Court File and Parties

COURT FILE NO.: CV-13-0356 (Barrie) and CV-13-472309 (Toronto) DATE: 20200522 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1758704 ONTARIO INC. and 1191305 ONTARIO INC. Plaintiffs – and – CARL PRIEST Defendant

Counsel: K.J. McKenzie, for the Plaintiffs B. Teplitsky, for the Defendant

AND BETWEEN:

CARL PRIEST AND 1737161 ONTARIO LIMITED Plaintiffs by Counterclaim – and – 1758704 ONTARIO INC., 1191305 ONTARIO INC. and MARTIN DONKERS Defendants to the Counterclaim

Counsel: B. Teplitsky, for the Plaintiffs by Counterclaim K.J. McKenzie, for the Defendants by Counterclaim

HEARD: November 18–21 and November 26, 2019

REASONS FOR DECISION

CASULLO J.

Overview

[1] The sale of a business does not always unfold smoothly. This is one such instance. The transaction closed in 2010, and by the end of 2012, the assets and equipment forming the agreement had been seized by the vendor and sold.

[2] The vendor commenced this action to recover the deficit. The purchaser counterclaimed, seeking damages for conversion, inducement of breach of contract, and intentional interference with economic relations.

[3] To say this matter was heavily litigated is an understatement. Indeed, there were more than 20 court appearances before trial, including the Court of Appeal. The more pertinent of these appearances are discussed later on in these reasons.

[4] The animosity between the parties was duplicated in animus between counsel. To their credit, they were always courteous to the court, and they maintained a polite veneer over their veiled jabs at one another, but one can hardly posit that civility was achieved.

[5] This acrimony was perhaps best reflected in my post-trial request of counsel. By letter dated January 21, 2020, I requested a chronology of the litigation history, in the form of a bound document containing an index, a brief description of the issue before the court, as well as a copy of each decision. Counsel could not agree on even this simple request. After vigorous email exchanges, I directed counsel to provide a joint Order/Endorsements brief containing only the orders and endorsements, abandoning in exasperation my request for a description of the issues. I received the “Plaintiff’s Chronology” on March 13, 2020, which will be referred to herein as the “Endorsement Brief.” [1]

Trial Concerns

[6] The only documents available for me to review prior to the trial were the Trial Record and the Pre-Trial Judge’s Report to Central East Trial Scheduling Court.

[7] The Trial Record did not include Justice DiTomaso’s June 14, 2019 Order, which provided a detailed timetable to ensure the parties were ready for trial. Most of the timelines were not adhered to.

[8] The pre-trial judge ordered the in-chief evidence of Martin Donkers and Carl Priest be provided by affidavit, with examinations subject to the trial judge’s discretion. Martin Donkers’ in-chief affidavit was to be served by November 1, 2019, and Carl Priest’s by November 8, 2019. Neither were served on time. Further, as the in-chief affidavits were not filed with the court prior to trial, a recess was required so I could review them.

[9] Before recessing, however, the gloves were off. Ms. McKenzie advised that Mr. Priest’s in-chief affidavit was not served until Friday, November 15, 2019 at 10:30 p.m. She also advised that Mr. Priest had never served an affidavit of documents or productions, and his in-chief affidavit appeared to contain exhibits never before produced. In addition, Ms. McKenzie advised that the defence expert witness affidavits were not served pursuant to the pre-trial Order, the counterclaim had not been quantified, and she was uncertain whether the amended defence and counterclaim had even been filed. Despite these concerns, Mr. Donkers chose not to seek an adjournment, given the length of time it had taken to get to trial.

[10] Mr. Teplitsky confirmed the amended defence and counterclaim had not been filed, as the court office would not accept it. He asked that I endorse its issuance. [2] Mr. Teplitsky said that Mr. Priest’s affidavit of documents, with productions, had indeed been served, and undertook to provide proof of service. I enquired whether he had a copy of his client’s affidavit of documents with him. Mr. Teplitsky replied in the negative, as he had appended the documents he would be relying on to Mr. Priest’s in-chief affidavit. Mr. Donkers produced both an in-chief affidavit, and an affidavit of documents.

[11] In terms of Mr. Priest’s in-chief affidavit, Mr. Teplitsky confirmed an unsworn copy was served, without exhibits, the morning of Friday, November 15, 2019 – the sworn copy with exhibits later that evening. It was late because Ms. McKenzie did not serve Mr. Donkers’ sworn in-chief affidavit until November 13, 2019 (although an unsworn copy was served in accordance with Justice DiTomaso’s timetable, and Ms. McKenzie confirmed that the contents would not change), and Mr. Teplitsky did not believe it was proper for his client to respond to an unsworn affidavit.

[12] In reply, Ms. McKenzie maintained that she had never received an affidavit of documents or productions.

[13] I asked counsel how I was to reconcile this significant discrepancy. Ms. McKenzie explained she had numerous emails referencing the failure to serve an affidavit of documents or productions, and transcripts from examinations for discovery demonstrating that they had to be rescheduled due to the lack of productions. None of the transcripts made their way into the record, but some of the emails did, through the affidavit of Steven Lewis, a law clerk in Ms. McKenzie’s employ, sworn November 16, 2019. [3] In preparing these reasons, I took an opportunity to review the emails, which spanned the period between June 21, 2019 and November 15, 2019. There were clear assertions by Ms. McKenzie that she had never received either an affidavit, or productions, from Mr. Priest, to which Mr. Teplitsky would always reply that that was not the case.

