time, Daley Brothers was in the business of fish processing and had ownership interests in a large number of plants in the Atlantic provinces. [3] In late 2001, Daley Brothers and Sogelco agreed to pursue the operation of SSS as a joint venture. Ultimately they decided that the corporate arrangement would involve each of them creating a wholly-owned corporate subsidiary that would in turn hold their respective shares in a numbered company Canada Inc., which would operate SSS. Daley Brothers or one of its subsidiaries would manage the production of the Summerside plant and would be able to use its many sources of seafood to provide a good supply of product to the plant, and product would be processed using Sogelco specifications, developed markets and brand name. The agreements for SSS were made among Daley Bros. subsidiary ISPL, Sogelco s subsidiary, and the numbered operating company. The agreements included an arbitration provision which stipulated the any disputes not settled between the parties within an appointed time would be resolved by a submission under the Arbitration Act of Prince Edward Island, an award made pursuant thereto would be final and binding on the parties, and, by leave of the Supreme Court of Prince Edward Island, be enforceable in the same manner as a judgment or order to the same effect. [4] Problems between the players arose during year one of the joint venture, and by the summer of 2002 Sogelco had initiated an arbitration proceeding. A hearing occurred, and the arbitration board rendered an award on December 11, 2003, and a supplementary award on April 14, The first arbitration award was for

5 Page: 2 $3,320,375; the supplementary award was for $172, plus costs of $630, for the sum of $803, [5] The Arbitration Act, R.S.P.E.I. 1988, Cap. A-16, s 13 states that an arbitration award pursuant to a submission ie. a written agreement to submit a difference to an arbitration, may, by leave of the court or a judge, be enforced in the same manner as a judgment or order to the same effect. [6] Sogelco asks this Court to enforce the award, and for pre-judgment interest from the date of the respective awards to the date of judgment against all three Respondents. Regarding ISPL, Sogelco refers to the existence of a valid arbitration agreement, the dispute being within the terms of the agreement, the arbitration board having been duly appointed, and the award sued upon being the award of the arbitrator. Sogelco s grounds for enforcement against Daley Brothers and Sea Treat are its assertion that ISPL was a mere puppet of, and was owned or controlled by them and their principals Terry and Aiden Daley such that an order is also sought to enforce the arbitration award against those corporate entities as well. In other words, Sogelco asks the Court to convert the arbitration board award to a judgment and identify the true judgment debtor as Daley Brothers and Sea Treat. [7] ISPL did not appear on this Application; and counsel for Daley Brothers advised the Court that ISPL would not be appearing. The Respondents Daley Brothers and Sea Treat acknowledge that the arbitration board made an award against ISPL, and they, Daley Brothers and Sea Treat, take no position with respect to that award and do not oppose the registration of that award as a judgment of this Court against ISPL and in accordance with the Arbitration Act. Daley Brothers and Sea Treat do oppose the registration of the award against them. They were not parties to the agreement pursuant to which the arbitration board was created, or to the arbitration proceeding, and, as is acknowledged by the arbitration board, it had no jurisdiction to make an order against them and did not do so. Regarding their own interests, Daley Brothers and Sea Treat raise three procedural and jurisdictional issues that arise in Sogelco s application which, they submit, must be resolved prior to consideration of the merits of Sogelco s application for relief against them. [8] The first issue is whether the Arbitration Act and Rules of Civil Procedure permit Sogelco to apply for leave to enforce an arbitration award against them in the same manner as a judgment by application rather than by action, which would permit Sogelco to request the Court to pierce the corporate veil without a trial. This issue questions jurisdiction of the Court to hear an application under Rules and 38. [9] Their second issue questions forum or mode of hearing. Even if the Court has jurisdiction to hear the proceeding as an application, Daley Brothers/Sea Treat submit

