COURT OF APPEAL FOR ONTARIO

CITATION: Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (Energyshop Consulting Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85

DATE: 20140131

DOCKET: C56117

Goudge, Watt and Pepall JJ.A.

BETWEEN

Shoppers Drug Mart Inc.

Plaintiff (Appellant)

and

6470360 Canada Inc., c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc. and Michael Wayne Beamish

Defendants (Respondent)

AND BETWEEN:

Shoppers Drug Mart Inc.

Plaintiff

(Respondent by way of cross-appeal)

and

6470360 Canada Inc. c.o.b. Energyshop Consulting Inc./Powerhouse

Energy Management Inc. and Michael Wayne Beamish

Defendants

(Appellants by way of cross-appeal)

Kenneth Prehogan and Scott McGrath, for the appellant Shoppers Drug Mart Inc.

Joseph Jebreen and Michael Walsh, for the cross-appellants 6470360 Canada Inc. and Michael Wayne Beamish

Heard: August 19, 2013

On appeal from the order of Justice Edward M. Morgan of the Superior Court of Justice, dated September 14, 2012, with reasons reported at 2012 ONSC 5167.

Pepall J.A.:

[1] This appeal and cross-appeal address the intersection of corporate and personal liability in the operation and conduct of a corporation having only one officer, director and shareholder.

[2] The parties brought cross-motions for summary judgment. The motions judge awarded the appellant, Shoppers Drug Mart Inc. (“Shoppers”), summary judgment in the amount of $2,236,585.14 against the cross-appellant, 6470360 Canada Inc. c.o.b. as Energyshop Consulting Inc./Powerhouse Energy Management Inc. (“647”), but dismissed Shoppers’ claim for summary judgment against 647’s sole officer, director and shareholder, the respondent, Michael Wayne Beamish (“Beamish”). Furthermore, he granted Beamish’s request for summary judgment and dismissed Shoppers’ claim against him, but awarded costs to Shoppers against 647 and Beamish on a joint and several basis. The motions judge also dismissed Beamish’s Rule 21 motion which asserted that Shoppers’ action against him disclosed no reasonable cause of action.

[3] Shoppers appeals the motions judge’s dismissal of its summary judgment motion and action against Beamish in his personal capacity. For their part, 647 and Beamish ask that the motions judge’s order granting summary judgment against 647 be set aside along with the costs order against Beamish and the dismissal of Beamish’s Rule 21 motion.

Facts

[4] Shoppers is a drug store franchisor that has over 1,000 retail stores across Canada.

[5] In October 2005, Shoppers contracted with “Energyshop Consulting Inc.” (“Energyshop”) to manage and pay utility bills for Shoppers’ stores on a nationwide basis (the “2005 Contract”). The contract was negotiated by Beamish. The 2005 Contract bore his typewritten name, described his position as “President”, and identified his email address at Energyshop. At the time, Energyshop was not incorporated. Several weeks after entering into the 2005 Contract, Beamish incorporated 647.

[6] The parties never formally executed the 2005 Contract but both Shoppers and 647 agree that it was binding upon them and they acted in accordance with its terms.

[7] In 2007, Energyshop announced that it had changed its name to Powerhouse.

[8] Shoppers believed it had contracted with a corporation and was unaware until after the litigation started that Energyshop and Powerhouse were not registered corporations. Furthermore, Shoppers was unaware of 647’s existence until after it had commenced this action.

[9] Under the 2005 Contract, Shoppers directed utility companies to send their bills for Shoppers to Energyshop (and later Powerhouse). 647 then collected and organized the bills and periodically sent a remittance summary to Shoppers. Each remittance summary specified the total amount of that period’s utility bills payable by Shoppers. Each also specified the processing fee for this service payable to 647.

[10] On receiving a remittance summary, Shoppers would transfer the invoiced amount to a Toronto-Dominion Bank account which was in the joint names of 647 and Beamish (the “Clearing Account”). The Clearing Account was used to receive all funds from Shoppers, and in turn, to pay Shoppers’ utility bills. Beamish signed off and approved every transfer from the Clearing Account.

[11] If Shoppers did not transfer the required funds within five business days of receipt of the remittance summary, it was responsible for any late fees. Otherwise, 647 was responsible for late fees charged by the utility companies. By early 2007, the late fees for 647’s account had become very onerous.