[14] I found it difficult to conceive that over the course of six years, where Mr. Priest was examined at least three times, Mr. Priest had never served an affidavit of documents. This issue was only resolved during closing submissions, when Ms. McKenzie clarified she was referring to the affidavit of documents contemplated by Justice DiTomaso’s 2019 Order. Ms. McKenzie explained that while both parties had indeed served affidavits of documents and productions along the way, service was haphazard and unorganized. By ordering affidavits of documents with productions to be exchanged by July 31, 2019, His Honour was giving each party an opportunity to get their houses in order. The 2019 Order also stipulated that service would only take place by fax, which I understand was necessary given a history of documents going missing when served by mail or courier. During his closing, Mr. Teplitsky provided a copy of Mr. Priest’s affidavit of documents sworn October 8, 2019. It was, however, served by mail, not fax, and was never received by Ms. McKenzie.

[15] I take the time to address this brief snapshot of dissension because it provides a flavour of what I perceive the entire six years of litigation was like on both sides.

Background

[16] The plaintiffs, 1758704 Ontario Inc. and 1191305 Ontario Inc., operated a mulch and container business known as Earth Works Recycling and AES in Springwater, Ontario. Martin Donkers was the controlling mind of both corporations.

[17] The operating mind of the defendant, 1737161 Ontario Limited, was Carl Priest.

[18] Given the multitude of proceedings, counterclaims, and parties (both numbered companies and individuals), coming up with a single reference for each side is nigh to impossible. Thus, the plaintiffs will be referenced as either the plaintiff(s), the Donkers parties, 1758704 Ontario Inc., 1191305 Ontario Inc., or Mr. Donkers, whether referenced individually or collectively.

[19] Correspondingly, the defendants will be referenced as either the defendant(s), the Priest parties, 1737161 Ontario Limited, or Mr. Priest, whether referenced individually or collectively.

Transaction History

[20] On May 6, 2010, 1737161 Ontario Limited entered into an Asset Purchase Agreement (the “Agreement”) with 1758704 Ontario Inc. and 1191305 Ontario Inc., buying the assets in the two companies. Pursuant to paragraph 3.02 of the Agreement, the purchase price of $558,740 was to be paid as follows:

The Purchase Price specified in Section 3.01 shall be paid and satisfied by a delivery of a promissory note by the purchaser in the amount of Five Hundred and Fifty Eight Thousand and Seven Hundred and Forty Dollars ($ 558,740.00) (sic) bearing interest at a rate of 7% per annum calculated half yearly and not in advance and repayable in blended monthly payments of principle and interest of Seventeen Thousand Two Hundred and Thirty Five ($17,235.00) commencing one month after the closing date and having a term of three years. The said promissory note shall collaterally be secured by a general security agreement of the assets being purchased hereunder. The said promissory note shall be personally guaranteed by Carl Preist (sic), being the principal of the purchaser. The general security agreement shall contain a provision that no asset secured by this agreement will be conveyed or sold without the prior written consent of the vendor.

[21] Paragraph 3.03 of the Agreement contained pre-conditions for the seizure and sale of the vendor’s assets:

That upon default of any payment owing hereunder the Vendor shall forthwith provide notice of such default to the Purchaser of (sic) its solicitor by fax or by electronic communication at fax numbers or email addresses to be designated by the Purchaser. Upon such default existing for a period of fifteen (15) days following receipt notification of such default, the Vendor shall thereafter be entitled to forthwith have all licences and certificates howsoever related to the assets included hereunder reverted back to name of the Vendor or as it might direct which to such reversion of said licenses and certifications the Purchaser does hereby consent and agree. Further in the evened (sic) of such default, the Vendor shall have the right to seize all chattels and assets included hereunder pursuant to its security documentation however to mitigate its losses and without interference from the Purchaser.

[22] Assets are defined in paragraph 1.01(b) of the Agreement as follows:

“Assets” means goodwill, undertaking, property and assets of the Vendor of every kind and description and wherever situate including, without limitation, all that property listed in the Schedule “A” attached hereto, but shall specifically exclude all that property listed in Schedule “B”.

[23] Schedules “A” and “B” to the Agreement are reproduced and appended as Schedules “A” and “B” to this decision. The defendant was to purchase the assets set out in Schedule “A.” As for the Schedule “B” equipment, the defendant was assuming the leases for the John Deere Loader (“Loader”) and John Deere Excavator (“Excavator”) and leasing the International Truck and Trailer (“Truck and Trailer”) from Mr. Donkers directly, in lieu of assuming from the lessor, General Electric.

[24] Paragraph 9.03(e) of the Agreement provided that, at the time of closing, Mr. Donkers was to deliver to Mr. Priest: “Assignment with the lease with GE Capital and John Deere with the consent with the lessor.” This condition is not only unclear, it is incorrect, as Mr. Priest was not assuming any leases through General Electric.

[25] The transaction closed on May 18, 2010. As contemplated, a promissory note was provided on closing, signed by both 1737161 Ontario Limited and Mr. Priest, personally (“Promissory Note”). The Promissory Note contained the payment terms set out in the Agreement, providing for payments of $17,235 per month from June 18, 2010 up to and including May 18, 2013. There was also an acceleration clause in the event of default as follows:

Default in any payment of said principal or interest, or any part thereof, shall, at the option of the holder hereof, exercisable at any time and without notice or demand, render the entire unpaid balance of the said principal together with accrued interest at once due and payable.

[26] Pursuant to the Agreement, the Promissory Note was secured by a General Security Agreement (“GSA”) covering the assets of the business, defined as Collateral in Schedule “B” of the GSA as follows: “Equipment and assets purchased and leased pursuant to Asset Purchase Agreement dated May 6, 2010 as identified in Schedule “A” and Schedule “B” of that agreement.”

[27] Despite maintaining, throughout the litigation, that the GSA secured only the assets in Schedule “A” of the Agreement, Mr. Priest conceded, at the start of closing submissions, that the GSA secured the equipment in Schedule “B” of the Agreement as well.

[28] Article 2 of the GSA provided that:

The Security Interest (as hereinafter defined) is granted to the Creditor by the Debtor as continuing security for the payment of all present and future indebtedness and liabilities of the Debtor to the Creditor, including interest thereon, and for the payment and performance of all other present and future obligations of the Debtor to the Creditor, whether direct or indirect, contingent or absolute (including obligations under this agreement) (collectively, the “Obligations”).

