CITATION: SAVE MAX REAL ESTATE INC v. DUTTA, 2019 ONSC 6116
COURT FILE NO.: DC-19-0023
DATE: 2019 11 01
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
SAVE MAX REAL ESTATE INC.
S. Sharda, Counsel for the Plaintiff (Respondent)
Plaintiff (Respondent)
- and -
KETAN DUTTA
A. Jain, Counsel for the Defendant (Appellant)
Defendant (Appellant)
HEARD: October 4, 2019, at Brampton
REASONS FOR JUDGMENT
[On appeal from a Decision of Deputy Judge R. Fellman of the Small Claims Court at Brampton dated February 12th, 2019]
LeMay J.
[1] Ketan Dutta (“the Appellant”) worked as a real estate broker for Save Max Real Estate Inc. (“the Respondent”) for a period of seven months from December of 2016 to August of 2017. At the end of that seven months, the Appellant resigned.
[2] The parties had a contract that was to run for three years. It contained a clause that required the Appellant to pay the Respondent $10,000.00 on account of training if the Appellant terminated the contract in the first three years.
[3] The Respondent brought a claim to enforce this contract in Small Claims Court. The Appellant resisted the Respondent’s claim, but did not bring a claim of his own. After a trial, the Deputy Judge found that the repayment clause was a reasonable pre-estimate of damages and directed the Appellant to pay $10,000.00 to the Respondent.
[4] The Appellant appeals to this Court, alleging that the Deputy Judge made significant errors in his factual determinations. The Appellant also argues that the Deputy Judge erred in interpreting the contract between the parties, and erred in finding that the provision requiring the Appellant to pay the Respondent $10,000.00 was a genuine pre-estimate of damages. The Appellant argues that this clause was a penalty clause.
[5] For the reasons that follow, the Appellant’s appeal is dismissed.
Facts
a) The Agreement
[6] The Appellant signed an agreement on December 22nd, 2016. It identifies that the “Contractor”, being the Appellant, was going to provide assistance and mentoring to the Respondent’s sales team. It is clear from the context, however, that this was not what was intended. Instead, the Appellant was to receive mentoring and training. In terms of the error in the written contract and the parties’ intentions, the Deputy Judge’s findings are amply supported by the evidence.
[7] The relevant provisions of the agreement state as follows:
- Administrative and Operating Compensation
The Contractor will be paid a compensation of $2000 monthly starting from 1st January, 2017 to 1st January, 2018 at the end of each month and will receive 10% of the Gross Commission earned on the deals done by the Contractor. And after that he will be transferred to the Regular split.
To compensate the Corporation for administrative and operating costs incurred by the Corporation in support of the Services the Contractor shall pay the Corporation the following compensation:
A. $1 to 100,000 in Total Gross Commission earned by the Contractor: Fifty Percent (50%) of the Total Gross Commission shall be payable to the Corporation
B. $100,001 to $175,000 in Total Gross Commission earned by the Contractor: Forty-five Percent (45%) of the Total Gross Commision shall be payable to the Corporation
C. $175,001 to 250,000 in Total Gross Comission shall be payable to the Corporation
D. $250,001 and Up. Thirty-give Percent (35%) of the Total Gross Commission in Total Gross Commission earned by the Contractor shall be payable to the Corporation
- Compensation for Training
Except for termination by the Contractor pursuant to Section 6.2, if the Contractor terminates the Agreement less than three (3) years from the Effective Date, the Contractor shall reimburse the Corporation in the amount of ten thousand ($10,000.00) for all training provided to the Contractor.
[8] The contract is not a model of clarity. However, the evidence in the Court below was that this was an agreement that was not standard in the real estate field, and was designed to assist the Appellant in learning about the real estate business.
