Tribunal File: 11022/MVDA
Appeal from a Decision by the Board of Trustees, Ontario Motor Vehicle Dealers Compensation Fund, under the Motor Vehicle Dealers’ Act, 2002 to Disallow a Claim
Between:
G.D.
Appellant
-and-
Board of Trustees, Motor Vehicle Dealers Compensation Fund
Respondent
DECISION
APPEARANCES
Before: D. Gregory Flude, Vice-Chair
For the Appellant: Charles A. Painter, Counsel
For the Respondent: Michael Rusek, Counsel
Heard in Toronto: June 6, 2018
REASONS FOR DECISION AND ORDER
OVERVIEW
1The appellant appeals a decision of the Board of Trustees of the Motor Vehicle Compensation Fund (the “Board”) to deny him compensation in the amount of $23,000. The appellant had paid a registered car dealer, Car Exchange, the approximate amount of $47,000 to purchase a comparatively rare 2011 BMW 1 M car (the “BMW”).1 The dealer took the money, failed to deliver the car and subsequently declared bankruptcy.
2Before going bankrupt, the car dealer had delivered the key and an ownership certificate for the car to the appellant but had not delivered the car. It had delivered the car to a second car dealership ostensibly to settle an outstanding debt. The $23,000 amount is the amount the appellant had to pay to the second car dealership to have the car delivered to him following litigation.
3The Board denies the appellant’s claim on two grounds:
a. The sale was not a consumer transaction, and
b. the money the appellant is seeking to recover was not money paid to the bankrupt dealership, with the result that it is not recoverable under the applicable regulations.
The Fund
4Car sales are highly regulated in Ontario under the Motor Vehicle Dealers Act, 2002, S. O. 2002 c. 30, Sched. B (the “Act”) and regulations passed pursuant to the Act. Dealers and salespeople must be registered. The Act imposes numerous obligations on them, including obligations to keep meticulous records; ensure consumers are given accurate information about the vehicles they are seeking to purchase; and prepare and deliver accurate sales documents, particularly a bill of sale identifying all of the material financial details of a sale. The overall goal and purpose of the Act is to protect consumers so they may make informed decisions about the vehicles they are purchasing.
5Despite the existence of a very robust regulatory scheme to ensure consumer protection, on occasion a car dealer fails to honour its obligations to a consumer. There is an industry-funded program in place to protect consumers if, having received payment for it, a dealer fails to deliver either the specific vehicle a consumer has purchased or an acceptable alternative vehicle. That program is called the Motor Vehicle Dealers Compensation Fund (the “Fund”). It is administered by a Board of Trustees (the “Board”).
6The core purpose of the Fund is the protection of consumers. Its purpose is not to protect persons who enter into commercial transactions with a dealer. In order to be entitled to compensation from the fund, the purchaser of the car has to be a consumer as that term is defined in the Consumer Protection Act, that is, the purchase must be for personal, family, or household purposes.
RESULT
7While there was evidence of commercial dealings between the appellant and the bankrupt car dealership, I am satisfied that the funds involved in the purchase of the BMW were separate and distinct from the commercial funds. I find the appellant was purchasing this car for his own use; and that he was a consumer under the Consumer Protection Act.
8With respect to the other ground, that the funds were not paid to the defaulting dealership, but were paid to a non-party, I do not accept the Board’s position that the regulations are drafted so narrowly that they do not catch the appellant’s attempts to mitigate his loss. I find that the funds are directly related to the money the appellant paid to Car Exchange, the bankrupt dealership. That dealership misapplied the funds by transferring the appellant’s vehicle to a third party requiring the appellant to make efforts to recoup his asset and incur expenses in doing so.
Relationship between Car Dealer and Appellant
9To understand the Board’s position, and why I disagree with it, it is necessary to explain the history of the dealings between the appellant, his wife, and Car Exchange.
10The appellant is a senior executive with a cybersecurity firm. He testified that he has an interest in cars, particularly the BMW brand. While following his interest in cars he was introduced to P.M., the owner of Car Exchange.2 Both P.M. and Car Exchange were registrants under the Motor Vehicle Dealers Act, 2002 S.O. 2002, c. 30, Sched B (the “Act”). The appellant dealt with P.M. and reposed his trust in him as someone knowledgeable in the car business.
