Open Sez-A-Me Inc. v. Drewlo Holdings Inc.

CITATION: Open Sez-A-Me Inc. v. Drewlo Holdings Inc., 2018 ONSC 7670

DIVISIONAL COURT FILE NO.: 5/18 DATE: 20181220

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

MORAWETZ R.S.J., C. HORKINS, and MATHESON JJ.

BETWEEN:

OPEN SEZ-A-ME INC.

Jarvis K. Postnikoff, for the Plaintiff/Defendant by Counterclaim/Appellant

– and –

DREWLO HOLDINGS INC.

Alexandre T. Mouret, for the Defendant/Plaintiff by Counterclaim/Respondent

HEARD at Toronto: December 20, 2018

MATHESON J. (Orally)

[1] This is an appeal from the trial judgment of Morissette J. dated January 18, 2018 and the related costs decision dated March 9, 2018.

[2] The trial judgment ordered that the appellant Open Sez-A-Me Inc. (“OSAM”) pay Drewlo Holdings Inc. (“Drewlo”) $25,176.12, which was the amount due after setting off the amount ordered in relation to OSAM’s claim against Drewlo ($171,430.01) against the amount ordered in relation to the respondent Drewlo’s counterclaim ($196,606.13). No costs were awarded.

Brief Background

[3] OSAM is in the business of supplying garage door opening mechanisms and remote control devices (“fobs”). Drewlo is a landlord with several apartment buildings in the London area and thousands of tenants. The parties entered into an oral agreement in 1999 under which OSAM supplied Drewlo’s apartment buildings with garage door opening mechanisms, and supplied fobs for the tenants. The trial judge found that this became a tri-partite agreement between OSAM, Drewlo and the tenants.

[4] Under the agreement, when a tenant required a parking space, Drewlo employees would provide a fob to the tenant, collect a deposit from the tenant and have the tenant sign a form acknowledging receipt of the fob and payment of a refundable deposit. That form was under the name of OSAM and provided that the deposit would be paid to (and refunded by) OSAM. Drewlo collected the deposit funds from tenants and provided them to OSAM.

[5] The terms of the agreement changed over time, as Drewlo went from owning one building to twenty three. The amount of the deposit changed, rising to $50. Initially, the deposits were in cash but that practice changed and only cheques, made out to OSAM, were accepted. At some point after the start of the relationship, it was agreed that Drewlo would pay a monthly fee to OSAM of $1.41 for each fob.

[6] Ultimately, the relationship between the parties soured due to multiple conflicts. Drewlo terminated the arrangement on May 31, 2012. At that time, nearly 4,000 fobs were in the hands of tenants in Drewlo buildings. Related deposits had been provided to OSAM and it is agreed that on termination OSAM had deposits totaling $183,197.88.

[7] At the time of termination, Drewlo owed OSAM $89,014.40 in unpaid monthly fees for the period between April 2011 and May 2012. However, it wanted the deposits held by OSAM returned to it and OSAM refused to do so. The monthly fees owing to OSAM therefore remained unpaid.

[8] After termination, Drewlo began collecting the approximately 4,000 fobs from tenants and repaying the deposits even though OSAM had not yet returned any of the deposits. Drewlo obtained a signed form from each tenant when the deposit was repaid. This process was ongoing between June 2012 and February 2013. Drewlo returned the equipment and the fobs that had been collected to OSAM in March 2013.

[9] Ultimately, OSAM agreed to return the deposits to Drewlo to the extent that Drewlo had obtained signed forms from tenants confirming that they had received their deposit. Those amounts totalled $100,010.88. However, OSAM did not actually return that amount or any deposit money to Drewlo. OSAM sued for its unpaid fees and Drewlo counterclaimed for the return of the deposits.

[10]

Trial Judgment

[11] With respect to the deposits, the trial judge noted that OSAM had conceded that $100,010.88 was owing, and ordered that the balance of the deposits also be returned to Drewlo on the basis of unjust enrichment, for a total of $183,197.88. In that regard, the trial judge held that OSAM was enriched by having deposits that would likely never be claimed and Drewlo was deprived because it was now responsible to repay the deposits back to its tenants. The trial judge found that there was no juristic reason that OSAM should retain the deposits. No mention was made of the forms the tenants signed when the deposits were made in this regard, providing for repayment by OSAM.

[12] The trial judge ordered pre-judgment interest on the amount of the deposits, using the Court of Justice Act rate, resulting in judgment in favour of Drewlo in the total amount of $196,606.13.

[13] With respect to the claim for unpaid monthly fees, there was no issue that $89,014.40 was owing to OSAM for the period between April 2011 and May 2012. The trial judge awarded that amount plus interest at the invoice rate of 2% per month up to May 2012, totaling $7,564.51. The trial judge further found that since the equipment was not returned to OSAM until March 2013, monthly fees were due post-termination in an amount totalling $60,092.01. She awarded interest on that amount from June 2012 to February 2013. Rather than contractual interest, the trial judge used the Courts of Justice Act, R.S.O. 1990, c. C.43 (“Courts of Justice Act”) rate because she found that the parties could not have envisaged that 4,000 fobs could be collected and returned without some delay. She found that the contract rate of 2% per month would be a penalizing rate for that time period.

Issues

[14] This appeal gives rise to the following issues:

(1) whether the trial judge erred in ordering the return of all the deposits, rather than only the $100,010.88 that had been paid out to tenants by Drewlo, and therefore also erred in the interest order on the deposits; and,

(2) whether the trial judge erred in her interest order on the unpaid monthly fees.