[9] There were issues over how the contract was to be interpreted. The Deputy Judge found as follows:
a) The agreement between the parties was ambiguous. Therefore, the contra proferentem rule applied.
b) The agreement contained an entire agreement clause.
c) The agreement did not set out any particulars about the training and/or other assistance that the Appellant was to receive.
d) The evidence received about the agreement persuaded the Deputy Judge that the monthly payment of $2,000.00 was connected to the repayment obligations set out above, as long as the Appellant received proper training
[10] With these findings in mind, the Deputy Judge went on to consider the evidence about training.
b) The Training
[11] At trial, the Appellant testified that he did not receive any training. The Deputy Judge acknowledged that both sides called witnesses specifically relating to the issue of training. The Deputy Judge stated:
- The difficulty was that the Agreement did not stipulate any specifics as to the training that Dutta was to receive from Save Max. However, it is clear to me after listening to all of the witnesses that Dutta never complained to Dua that his training was deficient. The difficulty was that no witness could quantify the value of any training that Dutta received.
[12] The Deputy Judge did not set out the evidence in any detail. He simply went on to conclude that he was satisfied that the Appellant received training from the Respondent.
[13] The record before me indicates that there was some training provided. In particular, there were weekly meetings that were held on Thursdays. As well, there was some involvement of the Appellant in the sales of other real estate agents and some hands-on training that was provided to the Appellant by other real estate agents.
Issues
[14] The Appellant appeals, and lists the following three questions in his factum:
a. Whether the Agreement between the parties indicates that Training will be provided to the Appellant, and if so, was the training provided?
b. Whether the terms set out in Agreement at paragraph 2, Schedule “A” is a monthly compensation to for reduced commissions from the normal percentages or whether that was compensation of some other nature?
c. Whether the terms set out in the Agreement at paragraph 4, Schedule “A” was a genuine pre-estimate of damages or a penalty?
[15] I will outline the appropriate standard of review. Then, I will analyze the issues.
[16] In terms of my analysis of the issues, I note that the Appellant has set out these three separate questions. However, they are all related to the same issue, which is whether the clause requiring the Appellant to repay $10,000.00 was a reasonable pre-estimate of damages.
Standard of Review
[17] The standard of review is governed by the Supreme Court of Canada’s decision in Housen v. Nikolaisen (2002 SCC 33). On a question of law, the standard is correctness. On questions of fact, the standard is palpable and overriding error. Finally, on questions of mixed fact and law, the standard of review lies along a spectrum.
[18] More specifically, the standard of review when interpreting a contract was considered by the Supreme Court of Canada in Sattva Capital v. Creston Moly (2014 SCC 53, [2014] 2 S.C.R. 633). In that decision, Rothstein J. concluded (at para 50) that contractual interpretation involved issues of mixed fact and law. He went on to observe (at para 53) that it might be possible to identify an extricable question of law in the interpretation of the contract. However, he acknowledged that these extricable questions would be rare.
[19] Counsel for the Appellant did not address the standard of review in his factum. Counsel for the Respondent argues that the question that the Deputy Judge was required to determine is one of mixed fact and law. Therefore, the standard of review lies along the spectrum.
[20] I accept the Respondent’s submission on this point. As I have noted above, the three issues raised by the Appellant are all linked together. They all deal with the factual matrix surrounding the Deputy Judge’s interpretation of the contract. It is difficult to see an extricable legal question flowing from the factual matrix in this case. As a result, I am of the view that the standard of review lies along the spectrum. However, the factual findings are entitled to more deference while the legal conclusion may be entitled to less deference.
Analysis and Decision
[21] My analysis starts with the Deputy Judge’s construction of the contract. The Deputy Judge concluded both that training was provided by the Respondent and that the $2,000.00 monthly compensation that the Appellant was paid was linked to the training for the purposes of the repayment clause.