11P.M. told the appellant that the car business was capital intensive. Given the value of the inventory, significant capital was invested, the capital to be recouped on the sale of the inventory. He asked the appellant or his wife to fund that inventory from time to time. The first such transaction was a loan dated December 22, 2012 in the amount of $100,000 from the appellant’s wife, secured by a number of vehicles identified with Personal Property Security Act (PPSA) registration information. Interest was charged at 1.5% per month. According to the Promissory Note evidencing this transaction, repayment of this loan was due in July 2013.
12Only half of this loan was ever repaid. The appellant testified that when they checked into what they thought was the security given for this loan, each of the Vehicle Identification Numbers had one digit altered so the security was unenforceable.
13From time to time, P.M. would identify a specific vehicle that he would ask the appellant to fund on a profit-sharing basis. One example was the 2015 purported purchase of a 2007 Cadillac Escalade, priced at around $20,000. The appellant funded the purchase of the vehicle but did not receive any proceeds from the sale. He now doubts whether Car Exchange ever actually purchased the vehicle.
14Also from time to time, the appellant and his wife would purchase cars for their own personal use. The appellant purchased a Porsche Cayenne that his wife still drives. He purchased at least one other 2011 BMW which became involved in a series of trade-ins. The appellant is not claiming for lost funds relating to this vehicle. The appellant also purchased a Kia Genesis on behalf of his brother.
Source of the BMW 1M
15The history of the purchase of the BMW began several years before the transaction that is the subject of this appeal. The appellant needed parts for one of his cars. He purchased the parts from E.M., the owner of the BMW in question. When the appellant met E.M. to pick up the parts, he discussed the car with her and told her that if she ever wanted to sell the car, to contact him. In her evidence, she described the appellant as a “BMW nut.”
16On July 1, 2015, E.M. sent the appellant an email asking if he wanted to buy the BMW for $42,000. She was just about to start university in Nova Scotia and wanted a four-wheel drive Land Rover while at university. The appellant contacted E.M. and told her that he would ask Car Exchange to find her a Land Rover suitable to her needs. They would then complete the transaction through Car Exchange. E.M. would trade in the BMW, pay the difference, and get the Land Rover and the appellant would buy the BMW from Car Exchange. This type of structure apparently minimized the HST payable.
17E.M. testified that she completed her side of the transaction when she met P.M. in the parking lot at Sherway Gardens on July 27, 2015, signed the sales agreement, paid the balance owing, received the keys and ownership to the Land Rover, and drove off. In that transaction, she gave P.M. the keys and ownership of the BMW.
Source of Funds for Appellant’s BMW 1M Purchase
18The Board submits that there is some question about the source of funds for the appellant’s purchase of the 2011 BMW. In the Board’s submission, there is some question over whether the funds came from a commercial transaction between the appellant and Car Exchange over the purchase of a Mercedes Benz E350. The Board submits that the Mercedes was bought for profit in a deal between the appellant and Car Exchange and thus those funds are not recoverable. The facts of the transaction are more fully set out below, but I am not convinced that the source of the funds used in what I find to be a consumer transaction limits recovery as the Board suggests. Having said that, I heard no evidence, other than the Board’s speculation, that the Mercedes transaction was a for-profit transaction.
19The appellant testified that P.M. contacted the appellant to advise him that a Mercedes was coming up for auction for the third time and could be purchased for a good price. The appellant was looking for another car and told P.M. to buy it. P.M. bought the car for $36,210.85 and the appellant paid that sum to Car Exchange the next day. The appellant then took the Mercedes for approximately 8 days. He liked it and wanted to keep it but his wife wanted a four-wheel drive car, so the appellant returned it to Car Exchange. The appellant believes that Car Exchange subsequently sold it. He did not share in any profit.
20The appellant did not seek an immediate refund of the $36,210.85. He was prepared to carry it as a credit with Car Exchange against the purchase of his next vehicle. There is an email exchange between the parties where the appellant sets out funds owing from various transactions between the appellant and Car Exchange. The Board submits that the emails evidence a chain of commercial dealings that includes the $36,210.85. The appellant submits that the email shows how his personal funds were segregated from the commercial funds. I accept the appellant’s position for the following reasons.