6 Page: 3 that in the circumstances all or part of the subject matter should be directed to trial with directions as may be just, in accordance with Rule 38.11(1). [10] The third preliminary issue raised by Daley Brothers and Sea Treat is whether the relief requested against them on this Application is a premature request, which may only become available to Sogelco with a further claim for execution against nonparties of the arbitration after a claim against a party to the arbitration is converted to a judgment under Section 13 of the Arbitration Act. Again, Daley Brothers/Sea Treat submit if the proceeding against them is not considered premature, then it should in any event be directed to a trial. [11] Upon due consideration of the submissions of the parties, and consultation with counsel in the hearing, there was consensus that during the initial hearing day matters for determination should be confined to: (1) judgment against ISPL, including settling the terms of judgment; and (2) (3) and (4) determination of whether the application against Daley Brothers and Sea Treat is properly before the Court, premature or timely, and should be heard as an application or directed to trial. Counsel made full submissions on those issues. Judgement against Island Sea Products Limited [12] On December 19, 2005, I rendered an Order in this Application in favour of Sogelco International Inc. and Sogelco Industries Inc. against Island Sea Products Limited that the arbitration awards, which are filed with the judgment, for the amounts of $3,320,375 and $803, respectively be converted to and entered as a judgment of this Court against Island Sea Products Limited for the purpose of enforcing such awards in the same manner as a judgment or order of this Court pursuant to Section 13 of the Arbitration Act. The Order included pre-judgment interest on the awards of $180, on the initial award, and $38, on the supplementary award. The aggregate judgment is for the sum of $4,340, The judgment bears post-judgment interest in accordance with Sections 49 and 51 of the Supreme Court Act. Costs on the application were reserved to be addressed on hearing the Application against the Respondents Daley Brothers Limited and Sea Treat Limited. [13] I am satisfied that Sogelco is entitled to enforcement of the arbitration award against ISPL. Its Application is grounded in evidence of Allen G. Wickert sworn March 31, 2005, which establishes the existence of a valid arbitration agreement, submission of the dispute to arbitration in accordance with the terms of the agreement, a duly appointed arbitration board, that the award sued upon is the award of the arbitration board, and failure to comply with the arbitration award. Under the terms of agreement, the provisions of the Arbitration Act apply. Under the

7 Page: 4 Arbitration Act Schedule 11, the award made by the arbitrators or by a majority of them is final and binding on all the parties and the persons claiming under them respectively. Section 13 of the Arbitration Act authorizes enforcement, with leave of the court, in the same manner as a judgment or order to the same effect. [14] The law of private arbitration is concerned with the relationship between the courts and the arbitral process. The provisions mentioned protect the parties against the risk of procedural or substantive injustice. Arbitration is an important part of commercial life, and every legal system must in some degree be concerned with it. Arbitration law is dominated by the law of contract. Once the arbitration agreement has been construed, the courts will recognize any procedure which conforms with it, and will endeavour to enforce whatever positive rights it may be held to create. The usual approach of the courts is to enforce an arbitration award, and not to interfere in it. The arbitration agreement does not deprive the court of jurisdiction; it merely forms a reason why the court should decline to exercise its jurisdiction to interfere. Section 13 of the Arbitration Act exists so that a successful party on an arbitration award can convert the award into a judgment or order of the court, and then levy execution against the assets of the unsuccessful party. This is a synopsis of the English law taken from Mustill and Boyd, Commercial Arbitration (Butterworths, 2 nd edition), pages This approach has been adopted in Canada. In Morris v. Bundy, [1989] N.S.J. No. 102 (N.S.C.A.) Clarke, C.J.N.S. for the Court stated: In Middlemiss & Gould (a firm) v. Hartlepool Corporation, [1973] 1 All E.R. 172, Lord Denning stated at p. 175: Once an award has been made and not challenged in the court it should be entered as a judgment and given effect accordingly. It should not be held up because the losing party says he wants to argue some point or other or wants to set up a counterclaim or anything of that sort. He would not be allowed to do so in the case of a judgment not appealed from. Nor should he do so in the case of an award that he has not challenged. He further stated, also on p. 175, Leave should be given to enforce the award as a judgment unless there is real ground for doubting the validity of the award. Lord Denning s statement has been applied on numerous occasions.... [15] The amount of pre-judgment interest on the awards is significant. I checked Sogelco s counsel s calculations and I am satisfied the amounts of the pre-judgment interest now included in the judgment are calculated and properly included in accordance with the rates prescribed by Section 48 of the Supreme Court Act,

