Court of Appeal for Ontario

Docket: C65429

Judges: Feldman, van Rensburg and Nordheimer JJ.A.

Parties

Between

1652620 Ontario Inc. Respondent (Plaintiff)

and

Cornerstone Builders Ltd. Appellant (Defendant)

and

Cornerstone Builders Ltd. Appellant (Plaintiff by Counterclaim)

and

1652620 Ontario Inc., Anthony Hanmer and Full Speed Builders Ltd. Respondents (Defendants by Counterclaim)

Counsel

Todd Storms and Charles Hammond, for the appellant, Cornerstone Builders Ltd.

R. Steven Baldwin, for the respondents, 1652620 Ontario Inc., Anthony Hanmer and Full Speed Builders Ltd.

Hearing and Appeal

Heard and released orally: November 30, 2018

On appeal from: the judgment of Justice Kershman, of the Superior Court of Justice, dated March 22, 2018.

Reasons for Decision

[1] Nature of the Appeal

The defendant appeals from the partial summary judgment awarded by the motion judge that provided for payment of monies due under a promissory note in favour of the plaintiff and also struck out parts of the counterclaim.

[2] Background Facts

Briefly stated, the respondent, 1652620 Ontario Inc. ("165"), was the personal corporation of Anthony Hanmer. In 2006, 165 became a shareholder in the appellant and a shareholders' agreement was signed. That agreement provided that upon ceasing to be a shareholder, Mr. Hanmer would sign a non-competition agreement. Mr. Hanmer had been employed by the appellant since 1995. In 2011, the appellant purchased the shares held by 165. As part of the purchase, the appellant gave 165 a promissory note for $1,344,540. The promissory note was to be paid in monthly installments of $10,000. The promissory note did not bear interest and it was not a demand promissory note.

[3] Dispute and Litigation

A falling out occurred between Mr. Hanmer and the owner of the appellant. Mr. Hanmer left his employment and established his own business that is alleged to have competed with the appellant. No non-competition agreement was signed. Subsequently, the appellant ceased to make the monthly payments on the promissory note. 165 commenced this action seeking the payment of the remaining amount under the promissory note. The appellant defended and counterclaimed. The essence of the counterclaim is that Mr. Hanmer, through his new company, Full Speed, unfairly competed with the appellant in breach of an alleged non-competition agreement and in breach of Mr. Hanmer's fiduciary duty.

[4] Motion Judge's Decision on Promissory Note

165 brought a motion for summary judgment. The motion judge granted the motion, finding there was no genuine issue for trial of the monies due under the promissory note. However, since the promissory note was not a demand promissory note, and in the absence of any acceleration clause, the motion judge correctly concluded that he could only award judgment for the payments that were due but not paid, but not for the monthly payments that had yet to fall due.

[5] Motion Judge's Decision on Counterclaim

The motion judge also struck out various allegations contained in the counterclaim that he concluded were untenable on the evidence before him. Despite how the parties appear to have treated his decision in that regard, he did not grant summary judgment on these issues. Rather, he struck out those portions of the appellant's statement of defence and counterclaim, presumably either under r. 21.01 or r. 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[6] Equitable Set-Off Issue

The appellant takes issue with each of the decisions reached by the motion judge. On the issue of the payments under the promissory note, the appellant says it claimed an equitable set-off for those amounts against the damages that it incurred as a result of the improper conduct of the defendants to the counterclaim. The motion judge rejected the appellant's position. He found that equitable set-off was not available where a claim is made on a bill of exchange such as a promissory note. In so concluding, the motion judge relied on the decision in Iraco Ltd. et al. v. Staiman Steel Ltd. (1986), 54 O.R. (2d) 488 (H.C.J.), aff'd (1987), 62 O.R. (2d) 129 (C.A.).

[7] Court's Position on Equitable Set-Off

We do not see any error in the motion judge's conclusion in this regard.

[8] Stay of Execution Issue

The appellant also complains that the motion judge did not stay execution on the judgment awarded pending prosecution of the counterclaim. The motion judge did not give any reasons for his decision not to stay execution on the judgment, other than to make a general reference to the equities without more. The failure to give reasons for his decision was an error in principle.

[9] Court's Position on Stay

The conclusion regarding the defence of equitable set-off is not determinative of the issue whether a stay should be granted. In this case, the two claims are interrelated. They both arise out of the relationship between the parties, both as shareholder and employee. It would seem in those circumstances that a stay ought to have been granted, as was done in Jones Collombin Investment Counsel Inc. v. Fickel, 2016 ONSC 6536.

[10] Adjournment of Summary Judgment Motion

The appellant raises a further issue. Because there was a question whether the appellant would make the future payments required by the promissory note, the motion judge acceded to the suggestion made by counsel for the respondents, that, after granting judgment for the amount owing to date, he adjourn the claim and the motion for summary judgment for a period of approximately six months to see if the future payments were being made.

[11] Court's Position on Adjournment

We agree with the appellant that it was not open to the motion judge to proceed in this fashion. The summary judgment motion on the statement of claim to enforce the promissory note, as it was due at the time of the judgment, had been determined. While he could manage the progress of the remaining parts of the proceeding, he did not have jurisdiction to keep alive a summary judgment motion that had been finally determined.

[12] Striking of Counterclaim Allegations

The appellant also challenges the order, that the motion judge made, striking out portions of the counterclaim. In our view, it was not open to the motion judge to strike out portions of the counterclaim on a motion for summary judgment in the absence of a motion to strike. It is also not clear that some of the portions that the motion judge struck out cannot fairly be seen as particulars of the appellant's breach of fiduciary duty claim that it would be entitled to explore on discovery.

[13] Restoration of Allegations

At the hearing, the appellant only sought to have two of the allegations restored, that is, the derogatory comments and the telephone numbers. Consequently, we allow the appeal to that extent.

[14] Disposition

The appeal is allowed in part. The order below is set aside insofar as it has been amended by these reasons. A stay of the judgment is also granted. As agreed between the parties there will be no costs of the appeal. As also agreed between the parties, the costs of the summary judgment motion that were awarded to the respondent are reduced to $5,000 inclusive of disbursements and HST.

"K. Feldman J.A."

"K. van Rensburg J.A."

"I.V.B. Nordheimer J.A."