[12] 647 either used the funds received from Shoppers to pay Shoppers’ utility bills or transferred them to a separate Toronto-Dominion Bank account that was used to pay 647’s operating expenses (the “Operating Account”). That account was also in the joint names of 647 and Beamish.

[13] The parties negotiated certain terms of a new contract, the draft of which is dated July 1, 2007 (the “2007 Draft Contract”). Under the proposed new contract, Shoppers would provide 647 with a $20,000 advance float but the agreement was otherwise silent on the issue of late fees. 647 was to submit remittance summaries to Shoppers twice a week and 647’s fees were to increase by 50 cents per invoice as of July 8, 2008, and by another 50 cents per invoice on July 1, 2009. Additionally, 647 states that the 2007 Draft Contract only permitted termination on 90 days’ notice if there were a material breach. Shoppers took the position that no new agreement was binding on the parties in 2007 whereas 647 and Beamish allege to the contrary.

[14] In August 2008, Shoppers received an anonymous telephone call and fax indicating that funds it paid into the Clearing Account were being used for activities other than the payment of utility bills. Ultimately, Shoppers came to the conclusion that something was amiss with its relationship. On February 2, 2009, Shoppers delivered a notice terminating 647’s services.

[15] On February 25, 2009, Shoppers and 647 signed a transition agreement whereby they mutually confirmed the termination of the contract (the “Transition Agreement”). It indicated that for the period prior to February 1, 2009, Shoppers had reconciled its payments and the parties acknowledged that as a result of the reconciliation, Shoppers had overpaid 647 by $47,000. Furthermore, 647 would cease to process and pay utility bills as of February 2, 2009. The parties also signed a mutual release as part of the agreement.

[16] In the week prior to delivering its termination letter on February 2, 2009, Shoppers had transferred $1,370,338.32 to the Clearing Account, intending that $1,366,558.20 be used for payment of utility bills and $3,780.12 for 647’s processing fees. Following receipt of the termination letter, Beamish caused 647 to transfer $970,000 of this amount to the Operating Account. Consistent with the direction in the February 25, 2009 Transition Agreement not to pay any utility bills after February 2, 2009, 647 did not do so. On February 25, 2009, Shoppers began to receive notices of default from various utility providers in respect of outstanding invoices that, in its view, 647 ought to have paid.

[17] On March 9, 2009, Shoppers commenced an action to recover its funds. 647 and Beamish consented on March 11, 2009 to an order that all of the money that remained in both the Clearing and Operating Accounts, which totalled $796,434.11, be paid to Shoppers.

[18] Thereafter, Shoppers brought its motion for summary judgment against both respondents seeking payment of the remaining funds that it alleged had been misappropriated. Beamish responded with two motions to dismiss the action against him personally pursuant to Rules 20 and 21 of the Rules of Civil Procedure, R.R.O., Reg. 194.

Motions Judge’s Decision

[19] The motions judge concluded that the 2005 Contract governed the parties’ relationship and that while there were certain administrative accommodations, the parties did not reach a new agreement in 2007. He observed that the advance float, which he described as the main feature of the proposed 2007 Draft Contract, was never implemented. The motions judge then determined that 647’s transfer of $970,000 to its Operating Account was a wrongful misappropriation. While he was not satisfied that the misappropriation constituted fraud or a breach of trust, Shoppers had established the elements required for its claim of unjust enrichment. 647 was enriched by its misappropriation; Shoppers suffered a corresponding deprivation; and there was no juristic reason for 647’s enrichment. Shoppers entered into the Transition Agreement in ignorance of the misappropriation. The mutual release contained in the Transition Agreement was premised on an intentional and fraudulent misrepresentation by 647 and was unenforceable. Therefore, neither the 2005 Contract nor the Transition Agreement gave 647 the right to retain the funds in the Clearing Account. Equity demanded that 647 return the misappropriated funds. The motions judge therefore granted summary judgment against 647 in favour of Shoppers.

[20] The motions judge then turned to the issues relating to Beamish, the personal defendant. He first addressed Beamish’s Rule 21 motion and concluded that it must be rejected. Shoppers’ statement of claim included an assertion that Beamish was personally liable under the 2005 Contract because the agreement was entered into before Beamish incorporated 647. Shoppers also claimed breach of trust and misappropriation and that the corporate veil had been used as a shield against Beamish’s tortious acts. The motions judge concluded that the case against Beamish was not “beyond doubt”. Accordingly his motion was dismissed.