8 Page: 5 R.S.P.E.I. 1988, Cap. S-10. I am also satisfied that the judgment bears post-judgment interest in accordance with Section 49 and 51 of the Supreme Court Act. Sogelco Application against Daley Brothers Limited and Sea Treat Limited: Three preliminary issues [16] Just as the Court will generally not interfere with an arbitration award rendered pursuant to a proper arbitration agreement by a properly constituted arbitration board, the Court will not enlarge the coverage of an award by authority of the provisions of the Arbitration Act itself. The arbitration award is against ISPL; not Daley Brothers and Sea Treat. The arbitration board did not purport to have jurisdiction over Daley Brothers and Sea Treat; registration of the award as a judgment pursuant to the statutory authority of the Arbitration Act does not operate per se to extend the reach of the award to non-parties. Once the award becomes a judgment, as has occurred here, then the Court will entertain the full range of enforcement proceedings. Before an award converted to a judgment against a party would be enforced against another person, that other person whose interests are sought to be affected must receive due notice and be accorded appropriate opportunity to be heard. [17] The award having become a judgment, the Court has jurisdiction to enforce that judgment in the same manner as a judgment or order to the same effect. The Court has broad jurisdiction to decide issues which arise in enforcement proceedings, including determination of the identity of the judgment debtor, and this includes jurisdiction to order the lifting of a corporate veil. See Canada (Minister of National Revenue) v. Gadbois, [2003] 1 C.T.C. 353 (F.C.A). [18] Once we move beyond the arbitration award and into enforcement of the judgment against ISPL, there is some important common ground between the parties. Counsel for Daley Brothers/Sea Treat acknowledges that Sogelco can come before the Court for enforcement, and seek to lift the corporate veil: the Court does not make an empty order; it has the ability to enforce its order; however, the proceeding is for enforcement of the Order, rather than the arbitration board award. Counsel for Sogelco acknowledges that Daley Brothers and Sea Treat are entitled to the benefit of the fundamental principle that every person has the opportunity to be heard before a court would make an order against that person; subject to the qualification that the arbitration award is final and binding, and not to be reopened, so that the issue in the proceeding is enforcement of the judgment, by lifting the corporate veil to identify the true judgment debtor so that execution can be made against Daley Brothers and Sea Treat. [19] Applicant s counsel referred to Rule 60.06(2). That provision stipulates that an order that may be enforced against a person who is not a party may be enforced

9 Page: 6 against that person in the same manner as if he or she were a party. No annotations were identified regarding application of that provision. I agree with the submission of Respondent s counsel that Rule 60.06(2) does not expand the authority of the court to impinge on the well-being of a non-party without due process, and that there still needs to be an order that can be enforced against the person before that provision has any application. [20] It is a new issue supplementary to converting the award to a judgment whether to enforce the judgment against a third party. The Court does not depart from the Salomon principle without serious consideration of the principles of corporate law applied with close scrutiny and thoughtful consideration to the facts of the case. [21] The arbitration award against ISPL now being enforceable as a judgment against ISPL, the three preliminary issues raised by Daley Brothers/Sea Treat become subsumed into one; namely, whether the Sogelco proceeding to enforce the ISPL judgment against Daley Brothers/Sea Treat should be heard as an application or as an action. Now that there is a judgment against ISPL, and the proceeding is understood to be for enforcement of the judgment, the issue of prematurity is dissolved. While Daley Brothers/Sea Treat has identified questions of jurisdiction and timing, their real concern is with the mode of hearing. They seek a trial. They are concerned that they be afforded full opportunity to present relevant evidence about the SSS venture and their defence against piercing the corporate veil in a trial setting. Their evidence on the application advises that negotiations involved multiple witnesses, complex subject matter, and various understandings and expectations, and they submit with explanation that the Court needs to be able to assess credibility. [22] It remains to be determined whether Sogelco s proceeding against Daley Brothers and Sea Treat should be treated and heard as an application or as an action culminating with a trial. The starting point is to determine the question or issue in the proceeding, which could be characterized this way: 1. Was the business of ISPL that of Daley Brothers Limited? and if so, 2. In all the circumstances, should the corporate veil of ISPL be lifted, so that Daley Brothers and/or Sea Treat are liable for its obligations to Sogelco that are represented in the judgement. Sogelco s counsel characterized the issue as: determining the identity of the judgment debtor, ie. who really is the judgment debtor? Counsel for Daley Brothers characterized the issue as: whether Sogelco has incorrectly pursued their claim against Daley Brothers and Sea Treat. For the purpose of this assessment, those are synonymous characterizations.

