Executive Summary: Key Legal and Evidentiary Issues

• Lou Gabriele, sole director and officer of the plaintiff Kamlu Engineering Inc., concealed his undischarged personal bankruptcy — filed May 31, 2006 — from the court and from his Trustee in Bankruptcy throughout the litigation.
• Under section 71 of the Bankruptcy and Insolvency Act, all of Mr. Gabriele's property, including his shares in the plaintiff, vested in his Trustee in Bankruptcy, making the Trustee the sole shareholder of Kamlu Engineering Inc.
• Prohibited by section 105(1)(d) of the Canada Business Corporations Act from serving as a corporate director, Mr. Gabriele left the plaintiff without any valid director from April 1, 2017 onward.
• Although Mr. Gabriele technically remained an officer, the court found he had no delegated authority to instruct counsel to commence litigation on behalf of the plaintiff after four years without a director.
• Ratification of Mr. Gabriele's unauthorized acts was unavailable, as the Trustee in Bankruptcy expressly declined to ratify or participate in the action upon learning of it.
• The court rejected the plaintiff's arguments based on estoppel, implied ratification, and the defect-curing provision under section 116 of the CBCA, finding none applied on these facts.

Facts of the case

Kamlu Engineering Inc. (the plaintiff) commenced this action by Statement of Claim issued April 14, 2021, arising from a dispute over unpaid invoices under a contract for services. The plaintiff is a company incorporated under the Canada Business Corporations Act (CBCA) operating as a general contractor. The defendant, 2502301 Ontario Inc., is a company incorporated under Ontario law that owned the lands and premises at the centre of the dispute. In August 2020, the plaintiff contracted with the defendant to construct a foundation and deliver modular building units for a motel. The contracted work ceased before completion, with the parties disagreeing both on whether the plaintiff abandoned the project or was terminated by the defendant, and on the validity of invoices the plaintiff subsequently issued. The plaintiff registered a lien on the defendant's property for $241,860.58 and claimed a total of $431,211.08 in lienable and non-lienable damages combined. The defendant counterclaimed for $1,000,000 in general and special damages and $250,000 in aggravated and exemplary damages for breach of contract and breach of trust.

The matter proceeded toward a 10–12 day non-jury trial scheduled for the September 8, 2025 trial sitting list. In July 2025, the plaintiff sought an adjournment, which was granted without objection by Justice Richard on July 25, 2025, in part because Mr. Lou Gabriele — described throughout the proceedings as the plaintiff's sole director, officer, and shareholder — was scheduled to undergo surgery on July 31, 2025, as part of his colon cancer treatment. The matter was rescheduled, with a pre-trial held on February 3, 2026, and the trial reset for the September 8, 2026 sitting list.

A significant development altered the trajectory of the case. On July 18, 2025, counsel for the defendant discovered that Mr. Gabriele had filed an assignment in bankruptcy on May 31, 2006, under section 49 of the Bankruptcy and Insolvency Act (BIA), with claims provable totalling $5,639,096.44 owed to creditors under an Ordinary Administration. Mr. Gabriele's Trustee in Bankruptcy, Joel Easter, President of Scott Pichelli & Easter Ltd., confirmed on July 21, 2025, that he was unaware of the litigation and had not authorized Mr. Gabriele to act as an officer or director of the plaintiff, to commence any litigation, or to advance construction liens.

Statutory and corporate governance provisions at issue

Several provisions of the BIA and the CBCA were central to the court's analysis. Under section 71 of the BIA, all property of a bankrupt vests in the Trustee in Bankruptcy upon the filing of an assignment, with "property" defined broadly under section 2 to include shares in a corporation. Section 105(1)(d) of the CBCA disqualifies an undischarged bankrupt from serving as a corporate director. Section 102(2) of the CBCA requires a corporation to have at least one director. Section 116 of the CBCA provides that an act of a director or officer is valid notwithstanding an irregularity in their election or appointment. The plaintiff also relied on section 30(1)(d) of the BIA, which grants a trustee the power to bring or defend legal proceedings relating to the property of the bankrupt, and on the principle in Re: Regional Steel Works (Ottawa-1987) Inc., 1994 CanLII 7462, that an officer may exercise delegated corporate authority even where the sole director is an undischarged bankrupt.

