Citation and Court Information

CITATION: Security Stores.Com Inc. v. Avenue Motor Works Inc., 2013 ONSC 2844

NEWMARKET COURT FILE NO.: DC-12-438

DATE: 20130513

ONTARIO

DIVISIONAL COURT

SUPERIOR COURT OF JUSTICE

BETWEEN:

SECURITY STORES.COM INC. Plaintiff (Respondent)

– and –

AVENUE MOTOR WORKS INC.; ANDY KNOWLES Defendants (Appellants)

COUNSEL:

J. Sestito, for the Plaintiff (Respondent)

J.D. Weir, for the Defendants (Appellants)

HEARD: April 2, 2013

ON APPEAL FROM THE DECISION OF DEPUTY JUDGE B. ARON DATED JUNE 22, 2012

REASONS FOR DECISION

DiTOMASO J.

THE APPEAL

[1] The Appellants Avenue Motor Works Inc.; Andy Knowles (“Avenue Motor”) appeals from the decision of Deputy Judge B. Aron dated June 22, 2012. The trial judge ordered Avenue Motor to pay the Respondent Security Stores.Com Inc. (“Security Stores”) the sum of $6,872, prejudgment and post-judgment interest plus court costs of $175 and legal costs of $500.

OVERVIEW

[2] Avenue Motor’s business involves the sale and delivery of auto parts using “on time” delivery throughout southern Ontario. It operates a fleet of 31 vehicles.

[3] Security Stores provided an iTrackGPS system to Avenue Motor. Specifically, the parties entered into a Contract with Security Stores installing, maintaining and servicing 31 GPS systems in Avenue Motor’s fleet of trucks. According to the Contract, Avenue Motor would pay a monthly fee for service on a “per unit basis”. The cost of the equipment provided was amortized over the life of the Contract, namely 36 months.

[4] After 20 full months into the Contract, Avenue Motor refused to pay Security Stores amounts owing on the Contract.

[5] Security Stores sued Avenue Motor for breach of contract.

[6] Avenue Motor claimed that the GPS system provided by Security Stores failed to work properly and denied being in breach of the contract.

[7] This appeal deals with the termination provision of the Contract. The dispute is whether the Contract only required Avenue Motor to pay a flat fee of $399 as opposed to payment of $399 “per unit” to compensate Security Stores for the hardware they provided to Avenue Motor at no initial cost.

[8] The trial judge determined that the termination provision was ambiguous as a result of a mistake of the parties. He ordered that the Contract be rectified to include the term “per unit” to avoid Avenue Motor from receiving a windfall on the hardware for which they had not fully paid.

[9] The trial judge awarded Security Stores judgment against Avenue Motor in the amount of $6,872 plus prejudgment and post-judgment interest together with court costs of $175 and legal costs of $500. Avenue Motor appeals from the judgment at trial.

POSITIONS OF THE PARTIES

Position of Avenue Motor

[10] Avenue Motor submits that the Contract provided for a flat cancellation fee of $399. Avenue Motor submits that the trial judge erred in law in:

(a) rectification for unilateral mistake;

(b) interpretation for ambiguity;

(c) implication of terms;

(d) procedural and evidentiary errors; and,

(e) consequences of a breach of contract.

[11] Avenue Motor seeks to set aside the order of the trial judge with costs of the trial and costs of this appeal.

Position of Security Stores

[12] Security Stores submits the following:

(a) both tests for mutual and unilateral mistake have been satisfied in this case;

(b) the trial judge appropriately rectified the Contract;

(c) the cancellation provision was ambiguous and the trial judge appropriately implied the term “per unit” to this provision;

(d) Security Stores provided excellent service and the iTrackGPS produced irrefutable data;

(e) Avenue Motor was given appropriate opportunity to lead evidence and argue the issues of mistake and consequent ambiguities in the Contract; and,

(f) Avenue Motor breached the Contract and paid damages accordingly.

[13] Security Stores submits that the cancellation provision did not reflect the true agreement of the parties. The evidence supports a common continuing intention that the hardware would be provided at no initial cost but that the cost should be amortized over the life of the Contract, namely, 36 months. The parties operated on the continuing basis that this cost would be accounted for. Due to mutual mistake of the parties, the common intention was not properly expressed in the Contract.