21In emails dated March 29 and June 11, 2015, the appellant set out his current financial status with Car Exchange. He addressed the outstanding business transactions, including, for instance, the transaction involving the Cadillac Escalade with expected profit and another involving a 2011 BMW M3. The June 11 email also sets out the amount held to his credit regarding the Mercedes transaction. Between March 29 and June 11, Car Exchange had issued the appellant a cheque that was returned for not sufficient funds (“NSF”). The June 11 email sets out the status of the “for profit” transactions and identifies an amount of $41,500 owing from those transactions. It concludes with the statement: “Once settled – [the appellant] will be carrying 2011 E350 $36,210.85 & outstanding $50K Promissory note.” In my view, contrary to the Board’s assertion that this email indicates the consumer nature of the Mercedes transaction as it classes it with the business loan, this email shows that the Mercedes purchase was segregated from the profit driven transactions identified above. I find that the $36,210.85 was a credit arising out of a consumer transaction.
22According to the appellant’s evidence, there were sales tax advantages in running the purchase of the BMW from E.M. and her purchase of a Land Rover through Car Exchange. Once E.M. had transferred the BMW to Car Exchange, the appellant paid the balance owing of $11,035 between his credit of $36,210.85 and the purchase price of $42,000 plus tax. He awaited delivery of the car. Unbeknownst to him, Car Exchange had borrowed the funds necessary to purchase E.M.’s Land Rover from another dealer, Guarantee Auto, and had promised the BMW as collateral. Car Exchange delivered the BMW to Guarantee Auto.
23Over the next few weeks after the closing of the Land Rover transaction, the appellant pressed P.M. and Car Exchange for delivery of the vehicle. P.M. gave him an ownership certificate and keys, but no vehicle. The appellant was given a series of delivery promises that did not come about. P.M. would promise that he was on his way to deliver the car but was taken ill or could not make it for some reason. Finally, on August 21, 2015, the appellant pushed P.M. to give him some security and a PPSA registration. The appellant drafted and P.M. signed a “Vehicle Loan” agreement, securing the loan amount of $47,460 from the appellant to Car Exchange and providing for a PPSA registration.
24The Board points to the Vehicle Loan Agreement as proof that the transaction was not a consumer sale, but was, instead, a financing deal. I do not find so. The Board ignores the fact that the appellant had paid in full for the vehicle several weeks before; had been promised delivery only to be disappointed; and had received at least one NSF cheque from Car Exchange. He was rightly suspicious of Car Exchange by this time. The Vehicle Loan Agreement is nothing more than an anxious, but not completely unsophisticated, consumer taking steps to protect his purchase.
25As the appellant pushed further for the delivery of the vehicle, P.M. told him that Car Exchange had declared bankruptcy.
Consumer Transaction
26According to s. 79 of O. Reg 333/08, a customer of a dealer is entitled to compensation from the Fund if he/she suffered a pecuniary loss, the claim arose from a trade in a motor vehicle and the customer was acting as a consumer as defined in the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A (“CPA”). Section 79(3) 6. provides for the return of money paid to a dealer who is fails to deliver the vehicle or return the funds because of bankruptcy. I find that the transaction was a consumer transaction. I also find that the claim is for the return of funds paid to a dealer.
27The definition of a consumer in the CPA focusses on the purpose of the transaction, not the nature of the relationship between the parties. A customer is a consumer if the individual is acting for personal, family or household purposes and does not include a person who is acting for business purposes.
28The Board argues that the appellant was acting for a business purpose when purchasing the BMW. I find that the evidence is overwhelming that he was acting in his personal capacity. In addition to the evidence set out above, including evidence about his long term interest in the car and the manner in which he segregated funds from his business dealings with Car Exchange, I also note that he pursued the vehicle with great vigour when Car Exchange went bankrupt until he finally got possession for his own personal use, and he still owns and uses the vehicle. In pursuing the vehicle he incurred significant legal fees. The evidence does not disclose the actions of someone looking to make a profit from selling this vehicle. I find the appellant was a consumer.
