COURT FILE NO.: 2690/17 DATE: 2018-09-25 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
DISTRIBUTIONS KATRINA INC. Plaintiff – and – ENROUTE IMPORTS INC. and VINCENT P. PILEGGI, also known as VINCENT PILEGGI Defendants
AND BETWEEN
ENROUTE IMPORTS INC. and VINCENT P. PILEGGI, also known as VINCENT PILEGGI Plaintiffs by Counterclaim – and – DISTRIBUTIONS KATRINA INC. and ROBERT GEOFFREY Defendants to the Counterclaim
Robert D. Malen, for the Plaintiff and Defendants by Counterclaim Damien Buntsma, for the Defendants and Plaintiffs by Counterclaim
HEARD: September 18, 2019
REASONS FOR JUDGMENT
gray J.
[1] This case started as a simple claim for goods sold and delivered. The defendants have raised issues that are described by counsel for the plaintiff as a smoke screen, and nothing more than a late attempt to avoid judgment. The defendants raise a defence of equitable set off, and have asserted a counterclaim, based on alleged improper business practices by the plaintiff.
Background
[2] On February 22, 2013, a letter of intent was executed between the plaintiff and the defendant Enroute Imports Inc. (“Enroute”), reflecting a potential purchase by the plaintiff of the assets of Enroute. In the letter, there was set out a scheme of due diligence, consisting of two phases. According to the letter, it was contemplated that both phases would be completed within 60-90 days. According to the plaintiff’s evidence, at the conclusion of the due diligence period, the plaintiff elected to not proceed with the transaction.
[3] Both parties are in the business of producing and distributing edible oils. Some oils are considered to be pure, with a corresponding higher price than those that are mixed. It is the plaintiff’s position that it supplied pure oils to Enroute, and that Enroute mixed them with other product and sold the resulting product as pure oil.
[4] It is not disputed that over the years the plaintiff supplied Enroute with oils, and that the shipments were paid for by Enroute. It is the plaintiff’s position that because of the financial position of Enroute, the plaintiff would only ship oil to Enroute when all previous shipments had been paid for.
[5] On June 13, 2017, counsel for the plaintiff wrote to Enroute, and advised that Enroute was indebted to the plaintiff in the amount of $132,157.07. Three cheques issued by Enroute had been returned by the bank. There is a minor dispute as to whether one of them was NSF, or whether a stop payment order had been issued with respect to all three.
[6] Counsel for Enroute responded by letter dated June 15, 2017. In substance, it was alleged that the plaintiff had reneged on an understanding that there would either be a merger of the plaintiff and Enroute, or the plaintiff would purchase Enroute’s assests, and that the plaintiff had interfered with the relationship between Enroute and its customers, all of which allegedly gave rise to damages on the part of Enroute.
[7] In response, counsel for the plaintiff denied the allegations made by Enroute, and stated as follows:
Our client agreed to supply Enroute under strict conditions (agreed to by Enroute), namely, that it would only receive a new order when the last one was delivered and paid for. I am advised that our client’s margin on these sales was miniscule. I am further advised that this system (of delivery and payment) was in place for about one year.
Contrary to the goodwill extended by our client under the above arrangement, your client issued cheques to our client in payment of product which were returned NSF or on which payment was stopped. As a result, your client received shipments which went unpaid.
[8] A statement of claim followed, dated June 28, 2017. Attached to the statement of claim as a Schedule is an outline of invoices rendered, payments made, and a total owed in the amount of $132,106.96.
[9] What then followed was a statement of defence and counterclaim, in which Enroute and its representative Vincent Pileggi asserted, in substance, that the amounts claimed by the plaintiff were not owing, but that if they were owing there should be a set off based on damages claimed by Enroute and Mr. Pileggi that mirror, in large part, the allegations in the letter from Enroute’s counsel dated June 15, 2017. Also asserted is a counterclaim for damages in the amount of $5,000,000, as well as special damages and exemplary damages.
[10] The plaintiff has brought a motion for summary judgment on its claim. Various affidavits were filed by both parties, and cross-examinations took place on most of them. Counsel for the plaintiff has moved to strike two affidavits filed by the defendants, on the ground that the deponents did not make themselves available for cross-examination or, in the case of one of them, the deponent was only made available very late.