[29] Article 11(a) of the GSA provides that the Debtor shall be in an Event of Default if the Debtor failed to satisfy or perform any of the Obligations when due. Pursuant to Article 12, upon an Event of Default, the Obligations shall be immediately due and payable.

[30] Article 13 outlines the remedies available to the Creditor upon an Event of Default, including entering any premise where the Collateral was located [13(a)], repossession of the Collateral [13(b)], and sale of the Collateral [13(c)].

[31] The standards governing the sale of Collateral are set out in Article 15: the sale must be commercially reasonable, Collateral may be sold at a public sale with an advertisement [15(b)], or at a private sale with receipt after receiving two written offers [15(c)], and the purchaser may be a customer of the Creditor [15(d)].

[32] The GSA does not provide for notice in the event of a default.

[33] Pursuant to Article 10(c), the Debtor could not dispose of the Collateral in any way, except as permitted elsewhere in the GSA.

[34] The GSA was registered under the Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”) on June 28, 2010.

Post Closing – May 2010 to November 2012

[35] Mr. Priest assumed the lease for the Loader, and made monthly payments until it was paid off in December 2011.

[36] Mr. Priest began making payments on the Truck and Trailer as scheduled, and continued to do so until December 2012, when the Truck and Trailer, along with all the other equipment, was seized.

[37] The assumption of the Excavator lease enjoyed a less positive outcome.

[38] Counsel for Mr. Priest made much of the fact that the assumption documents were not ready at closing, as if this rendered Mr. Donkers in default of the Agreement. As already noted, the condition at paragraph 9.03(e) regarding the lease assumptions is unclear. In any event, Mr. Donkers was not responsible for preparing the assumption documentation, John Deere was.

[39] Mr. Donkers said he signed the assumption documents and Mr. Priest did not; Mr. Priest maintains the exact opposite happened.

[40] Mr. Donkers believed he signed before September 2010, although he could not recall the exact date. He does recall going in to the dealership to sign. The assumption agreement produced by Mr. Donkers has the month of “June” handwritten in the date section on page 1, and contains his signature on page 2.

[41] Mr. Priest produced page 2 of the assumption agreement only, which contained his signature, as well as a fax confirmation page dated July 11, 2010. These were not produced until the eve of trial, by way of Mr. Priest’s in-chief affidavit sworn November 15, 2019. When asked why they had not been served earlier, Mr. Priest said that he had just found them a week or two prior, when he was looking through his trucking files and he found them in a box, stuck between other paperwork.

[42] The fax confirmation page is a pivotal document in this litigation, one that would support Mr. Priest’s submission that he had signed and submitted the paperwork as required. It would also lend support to his argument that the failure to assume the Excavator lay with Mr. Donkers, for failing to sign the paperwork. If Mr. Priest knew the fax confirmation page existed but he could not locate it, he should have referenced it in Schedule C to his affidavit of documents, sworn October 8, 2019. He did not.

[43] The most accurate evidence regarding assumption agreement is contained in the Internal Notes, the relevant portions of which are reproduced, verbatim, below:

DATE MESSAGE 05/20/2010 Assignment has been approved by credit dept to ‘Simcoe Recycling Services’. All the information has been obtained from assignor and assignee. Forwarding to the documentation group to prepare the assignment documents. 09/23/2010 paperwork has never been signed for assignment. Spoke with Trish at simcoe Recycling [4] (275689) she will verify that they have equipment and who docs should be sent to. 09/30/2010 Spoke with Trish, reminded her that she said she would get back to me and did not. She informed me that her and Carl work at different locations, requested cell phone number. she advised that he was working at a location and she would have him call me. Advised that I required a call as soon as possible as there is currently 19k o/c on this account. 10/04/2010 spoke with Carl Priest. advised that he has not use and never has for the equipment on 110-001. It also doesn’t seem that docs were ever delivered. Spoke with Mr. Donkers, advised him of conversation with Mr. Priest, he is contacting his lawyer and will get back to me. 10/12/2010 Email to collector. This account was approved for assumption to 1737161 Ontario Limited in July 2010. Appears the docs were issued but never returned. Looks like by your conversation to the Assignee on Oct 4, 2010 that they (assignee) have no use for the equipment and claims that the documents were never delivered. The customer Martin Donkers is meeting with his lawyer.. in the meantime, please serve Final Demand and 344 on 110-01 and if 100-002 is not brought up to date this week, serve that one as well. linda merk. 10/25/2010 Acct was to be assumption paper not returned and now assignee does not want equip. PD’s served send to recovery once cured 11/05/10 12/14/2010 Spoke with Marty, advised that I need to know who will be paying arrears of 16K today. Him or Mr. Priest. Says that Mr. Priests lawyer was to contact me. Call never received by me. 12/23/2010 fax rec’d from Simcoe Recycling advising that they are sending 3 cheques that will take care of the arrears and banking info has been rec’d. Trish has docs signed by Mr. Priest and they will be forwarded. Advised Trish that we would take care of having Mr. Donkers sign his forms.

[44] The Internal Notes do not show that John Deere received the fax Mr. Priest said he sent on July 11, 2010. When John Deere spoke with Trish in September 2010 about the missing paperwork, she could have advised that the documents had already been submitted, but does not appear to have done so.

[45] When John Deere spoke with Mr. Priest in October 2010, he could have advised that the documents had already been submitted. But does not appear to have done so. What Mr. Priest actually said was he had no use for the equipment. This certainly suggests to the court that he never intended to assume the Excavator lease.

[46] The last entry in the chart above might indicate that Mr. Donkers had not signed the assumption agreement in June 2010. However, the Internal Notes contain many references of discussions between John Deere and Mr. Donkers, and there were no comments indicating that his documents were missing.