[22] The Appellant argues that the Deputy Judge was wrong in both of his conclusions. I disagree. These were conclusions that were open to the Deputy Judge on the evidence before him. In that regard, I note as follows:
a) The testimony before the Deputy Judge was that this was an unusual contractual arrangement for the real estate industry.
b) The Deputy Judge accepted that the linkage between the monthly compensation and the repayment clause was explained by the Respondent to the Appellant at the time that the contract was entered into.
c) The linkage between the monthly compensation and the repayment obligation is not unreasonable. The monthly compensation is being paid, and a different compensation arrangement has been entered into by the parties, in order to provide the Appellant with an opportunity to learn the real estate business.
[23] All of these conclusions were supported by the evidence before the Deputy Judge. The Appellant has challenged the basis for the Deputy Judge’s findings. Irrespective of whether different facts could have been found, the parties are bound by the facts that the Deputy Judge did find, absent a palpable and overriding error. None exists here.
[24] Counsel for the Appellant also argues that the evidence given by the Respondent’s witnesses was tainted because they were all still employees of the Respondent. In my view, that was an issue that relates to the Deputy Judge’s findings of fact. It was up to the Deputy Judge to determine what evidence he accepted and, as noted above, I see no basis to interfere with his conclusions.
[25] This brings me to the second, related, question, which is whether the $2,000.00 was monthly compensation for reduced commissions or whether it was compensation of some other nature. The appellant argues that the evidence does not support the Deputy Judge’s conclusion that the $2000.00 per month was a training stipend.
[26] Again, I reject that argument. In support of my conclusion, I note that it was open to the Deputy Judge to reach the conclusion he did about the compensation on the basis of the same facts that I have set out at paragraph 22.
[27] Having determined that the Deputy Judge has interpreted the terms of the agreement reasonably, the question then becomes whether the repayment clause was a reasonable pre-estimate of damages or a penalty. In this regard, the Appellant referred me to Canadian General Electric Co. v. Canadian Rubber Co. (1915 45), Infinite Maintenance Systems Ltd. v. ORC Management Limited (2001 CanILL 24082), Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co., ([1915] A.C. 79), Glennie v. Robinson ((1922) 55 N.S.R. 530 (C.A.)), Lamba v. Gurung ((2018) 64439 (ON SCSM), H.F. Clarke v. Thermidaire Corp. ([1976] S.C.R. 319) and Menuier v. Cloutier ((1984) 1929 (ONSC))
[28] The Respondent has also pointed to various passages in these cases, and has also relied on the decisions in Renaud v. Graham (2007 5680 (ONSC)) and Century 21 Prudential Estates Ltd. v. Chee ([1993] B.C.J. No. 2688 (B.C. Prov. Ct.)).
[29] In considering these cases, there are a number of principles that emerge. First, the Courts will consider whether the clause in question is a genuine pre-estimate of damages or whether it is a penalty clause. See Canada General Electric Co., supra and Thermidaire, supra at para. 38.
[30] Second, the most important factor a court will consider in determining whether the clause is a penalty clause is the quantum of damages. Infinite Maintenance Systems, supra at para 14.
[31] Third, the test that will be applied in determining what is a penalty clause was set out in Infinite Maintenance Systems, supra at para 14 as follows:
[14] In determining whether a clause is a pre-estimate of damages or a penalty, the most important factor a court will consider is quantum. As stated by Lord Justice Dunedin in Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co., [1915] A.C. 79 at 87:
It [a “liquidated damage” clause] will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
[32] This test requires the Court to consider whether the sum is “extravagant” or “unconscionable” in light of the maximum loss that could have been sustained by the party seeking to enforce the clause. In my view that is, at most, a question of mixed fact and law.
[33] In this case, there is a cost to the brokerage in carrying a real estate agent. That cost will be difficult to estimate, and may vary depending on the agent. Similarly, the training that is necessary for an agent will depend on the skills of the agent. It appears that, in this case, the Appellant would have required more training than other people. Part of the training will be on-the-job training, and it will be difficult to quantify the cost of that training. Therefore, the fact that the cost of training cannot be precisely quantified is not a ground for concluding that the clause is a penalty clause.
