



COURT OF APPEAL FOR ONTARIO

CITATION: 1802248 Ontario Ltd. (Anytime Fitness) v. Allen,
    2018 ONCA 808

DATE: 20181005

DOCKET: C65240

Hourigan, Miller and Trotter JJ.A.

BETWEEN

1802248 Ontario Ltd. carrying on business as
    Anytime Fitness, Ryan Johnson, and Tatiana Johnson

Plaintiffs (Respondents)

and

Michael Allen, Clark Kent, 2487048 Ontario
    Limited and Orion Fitness Inc.

Defendants (Appellants)

Edward Spong, for the appellants

Scott R. Fairley, for the respondents

Heard: October 3, 2018

On appeal from the judgments of Justice R. Cary Boswell
    of the Superior Court of Justice, dated November 27, 2017, with reasons
    reported at 2017 ONSC 7041, and dated March 7, 2018, with reasons reported at
    2018 ONSC 1561.

REASONS FOR DECISION

[1]

The individual respondents (the Johnsons) operated a fitness club
    business that they owned through 1802248 Ontario Ltd. (180). The individual
    appellants expressed an interest in purchasing the business. The parties came
    to terms. The respondents executed an Asset Purchase Agreement on October 30,
    2015 with 2487048 Ontario Limited (248) as the purchaser, acquiring 180s
    equipment, goodwill, and interest in its leased premises. This agreement was
    drafted without the benefit of counsel.

[2]

248 is wholly owned and controlled by the individual appellants, and was
    incorporated for the sole purpose of acquiring the assets of 180.

[3]

The appellants took possession of the premises and equipment and began
    operating the business as of November 1, 2015. Under the terms of the
    agreement, 248 was to assume 180s obligation under the lease, and, in
    accordance with the terms of the Asset Purchase Agreement, assume the
    respondents obligations under two loans/lease with respect to certain
    Equipment being assumed by the Buyer in the amount of approximately Fifty Eight
    Thousand Dollars ($58,000), with the exact amount to be determined by a current
    statement to be provided by the Seller at the Time of Closing.

[4]

On November 12, 2015, the respondents entered into an agreement with the
    landlord of the fitness club premises for the assumption of the lease by 248. However,
    180 remained jointly and severally liable for the tenants obligations for the
    remainder of the term of the lease. The landlord provided certain rent
    abatement incentives to 248 that would be forfeit in the event that 248 failed to
    pay rent over a six month period. The Johnsons remained personally liable on
    the lease in the event that 248 defaulted during these six months. A default
    would also trigger the Johnsons liability under a previous rent deferment
    agreement between the Johnsons, 180, and the landlord signed in March 2015. Following
    the six month period, Orion Fitness Inc., a corporation entirely controlled by
    the individual appellants, would assume the Johnsons place as guarantor.

[5]

248 was unable to get approval from the respondents bank to assume 180s
    two business loans, one for equipment, and the other for leasehold improvements.
    As a result, the Johnsons arranged with the appellants for the Johnsons to
    repay the loans, in exchange for a promissory note from 248. That is, the
    respondents agreed to finance the appellants acquisition of the business.

[6]

Now in possession of the premises and operating the fitness club, the
    appellants refused to sign the promissory note, placed a stop payment on a
    cheque provided to the respondents, and raised objections about whether the
    full amount of the respondents loans was genuinely related to the business.
    Further, 248 immediately defaulted on its obligations under the lease,
    triggering the Johnsons obligation to indemnify the landlord.

[7]

The appellants took the respondents business, paid nothing for it, and,
    by failing to pay rent under the assumed lease, created substantial financial obligations
    for the respondents.

[8]

The motion judge was satisfied that there was no genuine issue for trial
    with respect to 248s obligations under the Asset Purchase Agreement and some
    portion of the claim related to rent. He found 248 liable and awarded judgment
    against it in the amount of $85,637.97.  The motion judge ordered a mini trial
    on the question of liability for rent for the period of November 2015 to
    January 2016. He further ordered that the issue of the individual appellants
    personal liability be adjourned to the mini trial, on the grounds that the respondents
    had not pleaded the basis for personal liability and would need to amend their
    pleadings.

[9]

The respondents subsequently advised the motion judge that they had
    already amended their Statement of Claim by the time of the hearing of the
    summary judgment motion, but had inadvertently filed the unamended copy with
    their motion materials. After a supplementary hearing on the issue of personal
    liability, the motion judge found that the individual appellants were the
    controlling minds of 248, and had used 248 to engage in improper and dishonest
    conduct. He made the following finding:

[The individual appellants] never intended to make any payment
    to the [respondents]. They dealt with the [respondents] in an entirely
    dishonest manner and have simply converted the [respondents] assets to
    themselves. Their actions have been high-handed and deceitful.

[10]

Having
    satisfied himself that the appellants conduct satisfied the criteria given in
Transamerica
    Life Insurance Company of Canada v. Canada Life Assurance Company et al.
(1996), 28 O.R. (3d) 423 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.), for
    piercing the corporate veil, the motion judge granted judgment against the
    individual appellants in the amount of $58,697.06.

[11]

The
    appellants raise three grounds of appeal, none of which have merit.

[12]

First,
    the appellants argue that the motion judge erred in his interpretation of the Asset
    Purchase Agreement. Specifically, they argue that this agreement only required
    payment for the equipment loan, in the amount of $18,582.87 and not for the leasehold
    improvements loan.

[13]

The
    motion judge made no error in observing the ambiguity in the language of the Asset
    Purchase Agreement, namely an apparent mismatch between the reference to
    equipment and a required payment in an amount far in excess of what would have
    been required for the payment of the equipment loan only.  He applied the only
    contractually reasonable interpretation of it: that the purchase price was
    approximately $58,000 and included not only equipment but leasehold
    improvements.

[14]

Second,
    the appellants argue that the motion judge erred in finding that 248s breach
    of the Asset Purchase Agreement made it liable for damages the respondents
    incurred when they were unable to pay rent to the landlord under the Assignment
    Agreement. The appellants argue that the obligations the respondents incurred
    under the lease were not a foreseeable consequence of breach when the parties executed
    the Asset Purchase Agreement.

[15]

There
    is no merit to this argument. The appellants breached the Asset Purchase
    Agreement by failing to make any of the required payments. It was entirely
    foreseeable that a consequence of this breach would be that the respondents
    would be unable to meet their obligations to the landlord. It was also foreseeable
    that this would cause the respondents to forfeit the negotiated rent abatement
    and become liable for the deferred rent under the March 2015 rent deferment
    agreement.

[16]

Finally,
    the appellants argue that there is no evidence of the individual appellants
    doing anything that could be construed as fraudulent conduct.

[17]

To
    the contrary, the motion judge ably chronicled the individual appellants
    course of action, and drew the available inference that the appellants took the
    respondents business without intending to pay for it. These findings were
    available on the evidence before the motion judge, and there is no basis upon
    which we could interfere with the motion judges findings.

DISPOSITION

[18]

The
    appeal is dismissed. The respondents are awarded costs in the amount of $12,500
    inclusive of disbursements and HST.

C.W. Hourigan J.A.

B.W. Miller J.A.

Gary T. Trotter J.A.