[21] The motions judge then addressed Shoppers’ request for summary judgment against Beamish and Beamish’s request that the action against him be dismissed as disclosing no genuine issue for trial.

[22] The motions judge concluded that Beamish was not personally liable for unjust enrichment. Shoppers knew it was contracting with a corporation and expected to contract with a limited liability company. Beamish did not intend to mislead Shoppers by using unregistered trade names for 647; he was simply sloppy. There was also no evidence that Beamish intended to contract or held himself out as contracting personally with Shoppers. At all times, both sides understood that they were dealing with a corporate party.

[23] The motions judge rejected Shoppers’ request to pierce the corporate veil. Shoppers relied primarily on an expert accounting report (the “Hocking Report”) filed by 647. While the Hocking Report showed that Beamish employed several family members, and some of the misappropriated funds were applied to their salaries, the salaries were earned in the usual course of employment and were modest in scope. Everything Beamish did was in his corporate capacity and for 647’s benefit. There was no asset stripping nor were there any fraudulent preferences. Although the sole shareholder, officer and director of 647, Beamish did not share a legal personality with the corporation.

[24] At paragraph 73 of his reasons, the motions judge stated that “the corporate veil should be pierced not where a corporation has misappropriated funds, but where the very use of the corporation is to hide that misappropriation.” Furthermore, at para. 74, “[a]bsent evidence that the incorporation of 647 was itself done for purposes that are illegal and/or fraudulent, a court should be reticent to ignore the corporate structure under which it did business.” He concluded that there was no evidence of any personal wrongdoing that would lead to the piercing of the corporate veil.

[25] Finally, the motions judge turned to the issue of damages. To calculate Shoppers’ damages for unjust enrichment, the motions judge began with the total amount of funds from Shoppers that 647 transferred from the Clearing Account to the Operating Account between 2005 and 2009: $3,398,975. To this amount, the motions judge added $18,000.68 in credit cheques from utility companies which 647 did not pass on to Shoppers before they became stale-dated, and $8,715.57 that Shoppers paid into the Clearing Account for services which were never performed. The motions judge then subtracted $367,475 in funds which 647 actually used to pay Shoppers’ utility bills, and the $796,424.11 which 647 had already repaid to Shoppers pursuant to the consent order of March 11, 2009. He determined that Shoppers had a total entitlement of $2,261,782.14. In making these findings, the motions judge again relied on the Hocking Report.

[26] The motions judge then considered 647’s claims for set-off and awarded a total of $25,197. Shoppers’ and 647 had entered into a call centre agreement, separate from the 2005 Contract, in which 647 provided after-hours call centre services for maintenance support to all Shoppers outlets in Ontario and Quebec. While the 2005 Contract was terminated on February 2, 2009, the call centre agreement continued in force until March 31, 2009, and Shoppers had failed to pay the outstanding invoices for January, February and March of 2009 which amounted to $22,881. The motions judge also credited 647 with $2,316 in outstanding utility bill processing fees owing under the 2005 Contract which Shoppers had failed to pay.

[27] The motions judge declined to order a further set-off of $75,600 in outstanding fees for services which 647 claimed to have performed under the Transition Agreement, as there was no value in these services. 647’s conduct during this period was nothing but self-serving and wrongful.

Grounds of Appeal

[28] Shoppers advances three grounds of appeal as against Beamish. It argues that the motions judge erred in finding:

(i) that Beamish was not personally liable under the 2005 Contract pursuant to s. 14 of the Canada Business Corporations Act, R.S.C., 1985, c. C-44;

(ii) that Beamish had not been unjustly enriched by the misappropriation; and

(iii) that the corporate veil should not be pierced.