10 Page: 7 [23] The next step is to consider the proper or preferred procedure for determination of those issues. Under Rule 14, there are two choices: (1) summary procedure, by application, with cross-examination outside the hearing; or (2) an action, with pre-trial discovery procedures, followed by a trial involving oral evidence. Rule 14 provides direction regarding the mode of proceeding. Proceeding by action is the general rule. Under Rule 14.02, every proceeding in the Court shall be by action, except where a statute or the Rules provide otherwise. The situations in which proceedings may be brought by application are listed in Rule Rule 14.05(3) (a) - (g) lists particular proceedings, none of which includes the subject matter of this proceeding. Sub-clause (h) of Rule 14.05(3), which provides for an application with respect of any matter where it is unlikely that there will be any material facts in dispute, is the only category under which the present proceeding could qualify for the application route. [24] Sogelco counsel has referred to Ontario and Manitoba jurisprudence that confirms that the categories listed in Rule 14.05(3) are disjunctive, so that the Court has power to hear an application under categories (a) to (g) inclusive even if there are material facts in dispute: McKay Estate v. Love (1991), 6 O.R. (3d) 511 (Ont. C.A.), Hughes Land Co. v. Manitoba, [1998] M.J. No. 550 (Man. C.A.) at p. 48. That jurisprudence does not assist, because Sogelco s Application does not fall under those particular categories. [25] It becomes necessary to determine whether it is unlikely there will be any material facts in dispute. This assessment involves a preliminary consideration of the issues identified above in the context of the applicable law applied to the facts and circumstances of the case. As previously discussed: there is an arbitration award against ISPL; the arbitration award has been converted into a judgment against ISPL; the court has jurisdiction to enforce the judgment, including whether the corporate veil should be lifted to involve Daley Brothers and/or Sea Treat in liability for the judgment; and the enforcement proceeding does not involve reopening the arbitration award on its merits. [26] There is judicial precedent for a judgment creditor employing summary proceedings to enforce a judgment against a third party by lifting the corporate veil: see Roxford Enterprises S.A. v. Cuba (T.D.), [2003] 4 F.C (Fed. Ct.T.D.) at para. 25. Under Rule 14 in this Province, the summary procedure of an application would be available only where it is unlikely there will be any material facts in dispute. [27] In this case, the matters in issue are being decided at the execution stage. The substantive issues are or involve material questions of fact that are in dispute:

11 Page: 8 (i) Sogelco has set out a plaintiff s case involving extensive facts in an affidavit of Allen G. Wickert which is accompanied by four volumes of documentary evidence. (ii) Daley Brothers has responded with an affidavit of Bernard MacLennan sworn December 14, 2005, which is to the effect that the circumstances, negotiations, understandings between the parties, performance within the joint venture, and circumstances and explanations for the default are all important to determination of the issue in this proceeding, and that determination of the facts involves hearing their version of events, interpretation, and qualification of the evidence of Mr. Wickert, some of which is based on hearsay. (iii) The arbitration award contains extensive findings of fact. While it is not to be revisited regarding the ultimate award or the foundation for the award, Daley Brothers did not appear before the arbitration board and present its version of events. Sogelco did advise Daley Brothers before the arbitration board convened its hearings that Sogelco would be asking the board and the court if necessary to pierce the corporate veil and to enforce their damages judgment against Daley Brothers and Sea Treat, and Sogelco set out for Daley Brothers the basis for that stance. However, it remains that Daley Brothers was not a party to the arbitration agreement and chose not to submit to the jurisdiction of or appear before the arbitration board. The findings of the arbitration board pertaining to Daley Brothers and Sea Treat become admissible evidence, but would not necessarily amount to findings of fact by the court, as Daley Brothers has not yet been heard by the court. Daley Brothers acknowledged that it cannot reopen the basis of the judgment, ie. the findings of the arbitration board on its merits, but seeks to retain opportunity to attack the arbitration award based on jurisdictional issues, such as the board having been clearly wrong. Although a jurisdictional challenge may not materialize, it lurks as a potential issue. Therefore, I need to observe at this stage that I am dubious and would need to be convinced by Daley Brothers why a jurisdictional issue about the arbitration award would enter into the court proceeding for enforcement of the judgment. Daley Brothers/Sea Treat could not attain any higher ground than could ISPL, and it would seem that ISPL s right to complain about the award, whatever that may have been, is prima facie lapsed by the efluxation of time. [28] The extent to which material facts are in dispute is affected by the applicable corporate law regarding distinct legal entities and lifting the corporate veil. The