[47] When Mr. Priest was asked why he did not start making payments on the Excavator to John Deere, he said he tried, but John Deere would not accept payment from him until the lease was assumed. When asked why did not remit payments to Mr. Donkers instead, he replied that without Mr. Donkers’ signature on the assumption agreement, Mr. Donkers could have changed his mind and said the Excavator was not his (Mr. Priest’s). This explanation does not make sense. First, Mr. Priest was the party in possession of the Excavator, which he was using to generate income. Second, if Mr. Donkers did change his mind, there were remedies available to Mr. Priest.

[48] Based on the evidence before me, I am satisfied that Mr. Priest failed to assume the Excavator lease pursuant to the Agreement.

[49] John Deere ultimately repossessed and sold the Excavator, resulting in a deficiency that Mr. Donkers was obligated to satisfy.

[50] By letter dated April 12, 2012, Mr. Priest was put on notice that he was $115,399.12 in arrears for failing to assume the Excavator lease (“2012 Notice”). The failure to assume the lease was deemed to be an Event of Default, such that all obligations became due and payable: the arrears for the Excavator lease ($115,399.12), the Truck and Trailer lease ($62,793.56), and the outstanding purchase price ($224,055). With taxes estimated to be $80,659.80, the total outstanding amount owing was $482,907.48.

[51] Mr. Priest had ten days to pay off the Excavator lease in full, failing which the Donkers parties would take action under their security, seizing assets and suing for any outstanding arrears.

[52] Mr. Priest did not make any payment under the 2012 Notice. When asked why, Mr. Priest said he did not know what the $115,399.12 represented. There is no evidence that he sought clarification from Mr. Donkers.

[53] It does not appear that any steps were immediately taken to act on the 2012 Notice. Matters continued on much as they had for the previous two years, with Mr. Priest giving Mr. Donkers two cheques a month: one in the amount of $17,235 for the Promissory Note, the other in the amount of $4,133 for the Truck and Trailer lease.

[54] According to Mr. Donkers, he always intended to seize the equipment on the strength of the 2012 Notice. When asked why it took eight months to do so, Mr. Donkers said it took him time to find a bailiff and a storage location. He also said that he did not want to seize the equipment over the summer, which is Mr. Priest’s busy time. In other words, he did not want to harm Mr. Priest’s business. This response does not ring true. Mr. Donkers had been forced to pay over $100,000 for Mr. Priest’s failure to assume the Excavator lease, and it is difficult to fathom Mr. Donkers was waiting to recoup his losses so that Mr. Priest’s company was not adversely affected.

[55] Given the deficiencies contained in the 2012 Notice, had Mr. Donkers relied upon it to seize the equipment, he would have been on tenuous ground. Fortunately for Mr. Donkers, and unfortunately for Mr. Priest, however, a second breach intervened.

Promissory Note Default

[56] The November 2012 envelope contained only one cheque for the Truck and Trailer. In place of the Promissory Note cheque was a letter dated November 18, 2012 advising “We are in the final stages of obtaining funding to pay the last 7 payments to 1191305 Ontario Inc. Can you please call Carl at your earliest convenience at 705-623-2502 and discuss this with him. Thanks.” There is no signature, and the author is not identified.

[57] On November 19, 2012, Mr. Donkers e-mailed Mr. Priest about the missing cheque. Mr. Priest replied, “Hey Marty I had sent you a letter with the cheque as I do not have a phone number.” Mr. Donkers replied the next day, telling Mr. Priest that “putting together financing to pay the balance is up to you. Anyway the best way to get in touch is by this email.”

[58] Once again, there is no evidence of further discussions between Mr. Donkers and Mr. Priest in respect of the November payment.

Summary – May 2010 to November 2012

[59] Mr. Priest assumed the lease for the Loader and paid it off in full.

[60] Mr. Priest made every payment on the Truck and Trailer until it was seized.

[61] Mr. Priest failed to assume the Excavator lease. John Deere repossessed and sold the Excavator, and the Donkers parties were responsible for paying the significant shortfall to John Deere. Mr. Donkers served notice of the arrears in April 2012.

[62] Mr. Priest made every payment on the Promissory Note from May 2010 to October 2012, yet failed to make the November 2012 payment, or any payment thereafter.

Seizure and Sale of Equipment – December 2012

[63] Mr. Donkers seized the defendant’s assets over the weekend of December 8, 2012. Priest was not given notice of the seizure, nor was he given an opportunity to cure the default or redeem the equipment before seizure.

[64] Lloyd’s Bailiff Services issued a document entitled “NOTICE TO RETAIN ARTICLES, Pursuant to s. 17(1) of the Repair and Storage Liens Act, R.S.O. 1990, c. R.25” [RSLA] (“Notice to Retain”), dated December 10, 2012. [5] The Notice to Retain advised that Lloyd’s intended to retain the articles pursuant to the list. No list was attached to the copy of the Notice to Retain provided to the court. Mr. Priest received the Notice to Retain from the bailiff on December 14, 2010.

[65] The Notice to Retain indicated that 1737161 Ontario Limited was indebted to the plaintiffs for $132,634 for “Late Payments.” The section entitled Repairs indicated “P.P.S.A. Agreement $132,634.” Storage charges were listed as $900 per day, and Bailiff Fees were noted to be “ON GOING (EXTENSIVE).”

[66] Plainly, the bailiff used the wrong form. This was notice pursuant to the RSLA. Creditors securing payment of a debt by taking a security interest in property of the debtor are to issue a Notice of Intent to Enforce Security, pursuant to the PPSA.

[67] Despite this procedural irregularity, the message was clear: 1737161 Ontario Limited was once again put on notice of its indebtedness to 1758074 Ontario Inc. and 1191305 Ontario Inc. What was less clear was what the $132,634 represented. Even Mr. Donkers could not say for certain, although he assumed it included the amount he paid to John Deere for the excavator.

