IN THE PROVINCIAL COURT OF BRITISH COLUMBIA

[1]         This is an application to strike out this Small Claims Action (the “Claim”) on several grounds, including that most if not all of the subject matter of the Claim is res judicata. The application is brought by the Defendants in this Claim as well as by the Third Party, QMI Manufacturing Inc. (together, the “Applicants”).

[2]         The Claim is one for damages totalling $35,216. In its essence, the Claim is an attempt by Droid Media Communications Inc. (“DMC”) to collect on a default judgment in Small Claims Action C-210264 (“Action C-210264”) against what is now the Third Party in this Claim, QMI Manufacturing Inc. (“QMI”). DMC had attempted to collect on its default judgment in Action C-210264, first through a payment hearing, and subsequently through an attempt to obtain an order for seizure and sale of QMI’s assets. These efforts proved fruitless as DMC discovered that QMI had no assets or capital, and virtually nothing to seize. DMC alleges that various officers of QMI, a QMI creditor, and several other incorporated entities either transferred or received funds, assets and/or inventory fraudulently from QMI in advance of its default judgment. DMC seeks to recover the full amount of the default judgment in Action C-210264 from some or all of Applicants.

[3]         The Applicants submit that the Claim is nothing more than an attempt by DMC to pierce QMI’s corporate veil in an attempt to hold its principles, officers and other entities liable for the default judgment against QMI. It is, they submit, the second attempt by DMC to do so: the first attempt having been denied by this court in Droid Media Communications Inc. v. QMI Manufacturing Inc., 2022 BCPC 280. The Applicants submit that DMC could have and should have raised the issues set out in this Claim against QMI’s principles and others in Action C-210264. Its failure to do so renders this Claim res judicata. Alternatively, the Applicants submit that the Claim cannot succeed in any event. It is, they argue, meritless on its face both with respect to the timing of the alleged transfers relative to the date of the default judgment, as well as with respect to the relationship of the defendants to the claimant in this case. Finally, the Applicant’s submit there is no legal or logical basis to have third partied QMI in this Claim.

[4]         In or about January 20, 2020, Mr. Donald Dobbie, principle of DMC, contacted Mr. Raymond Wood of QMI with a proposal to take on the distribution of a QMI product on Vancouver Island. At the material time at least, Mr. Dobbie alleges that QMI was a manufacturing company based in Coquitlam, BC producing, among other things, a line of home building automation products designed to close water and gas valves in event of a leak.

[5]         In Action C-210264, DMC alleges that Mr. Dobbie and Mr. Wood communicated for some time about DMC’s various marketing plans and ultimately, sometime around April 29, 2020, Mr. Dobbie sent Mr. Wood a deposit totalling $20,010. The money was intended as a deposit towards DMC’s first commercial purchase from QMI, and to confirm DMC’s exclusive distribution rights for QMI products on Vancouver Island. From the date of the deposit until June 15, 2021, when DMC says QMI terminated its exclusive distribution agreement, DMC alleges it did its best to obtain orders for QMI products on the Island. It alleges that QMI wrongfully terminated the exclusive distribution agreement. Moreover, having done so, QMI refused to return to Mr. Dobbie his deposit arguing instead that DMC was entitled only to receive product from QMI. In the result, DMC brought Action C-210264 against QMI seeking a return of the deposit, damages totalling $8,699.85 for marketing and legal costs, and damages for loss of profit totalling $35,000.

[6]         Action C-210264 proceeded in the normal course. The parties attended a settlement conference and the matter was ultimately set for trial on October 5, 2022. On that day, no one from QMI attended and a default order was made granting DMC default judgment totalling $35,216.00. At a subsequent payment hearing, representatives from QMI attended, bringing with them materials demonstrating that QMI had no capital and no way to pay out the judgment. Mr. Dobbie indicated at the payment hearing he intended to proceed with an order for seizure and sale. He later learned that QMI had no assets to seize.

[7]         On November 23, 2022, Mr. Dobbie filed an Application to a Judge in this court seeking various orders. One was for an order that both QMI and another corporation, Avcom Systems Inc., be required to file various corporate records, including tax returns, proof of ownership, a list of shareholders and assets for Avcom. Another was for an order to pierce the corporate veil of both QMI and Avcom System Inc., in order to hold Mr. Wood personally liable for payment of the $35,216.00 default order.

[8]         QMI’s application to strike out that Application is the subject matter of the reasons in Droid Media Communications Inc. v. QMI Manufacturing Inc., 2022 BCPC 280. This court granted QMI’s request to strike out the Application accepting that it was not possible, on an Application, to adjudicate questions concerning the piercing of the corporate veil, particularly given that the issue had not been pled by DMC in its claim. It was, therefore, not a matter that could be addressed in the post-payment hearing stage on a simple Application to a Judge.