[11] There is no real dispute that I should ignore one of the affidavits, that of Steven Mortensen, because he was not made available for cross-examination. With respect to the affidavit of Michael Binder, it is not disputed that counsel for the plaintiff made many attempts to arrange his cross-examination, and that he made it clear that if Mr. Binder was tendered late, cross-examination would not take place and counsel would simply move to strike out the affidavit. As it turned out, Mr. Binder was, in fact, made available approximately one week before the hearing of the motion, and counsel for the defendants also furnished him at the hearing of the motion for cross-examination. Counsel for the plaintiff declined to cross-examine Mr. Binder.
[12] I am not prepared to strike out or ignore the affidavit of Mr. Binder. While it obviously would have been preferable that he be made available for cross-examination in a timely way, the fact is he was made available and counsel declined to cross-examine him. If he had been cross-examined a week before the hearing, a transcript of his evidence could have been made available.
[13] Mr. Pileggi was cross-examined on his affidavit and, in substance, he confirmed the accuracy of the Schedule attached to the statement of claim, and confirmed that three cheques that had been issued for payment were stopped. He also confirmed that the goods were delivered to Enroute, and they used them in their business, resold them and received revenue for them. While he took the position that the reason that he stopped payment on the three cheques was because of the dispute that had arisen between the plaintiff and Enroute, he confirmed that the written reason given by Enroute for stopping payment was contained in an email from a vice-president of Enroute dated June 7, 2017, which included the following:
Unfortunately, due to the circumstances, we had to stop payment on the three checks sent to you for last week. We had other suppliers of oil that wanted payment for oil supplied. Once we established terms with them, we can take a look at Distribution Katrina’s account.
[14] When Mr. Pileggi was asked about this on his cross-examination, his explanation for the email was “It is what it is.”
Submissions
[15] Mr. Malen, counsel for the plaintiff, submits that the plaintiff should be granted judgment in the amount of $132,157.07. He submits that there is no dispute that Enroute received the goods, put them into its own inventory, resold them, and received revenue for them. There is no reason the plaintiff should not be given judgment in the amount claimed.
[16] Mr. Malen submits that the counterclaim should be dismissed. He notes that much of what was alleged by counsel for the defendants in his factum was not supported by any evidence, and the affidavit material furnished by the defendants is insufficient to establish any legitimate claim. He notes that the original letter of intent under which it was contemplated that there might be a merger or purchase of assets was executed in 2013, with a very short period allowed for due diligence. He submits that once the due diligence period expired, and the agreement did not close, the agreement would have come to an end. There is no evidence to suggest that between 2013 and 2017 the parties had any relationship other than one in which the plaintiff sold oils to Enroute in exchange for payment. The fact that a separate discussion occurred in 2017, four years later, regarding a potential asset sale, does not change anything.
[17] Mr. Malen submits that the late-breaking defence and counterclaim, which was not mentioned in any correspondence prior to the plaintiff’s demand for payment, can be considered to be nothing more than an attempt to delay the matter. There is no substance to the counterclaim and it should be dismissed.
[18] Mr. Buntsma, counsel for the defendants, submits that the motion for summary judgment should be dismissed, and the matter should proceed to trial. He submits that the defendants have raised a perfectly legitimate claim based on improper and unlawful attempts by the plaintiff to undermine Enroute’s business by surreptitiously stealing Enroute’s customers, while at the same time pretending to be interested in a purchase of Enroute’s assets or a merger of the two companies. Mr. Buntsma submits that the plaintiff’s actions have resulted in substantial damages to the defendants, and they must be permitted to pursue their claim.
[19] Mr. Buntsma submits that the defendants are entitled to raise equitable set off as a defence, even though the claims are different. In the alternative, the defendants must be permitted to pursue their counterclaim, and it would be unjust to permit the plaintiffs to have judgment on their claim until the counterclaim can be determined.
[20] Mr. Buntsma submits that there has been no real challenge to the facts as set out in the affidavit material filed by the defendants, and any factual issues must be sorted out at a trial.
Analysis
[21] At the end of the day, there is no real dispute about the plaintiff’s claim. The plaintiff delivered oils to the defendant Enroute, and Enroute used the oils in its business and received revenue once they were resold.
[22] The real issue is whether the plaintiff’s claim is subject to the defence of equitable set off, as asserted by the defendants, in which case the plaintiff cannot get judgment until the set off claim is determined, or whether the plaintiff should be denied judgment or judgment should be stayed until the counterclaim is disposed of.