[29] 647 and Beamish advance numerous grounds of appeal. They submit that the motions judge erred in:

(i) deciding Shoppers’ claim on a motion for summary judgment;

(ii) concluding that the validity and enforceability of the Transition Agreement and the 2007 Draft Contract did not constitute genuine issues for trial;

(iii) finding that 647 was bound by the Transition Agreement;

(iv) finding 647 to be liable for unjust enrichment;

(v) dismissing Beamish’s Rule 21 motion;

(vi) using the Hocking Report to calculate Shoppers’ damages;

(vii) shifting the burden to 647 to prove Shoppers’ damages;

(viii) the calculation of damages;

(ix) finding that 647 was not entitled to claim set-off for services provided under the Transition Agreement, new construction set-up services, and pre-payments and double payments made to utility companies by 647 on Shoppers’ behalf; and

(x) finding Beamish jointly and severally liable with 647 for the costs award of $45,000.

[30] I will address Shoppers’ appeal first and then the cross-appeal.

Shoppers’ Appeal

(i) Section 14 of the CBCA

[31] Firstly, Shoppers submits that the motions judge erred in not finding Beamish personally liable under the 2005 Contract pursuant to s. 14 of the CBCA.

[32] Section 14 provides that a person who enters into a contract on behalf of a non-existent corporation is personally bound by the contract and entitled to its benefits. If a corporation within a reasonable time subsequently adopts the contract, the individual is released from liability and the corporation is bound.

[33] Specifically, s. 14 of the CBCA states:

Personal liability

14. (1) Subject to this section, a person who enters into, or purports to enter into, a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to its benefits.

Pre-incorporation and pre-amalgamation contracts

(2) A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt a written contract made before it came into existence in its name or on its behalf, and on such adoption

(a) the corporation is bound by the contract and is entitled to the benefits thereof as if the corporation had been in existence at the date of the contract and had been a party thereto; and

(b) a person who purported to act in the name of or on behalf of the corporation ceases, except as provided in subsection (3), to be bound by or entitled to the benefits of the contract.

Application to court

(3) Subject to subsection (4), whether or not a written contract made before the coming into existence of a corporation is adopted by the corporation, a party to the contract may apply to a court for an order respecting the nature and extent of the obligations and liability under the contract of the corporation and the person who entered into, or purported to enter into, the contract in the name of or on behalf of the corporation. On the application, the court may make any order it thinks fit.

Exemption from personal liability

(4) If expressly so provided in the written contract, a person who purported to act in the name of or on behalf of the corporation before it came into existence is not in any event bound by the contract or entitled to the benefits thereof.

[34] Shoppers argues that the motions judge failed to find that 647 had adopted the contract, and that there is no evidence to support such a finding. The reasoning of the motions judge suggests that Beamish escaped liability because of Shoppers’ belief that it had contracted with a corporate entity and due to the absence of any intention by Beamish to mislead Shoppers in this respect.

[35] In my view, this argument must be rejected. Pursuant to s. 14(2) of the CBCA, formal adoption is not required; it is enough for the corporation by its conduct to signify its intention to be bound. Section 14(2) is almost identical to s. 21(2) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. In discussing that statute, Abella J.A. (as she then was) stated in Sherwood Design Services Inc. v. 872935 Ontario Ltd. (1998), 1998 3116 (ON CA), 39 O.R. (3d) 576 (C.A.), at p. 581, that s. 21(2) does not set out the “manner of adoption” and there is no principled basis for imposing a stringent requirement of formality.

[36] At paragraph 7 of his reasons, the motions judge wrote:

The evidence is equally clear that the flaws in 647’s incorporation and trade name process were errors of form, not substance. That is, Beamish was ignorant of the fact that his company’s trade names should have been formally registered and that 647, once incorporated, should have formally adopted the previously agree-upon (sic) Contract with Shoppers. There is no evidence that Beamish intended to, or ever did, hold himself out as contracting personally with Shoppers. Both sides at all times understood that they were dealing with a corporate party. (Emphasis added.)

[37] It is implicit from the motions judge’s reasons that he considered that 647 had, by its conduct, signified its intention to be bound and in substance had adopted the contract. Indeed, at the time, both parties to the contract were also of that view. According to the motions judge’s findings, 647 performed the work of collecting utility bills, sending remittance summaries to Shoppers and paying the bills. In performing these contractual obligations, 647 effectively adopted the 2005 Contract. Additionally, the case is distinguishable from Pelliccione v. John F. Hughes Contracting and Development Co. (2005), 2005 34822 (ON SC), 47 C.L.R. (3d) 104 (Ont. S.C.) where no new corporation came into existence after the parties entered the contract, so adoption under s. 21(2) was impossible. While I agree with Shoppers that the absence of an intention to mislead is not determinative, in my view, the motions judge did not rest his conclusion on that basis. I would not give effect to this ground of appeal.