Procedural History

[68] Following the seizure of the equipment, the defendant brought an injunction application in Toronto (CV-13-472309). The parties were 1737161 Ontario Limited against 1758704 Ontario Inc. and 1191305 Ontario Inc. On January 24, 2013, C.J. Brown J. granted an order enjoining the plaintiffs from disposing of or dealing with the assets pending the hearing of the defendant’s application. Her Honour noted that the order was on consent, as Mr. Priest had advised the plaintiffs he had arranged financing, and would pay the debts owing to the plaintiffs.

[69] In April 2013, the plaintiffs brought this action in Barrie (CV-13-0356). The parties were 1758704 Ontario Inc. and 1191305 Ontario Inc. against Carl Priest.

[70] On June 4, 2013, the parties were back before Justice Brown on a contempt motion, initiated after Mr. Priest had seen one of the seized assets on an auction lot. Her Honour found this was “dealing” with the assets, contrary to her earlier order. The parties advised Justice Brown a “venue motion” was scheduled for the next day in Barrie.

[71] The venue motion was heard before MacKinnon J. on June 5, 2013, who ordered that CV-13-472309 be transferred to Barrie. His Honour also dissolved the interim injunction. As Mr. Priest had acknowledged that money was owed but not paid, pursuant to his undertaking, Justice MacKinnon held that “The interim injunction is, in these circumstances, now unjustified.”

[72] The plaintiffs brought a summary judgment motion before McDermot J. on June 25, 2013. Partial summary judgment was granted, as the court found that Mr. Priest had defaulted on the Promissory Note. In the result, Mr. Priest’s defence was struck, judgment was granted in favour of the plaintiffs, and a trial of the outstanding amount owing on the Promissory Note was ordered. [6]

[73] McDermot J. was only asked to address the failure to make the payment on the Promissory Note – the failure to assume the Excavator lease was not before him.

[74] The Court of Appeal overturned the lower court’s decision to strike the defence, substituting instead an order that the defendant was in default on the Promissory Note. The Court also held that the defendant was not precluded from arguing, at the return of the injunction application, that the seizure and sale of the assets was unlawful, and should prevent the plaintiffs’ recovery of any deficiency from the defendant.

[75] The parties were back before the Superior Court in Barrie on April 30, 2014, arguing three motions initiated by the Donkers parties, seeking numerous heads of relief. Justice Healey dissolved an Anton Piller Order, [7] transferred all matters to Barrie, and consolidated CV-13-472309 with CV-13-0356. She declined to grant the plaintiffs’ request for partial summary judgment, finding that a trial was required to determine what was owed under the Promissory Note, and whether there were credits owing to the defendant.

[76] The consolidated statement of claim was issued on July 15, 2016, and served on counsel of record for the Priest parties. When no statement of defence was received, the plaintiffs succeeded in having the defendants noted in default on August 30, 2016.

[77] Thereafter, Mr. Donkers sought judgment, seeking a total recovery of $459,254.66. Justice Mulligan heard the motion on February 28, 2017. Only counsel for the Donkers parties were present given the noting in default. After conducting a detailed accounting, Mulligan J. awarded the plaintiffs $368,339.79 in damages, plus costs.

[78] Mr. Priest brought a motion to set aside the judgment. A court appearance on July 31, 2018 resulted in a consent Order providing that, inter alia: (a) the motion to set aside the default would be heard on October 23, 2018; (b) all outstanding costs awards were to be paid to the plaintiffs within 30 days of the Order: and (c) the plaintiffs agreed to take no steps to enforce the default judgment pending the outcome of the motion to set aside the default.

[79] The motion to set aside the judgment was heard on February 28, 2019, and it was before me. I have no independent recollection of the motion, and reviewed the audio recording of the hearing for assistance. Mr. Teplitsky, appearing for the defendants, advised that Ms. McKenzie was served with the Notice of Motion, no responding material had been served, and Ms. McKenzie was not in court. When Ms. McKenzie was paged and did not appear, the Order setting aside the judgment was granted.

[80] On May 9, 2019, the plaintiffs brought an ex parte motion to set aside the February 28, 2019 Order. Justice Bird held it was not appropriate to bring this motion ex parte, and ordered that the defendants be served with the Notice of Motion.

[81] The motion to set aside the February 28, 2019 Order was ultimately heard by Justice DiTomaso on June 14, 2019. On consent, the Order was set aside, and a number of trial management steps were stipulated, including:

• Defendants to deliver their Amended Statement of Defence and Counterclaim by June 21, 2019;
• Plaintiffs to deliver any Reply to Defence to Counterclaim by July 11, 2019;
• Defendants to deliver any Reply by July 16, 2019;
• Affidavits of documents with productions to be exchanged by July 16, 2019;
• Examinations for discovery to be held on August 20 and 21, 2019, with answers to undertakings delivered by September 13, 2019;
• Defendants’ expert report to be delivered by August 31, 2019, and plaintiff’s responding report to be delivered by October 15, 2019;
• Counsel for the defendants was to write to the RSJ to request case management.

Storage and Sale of the Equipment

[82] The equipment was stored at Call Service Towing/Classic Towing and Storage (“Call Service”), located at 204 Tiffin Street in Barrie, Ontario. In addition to seizing 50 containers, the bailiff seized the Truck and Trailer, the Loader, and a grinder. The latter four pieces of equipment were comparable in size to six or seven containers. In essence, then, the space required to store the seized items equaled about 57 containers. The storage fee set by Call Service was $900 per day ($20 per item per day), or $27,000 per month.

[83] When asked whether he thought this was a lot of money to pay for storage, Mr. Donkers conceded it was, but defended his decision to store at Call Service because it was a secure lot. Further, Mr. Donkers did not anticipate having the items in storage for longer than a month.