12 Page: 9 Supreme Court of Canada statement in Kosmopoulos v. Constitution Insurance Co. Of Canada, [1987] 1 S.C.R. 2 at para. 12 is common ground: As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.). The law on when a court may disregard this principle by lifting the corporate veil and regarding the company as a mere agent or puppet of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the separate entities principle is not enforced when it would yield a result too flagrantly opposed to justice, convenience or the interests of the Revenue : L.C.B. Gower, Modern Company Law (4 th ed. 1979) at p I have no doubt that theoretically the veil could be lifted in this case to do justice, as was done in American Indemnity Co. V. Souther Missionary College, supra, cited by the Court of Appeal of Ontario. But a number of factors lead me to think it would be unwise to do so. Also, in Bounderie centrale de Montreal Inc. v. Montreal (City); Conseil de la sante et des services sociaux de la region de Montreal metropolitain v. Montreal (City), [1994] 3 S.C.R. 29 at para. 34, the Supreme Court stated: 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. [29] Sogelco submits it is well established that the corporate veil will be lifted where one company is the alter ego of the other, ie. where one company is no more than a mere puppet of another. Sogelco refers to six factors for consideration as set out in the English case of Smith, Stone & Knight, Ltd. v. Lord Mayor, Alderman and Citizens of the City of Birmingham, [1939] 4 All E.R. 116 (K.B.), and points to the extensive reasons of the arbitration board which addressed all those factors and concluded they amounted to strong evidence of the total control exercised by Daley Brothers Limited over the Summerside Supreme Food Inc. s operations and that all the evidence indicates that ISPL is no more than a paper entity, with all operations being effectively controlled by Daley Brothers Limited. [30] Daley Brothers submits that is not a full statement of law. In addition to reiterating that such determinations by the arbitration board are not findings of fact before the Court, Daley Brothers states that the six factor enumeration is not determinative of the issue, but only one of two steps toward determination of the issue. It submits that the caselaw demonstrates that the courts will consider the

13 Page: 10 circumstances in determining whether justice requires that the Salomon principle be disregarded and the corporate veil be lifted. [31] In Alberta Gas Ethylene Co. v. Canada, [1988] F.C.J. No at p. 5 Reed J. stated: I have difficulty with counsel s argument. As I read the jurisprudence, it does not establish that it is sufficient to consider the six criteria and when they are all met (as they are in the present case) to ignore the separate legal existence of the subsidiary company. One has to ask for what purpose and in what context is the subsidiary being ignored. What is more, I do not interpret the jurisprudence as ignoring the existence of subsidiary corporations per se. Rather, it seems to me that the jurisprudence proceeds on the basis that in certain circumstances, consequences will be drawn despite the legal existence of separate subsidiary corporations.... This statement of law was applied in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1995] N.J. No. 150 (Nfld. C.A.). In Sun Sudan Oil Co. v. Methanex Corp., [1992] A.J. No (Alta. Q.B.) at pp. 11 and 12 Hunt J. stated: The six criteria set out in the Smith case may be helpful in determining the relationship between the parent and subsidiary but...one must also consider the context in which it is said the separate existence of the subsidiary ought to be ignored. Moreover...one must ask whether failing to lift the veil would yield a result too flagrantly opposed to justice or convenience.... While the six criteria have been met, that does not end the matter, given the strong recognition given a separate corporate identity by the Salomon principal. The overall context and the interest of justice must now be considered. [32] In Transamerica Life Insurance Company of Canada v. Canada Life Assurance Company (1996), 28 O.R. (3d) 423 (Ont. Gen. Div.) Sharpe J. stated: There are undoubtedly situations where justice requires that the corporate veil be lifted. The cases and authorities already cited indicate that it will be difficult to define precisely when the corporate veil is to be lifted, but that lack of a precise test does not mean that a court is free to act as it pleases on some loosely defined just and equitable standard.... As just indicated, the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct. The first element, complete control, requires more than ownership. It must be shown that