(ii) Unjust Enrichment and Piercing the Corporate Veil

[38] Secondly, Shoppers submits that the motions judge erred in finding that Beamish had not been unjustly enriched by the misappropriation. It argues that the motions judge misapprehended the evidence and failed to realize that the Operating Account was in the names of both Beamish and 647. As such, Beamish benefited personally from the misappropriation. He also benefited in his capacity as shareholder of 647 because misappropriated money that benefits a closely-held corporation also benefits its sole shareholder.

[39] Shoppers also submits that the motions judge erred in failing to pierce the corporate veil. It asserts that the motions judge applied an improper test. Rather than relying on the leading case from Ontario on the issue, namely 642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417 (C.A.), he relied on U.K. jurisprudence that had not been argued before him.

[40] The motions judge found that: (a) Beamish was the sole officer, director and shareholder of 647; (b) 647 misappropriated funds that rightfully belonged to Shoppers; (c) 647 benefited as it transferred to “its Operating Account funds that did not belong to it”; and (d) the release in the Transition Agreement was premised on a fraudulent misrepresentation by 647. The motions judge did not allude to the fact that the Operating Account was in the names of both 647 and Beamish.

[41] The motions judge relied on a decision of the English High Court, Queen’s Bench Division, Creasey v. Breachwood Motors Ltd., [1992] B.C.C. 638 (Q.B.D.), for the proposition that in the absence of a transfer of assets or a fraudulent preference, employees do not assume a corporation’s liabilities.

[42] The motions judge also relied on Trustor AB v. Smallbone and others (No. 2), [2001] 3 All E.R. 987, at p. at 996 (Ch), a decision of the English High Court, Chancery Division, to conclude that the corporate veil should be pierced not where a corporation has misappropriated funds but where the very use of the corporation is to hide that misappropriation; that is, the company structure is used to avoid or conceal liability for the impropriety.

[43] I agree with Shoppers that the motions judge did not refer to Fleischer. Fleischer is the appropriate test to apply to piercing the corporate veil in Ontario. In Fleischer, Laskin J.A. stated that only exceptional cases that result in flagrant injustice warrant going behind the corporate veil. It can be pierced if those in control expressly direct a wrongful act to be done. At para. 68, he stated:

Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated “those in control expressly direct a wrongful thing to be done”: Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): “the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.”

[44] The motions judge found a misappropriation. Black’s Law Dictionary, 7th ed., at p. 1013 defines “misappropriation” as, “the application of another’s property or money dishonestly to one’s own use.”

[45] There can be no doubt that Beamish was the directing mind and caused the misappropriation and misrepresentation by 647 and the ensuing unjust enrichment. He had sole signing authority over the accounts and authorized the transfer of significant amounts of money, which were supposed to be dedicated to the payment of utility bills, to an Operating Account in the names of himself and a company of which he was the sole shareholder. He expressly directed and caused the wrongful act. Applying the correct test, in these circumstances, effect should be given to the second and third grounds of appeal. There was an unjust enrichment and the corporate veil should be pierced.

[46] Lastly, I do not agree with Beamish that Shoppers failed to plead its claim that the corporate veil should be pierced. While those precise words were not used, it was evident from the statement of claim read as a whole that Shoppers would advance this argument. Furthermore, it was fully argued on the summary judgment motion.

[47] Accordingly, the main appeal is allowed, the order dismissing the action against Beamish is set aside and an order is substituted granting Shoppers judgment against Beamish personally.

647 and Beamish’s Cross-Appeal

[48] As mentioned, 647 and Beamish raise numerous issues in their cross-appeal. Many issues may be grouped together.

(i) Summary Judgment Test

[49] Firstly, 647 and Beamish submit that the motions judge erred in granting summary judgment against 647. The motions were argued over two and a half days, involved the making of numerous findings of fact based on voluminous and conflicting motion records, and resulted in numerous errors by the motions judge. 647 and Beamish argue that the motions judge could not have had a full appreciation of the evidence and issues and Shoppers’ claim should not have been decided on a motion for summary judgment.