[84] Coincidentally, shortly after the seizure, Mr. Donkers began running his own waste disposal company, Guaranteed Services, out of 204 Tiffin Street. He rented space for 35 bins and two trucks. With each truck being about the length of a bin, he was in essence storing 37 bins. His cost per month was $1,500. The difference in price is staggering.

[85] The storage fees from seizure to sale of the assets total $160,200, and remain outstanding. Mr. Donkers provided Call Service with his personal guarantee to honour its account.

ISSUES

[86] Mr. Priest’s failure to make the November payment on the Promissory note has already been judicially determined to be a default, of which I am in full agreement. Pursuant to the GSA, any default permitted Mr. Donkers to pursue the remedies contained in the GSA, including seizure and sale. Thus, the issues before me are:

1. Was notice required prior to the 2012 seizure?
2. If not, what damages flow from the default?

DISCUSSION

[87] The rights and remedies of a creditor upon default are contained in Part V of the PPSA. Section 63(4) sets out the notice requirement:

Notice required

(4) Subject to subsection (6), the secured party shall give not less than fifteen days notice in writing of the matters described in subsection (5) to,

(a) the debtor who owes payment or performance of the obligation secured;

(b) every person who is known by the secured party, before the date that the notice is served on the debtor, to be an owner of the collateral or an obligor who may owe payment or performance of the obligation secured, including any person who is contingently liable as a guarantor or otherwise of the obligation secured;

(c) every person who has a security interest in the collateral and whose interest,

(i) was perfected by possession, the continuance of which was prevented by the secured party who has taken possession of the collateral, or

(ii) is perfected by registration before the date the notice is served on the debtor;

(d) every person with an interest in the collateral who has delivered a written notice to the secured party of the interest in the collateral before the date that the notice is served on the debtor.

[88] Section 63(7) contains exceptions to when notice is required:

(7) The notice mentioned in subsection (4) is not required where,

(c) the collateral is of a type customarily sold on a recognized market;

[89] It appears this exception is in place to distinguish between collateral which is unique and not readily available on the open market, from collateral which the debtor could easily replace. There is a dearth of caselaw on this exception. Craig J. in Lloyds Bank Canada v. Transfirst Inc., 1990 CarswellOnt 122, 71 O.R. (2d) 481 (Ont. S.C.) appears to be the first to consider 63(7)(c), holding, at para. 11, that “‘a recognized market’ must mean something more than a collection of possible purchasers known to brokers in a given industry.”

[90] In AJM Leasing v. Brown, 2002 CarswellOnt 5074, Bédard D.J. determined that a car fell within the s. 63(7)(c) exception, as selling a motor vehicle at a car auction fit the description of a recognized market. Likewise, I am satisfied that the equipment seized from Mr. Priest falls within this exception, as the process Mr. Donkers followed in selling the equipment fit within the description of a “recognized market.”

[91] Mr. Donkers obtained three separate quotes for each piece of equipment. He advertised with Kijiji and Trader Corporation (an automotive marketplace). He held an auction at the storage facility, although he was not a licensed auctioneer. While the bidding opened in early January, it was put on hold following the injunction – the successful bidders did not “win” their bids until June 5, 2013, when the injunction was lifted.

[92] Owing to the fact that the s. 63(7)(c) exception applies, no notice was required. Mr. Priest’s failure to make the November 2012 payment on the Promissory Note triggered the default provisions of the GSA. Mr. Donkers was fully entitled to seize Schedule “A” assets and Schedule “B” equipment, without notice to Mr. Priest, pursuant to s. 63(7)(c), and to sell them in a commercially responsible manner.

[93] Mr. Priest argues that Mr. Donkers had a moral and legal obligation to tell him that he was in breach of the Promissory Note, relying on the doctrine of good faith contractual performance established by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. Mr. Donkers’ failure to tell him (Mr. Priest) that he (Mr. Donkers) was treating the missed payment as a default, lulled Mr. Priest into a false sense of security. In other words, Mr. Priest suggests he was only in default because of Mr. Donkers’ failure to honour his obligations of good faith dealing under the contract.

[94] Good faith contractual performance operates in both directions, and there was a corresponding duty on Mr. Priest to perform the contract in good faith, which he failed to do by not assuming the Excavator lease.

[95] To be frank, both parties acted dishonourably. Mr. Priest, apart from the Excavator issue, was a model purchaser, making every required payment. But his failure to assume the lease was a significant one, causing Mr. Donkers to be out-of-pocket for over $100,000.

[96] Mr. Donkers, on the other hand, acted out of spite when he did not tell Mr. Priest he was treating the missed payment as a default. But it was open to him to do so. As Cromwell J. noted in Bhasin, the doctrine of good faith performance did not nullify “the legitimate pursuit of economic self-interest,” as contracting parties were free to pursue their individual self interest: (para. 70).

[97] The Ontario Court of Appeal recently addressed what level of behaviour might establish a breach of the duty of honest performance. In CM Callow Inc. v. Zollinger, 2018 ONCA 896, 429 D.L.R. (4th) 704, the defendant had terminated a winter maintenance contract pursuant to the ten-day notice provisions in the contract. The plaintiff argued that decision to terminate was made months prior, but the defendant held off while the plaintiff did extra work for him under a summer maintenance contract, which the plaintiff hoped would result in both contracts being renewed.

[98] The Court of Appeal did not consider this to be dishonest conduct directly related to the performance of the contract. I find Mr. Donkers’ actions are comparable to the defendant’s in Callow: dishonourable, yes, but unrelated to the performance of the Agreement. Had Mr. Donkers told Mr. Priest that the missed payment would not be considered a default, and seized the equipment despite that assurance, Mr. Donkers would have breached his duty of honest performance.

DAMAGES

[99] I turn now to assess the damages occasioned by Mr. Priest’s default. Mr. Donkers submits that the detailed accounting already conducted by Justice Mulligan is sound, and there is no need to do another. I concur to a certain degree, but adjustments are required. Recall that Justice Mulligan was presented with only Mr. Donkers’ version of events; I have had the benefit of a full trial, with submissions from all parties.