[15] Subject to the disposition of the above issues, the appellant also seeks a different costs order.

[16] The applicable standard of review on this appeal is as set out in Housen v. Nikolaisen, 2002 SCC 33. On questions of law, the standard is correctness. On questions of fact, the standard is palpable and overriding error. On questions of mixed fact and law, there is a spectrum. Where there is an extricable legal error in principle, the standard of review is correctness. However, with respect to the application of the correct legal principles to the evidence, the standard is palpable and overriding error.

Issue 1 - Return of all of the deposits

[17] OSAM has two grounds for challenging the order that it return all of the deposits. First, it submits that the requirements of unjust enrichment are not met. Second, it submits that Drewlo did not meet certain discovery obligations that foreclose full recovery.

[18] There is no issue that the appropriate elements of an unjust enrichment claim are as set out in Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, as follows: (1) an enrichment of one party, (2) a corresponding deprivation of the other, and (3) an absence of a juristic reason for the enrichment.

[19] OSAM submits that Drewlo did not provide any of the deposit monies to OSAM, the tenants did, and they were provided pursuant to an agreement that was a juristic reason for the enrichment. OSAM therefore submits that none of the three requirements were met. We agree. We conclude that the trial judge erred in her unjust enrichment finding.

[20] On the first requirement, the trial judge found that OSAM was enriched because it was in possession of deposits that would likely never be claimed. But on deprivation, the trial judge found that Drewlo was responsible to repay the deposits. This is problematic for two reasons. First, it conflicts with the first finding that the remaining deposits would likely never be claimed. Second, it is contrary to the terms of the tripartite agreement. The form signed by each tenant, which formed part of the tri-partite agreement as found by the trial judge, expressly provided that the deposit was to paid by the tenant to OSAM and that it was OSAM that was responsible to repay the deposit. In addition, these contract terms provide a juristic reason why OSAM is not unjustly enriched. Drewlo has not established that a change to these contract terms was implicitly found by the trial judge.

[21] Although the trial judge set out the right test for unjust enrichment, she failed to properly apply it. We conclude that the failure to recognize that the agreement defeated the claim of unjust enrichment was a palpable and overriding error of mixed fact and law and the related order should be set aside.

[22] We therefore need not address the second ground under this issue.

[23] Because the trial judge erred in ordering the return of 100% of the deposits, the related pre-judgment interest order must be adjusted to require pre-judgment interest at the Courts of Justice Act rate on only the $100,010.88 amount.

Issue 2. Interest on unpaid monthly fees

[24] There is no dispute about the trial judge’s order for pre-judgment interest at the invoice rate of 2% per month on the unpaid monthly fees for the period up to May 2012.

[25] However, OSAM submits that the trial judge erred in failing to award pre-judgment interest from June 1, 2012 to February 28, 2013 and submits that all the pre-judgment interest should be calculated at the contract rate, not the Courts of Justice Act rate.

[26] Beginning with the issue about the interest rate, the trial judge had the discretion to use the Courts of Justice Act rate rather than the contract rate and gave her reasons for doing so, concluding that the invoice rate would amount to a penalty. Interest is compensatory. OSAM has not demonstrated an error that would justify interfering with this decision.

[27] On the second issue, the trial judge did overlook the pre-judgment interest from June 2012 to February 2013 on the $89,014 amount. This too is a palpable and overriding error.

[28] We therefore grant the appeal in part as follows:

(1) amending paragraph 1 of the judgment to reduce $196,606.13 to $106,361.99;

(2) amending paragraph 2 of the judgment to increase $171,430.01 to $172,297.90;

(3) amending paragraph 3 of the judgment to order that, in accordance with set-off principles, Drewlo shall pay to Open-Sez-A-Me the sum of $65,935.91; and,

(4) amending the costs decision to award costs of $25,000, all inclusive, to Open-Sez-A-Me to be paid by Drewlo for trial costs.

[29] As was also agreed, costs of the appeal are fixed at $11,000, all inclusive, and shall be paid by Drewlo to Open-Sez-A-Me.

MORAWETZ R.SJ.

[30] I have endorsed the Appellant’s Appeal Book and Compendium as follows: “For oral reasons delivered today, this appeal is allowed in part. After set-off, Drewlo is ordered to pay Open Sez-A-Me Inc. $65,935.91 plus trial costs of $25,000 and costs of the appeal of $11,000. The costs were agreed upon by counsel.”

___________________________ MATHESON J.

I agree

MORAWETZ R.S.J.

I agree

C. HORKINS J.

Date of Reasons for Judgment: December 20, 2018

Date of Release: December 21, 2018

CITATION: Open Sez-A-Me Inc. v. Drewlo Holdings Inc., 2018 ONSC 7670

DIVISIONAL COURT FILE NO.: 5/18 DATE: 20181220

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MORAWETZ R.S.J., C. HORKINS, and MATHESON JJ.

BETWEEN:

OPEN SEZ-A-ME INC.

Plaintiff/Defendant by Counterclaim/Appellant

– and –

DREWLO HOLDINGS INC.

Defendant/Plaintiff by Counterclaim/Respondent

ORAL REASONS FOR JUDGMENT

MATHESON J.

Date of Reasons for Judgment: December 20, 2018

Date of Release: December 21, 2018