[50] Here the motions judge was required to consider a voluminous record. However, he concluded, at paras. 62-63, that the parties communicated primarily by e-mail and “virtually the entire relationship is on paper”. Moreover, the issues were neither confusing nor complex.

[51] In this case, the motions judge applied the applicable test and was satisfied that he had a full appreciation of the evidence and the issues. In the facts of this papered relationship, I see no error in his conclusion.

(ii) Transition Agreement

[52] Secondly, 647 and Beamish submit that the motions judge erred in finding that there was no genuine issue for trial on whether the Transition Agreement, which contained a full mutual release, was valid and binding. In this regard, they advance four sub-issues: Shoppers did not plead fraudulent misrepresentation; silence did not amount to misrepresentation; there was no misrepresentation; and the release was entered into under a unilateral mistake.

[53] The motions judge found that the release in the Transition Agreement was unenforceable because of 647’s fraudulent misrepresentation. However, 647 and Beamish state that Shoppers failed to plead fraudulent misrepresentation.

[54] At para. 29 of its reply, Shoppers pled that 647 “misrepresented to Shoppers that the invoices had been paid during the negotiation of the Transition Agreement” and that 647 was estopped from relying on the Transition Agreement to release its obligations to Shoppers. Although the word ‘fraudulent’ was not used, it was clear that Shoppers was relying on 647’s misrepresentation to avoid the application of the release. 647 and Beamish could not have been taken by surprise. I also note that Shoppers claimed no damages for fraudulent misrepresentation. Furthermore, this argument was fully canvassed by the parties in the motions and materials before the motions judge.

[55] On the issue of silence and misrepresentation, at para. 41 of his reasons, the motions judge found:

Although the evidence shows that the $47,000 overpayment figure came from Shoppers, the silence of 647 as to the massive error represented by this figure amounted to a blatant, intentional misrepresentation. 647 either knew the figure to be false by over $1.3 million or, to use Professor Waddams’ phrase, it entered into the mutual release “not caring whether it [was] true or false.” The Court of Appeal has specifically held that a release entered into pursuant to such a misrepresentation will be set aside. Francis v. Dingman, 1983 1985 (ON CA), [1983] OJ No 3204, at para. 52.

In view of this misrepresentation by silence in the face of a million-dollar-plus misappropriation of funds unknown to Shoppers but known to 647, the mutual release clause cannot be relied upon by 647.

[56] Having surreptitiously removed Shoppers’ funds from the Clearing Account, 647 and Beamish knew or did not care that the actual amount owing to Shoppers did not correspond with the figure contained in the Transition Agreement. This could hardly be described as a unilateral mistake.

[57] In The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at pp. 299-300, Professor G.H.L. Fridman states that, if fraudulent, a failure to disclose which renders that which has been stated a misrepresentation is fraudulent misrepresentation. Professor Fridman contrasts this situation with instances where there is complete silence which does not affect something which has been said, and where there is no duty to disclose Such silence does not amount to misrepresentation. In this case, silence did amount to a misrepresentation. 647’s failure to disclose the misappropriation of Shoppers’ funds impacted on the parties’ agreement that Shoppers’ had overpaid by $47,000, rendering the statement untrue. The motions judge was correct in deciding that 647 and Beamish should not be able to avail themselves of the benefit of the release. Furthermore, he did not find that 647 was bound by the Transition Agreement. Rather, it constituted evidence of the parties’ mutual intention to terminate the relationship. I would not give effect to the second and third grounds of appeal.

(iii) 2007 Draft Contract

[58] Thirdly, 647 and Beamish submit that the motions judge erred in determining that there was no genuine issue for trial on the validity and enforceability of the 2007 Draft Contract. The motions judge found at para. 13 that:

It is obvious from the parties’ ongoing business relationship after July 2007 that no new contractual arrangement was ever entered into. Unlike the unsigned October 2005 Contract, the unsigned July 2007 draft agreement was never acted upon and its terms never became the basis of their ongoing business dealings. The main feature of the July 2007 proposal by 647 – the advance by Shoppers of a float from which its utility bills would be paid – never transpired. From July 2007 until the termination of the contract in early 2009, Shoppers continued to pay in accordance with remittance summaries provided by 647 just as it had done before.

[59] He concluded that no new material terms were introduced in 2007 and no new agreement was reached.

