Court File and Parties
CITATION: Pinnacle Diagnostics v. Metro Radiology, 2016 ONSC 4226
DIVISIONAL COURT FILE NO.: 207/15
DATE: 20160630
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
L. A. PATTILLO J.
BETWEEN:
PINNACLE DIAGNOSTICS INC. and GREGORY SOON-SHIONG also known as Greg Soon-Shiong Respondents (Plaintiffs)
– and –
METRO RADIOLOGY LIMITED and CIRO ANTHONY ADAMO Appellants (Defendants)
Walter Kravchuk, for the Respondents (Plaintiffs)
Christine Muir, for the Appellants (Defendants)
HEARD at Toronto: June 21, 2016
Reasons for Judgment
l. a. pattillo j.:
Introduction
[1] This is an appeal by the defendants, Metro Radiology Limited (“Metro”) and Ciro Anthony Adamo (“Adamo”) (collectively the “Appellants”) from the judgment of Deputy Judge R. Kay (the “Deputy Judge”) in the Small Claims Court, Toronto dated March 31, 2015 (the “Judgment”). The Judgment provided that the defendants pay to the plaintiffs, Pinnacle Diagnostics Inc. (“Pinnacle”) and Gregory Soon-Shiong, also known as Greg Soon-Shiong (collectively the “Respondents”), the sum of $16,166.85 plus costs and disbursements of $4,344.85 and pre and post judgment interest at a rate of 24% per year.
[2] In their factum, the Appellants raised three grounds of appeal:
The Deputy Judge erred in finding an implied term in an agreement between the parties which imposed a positive obligation on Metro to make inquiries of the Ministry of Health and Long Term Care (“MOH”) on behalf of Pinnacle;
The Deputy Judge erred in awarding a 24% per annum rate for pre and post judgment interest; and
The Deputy Judge failed to take into account that Pinnacle failed to mitigate its damages.
[3] Before me, the Appellants
[4] abandoned the mitigation argument.
Background
[5] The Appellants and Respondents are in the business of providing medical imaging services. They entered into a Transfer of Licences Agreement dated May 7, 2009 (the “Agreement”) which provided, among other things, for the use by Pinnacle and Metro of certain of each other’s licences issued to them by the MOH.
[6] In particular, the Agreement provided that Metro would permit Pinnacle to operate one of its licences at Pinnacle’s location in Richmond Hill (the “Metro Mobile License”). The Metro Mobile License allowed Pinnacle to offer general ultrasound services at its Richmond Hill clinic.
[7] Articles 7.2(c) and 7.6 of the Agreement provide that Metro would be responsible for the billing and collections services for the technical fees in respect of Pinnacle’s services utilizing the Metro Mobile License to the extent they are billable to the MOH. Pinnacle or its designated physicians billed the professional fees directly to the MOH.
[8] At the outset of the Agreement, Pinnacle submitted its billing information in respect of the Metro Mobile License to Metro who in turn submitted it to the MOH. Article 7.7 provides that Metro shall pay 90% of the fees to Pinnacle monthly upon receipt from the MOH in relation to the previous month. Together with payment, Metro delivered Remittance Advice Forms (“RA”).
[9] Effective August 1, 2011, Pinnacle purchased billing software approved by the MOH and began sending its billings directly to the MOH. Thereafter, Metro collected that fees from the MOH and remitted them, along with an RA to Pinnacle. There was no amendment to the Agreement to reflect the new billing practice.
[10] In February and March 2012, Pinnacle was not paid by Metro for two billings it had submitted to the MOH: January 17, 2012 in the amount of $12,150 and February 16, 2012 for $4,016.85. The invoices for the professional fees associated with the same services were submitted directly to the MOH by Pinnacle or the physicians and paid.
[11] Pinnacle called and emailed Metro concerning the unpaid invoices but were unable to obtain any satisfactory answers concerning the invoices or payment.
[12] On October 29, 2013, the Respondents commenced a claim in the Small Claims Court for $16,166.85, the amount of the unpaid invoices.
The Trial Decision
[13] In granting the Respondents’ claim, the Deputy Judge made the following findings of fact:
Pinnacle sent the January 17 and February 16, 2012 invoices to the MOH for payment.
The practice between Pinnacle and Metro was that the MOH would pay Metro and after deducting costs, Metro would send the balance with an RA to Pinnacle. This practice differed from the Agreement but that was of no import. The practice was an established pattern which was accepted by the parties.
Pinnacle could not make inquiries of the MOH concerning funds paid to licensees. Only licensees could do so and then only within six months of the billing.
Pinnacle inquired of Metro concerning the two invoices but received no answers. Metro’s evidence did not establish that it made inquiries of the MOH on behalf of Pinnacle and its two invoices.
The Deputy Judge drew an negative inference from the fact that Metro did not call as witnesses any of the clerks who were responsible for dealing with the invoices.
