



COURT OF APPEAL FOR ONTARIO

CITATION: Michel v. Spirit Financial Inc., 2020 ONCA 398

DATE: 20200619

DOCKET: C66925 & C66926

Benotto, Zarnett and
    Thorburn JJ.A.

DOCKET:
    C66925

BETWEEN

Alexander Michel

Plaintiff (Respondent)

and

Spirit Financial
    Inc.
,
Franz Kramer

And Gunther Kramer

Defendants (Appellants)

DOCKET: C66926

AND
    BETWEEN

Franz Kramer,
    Christa Schmidt

and Gunther Kramer

Plaintiffs (Appellants)

and

Alexander Michel

Defendant (Respondent)

Michael A. van Bodegom and Daniel W. Veinot, for the
    appellants Franz Kramer and Spirit Financial Inc, and respondent on
    cross-appeal, Gunther Kramer

Jeffrey Kriwetz and Alexander Hora, for the
    respondent/appellant on cross-appeal, Alexander Michel

Heard: in writing

On appeal from the
    judgment of Justice P.J. Flynn of the Superior Court of Justice, dated April
    10, 2019, with reasons reported at 2019 ONSC 2254.

REASONS FOR DECISION

[1]

Many years ago, the appellant Franz Kramer and the respondent Alexander
    Michel were co-workers and friends. Michel gave Kramer various sums of money
    that Kramer invested in his company Spirit Financial Inc. Whether the advances
    made were loans or an investment by Michel in Spirit became a source of dispute
    between the former friends. It led to an action by Michel against Kramer, the
    company and Kramers son Gunther Kramer, and another action by Kramer, his
    spouse and Gunther against Michel for slander. The trial judge determined that
    the advances were demand loans, that Kramer had engaged in fraudulent
    activities to which Spirit was an accomplice, and he gave judgment against
    Kramer and Spirit for over two million dollars. He dismissed Kramers action
    against Michel.

[2]

For the reasons that follow, we allow the appeal in part, because recovery
    on several advances made by Michel in 2000 and 2001 is statute barred.

BACKGROUND

[3]

In the late 1990s and early 2000s Kramer and Michel trained and worked
    together as airline pilots. Kramer then became involved in mortgage lending
    through Spirit Financial. Kramer was the director, president and sole controlling
    will and mind of the company. Gunther was the Secretary-Treasurer until 2014.

[4]

Over nine years, between 2000 and 2010, Michel advanced significant sums
    to Kramer: 949,504 Euros and 100,119 Swiss francs. Two promissory notes dated
    May 12, 2000 represent the only documentation. The first promissory note was
    from Spirit to Michel for 140,000 Deutschmarks at 7% interest, which Kramer
    replaced with a promissory note from himself at an interest rate of 6%.
According to the trial judge,
Michel didnt
    know Spirit and only wanted to deal with Kramer, whom he obviously trusted. And
    Kramer accepted that. There were no further Promissory Notes. So, the 2nd
    Promissory Note was meant to replace the first and commenced the two pilots
    business relationship.

[5]

In March and April 2009, Michel demanded repayment on the loans. Kramer
    resisted at first but then made a series of four payments of 7,273 Swiss francs
    and 149,770 Euros between April 20, 2009 and October 21, 2009. These payments
    equalled about $232,500 Canadian. No other payments were made.

[6]

When Michel sued for return of his money, Kramer brought an action
    against him alleging that Michel had harassed and threatened him and his
    family. The action was fashioned in slander.

DECISION BELOW

[7]

Kramer argued that the advances were investments in Spirit Financial,
    not demand loans. The trial judge found that the advances were loans to Kramer
    repayable at 6% interest. He held that the action on loans and the promissory
    notes was not statute barred because Kramer made, or caused to be made, partial
    payments in 2009 which extended the limitation periods.

[8]

The trial judge made various findings of improper activities by Kramer
    in the way Michel was induced to make the loans, the way the funds were moved into
    and out of Spirit, and the lack of any proper accounting. He held that Spirit
    Financial was also liable for the same amounts as Kramer because it was
    controlled by Kramer and was an accomplice to [his] fraudulent activities.
    However, Gunther was not liable because he likely did not have much say in his
    father's business while he was director and officer.

[9]

The trial judge ordered that the parties calculate the amounts owing and
    include a chart with their cost submissions. In the result, he ordered that
    Kramer and Spirit Financial pay Michel the Canadian equivalent of 1,572,938.38
    Euros and 149,626.98 Swiss francs, inclusive of pre-judgement interest.

[10]

The
    trial judge dismissed the slander action which he considered to be simply a
    gag and chill device and thus improper.

[11]

The
    trial judge awarded Michel substantial indemnity costs. After adjusting for
    costs owed to Gunther, Michel was awarded $200,000 in costs.