[23] This case has some similarity to Abrasive Engineering & Manufacturing, Inc. v. Cowan & Stevens Machinery Sales, Ltd. (2003), 33 C.P.C. (5th) 195 (Ont. S.C.J.). In that case, the defendant had failed to pay invoices for goods sold and delivered. The defendant refused to pay because of the plaintiff’s alleged termination of an exclusive distributorship agreement. Upon action by the plaintiff for payment for the goods, the defendant counterclaimed for damages for termination of the agreement and pleaded set off as a defence to the action.
[24] Hoy J., as she then was, considered the leading case on equitable set off, Holt v. Telford, [1987] 2 S.C.R. 193, and summarized the applicable principles at para. 15 as follows:
To maintain the defence of equitable set off, the defendant must show some equitable ground for being protected from the plaintiff’s claim; that ground must go the root of the plaintiff’s claim; and the plaintiffs’ and the defendants’ claims must be so closely connected that it would be clearly unjust to allow the plaintiff to enforce payment without consideration of the cross-claim. The claims need not arise from the same contract and both need not be liquidated claims.
[25] Hoy J. also considered a number of similar cases, including Cuddy Food Products v. Puddy Bros. Ltd. (2002), 35 C.P.C. (5th) 159 (Ont. S.C.J.); Amhil Enterprises Ltd. v. Select, Inc., [2001] O.J. No. 4517 (S.C.J.), aff’d. [2002] O.J. No. 1232 (C.A.), and Agway Metals Inc. v. Dufferin Roofing Ltd. (1991), 30 C.P.C. (3d) 295 (Ont. C.A.).
[26] In the result, Hoy J. held that the two claims were not so closely connected that it would be manifestly unjust to allow the plaintiff to enforce payment, and the doctrine of equitable set off should not apply.
[27] Hoy J. held that it would not be appropriate to refuse to grant summary judgment to the plaintiff because of the existence of the counterclaim. However, she stayed execution of the judgment pending payment into court of the amount of the judgment. There was some doubt about the legal situation of the defendant, and Hoy J. stated, at para. 28 that an unconditional stay would in effect result in the plaintiff financing the defendant’s counterclaim.
[28] In a similar situation, Lane J. refused to impose a stay on collecting a judgment in Cuddy Food Products. As did Hoy J., he held that the defence of equitable set off did not apply because of the lack of connection between the claims. However, he refused to stay the judgment. At para. 33, he stated “The defendant has received the chicken product which it ordered, has no complaints about it at all, has made use of it or resold it and has received the proceeds. Why should it have this benefit at the expense of the plaintiff just because the plaintiff might, sometime in the future, owe the defendant some sum arising from the other agreement?”
[29] The same reasoning applies here. While I am not prepared to dismiss the counterclaim, I am not prepared to stay the plaintiff’s judgment.
[30] As for equitable set off, as was concluded by Hoy J. I am not convinced that Enroute’s claim goes to the root of the plaintiff’s claim, nor are the claims so closely connected that it would be clearly unjust to enforce payment without consideration of Enroute’s claim. There is no dispute that the oils were delivered to Enroute, were used by them, and not paid for. Enroute’s claim stems from a commercial dispute between the parties. I see no reason why judgment should not issue on the plaintiff’s claim.
[31] The question of whether judgment should be stayed is covered by Rule 20.08 of the Rules of Civil Procedure, which reads:
20.08 Where it appears that the enforcement of a summary judgment ought to be stayed pending the determination of any other issue in the action or a counterclaim, crossclaim or third party claim, the court may so order on such terms as are just.
[32] As did Lane J. in Cuddy Food Products, I see no reason why the plaintiff should not have the benefit of its judgment just because it might, sometime in the future, owe Enroute something on its counterclaim.
[33] While the evidence filed in support of the counterclaim is thin, I am not prepared to say that it could not give rise to a successful claim if the allegations are made out. There is a dispute on the facts, and the counterclaim can only be justly adjudicated after a trial.
Disposition
[34] For the foregoing reasons, the plaintiff shall have judgment against the defendants in the amount of $132,105.07, together with pre-judgment interest at the statutory rate from and after the date of issuance of the statement of claim. The motion to dismiss the counterclaim is dismissed.
[35] I will entertain brief written submissions as to costs, not to exceed three pages together with a bill of costs or costs outline. Mr. Malen will have five days to file submissions, and Mr. Buntsma will have five days to respond. Mr. Malen will have three days to reply.
Gray J.