[60] I accept that some new terms were agreed to by the parties. The motions judge identified some of them, including the administrative change relating to the timing of delivery of remittance statements by 647 and the increase in the fees payable to 647 by 50 cents per invoice starting in July 2008. That said, 647 and Beamish could not locate an executed copy of the 2007 Draft Contract and as reflected in the e-mail chains relating to the negotiation of the proposed agreement, it was never finalized. While the motions judge misdescribed the extent of the proposed float, certainly the issue of the float continued to be outstanding at the date of the termination of the parties’ relationship. Furthermore, if the new contract was in part a reaction to the late fees becoming onerous for 627, one would expect to see some kind of change in the parties’ practices regarding late fees. There was none. The parties had not altered their practices relating to late payments in order to comply with the 2007 Draft Contract which 647 and Beamish allege is binding. The motions judge did not err in concluding that there was no valid and enforceable 2007 Draft Contract.

(iv) Pleading of Unjust Enrichment

[61] 647 and Beamish claim the motions judge erred in finding 647 liable to Shoppers in unjust enrichment for three reasons. Firstly, he framed the judgment in equity despite the adequacy of remedies available in contract law. Secondly, he erroneously found that 647 was enriched when it transferred funds that did not belong to it from the Clearing Account to the Operating Account when there was no meaningful difference between the nature of the funds in the two accounts and all the funds were legally in the possession of 647 in any event. Thirdly, the motions judge erred in finding that funds transferred to the Clearing Account were “earmarked” for the payment of utility bills when there was conflicting evidence on their purpose. The 2005 Contract did not specify how utility bills were to be paid and 647 developed a practice of prioritizing older bills.

[62] For the reasons below, I would not give effect to these arguments.

[63] 647 and Beamish do not explain how the remedies available in contract law are adequate to address their wrongful misappropriation and their counsel did not press this ground in oral argument. In fact, 647 and Beamish argue that they did not breach any contract with Shoppers. The motions judge properly considered Shoppers’ various claims and properly found that, although the misappropriation was not fraudulent and was not a breach of trust, it resulted in an unjust enrichment.

[64] As to the second argument, the motions judge’s references to transfers from the Clearing Account to the Operating Account as the source of the unjust enrichment are merely a shorthand for the fact that 647 used the transferred funds for its own purposes. At para. 9 of his reasons, the motions judge described the Operating Account as an “account which [647] used to pay its own operating expenses” (emphasis added). With some exceptions, funds which 647 transferred to the Operating Account were not used to pay Shoppers’ utility bills. Instead, the funds enriched 647 and in turn Beamish.

[65] Similarly, with respect to the third argument, the motions judge did not hold 647 liable for unjust enrichment because it failed to comply with a specific process for paying utility bills, or because transfers from Shoppers were “earmarked” for specific bills and were not applied to the right ones. The issue was whether 647 ever applied the transferred funds to any of Shoppers’ utility bills. 647 admitted that the purpose of the transfers from Shoppers was to provide 647 with funds to pay Shoppers’ utility bills. 647 was entitled to some portion of the transfers to satisfy its processing fees. It was enriched because it kept more of the transfers than it was contractually entitled to.

(v) Rule 21 Motion

[66] 647 and Beamish submit that the motions judge ought to have struck out the personal claim against Beamish as disclosing no reasonable cause of action.

[67] The motions judge applied the correct test and made no error in his conclusion that the action against Beamish should not be struck. The correctness of this result is reflected in the outcome of this appeal.

(vi) Damages

[68] 647 and Beamish advance numerous arguments relating to the motions judge’s assessment of Shoppers’ damages and his treatment of the set-offs claimed by 647. Many of their arguments relate to the motions judge’s use of, and reliance on, the Hocking Report filed by 647.

[69] Firstly, it is conceded by Shoppers that in calculating Shoppers’ damages, the motions judge should have deducted a further $363,213 in fees which Shoppers paid to 647 for services rendered under the 2005 Contract, and which did not form part of the unjust enrichment. This deduction results in an award of $1,873,372.14.