ISSUES

[12]

The
    appellants Kramer and Spirit Financial submit that the trial judge erred by:

1.

failing to apply the limitation period;

2.

holding Spirit liable in addition to Kramer;

3.

improperly calculating damages;

4.

engaging in procedural unfairness;

5.

dismissing the slander action; and

6.

awarding costs on a substantial indemnity basis.

[13]

Michel
    cross appeals alleging that Gunter (an additional respondent on the cross-appeal)
    should also have been held liable.

ANALYSIS

The limitation period

[14]

The trial judge made a finding of fact that all
    the advances made by Michel to Kramer and Spirit were loans. The loans were
    advanced from 2000 to 2009, during which time the
Limitations Act
, R.S.O. 1990, c. L.15 was largely replaced by the
Limitations
    Act, 2002
, S.O. 2002, c. 24, Sched. B
. On January 1, 2004 the basic limitation period for demand loans
    was changed from six years from the date of the loan to two years from the date
    of the demand:
Hare v. Hare
, 83 O.R. (3d) 766
    (C.A.), at para. 11 and
Limitations Act, 2002
,
    at s. 5.

(1)

The Promissory Notes of 2000 and the Loans
between
    May 15, 2000 and September 6, 2001

[15]

The first five loans were made on May 15, 2000, January
    2, 2001, May 2, 2001, June 8, 2001 and September 6, 2001. These loans and the
    promissory note were captured by the old
Limitations Act.
The trial judge said that Kramers Limitation Defence cannot
    succeed. The partial payments made after Michels demand had the effect of
    extending the limitation period.

[16]

The difficulty here is that the limitation period had already
    expired for these loans when the partial payments were made and could not be
    revived. See
Cross Bridges Inc. v. Z-Teca Foods Inc.
, 2016 ONCA 27, at para. 10: for an acknowledgement to reset the
    limitation clock, it must be made before the expiry of the limitation period
    applicable to the claim. The first repayment made to Michel, was more than a
    year too late for even the most recent of the five loans to be saved from the
    statute bar.

[17]

Likewise, the two Promissory Notes dated May 12, 2000 were captured
    by the six-year limitation period from their stated due date on June 1, 2001.

[18]

The trial judge erred in finding otherwise.

(2)

Loans between November 17, 2004 and February 1, 2009

[19]

The
appellants accept that on March 28, 2009, the respondent
    demanded payment in full of all money loaned. The four repayments beginning
    April 20, 2009, were in relation to that same debt. In
St. Hilaire
    v. Kravacek (
1979), 26 O.R.(2d) 499 (C.A.), this court
    held at para. 12 that: a payment by a debtor to his creditor, from which a new
    promise to pay the debt may be inferred, has the effect of starting afresh the
    running of a period of limitation.
The
loans between
    November 17, 2004 and February 1, 2009 are covered by the two-year limitation
    period in the new Act but are saved by acknowledgments of debt.

(3)

Loans on July 11, 2003 and October 27, 2003

[20]

The appellants concede at para. 35 of the their factum that the
    loans made on July 11, 2003 and October 27, 2003 were not statute barred:
    While the advances made on July 11, 2003, and October 27, 2003, were subject
    to the former 6-year limitation period, the limitation period with respect to
    those loans did not expire prior to the commencement of the action (at least,
    as against Spirit Financial) as the partial repayments in 2009 extended the
    applicable limitation period.

[21]

Therefore, only the loans in 2000 and 2001 and the two promissory
    notes are statute barred.

[22]

We reject the argument that the partial payments, having been made
    by Spirit, did not extend the limitation period for a claim against Kramer.
    Based on the trial judges findings Spirit and Kramer must be considered one
    and the same for these purposes.

Liability of Spirit and Kramer

[23]

Spirit argues that the trial judge erred in
    holding it liable because he found that the note and the loans were between
    Michel and Kramer and because Michel only pled that Spirit was liable in the
    alternative, not jointly.

[24]

We conclude that both Kramer and Spirit are liable.

[25]

The jurisprudence with respect to separating
    personal from corporate liability typically considers an attempt to hold
    individuals liable for corporate debts. But the analysis is instructive even
    though the question here is whether the corporation should be held liable in
    addition to the individual. A separate legal entity will be disregarded when
    there is complete control and conduct akin to fraud:
Transamerica
    Life Insurance Co. of Canada v. Canada Life Assurance Co.
(1996), 28 O.R.
    (3d) 423 (Sup. Ct.), at pp. 432-33; affd (1997) 74 A.C.W.S. (3d) 207 (C.A.). It
    may also be disregarded where those in control of a corporation expressly direct
    a wrongful act:
642947 Ontario Ltd. v. Fleischer
(2001), 56 O.R. (3d)
    417 (C.A.) at para. 68.