[100] For ease of reference, I shall follow the same format and categories as Mulligan J. There were two minor addition errors in the default judgment motion record, which were identified during trial; the figures herein reflect the corrected values.

[101] Mr. Donkers’ claim as of February 28, 2017 is as follows:

(i) Balance owing under Promissory Note plus interest to date $161,943.65 (ii) Balance owing for excavator payments and interest 189,804.49 (iii) Balance owing for truck and trailer plus interest 50,814.84 (iv) Personal expenses claimed by Mr. Donkers 73,478.87 (v) Time spent by Mr. Donkers 17,436.00 Total $493,477.85

[102] Against this amount, the plaintiffs credit the amount received from the sale of assets, less the expenses related to the seizure and sale of these assets. This can be broken down as follows:

(i) Recovery $270,300.84 (ii) Expenses 236,082.65 (iii) Net credit to the defendants 34,223.19

[103] When the damages amount ($493,477.85) is reduced by the net credit amount ($34,223.19), the total claim amount sought by Mr. Donkers is $459,244.66. My findings in respect of each category are addressed separately below.

Promissory Note

[104] The only alteration I would make is an adjustment to reflect interest to date.

Balance Owing for Excavator/Loader

[105] First, I would make an adjustment to reflect interest to date.

[106] Second, I would point out that while this category references the Excavator and Loader, the calculation only reflects the deficiency owing to John Deere for the Excavator, plus interest. Recall Mr. Priest assumed the lease for the Loader, and paid it off, so there was no money owing after its sale. I question whether Mr. Donkers had the right to seize the Loader, given that there were no arrears outstanding, but Mr. Priest received a credit for the full value of the sale, so he was made whole in that regard.

[107] However, I find the Loader was sold for considerably less than what it was worth. When the three appraisals commissioned by Mr. Donkers are averaged out, the Loader was estimated to be worth $49,000. Despite this, the Loader sold for only $34,000. The fact that the Loader was sold to the owner of Call Service renders this transaction questionable. Accordingly, Mr. Priest shall receive a credit for the difference between the Loader’s appraised value and the amount realized on the sale, or $15,000. [8]

Other Leased Equipment

[108] This is the Truck and Trailer. Pursuant to Justice Mulligan’s Endorsement:

The plaintiffs remained responsible for these leased items. Payments were not made by the defendants and the plaintiffs were required to pay them. The amount claimed by the plaintiff, as set out in Exhibit “A” of Mr. Donkers’ affidavit, is $38,070.99 plus interest for the period in question, bringing the total to $50,814.84 for principle plus interest at the rate of seven percent.

[109] Mr. Donkers swore two affidavits in support of the default judgment hearing before Justice Mulligan. The first affidavit was appended to the motion record, and sworn January 18, 2017; the second was sworn February 28, 2017, and contained updated calculations. The motion record with the first affidavit was made an exhibit during the trial, but not the updated affidavit. Accordingly, I am unable to review Schedule “A” to determine what payments Mr. Donkers advised Justice Mulligan he had made in respect of the Truck and Trailer.

[110] What transpired in respect of the Truck and Trailer was, however, fully canvassed at trial. General Electric was owed $33,661.33 for lease payments not made between seizure and sale of the equipment. General Electric repossessed the Truck and Trailer from Mr. Donkers, and consigned them to Aero Auction Sales Inc., which sold them at auction for $101,500.

[111] From this amount, Aero Auction Sales Inc. paid General Electric the $33,661.33 it was owed. The balance of $65,538.67 was remitted to Mr. Donkers (his name was still on the lease), and again, the entire sum was appropriately credited to Mr. Priest. Mr. Donkers conceded, on the record, that he was never required to make any payments to General Electric. Accordingly, the $50,814.84 shall be removed from further consideration.

Personal Expenses and Time Spent Compensation

[112] Justice Mulligan held there was no basis for providing additional relief for either of these heads of damage, given that the plaintiffs had been awarded interest in respect of the claims under the Agreement and the Promissory Note. In respect of personal expenses, Mr. Donkers had not provided documentation to support the figure he sought, and the “time spent” claim simply reflected the cost of doing business.

[113] While acknowledging Mr. Donkers’ efforts to provide the court with documentation in support of his personal expenses, I agree with Justice Mulligan. No relief will be awarded for either Mr. Donkers’ personal expenses, or the time he spent pursuing the litigation.

Storage

[114] Finally, the $900 per day storage fee charged by Call Service is simply untenable. Mr. Donkers said this was the price set by Call Service, as if he had no other choice. In reality, Mr. Donkers had eight months to find a similarly situated facility (with sufficient available volume, secure, etc.) at a more reasonable rate. There is no evidence he made any effort to do so.

[115] Mr. Priest provided quotes which averaged out to $185 per day, or $5,500 per month. Mr. Donkers submits this evidence was unreliable, as the proposed storage facilities were not secure, they were not large enough to accommodate all of the equipment, and the quotes were in 2019 dollars.

[116] How then is the court to determine what was reasonable in the circumstances? Call Service charged Mr. Donkers $1,500 per month to store his equipment in the same facility, for what I have estimated to be about 35% less volume in terms of space required. The difference is staggering.

[117] Taking into consideration Mr. Donkers’ concerns regarding the need for secure storage, and the size of the facility required, I find that a reasonable monthly storage fee is $10,000 per month, for a total of $60,000. Reviewing both the invoice from Call Service and the personal guarantee of Mr. Donkers, it is unclear whether interest is applicable. If Mr. Donkers satisfies counsel for Mr. Priest that interest is applicable, then interest shall be calculated at the rate set out in s. 127 of the Courts of Justice Act, R.S.O. 1990, c. C-43 (the “CJA”).