[70] Secondly, 647 and Beamish claim a deduction of $412,750 to reflect the fact that there were funds in the Operating Account that originated from sources other than Shoppers. However, as Shoppers points out, this amount was already excluded from the motions judge’s starting figure of $3,398,975, which only included funds received from Shoppers. While there were other funds in the Operating Account, the motions judge relied on the Hocking Report which states that, in the relevant period of time, the Operating Account received $3,398,975 from Shoppers. The motions judge did not misapprehend the Report and I would not give effect to this ground of appeal.

[71] Thirdly, 647 and Beamish claim that some of the funds transferred from the Clearing Account to the Operating Account represented fees for projects other than utility bill processing. They submit that because these funds did not contribute to the unjust enrichment, they should be deducted from Shoppers’ damages. In their view, the motions judge erroneously treated this argument as a claim for set-off, thereby shifting the onus to 647 to prove Shoppers’ damages. At para. 79 of his reasons, the motions judge stated that “the only transfers to the Operating Account of funds Shoppers deposited into (sic) Clearing Account should have been the processing fees paid to 647 by Shoppers. All of the other funds that Shoppers deposited into the Clearing Account were to be used for payment of utility bills.” The motions judge was satisfied that the only funds which 647 was entitled to transfer from the Clearing Account to the Operating Account and to use as its own were the utility bill processing fees. There is no basis on which to disturb that conclusion

[72] Fourthly, 647 and Beamish argue that the motions judge erred in finding that 647 was not entitled to claim set-off for services it provided under the Transition Agreement because the services had no value. Although the parties evidently thought that 647’s services had value when they negotiated the Agreement, it is implicit in the motions judge’s reasons that he concluded that 647 had not performed the services for which it claimed set-off. He stated at para. 90 that he “[saw] no value” in the services which 647 “supposedly performed under the Transition Agreement”, and found it did nothing that was not self-serving and wrongful. Shoppers’ representative denied that the services were performed, and it was open to the motions judge to accept Shoppers’ evidence on this point. There was no basis to conclude otherwise.

[73] Fifthly, 647 and Beamish submit that the motions judge erroneously refused 647’s claim of set-off for unpaid new construction fees on the basis that, the 2007 Draft Contract, which provided for payment of these fees, was never signed or concluded and was never in force. 647 has provided some evidence that the parties did reach an agreement on new construction fees: 647 invoiced Shoppers for these amounts, and Shoppers may have paid a number of the bills. Shoppers’ representative admitted there was an amount outstanding in respect of new construction fees. However, even if I were to find that the motions judge erred in finding that the parties did not reach an enforceable agreement on new construction fees because they did not come to terms on the entire 2007 Draft Contract, 647 and Beamish have not provided any reliable documentary evidence to support the $22,321 that they claim remains outstanding. They failed to meet their onus in this regard. That said, Shoppers admits that $9,568.13 was outstanding and as such, credit should be given to 647 and Beamish for that amount.

[74] Sixthly, 647 and Beamish claim that the motions judge erred in failing to consider 647’s claim of set-off for pre-payments and double payments which 647 made to utility companies on Shoppers’ behalf. However, 647 only provided bald assertions in support of these claims. No back-up documents were placed in evidence. Again, I am satisfied that it failed to meet its onus on the motion. I would not give effect to this ground of appeal.

(vii) Costs

[75] Beamish submits that, having been successful on the motions with the exception of the Rule 21 motion, an adverse costs order should not have been made against him.

[76] This issue is moot in light of my conclusion that Shoppers’ appeal of the order dismissing its claim for summary judgment against Beamish should be allowed.

Disposition

[77] For the above reasons, I would:

(i) on consent, vary the quantum of the damages award against 647 from $2,236.585.14 to $1,873,372.14;

(ii) allow Shoppers’ appeal, set aside the dismissal of its summary judgment motion against Beamish and substitute an order granting summary judgment against him in the amount of $1,873,372.14;

(iii) dismiss 647 and Beamish’s appeal except insofar as the sum of $9,568.13 is to be deducted from the aforesaid amount of $1,873,372.14; and

(iv) refuse Beamish leave to appeal the costs award against him.

[78] I would order 647 and Beamish to pay Shoppers $40,000 inclusive of disbursements and applicable taxes on a partial indemnity scale on account of Shoppers’ appeal and the cross-appeal on a joint and several basis.

Released:

“JAN 31 2014” “S.E. Pepall J.A.”

“STG” “I agree S.T. Goudge J.A.”

“I agree David Watt J.A.”