[26]

The trial judge held that Spirit was completely controlled by Kramer
    and that Spirit was being used as a shield for fraudulent or improper conduct. He
    found that: (i) Kramer was the controlling will and mind of both Spirit; (ii)
    Kramer was simply transferring all of the money in each between his own
    pockets; (iii) Spirit was just a plaything of Kramers; and (iv) Spirit must
    be considered an accomplice to Kramers fraudulent activities.

[27]

These findings of fact would be sufficient to pierce the corporate
    veil and hold Kramer liable for obligations of Spirit  here they have a
    different but equally well-founded consequence. When Kramer directed Spirit to
    participate in  be an accomplice to  wrongful conduct, Spirit was rendered
    liable for that conduct. When the controlling mind of the corporation directs
    it to do a wrongful act it can scarcely be argued that the corporation commits
    the act with impunity.

[28]

It was open to the trial judge to come to this conclusion even
    though Michels pleading alleged alternative theories of liability. The
    alternatives were whether the advances were loans, or whether they were investments.
    But the claims made were against all defendants and we see nothing in the
    pleading precluding a finding of liability against both Spirit and Kramer for
    the wrongdoing that the trial judge found.

Damages

[29]

Kramer
    and Spirit Financial argue that the trial judge erred by (i) finding that the
    advances were made on an interest rate of 6% when there was no agreement as to
    the interest rate on the evidence, or when the agreed-upon interest rate
    varied; and (ii) not deducting non-resident tax withholdings that Spirit
    Financial paid on behalf of Michel.

[30]

An
    appellate court should only intervene in the award of damages where the trial
    judge made an error of principle or law, or misapprehended the evidence, or it
    could be shown there was no evidence on which the trial judge could have
    reached his or her conclusion, or the trial judge failed to consider relevant
    factors in the assessment of damages, or considered irrelevant factors, or
    otherwise, in the result, made a palpably incorrect or wholly erroneous
    assessment of the damages:
2105582 Ontario Ltd. (Performance Plus Golf
    Academy) v. 375445 Ontario Limited (Hydeaway Golf Club)
, 2017 ONCA 980, 138
    O.R. (3d) 561, at para. 64, citing
Naylor Group Inc. v. Ellis-Don
    Construction
Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at para. 80.

[31]

It
    was open to the trial judge to conclude that the interest rate was 6% and that
    the non-resident tax allegation was part of Kramers arrogant deceit and did
    not apply.

Allegation of procedural unfairness

[32]

On
    the last day of evidence before the trial judge, Kramer conceded that Michels
    Swiss franc advances were still available and belong to Michel. The trial judge
    found that he agreed to pay those funds to Michel in accordance with a signed
    direction. He then endorsed the Trial Record accordingly.

[33]

Kramer
    and Spirit Financial argue that, by doing so, the trial judge prejudged the
    issues and did not provide adequate reasons.

[34]

We
    do not agree. It was open to the trial judge to endorse the record on the basis
    of this admission. This was clearly explained and the reasons throughout were
    sufficient.

Appeal from dismissal of the slander action

[35]

The
    trial judges decision to dismiss the slander action was based on his findings
    of fact which are entitled to deference on appeal. There is no basis to
    interfere with that decision.

Costs

[36]

Kramer
    and Spirit Financial submit that there was no basis for imposing costs on a
    substantial indemnity basis.

[37]

The
    trial judge made his decision to award substantial indemnity costs to Michel in
    part because of the fraud perpetuated on him, in part because Kramer did not
    admit facts laid out in Michels Request to Admit but primarily because Kramer
    used the slander action to defend Michels claims.

[38]

A
    court should set aside a costs award on appeal only if the trial judge has made
    an error in principle or if the costs award is plainly wrong:
Hamilton v.
    Open Window Bakery Ltd
., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[39]

We
    see no reason to interfere here.

The cross-appeal

[40]

Michel
    alleges that the trial judge erred in dismissing his claim against Gunther. The
    trial judge found that Gunther probably didnt have much say in his fathers
    business while he was officer and director. This finding was open to the trial
    judge on the evidence and supports the dismissal of the debt action against
    him. Likewise, we would not interfere with the trial judges finding that the
    loan was partially repaid on April 20, 2009.

CONCLUSION

[41]

The
    appeal is allowed in part to reduce the damage award by the amounts of the
    loans
between May 15, 2000 and September 6, 2001
.
The appeal is otherwise dismissed. The cross-appeal is dismissed. The appeal
    with respect to the slander action is dismissed for the reasons given by the
    trial judge.

[42]

If
    the parties cannot agree on the calculation of damages and the costs of the
    appeal, they may submit written submissions limited to five pages within 14
    days from the release of these reasons.

M.L. Benotto J.A.

B. Zarnett J.A.

Thorburn J.A.