Conclusion - Damages

[118] I award damages to the plaintiffs as follows:

(i) $161,943.64 on the Promissory Note, including interest to February 28, 2017, plus interest at the rate of seven percent per annum, from February 28, 2017 to May 25, 2020, and ongoing, until satisfied; (ii) $189,804.49 on the Excavator cost, including interest to February 28, 2017, plus interest at the rate of seven percent per annum, from February 28, 2017 to May 25, 2020, and ongoing, until satisfied; (iii) ($150,882.65) minus recovery credit. [9]

[119] A word in respect of pre-judgment interest is warranted. I believe Mr. Priest may have taken issue with the pre-judgment interest rate at seven percent, as Mr. Teplitsky commented during submissions that he would speak to the rate of interest being charged by Mr. Donkers. However, no further submissions on interest were made.

[120] Interest should be calculated at seven percent, as provided for in both paragraph 3.02 of the Agreement, and paragraph one of the Promissory Note. If I am incorrect in this regard, and the pre-judgment rate should be determined pursuant to s.127 of the CJA, then I exercise my discretion under s. 130(1) to vary the rate.

[121] Having regard to the relevant factors set out in s. 130(2) of the CJA, including the circumstances of the case, whereby the only interest rate contemplated between the parties is the rate set out in the Agreement and the Promissory Note, I would substitute interest at seven percent for the CJA interest rate.

JUDGMENT

[122] Consequently, I enter judgment in favour of the Donkers parties as against the Priest parties in the amount of $200,865.48, plus interest to be determined in accordance with paragraphs 118(i) and (ii) above. Once calculated, the total judgment will bear post-judgment interest at the applicable CJA rate.

[123] The Priest parties’ counterclaims are dismissed in their entirety.

COSTS

[124] If counsel cannot agree on costs, I will receive written submissions on a seven-day turnaround, commencing with the Donkers parties, followed by responding submissions by the Priest parties, then reply submissions from the Donkers parties, if any, commencing 14 days from the date of release of these reasons. Cost submissions shall be no more than three pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my judicial assistant at BarrieJudSec@ontario.ca.

CASULLO J.

Released: May 22, 2020

SCHEDULE “A”

List of Equipment to be Purchased:

• Existing Contracts
• Miska Dump Trailer
• Dum-Pro Box Insert
• Scale, concrete blocks, concrete pad, site MOE license, parts and accessories, storage trailers, mobile radios (Telequip), GPS units (Telecom), etc.
• Not including parts belonging to non-purchased equipment
• Duratech Tub Grinder
• 25 – 40 Cubic Yard Containers
• 25 – 30 Cubic Yard Containers
• 15 – 10 Cubic Yard Containers
• 1 – 40 Cubic Yard Compactor
• Mulch products on site @ $22.00 per yard
• Red – 140 Yards
• Black – 160 Yards
• Hardwood – 150 Yards
• Muskoka – 800 Yards
• Muskoka/Pine – 3000 Yards
• Red Pine – 400 Yards
• Pine Chips – 120 Yards
• Total of 4770 Yards.

SCHEDULE “B”

List of Leased Equipment Which Leases to be Assumed:

• 244 John Deere Loader
• 270 John Deere Excavator

Leased List of Equipment to be Leased from 1758704 ONTARIO INC:

• 2008 International Truck
• 2009 Universal Truck
• All parties acknowledge and agree that these assets are currently leased from manufacturer by 1758704 ONTARIO INC. which such leases will be maintained in good standing by 1758704 ONTARIO INC. with the Purchaser agreeing to pay the actual amount of money owing under the existing leases to 1758704 ONTARIO INC. monthly in the approximate amount of Four Thousand One Hundred and Thirty Three Dollars ($4,133.00) for the remainder of the term of such leases with the Purchaser acquiring any and all rights with respect to the assets of concern arising from such leases.

Monthly Expenses to be Assumed:

• Property Rental
• Telephone System
• Advertising
• Armstrong Trailers (currently monthly)
• Security System
• Hydro
• Mobile Radios
• GPS Tracking

[1] While the Endorsement Brief contains only 16 Exhibits, a number of Endorsements contained therein referenced additional appearances and Orders which were not included. [2] I accepted the Amended Statement of Defence and Counterclaim dated November 20, 2019, on November 20, 2019. At the same time, Mr. Teplitsky sought leave to amend the Amended Statement of Defence and Counterclaim, to, inter alia, include a claim for punitive damages. I denied leave with oral reasons. [3] The affidavit was handed up during closing submissions, and thus not marked as an exhibit. [4] Trish is Mr. Priest’s wife, and Simcoe Recycling is Mr. Priest’s company. [5] The legislation in place as of December 10, 2012 was the Repair and Storage Liens Act, R.S.O. 1990, c. R.25. [6] This decision also made note of the animosity between counsel: “The transcript showed this to be hard litigation; the animosity between counsel appeared to override the subject matter of the cross-examination making it a useless exercise.” (para. 3); and “After an initial argument, again during which counsel attacked each other to no good purpose, counsel eventually both relented and indicated that the motion proceed on the materials before the court without further cross-examination.” (para. 4) [7] While not included in the Endorsement Brief, the Priest parties commenced a third proceeding in Toronto (CV-14-500178), without notice to the Donkers parties, in which Justice Perrell issued an Anton Piller on March 14, 2014. [8] Mr. Donkers’ new company, Guaranteed Services, bought two lots of bins. I have reviewed these transactions, comparing the value the bins were estimated at with the price Mr. Donkers paid for them, and am satisfied Mr. Donkers paid a fitting amount. [9] Expenses approved by Justice Mulligan at $236,082.65, less $100,200 for excessive storage fees [$100,200 represents the difference between the $160,200 claimed by Mr. Donkers, and the $60,000 approved by the Court], plus the $15,000 credit for Loader.