[9]         DMC now brings this Claim alleging that the Defendants and the Third Party engaged in various transfers of QMI capital over the years in advance of the default judgment to ensure that QMI was judgment proof.

[10]      This application to strike raises several issues. The first is whether this Claim, or at least part of it, is res judicata given the ultimate disposition of Action C-210264. If not, or not entirely res judicata, the question is whether some or all of the Claim ought to be struck on the grounds it is plain and obvious it cannot succeed.

[11]      The Applicants submit the Claim should be struck as its subject matter is indistinct for the most part from the subject matter of Action C-210264. Mr. Dobbie on behalf of DMC argues that DMC is not attempting to re-litigate the issues raised in that first claim: rather, here he is looking to litigate the question of the alleged fraudulent transfer of QMI’s capital and assets to avoid any judgment in Action C-210264.

[12]      The Applicants and the claimant, DMC, have each provided numerous authorities governing the doctrine of res judicata. The Applicants submit that res judicata takes one of two forms in modern practice: cause of action estoppel and issue estoppel. It submits both apply in this case. Still they are distinct concepts and the Applicants rely on the following excerpt from Fidelitis Shipping Co., Ltd. v. V/O Exportchleb [1965] 2 All E.R. 4. (C.A.) (approved of by the SCC in Grandview (Town of) v. Doering, 1975 CanLII 16 (SCC), [1976] 2 S.C.R. 621, at page 637) to explain their approach:

[13]      Here, at the least, the question, among other things, of the role of Avcom and Mr. Raymond Wood in the distribution of Mr. Dobbie’s deposit was raised in Action C-210264. No allegations were made against either and neither was joined as a party to that claim. Still the question of either’s role in the distribution of the deposit could have and should have been raised in that claim. To this limited extent, I accept that this Claim is, in the case of Avcom and partially with respect to Mr. Wood, res judicata.

[14]      The Claim however goes much further as Mr. Dobbie sets out in his written submissions. As he writes, in this Claim he alleges that his deposit was wrongly transferred to Ms. Lynn Wood within days of QMI receiving it in the spring of 2020, and that Ms. Wood “deceitfully” accepted that to the prejudice of QMI’s creditors. DMC further asserts that Mr. Lenos, QMI’s accountant, participated in this and other alleged fraudulent transfers, including with respect to equipment and inventory belonging to QMI in order to assist QMI to avoid paying on the default judgment. In this Claim, DMC seeks to learn what it is that happened to QMI’s inventory and equipment, and to learn why Ms. Wood holds a lien over QMI’s assets.

[15]      It is clear, and I accept, that DMC came into possession of much of the information that underlies this Claim in the payment hearing. The Claim is based largely, as Mr. Clausen puts it, on information provided to Mr. Dobbie by QMI. Arguably, the notion that QMI wrongfully disposed of Mr. Dobbie’s deposit well before terminating the exclusive distribution agreement could have and likely should have been raised as an issue in Action C-210264. Still, given the lack of discovery process in this court, I find it unsurprising that Mr. Dobbie only learned of various transfers from QMI to Ms. Wood at the payment hearing.

[16]      Characterized as it is by Mr. Dobbie, I am not convinced all of the Claim is res judicata. Indeed, the Applicants do not appear to argue as much. Their submission is that much of the Claim should fail as being res judicata. What is left ought to be struck as it is clearly meritless and bound to fail.

[17]      If allowed to proceed, DMC proposes to seek an order that Mr. Wood, Ms. Wood and Mr. Lenos be held personally liable for the total amount of his default judgment in Action C-210264. It seeks a similar order against Avcom Systems Inc., and Geo Alert Inc. (a company more recently incorporated by Mr. Wood). DMC asserts that each of these persons or corporations participated in various fraudulent transfers of QMI capital, assets and inventory, all with the goal of assuring QMI would have nothing with which to pay out the default judgment.

[18]      I have outlined some of the Claim with respect to Ms. Wood. It relates firstly to Ms. Wood’s alleged acceptance of a transfer totalling $20,000 within days of Mr. Dobbie’s having given QMI his deposit. DMC then alleges numerous other transfers between and among QMI and Ms. Wood and Mr. Wood over the next several years. Moreover, DMC has learned that Ms. Wood holds a lien over QMI assets as well as Avcom’s assets. No lien is held over Geo Alert. DMC alleges all these parties have used QMI, Avcom and Geo Alert in a “three-card monte game” to thwart creditors.

[19]      The Applicants submits that these allegations are patently ridiculous. They are, for the most part, allegations of transfers and transactions made sometimes years before Action C-210264 was filed, let alone when default was granted on October 5, 2022. I find that for the most part, I agree with that submission.