Court's reasoning and analysis

The court began from the foundational principle that a corporation is a legally distinct entity separate from its officers, directors, and shareholders, per Salomon & Co. Ltd [1897] AC 22, and that the plaintiff's capacity to sue derived from its own corporate existence — not from Mr. Gabriele personally. However, the court held that Mr. Gabriele's conduct on behalf of the corporate plaintiff was nonetheless relevant to whether the plaintiff had legal capacity to commence the claim on April 14, 2021.

Turning to the share structure, the court found that as of April 12, 2017, Mr. Gabriele was the sole shareholder of the plaintiff. Because those shares were acquired during his bankruptcy, they vested entirely with his Trustee in Bankruptcy pursuant to section 71 of the BIA. On the question of directors, the court found that Mr. Zabian resigned as director on April 1, 2017, leaving Mr. Gabriele as the only remaining director — a role he was legally prohibited from holding as an undischarged bankrupt under section 105(1)(d) of the CBCA. As a result, the plaintiff had been without any valid director from April 1, 2017 onward.

The court accepted that Mr. Gabriele technically remained an officer of the plaintiff — the CBCA does not prohibit an undischarged bankrupt from holding an officer position — but found this insufficient to confer the authority to commence litigation. Applying Eagle Construction Services, Inc v Royal One 225 Markham Road Med, 2021 ONSC 2347, the court reasoned that officers operate under delegated director authority and cannot function indefinitely without a board. There was no evidence that Mr. Zabian, prior to his resignation, had delegated to Mr. Gabriele as officer the power to commence lawsuits on the plaintiff's behalf. By the time the action was filed, the plaintiff had been without directors for four years — a period the court found well exceeded any permissible limit on the exercise of previously delegated officer authority.

The court distinguished the plaintiff's principal authorities. In Re: Regional Steel Works, the officer's authority was found in the corporation's by-laws and the period between the director's bankruptcy and the officer's act was only eight days. In Electrique Glaserk v AXA, 2005 QCCA 942, the sole director had been discharged from bankruptcy before commencing the action, the Trustee knew of the shares prior to the action, and crucially, subsequent shareholders had ratified the commencement of the proceedings. None of those facts were present here. The Trustee, upon learning of the action, expressly declined to ratify or participate. The court further rejected the plaintiff's reliance on Eisenberg v Bank of Nova Scotia, 1965 CarswellOnt 580, finding it inapplicable because in that case the sole shareholder was himself the person who authorized the transaction, whereas here the sole shareholder — the Trustee — was entirely unaware of the action. The court also dismissed the application of section 116 of the CBCA, finding that Mr. Gabriele's conduct was not a mere defect or irregularity in appointment but rather a deliberate circumvention of the BIA while actively concealing the bankruptcy from the Trustee and the court.

Ruling and overall outcome

The court granted the defendant's motion and dismissed the action as a nullity and an abuse of process. The claim was found to be void from the outset, as Mr. Gabriele lacked the legal capacity to direct the plaintiff to register the lien or commence the action on April 14, 2021. The court ordered that the registration of the claim for lien and the certificate of action be vacated, in accordance with subparagraphs (a), (b), and (c) of the defendant's Notice of Motion dated April 30, 2026. On the consent of the parties reached at the commencement of the hearing, the court also ordered that should the defendant's motion succeed, the defendant would be entitled to have outstanding cost awards of $6,000 and $13,510 paid by the plaintiff within 30 days, failing which the plaintiff may move to strike the defendant's pleadings. The defendant, 2502301 Ontario Inc., was the successful party. The court found the defendant entitled to costs of the motion and the action, but the quantum of costs was not determined at the time of the decision — the parties were directed to agree on costs, failing which written submissions were to be filed. No exact total monetary award can therefore be determined from the decision.