[14] In the alternative, even if Security Stores made a unilateral mistake, they are still entitled to rectification. It is submitted that the trial judge was correct to apply the remedy of rectification of the Contract to deprive the unjust enrichment of Avenue Motor and to prevent injustice by allowing Avenue Motor to rely on a mistake where Security Stores would be deprived of amounts owing. Both Security Stores and Avenue Motor were given proper opportunity to argue the issues of ambiguity and mistake at trial upon the trial judge making a finding of fact that both ambiguity and mistake were present in the circumstance. He appropriately applied the remedy of rectification.

[15] While Security Stores concedes it was not available to the parties to argue remedy, in any event, the trial judge correctly applied rectification to remedy the deficient term in the Contract.

[16] Security Stores seeks an order dismissing the appeal together with costs.

ISSUES

[17] Avenue Motor submits there are five issues on this appeal:

(a) rectification for unilateral mistake;

(b) interpretation for ambiguity;

(c) implication of terms;

(d) procedural and evidentiary errors; and,

(e) consequences of a breach of contract.

[18] The central issue in this appeal is whether the trial judge erred in law by rectifying the Contract between the parties on his own based on a cancellation term in the amount of $399 “per unit” as opposed to a flat cancellation fee of $399.

ANALYSIS

Standard of Review

[19] The standard of review for decisions in the Small Claims Court is determined by the principles outlined by the Supreme Court of Canada in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. On a pure question of law, the standard of review is that of correctness. The standard of review for findings of fact or mixed fact and law are reviewable only for palpable and overriding error.

[20] This appeal was argued by Avenue Motor on the basis that the trial judge had committed an error in law. Avenue Motor submitted that the trial judge erred in finding an ambiguity when there was none. No such error was pleaded and no submissions were made in respect of same. Once the trial judge accepted that the GPS system was not working adequately, he should not have crafted his own remedy. There was a unilateral mistake committed by Security Store upon which Avenue Motor relied. In the end, Avenue Motor submits that the trial judge committed an error in law.

Factual Background

[21] As stated, Avenue Motor’s business involves the sale and delivery of auto parts using “on time” delivery throughout southern Ontario. It operates a fleet of 31 vehicles.

[22] Security Stores is a corporation that provides security related products and services to both residential and commercial customers. Specifically, Security Stores is the owner and service provider for the “iTrackGPS” system.

[23] The iTrackGPS is a system based on hardware and software. The hardware is installed in a vehicle. This hardware then transmits signals to corresponding software at a user’s computer. These signals are used to track, in real time, the location of each hardware installation, and the software generates relevant reports.

[24] iTrackGPS is similar to a cellular phone service. While the service is consistent and reliable, there will be inevitable “dropped calls” from time to time. This means that while Avenue Motor would receive the vast majority of data in a reliable manner, there were points at which the signal would inevitably get lost and data would not be provided. Security Stores submits that the loss of signal was neither the fault of the parties. Rather, it is an inherent limitation in any wireless technology.

[25] Initially, Security Stores installed one iTrackGPS system in one of Avenue Motor’s vehicles. There was a demonstration or trial run. After this trial run, the parties entered into a Contract where Security Stores would install, maintain and service 31 GPS systems in Avenue Motor’s fleet of trucks. According to the Contract, Avenue Motor would pay a monthly fee for service on a “per unit basis”.[^1]

[26] Security Stores provided the 31 pieces of equipment at no initial cost. The cost of the hardware was to be amortized over the life of the Contract, namely, 36 months. Service fees were also paid on a “per unit” basis. Every aspect of the dealings between the parties were conducted on a “per unit” basis according to Security Stores.

[27] There was an ongoing business relationship between the parties between March 9, 2009 and June 20, 2010.

[28] Prior to dealing with Security Stores, Avenue Motor had utilized several GPS tracking systems. They were knowledgeable and understood iTrackGPS methodology. Before entering into the Contract, they successfully tested Security Stores’ product for four full months. The successful testing led to the parties entering into the Contract dated March 9, 2009.

[29] In summary, Avenue Motor signed a Contract for services based on 31 individual units. Avenue Motor understood the technology. It was provided with a lengthy testing period and it acknowledged that the system met its needs.

Relationship Between the Parties

[30] The evidence established that the relationship between the parties went well until June of 2010.