[34] In addition, there is the fact that the payment of a guaranteed monthly amount was an unusual clause in a real estate contract. The existence of the $2000.00 per month payment in this case suggests that the damages from an early end to the contract might be higher. This $2000.00 is being paid regardless of whether the Appellant actually generates any sales in his first year. It is possible that this amount will be a sunk cost for the Respondent that will gradually be recouped over time. As a result, it is not surprising that the training cost does not change over the course of the contract.
[35] As a result, when the $10,000.00 of the repayment clause is considered against the $2000.00 guaranteed monthly payment for the first year of the contract and the training costs, it is difficult to see how the money owing under the repayment clause is either “unconscionable” or “extravagant”.
[36] For these reasons, I am of the view that the Deputy Judge’s interpretation of the clause is reasonable and should be sustained.
[37] There are two other issues that should be addressed in my reasons. First, counsel for the Appellant directed my attention to the Lamba, supra decision. Counsel argues that the Lamba case is very similar to this case. In Lamba, the Deputy Judge refused to enforce a clause that required a real estate agent to pay damages of between $10,000 and $20,000 if he left before the end of the two year period. The Deputy Judge found that the clause was a penalty clause.
[38] The Lamba case is distinguishable on two grounds. First, in Lamba (at para 18), the Deputy Judge held that there was “no evidence” from the Plaintiff to substantiate the reasonableness of the quantum of damages in the clause. In this case, there is evidence to substantiate the reasonableness of the quantum of damages. This brings me to the second distinguishing feature of this case. In this case, there was a $2000.00 per month payment to the Appellant. That payment did not exist in the Lamba case. It is clear, both from the Deputy Judge’s reasons and the reasons that I have set out above, that this $2000.00 per month payment is a significant part of the analysis in determining whether the repayment clause is unconscionable or extravagant.
[39] Second, on this appeal, both parties filed Affidavits from their clients. This is an appeal, and is not an opportunity to re-argue the facts in the case. Absent an application to introduce fresh evidence on the appeal, these Affidavits should not have been filed. As a result, in considering this appeal, I have focused on the record as it existed at trial.
[40] Finally, as I noted at paragraph 20 it is difficult to see an extricable legal question in this case. To the extent one exists, it could be characterized as whether the facts as found by the Deputy Judge justified his legal conclusion that the clause was a reasonable pre-estimate of damages rather than a penalty clause. To the extent that this is a question of law rather than a mixed question of law and fact, I am satisfied that the Deputy Judge’s conclusion that the clause was not a penalty clause was not only reasonable, but on the facts as he found them, correct.
Conclusion and Costs
[41] For the foregoing reasons, the appeal is dismissed. The $10,000.00 is payable with post-judgment interest calculated at the Courts of Justice Act rate from February 12th, 2019 until the amounts have been paid.
[42] The Respondents have filed their bill of costs. The parties are encouraged to attempt to agree on costs. If the parties do not agree, then the Respondent will have fourteen (14) days in which to provide its written submissions on costs. Those submissions are not to exceed two (2) single-spaced pages, exclusive of case-law and offers to settle.
[43] The Appellant will then have a further fourteen (14) days in which to submit his costs submissions. Those submissions are not to exceed two (2) single-spaced pages, exclusive of case-law and offers to settle.
[44] There are to be no reply submissions without my leave. In addition, if the parties do not provide submissions within this time period, then I will assume that the issue of costs has been determined, and will make no order as to costs.
LeMay J.
Released: November 1, 2019
CITATION: SAVE MAX REAL ESTATE INC v. DUTTA, 2019 ONSC 6116
COURT FILE NO.: DC-19-0023
DATE: 2019 11 01
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
SAVE MAX REAL ESTATE INC.
Plaintiff (Respondent)
- and –
KETAN DUTTA
Defendant (Appellant)
REASONS FOR JUDGMENT
LEMAY J.
Released: November 1, 2019