[20]      As the Applicants submit, the test for piercing the corporate veil is necessarily difficult. In SPC Holdings and Construction Ltd. v. Gabriel, [2013] B.C.J. No. 343, my brother Judge Woods put it this way, in part, at para 12:

[21]      As Judge Woods continues to note at para 13 of SPC Holdings, the protection from company liabilities is not absolute. At para 15 Judge Woods writes that conduct on the part of corporate directors amounting to fraud will always entitle a court to lift the corporate veil, as will conduct that is found to be wrongful or illegitimate.

[22]      In SPC Holdings the conduct at issue was alleged to have been the actions of various directors and officers of the company to siphon off company capital and assets with the intent of frustrating its creditors, most particularly Mr. Gabriel, the judgment creditor in the case. Mr. Gabriel took issue with the conduct of SPC Holdings’ directors and “the way they dealt with SPC Holdings’ assets and undertaking when its liability to him was both foreseeable and eventually crystallized.” That is to say, once his claim was filed. Ultimately, the court in SPC Holdings held a hearing and determined the directors had conducted themselves in a manner that was wrongful and illegitimate. The corporate veil was lifted and the directors were held to be personally liable for SPC Holding’s judgment debt.

[23]      It is not clear in the SPC Holdings decision whether the court was hearing the matter as part of a payment hearing. The process is described in the reasons as “an application to enforce a judgment against the respondent (SPC Holdings) directors and an employee.” Certainly a hearing was held. This bears mention given the reasons in Droid Media Communications Inc. v. QMI Manufacturing Inc., 2022 BCPC 280, as well as the cases cited therein. All stand for the proposition that it is not appropriate to consider an application to pierce the corporate veil in a payment hearing: the corollary being that the time to consider piercing the corporate veil is at trial in the first instance. Nonetheless, as the court notes in Warke v. Jouhari-Sardasht, [2014] B.C.J. No. 933 at para 49, in small claims actions, particularly where the parties are self-represented, the issue of whether a shareholder or director should be held liable for the contractual obligations of a company may not arise until there has been a judgment against the company. Still, the court in Warke was satisfied that most such cases were determined or addressed at trial.

[24]      The important point is that it is not appropriate, as Warke provides, to adjudicate the question whether a director or shareholder or other company officer should be held liable for the contractual or other legal obligations of a company on a payment hearing. Here, and in SPC Holdings, the issue under consideration is not whether a director, or shareholder or other company officer should be held liable for QMI’s contractual obligations. Rather, the question is whether any of these persons should be found to have acted fraudulently, wrongfully or illegitimately by, for example, taking steps to render QMI judgment proof in anticipation of the default judgment in Action C-210264. It is, in my view, a separate and distinct question. It is one that may or may not be suitably heard at a payment hearing, but it may well be one that can be determined based on pleadings at a trial or hearing. Certainly, as I will set out later in these reasons, a payment hearing is a suitable venue in which to explore the whereabouts of a debtor’s capital or assets, including those of a company such as QMI. That much is clear from Rule 12(12) of the Small Claims Rules.

[25]      If it turns out that there is evidence proving, on balance, fraud or other wrongful conduct on the part of a company official it might well be possible in the course of a payment hearing to impose liability on an official. It would not be a finding of liability for the company’s legal obligations on the merits; rather, it would be, as in SPC Holdings, a finding of liability for engaging in wrongful conduct in order to thwart a judgment creditor.

[26]      Still, the question remains with respect to the Claim: does it disclose a cause of action against any of the Applicants such that it might succeed if allowed to proceed to trial? In my view, for the most part the answer must be no. I find I agree with the Applicants that most of the allegations involve transactions that occurred well before July 2, 2022 when Action C-210264 was filed. The transactions alleged are numerous as one might expect for an ongoing business enterprise. There is nothing innately suspicious about them. In my view, nothing pled in the Claim supports the allegations that any or all of the Applicants herein engaged in fraudulent activity so as to defeat DMC’s ability to make good on its default judgment. On the facts as pled, liability for the default judgment cannot be said to have been foreseeable by any of the Applicants before Action C-210264 was filed. That would have been in July 2021 at the earliest. Any conduct after that may well be open to scrutiny, including of course conduct in and around the filing of the default judgment.

[27]      In this instance, the most that can be said is that pleadings disclose little activity in QMI’s bank account after July 2021. It is notable, and it is part of the Claim, that as of July 2021, QMI’s banking habits changed leaving DMC to suspect it had another account. That may well be an issue that ought to have been explored at the payment hearing in Action C-210264. Still, on their own, these facts - even if true - are insufficient to form the basis for a civil claim alleging fraudulent transactions on the part of QMI’s company officers and others.

[28]      For these reasons, I would grant the application to strike this Claim. At the same time, I am of the view that DMC should have the opportunity to explore with a representative of QMI its accounts from the date of the filing of Action C-210264 in order to determine how QMI’s capital, assets or inventory may have been handled or disposed of from that date. That should be done in the course of a payment hearing and in that regard I would give DMC leave to set down another payment hearing in that claim in order to explore this question.