[31] Depending on their differing points of view, Avenue Motor complained of problems with the GPS system. Security Stores maintained it provided excellent service to Avenue Motor but in the end, Avenue Motor failed to make payment due on the Contract.

[32] Twenty months after the test period and after the Contract was executed, the evidence further establishes that the business relationship between Avenue Motor and Security Stores changed significantly. Avenue Motor refused to pay amounts owing on its June 2010 invoice. Avenue Motor began to complain that the system never worked. Avenue Motor required further technical assistance which Security Stores provided. Avenue Motor continued to use Security Stores’ services.

[33] At its own time and expense as a sign of goodwill, Security Stores created a new report which provided the time it took a fleet driver to get from point A to point B. Avenue Motor asserts that this new report did not provide the accurate information it required. Security Stores provided Avenue Motor with three months free service as a means of customer retention – for the months of July, August and September 2010. During this time, Avenue Motor agreed and continued to operate under the Contract between the parties.

[34] Nevertheless, Avenue Motor continued to avoid paying Security Stores’ invoices. Avenue Motor continued to use Security Stores’ iTrackGPS but refused to pay Security Stores’ invoices. After numerous failed attempts at contacting Avenue Motor, Security Stores suspended Avenue Motor’s service on November 30, 2010.

The Cancellation Provision

[35] The Contract contained a cancellation provision. As noted earlier, Avenue Motor opted for a 36 month contract with Security Stores. Avenue Motor did not pay any immediate cost for the hardware they received because the cost of this hardware was amortized over the 36 month contract. This type of contract is similar to a contract for a cellular phone.

[36] According to the cancellation provision, Avenue Motor would be responsible to compensate Security Stores in the amount of $399 or the remaining monthly charges. The parties did not realize and were not aware that the cancellation provision wording was inadequate. What Avenue Motor did know was that they were contracting for 31 individual units. Avenue Motor chose to forego paying for the individual units at the outset and opted to amortize the cost over the life of the Contract. It paid fees on those individual units.

[37] It is the evidence of Avenue Motor that it paid for 15 months of service in the amount of $41,775 while Security Stores attempted to fix various problems. Further, it asserts that Security Stores admitted the $399 cancellation fee was a typo and that Security Stores did not claim it was ambiguous.

Decision of the Trial Judge

[38] In his reasons for judgment, the trial judge made several significant findings of fact. He determined that:

(a) the parties exercised and completed the contract for a period of 20 months;[^2]

(b) the disclaimer as provided in the contract put Avenue Motor on notice that interruption of service or corruption of data, while sporadic, was inevitable to occur;[^3]

(c) that Avenue Motor was a sophisticated user of this type of technology. By implication, it understood the strengths and inherent risks of using this technology when it entered into the Contract;[^4]

(d) while Avenue Motor was aware of the inherent limits of the iTrackGPS, it remained in the Contract for 20 months, and it also benefited from the Contract;[^5]

(e) the Contract was subject to early cancellation. Avenue Motor cancelled the Contract and Security Stores was entitled to an early cancellation fee;[^6] and

(f) the cancellation provision contained an ambiguity. A onetime cancellation fee of $399 as proposed by Avenue Motor would be in appropriate.

[39] The trial judge granted judgment in favour of Security Stores. He pro-rated the award based on the 16 months remaining in the Contract regarding which Avenue Motor was in breach.

[40] I will now deal with the five issues raised on this Appeal by Avenue Motor.

(a) Rectification for Unilateral Mistake

[41] It is submitted that unilateral mistake is not a ground for rectification of a contract unless five very stringent grounds are met. Basically reliance on the term by the defendant meets the high standard of criminal fraud.[^7]

[42] The trial judge held that as far as the cancellation fee was concerned, there was an ambiguity and different possible interpretations. Although not specifically stated, that ambiguity and those possible interpretations could only be:

(a) interpreting the Contract to read a flat cancellation fee of $399; or

(b) interpreting the Contract to read a cancellation fee of $399 per unit.

[43] The term is ambiguous because it is unclear on the wording of the provision as to which interpretation is correct and applicable. The trial judge knew there was an ambiguity and he knew there was a mistake. What is clear in his reasons is that it would be inappropriate for one cancellation fee where there were several units and the cancellation fee being simply $399 in total. He rejected the notion of a flat cancellation fee.