Post-Bankruptcy Efforts to get the BMW
29The appellant’s foresight in having Car Exchange execute the Vehicle Loan Agreement and register his security interest on the PPSA registry, paid initial dividends. Through his lawyers, he was able to have the Trustee recognize his security in the BMW and relinquish any claim the bankrupt estate had. The appellant then set out to find the location of the vehicle.
30The appellant determined that physical possession of the BMW was in the hands of Guarantee Auto. He described driving past the home of the owner of Guarantee Auto and seeing the vehicle in the garage. He initially hired bailiffs to take possession of the vehicle, but that attempt failed, and Guarantee Auto moved the vehicle to an undisclosed location. He then commenced a lawsuit for possession against Guarantee Auto. That law suit ended in a settlement where each party agreed to absorb half of the loss they had incurred through their dealings with Car Exchange. The appellant paid Guarantee Auto $23,000 and Guarantee Auto delivered the BMW to him. It is that $23,000 he seeks to recover from the Fund.
Characterization of the $23,000 paid to Guarantee Auto
31Claims under s. 79 of O. Reg 333/08 are subject to the provisions of s. 79(3). The Board argues that the impact of s. 79(3)6. is that the appellant cannot recover funds paid to a third party. He can recover only funds paid to the Car Exchange. The applicable wording of paragraph 6. is:
The claim is for the return of a […] payment by the customer under a contract for the purchase […] of a motor vehicle from the registered motor vehicle dealer. The dealer has not delivered to the customer, within the time period required by the contract, the vehicle or an alternative motor vehicle that is acceptable to the customer. The customer has made a demand for payment. The dealer […] is unable to make the refund by reason of bankruptcy or insolvency.
32According to the Board’s position, if the appellant had made a claim to the Fund when Car Exchange declared bankruptcy, he would have been entitled to recover the maximum amount permitted by O. Reg. 333/08 - $45,000 (assuming no denial on the basis that the appellant was not a consumer). Because he did not do so, but acted on his security to have the Trustee release any interest Car Exchange may have had in the vehicle, notwithstanding that Car Exchange improperly transferred the vehicle to Guarantee Auto, his claim against the Fund is extinguished. I do not read the wording of this section so strictly.
33The Board focusses on the opening sentence of paragraph 6: “the claim is for the return of a payment under a contract…from the registered motor vehicle dealer.” I find that the Board’s interpretation does not take into account the whole context of paragraph 6 or the context of s. 79.
34Section 79(1) provides: “A customer of a registered motor vehicle dealer is entitled to compensation from the Fund in respect of a claim for a pecuniary loss…” The trigger for compensation, then is pecuniary loss. Section 79(1) requires that the claim meet the requirement of s. 79(3) and that triggers the provisions of paragraph 6.
35Paragraph 6 has four provisions:
a. The claim is for the return of payment under a contract;
b. The dealer has failed to deliver the vehicle;
c. The customer has made a demand for a refund; and
d. The dealer is unable to make the refund because of bankruptcy.
36The appellant is seeking repayment for funds paid to Car Exchange under a contract. He paid approximately $47,000 for the vehicle and received $24,000 in value. Car Exchange failed to deliver the vehicle; he made demand; and the dealer is unable to repay because of bankruptcy. I do not find that this paragraph excludes the efforts the appellant made to mitigate his loss to the benefit of the Fund. His loss is pecuniary and flows directly from the payment made to Car Exchange.
37Based on the above, I find that the appellant purchased the vehicle from Car Exchange in a consumer transaction. He suffered a loss of $23,000 as a result of the failure of Car Exchange to deliver the vehicle. Car Exchange is unable to repay because it is in bankruptcy. All of the elements for a successful claim from the Fund have been satisfied.
ORDER
38Pursuant to my authority set out in s. 85(7) of O.Reg. 333/08, I allow the appellant’s claim and direct the Board to pay him the amount of $23,000 from the Fund.
LICENCE APPEAL TRIBUNAL
D. Gregory Flude, Vice-Chair
Released: November 5, 2018