There was an implied term of the Agreement that the Appellants had an obligation to make inquiries to the MOH on behalf of Pinnacle concerning its invoices for services under the Metro Mobile License which had not been paid.
Metro (Adamo) knew within the six month window from the dates of the invoices that they had not been paid and made no inquiries of the MOH on behalf of Pinnacle.
There was insufficient evidence to determine whether Metro was paid by the MOH for the invoices and did not pass the monies on to Pinnacle.
The Implied Term
[14] The Appellants submit that the Deputy Judge erred in law in implying a term of the Agreement that Metro had an obligation to make inquiries of the MOH on behalf of Pinnacle. In reaching that conclusion, they submit the Deputy Judge failed to engage in any legal analysis of the test for the implication of terms into a contract. They further submit that the term that the Deputy Judge implied into the Agreement did not meet the test in that it was unreasonable and unworkable.
[15] While the Deputy Judge did not engage in a discussion of the test to imply a term in a contract, I do not consider that is fatal to his decision. The principles governing the implication of a term into a contract are well established in common law in Canada: Canadian Contractual Interpretation Law, 3rd Edition, Geoff R. Hall, 2016, Lexis Nexis Canada at p. 173. As the learned author points out, there are three ways in which terms can be implied into a contract: 1. based on custom and usage; 2. as the legal incident of a particular class or kind of contract, and 3. based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the “officious bystander” test. In my view, based on the reasons of the Deputy Judge, it is clear that he implied the term he did in order to give the Agreement business efficacy.
[16] Given the purpose of the Agreement and the fact that only the licensee can make inquiries of the MOH concerning payments in respect of the license, it follows that where Pinnacle has not received payment for its billings to the MOH, Metro is the only party who can inquire of the MOH about it.
[17] The Appellants submit that the implied term is unreasonable because Pinnacle has billed the MOH directly and Metro has no billing information concerning the invoices to enable it to inquire. Notwithstanding the change in the billing practice (which Metro acquiesced in), Metro, as the licensee, is the only party who can inquire of the MOH about the billings. I do not consider the term unreasonable. Metro can easily get the information from Pinnacle. As found by the Deputy Judge, notwithstanding Pinnacle’s numerous inquiries about the invoices and payment, Metro did nothing.
Interest Rate
[18] As noted, the Deputy Judge awarded the Respondents both pre and post judgment interest at the rate of 24% a year. While the Deputy Judge’s reasons do not deal with the basis for awarding 24% interest, the submissions of counsel make it clear that he based his decision on Article 7.9 of the Agreement which provides:
7.9 If Metro Radiology fails to pay any amount owing to Pinnacle pursuant to this Agreement when due, then without prejudice to any other rights Pinnacle may have, Metro Radiology shall pay interest on such amount to Pinnacle at the rate of Two Percent (2%) per month.
[19] The Appellants submit that the Deputy Judge erred in awarding interest in accordance with Article 7.9 of the Agreement because that interest rate is only payable when monies have been received by Metro from the MOH and not paid to Pinnacle. In that regard, Article 7.7 provides, in part, that Pinnacle’s fee shall be paid to it “forthwith” upon receipt by Metro of payment from the MOH. As the Deputy Judge made no finding that Metro had received payment, the amount of the invoices was never due and Article 7.9 does not apply.
[20] The Respondents do not take issue with this analysis. Rather they submit that the awarding of interest is discretionary and, based on the findings of the Deputy Judge, it is clear, on a balance of probabilities, that Metro received the monies from the MOH. The problem for the Respondents is that the Deputy Judge, who heard the evidence, although it was open to him, did not make that finding.
[21] The Deputy Judge found liability based on the Appellants’ breach of the implied term of the Agreement to make inquiries of the MOH on behalf of the Pinnacle, not on the basis that they had received the monies from the MOH and not paid them to Pinnacle. Accordingly, the Deputy Judge erred in awarding pre and post judgment interest at the rate of 24% per year based on Article 7.9 of the Agreement. The pre and post judgment interest rates that should apply are provided by ss. 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43.
Conclusion
[22] The appeal is therefore allowed in part. The Judgment is varied to provide that the pre and post judgment interest rates are as provided by the Courts of Justice Act. Otherwise, the appeal is dismissed.
[23] As success has been divided, no costs.
L. A. Pattillo J.
Released: June 30, 2016
CITATION: Pinnacle Diagnostics v. Metro Radiology, 2016 ONSC 4226
DIVISIONAL COURT FILE NO.: 207/15
DATE: 20160630
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
L. A. PATTILLO J.
BETWEEN:
PINNACLE DIAGNOSTICS INC. and GREGORY SOON-SHIONG also known as Greg Soon-Shiong Respondents (Plaintiffs)
– and –
METRO RADIOLOGY LIMITED and CIRO ANTHONY ADAMO Appellants (Defendants)
REASONS FOR JUDGMENT
L. A. PATTILLO J.
Released: June 30, 2016