[44] Security Stores submits that the parties made a mutual mistake. The test for mutual mistake is set out in Bank of Montreal v. Vancouver Professional Soccer Limited 1987 CarswellBC 174 at para. 11.

[45] In the Bank of Montreal case, the Court held that two conditions must be satisfied before mutual mistake can be found and rectification can be ordered. Those conditions are:

(a) it must be shown that the written instrument does not reflect the true agreement of the parties;

(b) it must be shown that the parties share a common continuing intention up to the time of the signature that the provision in question should stand as agreed rather than as reflected in the agreement.[^8]

[46] It is submitted on behalf of Security Stores that true intention of the parties was not reflected in the cancellation provision as written. Security Stores provided both hardware and software services to Avenue Motor who opted not to pay for the hardware in full at the time of contract execution. Rather, Avenue Motor offered and Security Stores accepted that the hardware was to be provided immediately but paid for at intervals over the life of the Contract. The trial judge was fully aware of the relationship and the true agreement of the parties.

[47] Further, the trial judge was fully aware of the common continuing intention of the parties that the cost of the hardware would be amortized over the life of the contract. The trial judge was aware that Avenue Motor was a sophisticated business entity. It was familiar with the technology and was aware of similar offerings by competitors. It is not reasonable to conclude that Avenue Motor reasonably expected to receive thousands of dollars worth of equipment provided by Security Stores for free. The trial judge was aware that Avenue Motor decided to amortize the cost of that hardware over the life of the Contract. Further, both parties carried out a common continuing intention that the cost of the hardware would be amortized and accounted for in this fashion. However, due to the mutual mistake of the parties, this common intention was not properly expressed in the Contract when it came to the cancellation provision.

[48] Further, it is submitted by Security Stores that commercial contracts cannot be interpreted in a vacuum. There is always a context in which they must be viewed. In AMJ Campbell, the Court cited the often referred to passage from Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen, [1967] W.L.R. 989 (U.K.H.L.). At para. 17 in A.M.J. Campbell, reference is made to the factual matrix. In Reardon Smith, Lord Wilberforce stated:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as “the surrounding circumstances” but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

[49] In the case at bar, the Contract was for the sale of iTrackGPS. The trial judge was aware that Avenue Motor was experienced in purchasing this type of a system. It knew it was receiving hardware at no initial cost which would then be amortized over the life of the Contract. It knew that they were acquiring individual units of hardware for 31 different trucks in their fleet. Further, it knew they were paying for service based on the cost and services associated with those individual units of hardware for which they had not paid.

[50] Further, Avenue Motor knew or ought to have known that an early cancellation of the Contract would result in Security Stores being deprived of the costs of the hardware for which Avenue Motor had not paid.

[51] The trial judge was aware of all of the above.

[52] Security Stores submits that not only was the test for rectification in a situation of mutual mistake satisfied but also so was the test for rectification for unilateral mistake as set out in AMJ Campbell.

[53] While the trial judge did not specify whether mutual or unilateral mistake was at play, nevertheless, he was fully aware of the relationship between the parties, the nature of the agreement between them and the full factual matrix surrounding the entering into the Contract and the parties common intent to continue under that Contract. It can be inferred from the trial judge’s reasons that there was a mutual mistake and the common intention of the parties was not expressed in the Contract. For these reasons, I find the first ground of appeal fails.

(b) Interpretation for Ambiguity

(c) Implication of Terms

[54] These two grounds of appeal are best considered together.

[55] Avenue Motor submits that there was no ambiguity in the cancellation provision as there were not two or more possible meanings. On the Plaintiff’s own evidence, there was an omission. Further, there was no basis for implying terms of “per unit”.

[56] For reasons noted above, I have found that the trial judge was correct in all the circumstances in finding the term regarding the cancellation fee as ambiguous and that there were different possible interpretations. I have noted the two possible interpretations. The second interpretation of cancellation on a $399 per unit basis was before the trial judge in evidence. The trial judge was aware of the following:

(a) the parties both agreed the hardware was provided at no initial cost;

(b) the parties agreed the cost of the hardware would be amortized over the life of the Contract;

(c) Avenue Motor paid for all services and installations on a “per unit” basis; and,

(d) the parties were both sophisticated business people who knew or ought to have known the specifics of this type of Contract.