14 Page: 11 there is complete domination and that the subsidiary company does not, in fact, function independently:... [emphasis added] The second element relates to the nature of the conduct: is there conduct akin to fraud that would otherwise unjustly deprive claimants of their rights? In my view, while Transamerica has alleged fraud against C.L.M.S., there is no evidence to suggest that Canada Life has any involvement in that alleged fraud, apart from the fact the C.L.M.S. is its wholly owned subsidiary.... [33] In B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4 th ) 30 (B.C.C.A.) Seaton J.A. stated: The trial judge dealt with this question in this way: Sham Plaintiff s counsel also made a submission expressed in rather general and sweeping terms that the [new] company was a mere device and a sham and the court should pierce the corporate veil to hold the individual defendants liable on the agreement. However, the [new] company was a properly incorporated legal entity whose principals intended to operate through it for specific purposes which I have described. It had no significant assets it was a shell company but of course that, per se, does not mean it did not have the power to contract to purchase real estate. Indeed, I was told that that was not uncommon in the real estate industry. Furthermore, the fact that the principals of the company may have intended even at the time of undertaking the obligation on behalf of the company to take advantage of the limited liability of the company if it suited their purposes does not per se make the company a sham, i.e., does not expose its principals to liability for the company s obligations. There are cases in which the law will fix liability on the principals but they do not support the broad proposition put forward on the cross-appeal. [34] Matters of intention, understanding, circumstance, and explanation are all raised in the Daley Brothers affidavit of Bernard MacLennan. [35] The present case does not qualify to be heard as an application under Rule 14.05(3)(h) because there are material facts in dispute and issues of credibility. This statement from Toronto v. Famous Players Canadian Corp., [1945] 3 D.L.R. 327 (Ont. C.A.) is applicable by analogy: A determination of the nature of the respondent s business is prima facie a question of fact. Circumstances may exist where it involves a question of law, but here it seems to me to depend on whether the various subsidiary corporations are independent personalities, or are mere agents controlled as

15 Page: 12 such by the respondent company for the carrying on of its own business. That appears to me to be a question dependent solely on the facts adduced in evidence. The general rule regarding applications is that evidence is given by affidavit. An exception to Rule 39.01(1) is found in Rule 39.03(4). This provision permits a person to be examined at a hearing of a motion or application in the same manner as at a trial, with leave of the presiding judge. This exception to the general rule does not envisage an application being heard as a trial. [36] As Rule 1.04 advises, the Rules of Court are to be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. I am satisfied in any event that Rule 1.04 is satisfied best by a trial in this case. Sogelco is entitled to enforcement of its judgment; but Daley Brothers and Sea Treat are entitled to a full opportunity to be heard, reflective of the subject matter of the proceeding. [37] Sogelco has not shown that time is of the essence for enforcement. The arbitration award is two years old; the affidavit of Mr. Wickert was sworn on March 31, 2005; and then the application was brought only in October. In any event, this being a commercial matter involving enforcement of a judgment for a sizable sum of money, expeditious determination seems manifestly just. Counsel for Daley Brothers has advised the Court that the Respondents would co-operate toward the trial being held at an early date, and that they would be able to proceed this spring, in March, April, or May. Sogelco has advised that its case is already submitted. A one week trial is scheduled to commence May 23, 2006; subject to the proviso that the parties confirm trial readiness to the satisfaction of the pre-trial conference judge. [38] Accordingly, it is ordered that the whole Application of Sogelco against Daley Brothers and Sea Treat be treated as an action and proceed to trial. Both counsel recommended that in the event of this determination the same procedure which was employed in MacPherson v. West Prince Regional Health Authority, [2001] P.E.I.J. No. 100 PESCTD 83 be employed in this case. Therefore, these directions are included: 1. The Application is to be treated as a Notice of Action; 2. Sogelco may treat the Application as its Statement of Claim, or it may file and serve a new Statement of Claim; and Sogelco is to notify Daley Brothers/Sea Treat and the Court accordingly; and

16 Page: Upon notification by Sogelco, the Respondents Daley Brothers and Sea Treat are to file their Statement of Defence within 20 days. Counsel for Sogelco should carry out step #2 immediately, with the aspiration that counsel for Daley Brothers/Sea Treat will file their Defence before the pre-trial conference occurs. [39] At the conclusion of the hearing, counsel for Daley Brothers asked the Court to grant pre-trial relief in the nature of a Mareva injunction, which would essentially freeze Daley Brothers/Sea Treat assets, with some opportunity to carry on operations, pending judgment. No notice of such a motion was given with the Application. Grounds for such relief were not made out. Sogelco s motion for such pre-trial relief is denied, without prejudice to its right to re-apply on proper motion. Costs [40] Costs on the Application at this stage should be deferred to trial and dealt with in the cause. Sogelco was entitled to bring its application, and obtained judgment against ISPL. Daley Brothers/Sea Treat was successful in having the application against them transferred to an action and trial. I am designated as the trial judge. January 11, 2006 Justice David H. Jenkins