Small Claims Court

Small Claims Court OF NOVA SCOTIA

Citation: Custom Building Maintenance v. Consolidated Restaurants et al., 2023 NSSM 82

Date: 20231025

Docket:  SCCH 522239

Registry: Halifax

Between:

CBM – Custom Building Maintenance (NS) Ltd., operating as Custom Clean Atlantic

                             Claimant

v.

Consolidated Restaurants Limited, Jack Smith (aka FJ Smith), Diane Rose Smith and John Scott

Defendants

By the Court:

[1]             The Claimant company supplies cleaning services to commercial clients. From 2007 until earlier this year, it cleaned the Steak & Stein restaurants in Dartmouth and Halifax. Its last day of work was February 18, 2023. The next day, without any advance notice to the Claimant, the Defendants closed the two restaurants.

[2]             At that time, the Claimant was two full months behind in the collection of its invoices. The total owing is $11,122.80, including partial billing for February 2023.

[3]             The corporate Defendant did not defend the claim and a judgment will be issued against it.

[4]             However, the main thrust of the claim is the Claimant’s effort to hold three individuals personally liable for the debt.

[5]             Those three individuals are Jack Smith (formal name Frederick John Eugene Smith) and his spouse Diane Rose Smith, the owners and corporate directors, and John Scott, the now-retired Vice-President of Operations, who was not a shareholder. Their defence is that they neither guaranteed the accounts of trade creditors, such as the Claimant, nor committed fraud or any other act that would have rendered them personally liable.

[6]             The individual Defendants do not dispute the validity of the invoices.

[7]             One of the main purposes of limited liability companies is to shield the owners from personal liability for the debts or defaults of the company. Even so, there are several possible bases to pierce the corporate veil and hold officers and directors responsible for the debts of the company they represent.

[8]             One would be if those individuals contractually bound themselves to contracts of guarantee, in which case the creditor has a direct cause of action against the individuals. The Claimant does not claim to have any such guarantees.

[9]             Another basis, which does not apply on the facts here, is where there is some ambiguity as to who is actually contracting. A common example is with one-person corporations, sometimes called alter-ego companies. Here the Claimant had no such doubt, as he invoiced the parent company consistently for years and did not doubt that he was dealing with a company.

[10]         The third situation is where the Claimant can prove that the individuals engaged in a fraud, which is the theory which the Claimant has put forward here.

[11]         The test for a civil fraud is well-established, and is set out in the Supreme Court of Canada case of Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8:

[21] From this jurisprudential history, I summarize the following four elements of the tort of civil fraud: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss.

[12]         The evidence before me does not meet any elements of this test.

[13]         The owner of the Claimant, Alan Avis, testified that his crews had been cleaning the two Steak & Stein restaurants for more than 10 years (actually 16 years) and invoices were typically paid roughly two months in arrears, which is common commercial practice. He admits that he rarely had any contact with upper management, but typically had contact at the store management level, dealing with day-to-day issues.

[14]         I accept the evidence of Jack Smith that he had very rarely had any contact with Mr. Avis, and that of Diane Rose Smith that she never had such contact. John Scott had occasional contact, though still rarely and nothing recent.

[15]         The Claimant’s argument boils down not to what any of the individuals told him, but what they did not tell him. He argues that they must have known for some period of time that they were going out of business, and that they might not be able to pay their bills. He argues that their silence amounted to a fraud.

[16]         The evidence of John Scott was that he and the owners had been in some financial difficulty since the onset of the pandemic, from which they never recovered. He testified that almost to the very end, they carried on their business, as usual, in the hope that they could keep the business afloat, but it reached the point where the legal and accounting advice they were receiving was to the effect that they had to close.

[17]         On February 18, 2023, the Claimant was told that their services were not needed that night, and the next day the restaurants were closed. The evidence did not disclose the precise day that the decision to close was made, but the impression I get is that it all happened fairly quickly.

[18]         I believe it is fair to say that the closure took a lot of employees and suppliers by surprise.

[19]         To make out a fraud, in the simplest of terms, first there must be a representation that is false, which induces a party to act to their detriment. While silence may amount to a representation in some circumstances, that does not apply here. There is no evidence that any of the Defendants said anything, or failed to say anything, that they knew to be false, and which caused the Claimant to provide his services.

[20]         Essentially, Mr. Avis would have liked to be informed of the business closure earlier than he was. That might have been the more ethical thing to do on the part of the Defendants, or some of them, but the law does not elevate the individuals’ silence into a fraudulent representation. They were trying to salvage a sinking business, and it probably would have been counterproductive to take their suppliers into their confidence prematurely.

[21]         Even so, the bulk of the claim is for arrears that were well within their pattern of payment, so knowing of the closure a few days before they did would not have provided much of a benefit. Daily billing was $124.00.

[22]         Under the circumstances, the claims against the individual Defendants must fail for lack of proof that they committed any fraud.

Order

[23]         For all of the above reasons, the claims against the Defendants Jack Smith (aka FJ Smith), Diane Rose Smith and John Scott are dismissed.

[24]         The Defendant Consolidated Restaurants Limited is ordered to pay to the Claimant the sum of $11,122.80 plus costs of $199.35, for a total of $11,322.15.

Eric K. Slone, Small Claims Court Adjudicator