[57] The trial judge appropriately determined that the cancellation provision was ambiguous and interpreted same on a “per unit” basis. Accordingly, these two grounds of appeal also fail.

(d) Procedural and Evidentiary Errors

[58] Avenue Motor submits that the remedies of rectification, interpretation and implication of terms were not pleaded but were applied by the judge on his own, so there was no opportunity to either lead evidence on the points or make submissions on them in particular. In this regard, Sobeski v. Mamo, 2012 ONCA 560 at paras. 37 and 38 are relied upon by Avenue Motor.

[59] Both parties were given proper opportunity to argue the issues of ambiguity and mistake at trial. The trial judge made a finding of fact that both issues were present in the Contract. Upon a finding of fact that there were both ambiguities and mistake present in this circumstance, the trial judge appropriately applied the remedy of rectification. While Security Stores concedes that it was not available to the parties to argue remedy, in any event, I find the trial judge correctly applied rectification to remedy the deficient cancellation term in the Contract. This ground of appeal fails.

Consequences of a Breach of Contract

[60] Avenue Motor submits the finding that the system, even after attempts at repair, did not meet its needs, was a finding of a breach of contract. It is asserted that there is no basis in law for giving a partial remedy in damages to a party in breach of a contract.

[61] The trial judge did not make a finding that Security Stores breached the Contract.

[62] Rather, the trial judge made a factual finding that “there was difficulty, and there were inaccuracies … [but] [d]espite some shortcomings in the system … the parties did continue with the contract until the summer, in July 2010”.[^9]

[63] The trial judge determined that the accuracy should have been improved, as the current system was not meeting the Appellant’s needs.

[64] However, the parties continued the Contract for 20 months before Avenue Motor alleged problems. Its proper course of action would have been to work with Security Stores to remedy any issues. In fact, the parties were working together to achieve this goal. However, the evidence establishes that Avenue Motor breached the Contract and refused to communicate with Security Stores. It was Avenue Motor who completely severed ties with Security Stores.

[65] The trial judge found that the creation of the new report by Security Stores did not create a new Contract. Because the Contract had already been executed, the new type of report constituted proper ongoing customer service. I find that this ground of appeal also fails.

CONCLUSION

[66] For the reasons given, this Court finds that the trial judge did not err in law. Neither did he commit any palpable and overriding errors regarding any findings of fact or mixed fact and law. Rather, the trial judge correctly found that the cancellation term in the Contract between the parties was ambiguous and capable of different interpretations. He was correct in rectifying the cancellation fee not on a flat fee basis of $399 but rather on a $399 “per unit” basis. He was correct in rectifying this contractual term. He was correct in pro-rating what was owed to Security Stores over the remaining balance of the Contract. For all of these reasons set out herein, the Appeal is dismissed.

[67] As for the costs of the appeal, if the parties cannot agree upon costs, those costs shall be determined by way of written submissions. Counsel are to exchange and file within 14 days of this decision a concise summary of position not exceeding two pages together with Bill of Costs, Costs Outline and copies of any cases. Those documents are to be filed with my judicial assistant at Barrie.

DiTOMASO J.

Released: May 14, 2013

[^1]: Appeal Book and Compendium Tab 8 p.50 GPS Tracking Service Agreement for Canada dated March 9, 2009 [^2]: Reasons for Judgment June 22, 2012 Respondent’s Compendium Tab 28 p. 118 line 25-35 [^3]: Respondent’s Compendium Tab 27 Reasons for Judgment dated June 22, 2012 p. 115-116, lines 30-35 [^4]: Respondent’s Compendium Tab 28 Reasons for Judgment dated June 22, 2012 p. 118, lines 15-20 [^5]: Respondent’s Compendium Tab 29 Reasons for Judgment dated June 22, 2012 p. 119, lines 1-5 [^6]: Respondent’s Compendium Tab 30 Reasons for Judgment dated June 22, 2012 p. 119, lines 7-10 [^7]: AMJ Campbell v. Kord Products Inc., 2003 5840 (ONSC) at para. 28 [^8]: Ibid at para 11 [^9]: Respondent’s Compendium Tab 40 Reasons for Judgment dated June 22, 2012 p. 117, lines 15-25.