In a ruling released on January 12, 2015 in the case of T. Films S.A. v. Cinemavault Releasing International Inc., 2015 ONSC 6608, the Ontario Superior Court of Justice found that the director (Nicolas Stiliadis) of a judgment debtor, Cinemavault Releasing International (CRI), as well as affiliated corporations of the judgment debtor (Cinemavault.com Inc. and Cinemavault International Inc.) were each liable for an arbitration award previously obtained by the applicants against CRI, even though there was no privity of contract between the director of CRI or its affiliated corporations with any of the applicants. The underpinning of the court’s ruling was the oppression remedy and long-standing legal principles pertaining to breach of trust.
In the facts of the case, the applicants sought to enforce, as against the director of CRI and affiliated entities, an arbitral award issued solely against CRI of approximately $500,000 US arising from CRI’s failure to properly account for film distribution revenues received pursuant to and in breach of a sales agency agreement. Ultimately, the court found that it was established “beyond peradventure” that the distribution business of CRI was wound down and that there was a “virtual tsunami of documentary evidence that CRI’s assets and business were transferred to other Cinemavault entitles owned or controlled by Mr. Stiliadis”. As such, the director of CRI and affiliated entities were liable due to their collaborated and oppressive conduct, which had the effect of impairing the ability of the applicants to collect on the arbitral award owing by CRI.
Additionally, the court had to decide whether distribution revenues received by CRI (and not paid to the applicants), as found in the arbitration, were impressed with a trust, despite the fact that the sales agency agreement did not expressly refer to those distribution revenues as “trust funds” or expressly provide for the establishment of a trust account by CRI. Ultimately, the court found that there was abundant evidence to support a finding that the distribution revenues were impressed with a trust, which evidence included a covenant in the sales agency agreement that prohibited CRI from the “cross-collateralization” of distribution revenues and expenses relating to different films. Consequently, the court found that Stiliadis and the affiliated entities were each liable for knowingly participating in a breach of trust and for knowingly receiving trust funds belonging to the applicants.
The T. Films S.A. v. Cinemavault case is also noteworthy in that the court decided the merits of these complex issues without a trial, over the objection of the respondents. In so doing, the court applied the principles in the recent Supreme Court of Canada decision of Hryniak v. Mauldin, which now directs Canadian courts to determine legal issues in a cost-effective and just manner and without the expense and delay of trial, unless a trial would clearly be necessary. In the facts of the T. Films S.A. v. Cinemavault case, the court declined to order a trial of any issues as the central issues in dispute depended upon the legal interpretation of the relationship between the parties and the inferences to be drawn from evidence obtained on cross-examination of Stiliadis himself (and therefore “largely not factually in dispute”).