CITATION: Sloane Capital Corp. v. Beacon Holdings Ltd., 2023 ONSC 184
COURT FILE NO.: DC-22-23
DATE: 2023 01 09
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
SLOANE CAPITAL CORP.
Parjot Benipal, for the Plaintiff (Respondent)
Plaintiff (Respondent)
- and -
GREG NELSON and BEACON CONSUMER HOLDINGS LTD.
Alan S. Cofman and Vanessa De Sousa, for the Defendants (Appellants)
Defendants (Appellants)
HEARD: October 21, 2022
REASONS FOR JUDGMENT
[On appeal from a Decision of Deputy Judge M. Malicki of the Small Claims Court at Burlington delivered March 22, 2022 and the subsequent costs award]
LeMay J.
[1] The Appellant, Beacon Consumer Holdings Ltd, is a company that engaged the Respondent, Sloane Capital Corp., to sell a series of Commercial Notes starting in 2013. The parties executed a detailed agreement that was prepared by the principal of Sloane Capital Corp., Mr. Stephen Freedman. The term of the agreement was for five (5) years, and it was signed on behalf of the Appellant by its’ principal, Mr. Greg Nelson.
[2] The compensation section of the agreement states that the Respondent will be paid fees for the sale of the Commercial Notes. Those fees include an annual trailer fee based on the outstanding principal amount of the notes.
[3] In 2020, the Appellant took the view that the contract had ended after five years because the term of the contract was for five years. As a result, the Appellant ceased making payments on account of the annual trailer fees. At the time that the Appellant ceased making payments, there were outstanding notes that would have generated approximately $67,000.00 in trailer fees. At the point where the Appellant had stopped making payments, they had already made in excess of $300,000.00 in payments on account of trailer fees that had come due after the end of the five year term of the agreement. The trailer fees were paid quarterly based on invoices that were provided by the Respondent.
[4] The Respondent sued in Small Claims Court for the unpaid trailer fees from three invoices. The action proceeded to trial before Deputy Judge Malicki. At trial, the Respondent advised that it was claiming $35,000.00 in the action before the Deputy Judge for three of the seven invoices that it was owed trailer fees on. The Respondent advised that it might commence a second Small Claims Court action for the monies owing under the remaining four invoices.
[5] The Deputy Judge granted the Respondent’s action on the basis of the terms of the contract. The Deputy Judge also stated that, notwithstanding his decision, “neither claimant would be precluded from instituting a future action for subsequent payments not made.” Finally, although the Respondent was self-represented at the trial, the Deputy Judge awarded costs to the Respondent in the sum of 15% of the value of the claim.
[6] The Appellant appeals this decision, alleging that the Deputy Judge exceeded his jurisdiction by providing declaratory relief in respect of the parties’ agreement. In the alternative, the Appellant argued that the Deputy Judge misinterpreted the contract and did not consider and apply the evidence he had before him properly. Finally, the Appellant argues that the costs award was improper both because the Respondent’s costs submissions were not served on the Appellant and because the Respondent was self-represented and should be limited to $500.00 in costs.
[7] For the reasons that follow, I have concluded that the Deputy Judge erred and exceeded his jurisdiction by hearing this action as a Small Claims Court action. As a result, the decision of the Deputy Judge is quashed and this action will continue as a Superior Court of Justice action. The costs order of the Deputy Judge is also set aside. Given that I have quashed the decision, I make no comment on whether the Deputy Judge interpreted the contract correctly or not.
Background
a) The Agreement, Fees and Non-Payment
[8] The agreement was prepared by the Respondent and is entitled an Agency Agreement. It is a complex document that contains several schedules. In essence, however, the agreement set out that the Appellant would issue Secured Notes bearing interest rates of 9.25% and 6.25% and the Respondent would have the exclusive right to sell those notes on behalf of the Appellant in Canada’s ten provinces.
[9] The agreement was effective February 14th, 2013 and had a term of five years. The compensation for the Respondent was a fixed value of the Note when it was sold plus an annual trailer amount which was paid quarterly. The trailer amount was paid on the basis of the outstanding principal amount owing on the Notes.
[10] The agreement “term” ended in February of 2018. However, the Appellant continued to make the trailer payments up to and including the payments required for June 30th, 2020. Beginning on September 30th, 2020, the Appellant ceased making the quarterly trailer payments.
[11] At the time the Appellant ceased making the quarterly trailer payments, it had paid in excess of $350,000.00 since the agreement “term” had ended in February of 2018.
[12] It should be noted that the Appellant ceased making quarterly trailer payments at one point earlier in the relationship. I understand that these payments stopped for a period of time in 2015-2016. A claim was brought against the Appellant by the Respondent and was settled in March of 2016 and the payments resumed.
b) The Litigation History
[13] The Respondent filed a Plaintiff’s Claim in the Small Claims Court on November 16th, 2020. That claim sought payment for three invoices worth of trailer fees. The Respondent stated that those amounts would be approximately $40,000.00. In his claim, the Respondent stated:
The reason for this lawsuit is for non-payment of the September 30, 2020 quarterly Trailer Fee payment of approximately $15,000. This is the 2nd time BeaCH failed to pay Sloane its quarterly payment. Since this is the 2nd time that I have had to sue BeaCH for non-payment, and I fear that BeaCH will not pay in the future (fool me once shame on you, fool me twice shame on me), I am also requesting that the remaining quarterly trailer fees, which is an additional amount of approximately $21,000 to $25,000 on top of this $15,000, be paid at this time as well. Since $35,000 (plus interest and costs) is the most I can sue for in Smalls Claim Court I will accept $35,000 and forfeit the remaining $1,000 to $5,000.
[14] At the settlement conference, Deputy Judge Latimer, who was presiding, directed the Appellant to provide the Respondent with a calculation of all of the trailer fees that would have been owing if the Respondent’s interpretation was correct. This calculation was provided without prejudice to the Appellant’s position that it was not liable to pay the trailer fees.
[15] At the settlement conference, I understand that the Appellant was also offered the opportunity to commence a Superior Court action to seek recovery of the amounts that had allegedly been overpaid on account of trailer fees paid past the end of the “term” of the contract. The Appellant never attempted to commence that action.
[16] At trial, the Respondent’s representative, Mr. Freedman, stated that he was seeking to collect on the three invoices that had a value of approximately $35,000.00. He went on to state that he would “leave the balance of four invoices of approximately $29,000,00 to be dealt with in a second lawsuit.”
[17] The Deputy Judge and Mr. Freedman then had a discussion about the limits of the Small Claims Court. During that discussion, the Deputy Judge told Mr. Freedman that he could not give Mr. Freedman any legal advice, but that Mr. Freedman might want to get some advice about whether he’d be permitted to bring a second claim for the other four invoices.
[18] Mr. Freedman responded to the Deputy Judge’s comments by saying that he hoped that, although the maximum he could recover at that trial was thirty-five thousand, the Appellants would pay the remainder of what was owing under the other four invoices.
[19] The Deputy Judge then heard the evidence and granted judgment to the Respondent for $35,000.00. In granting this judgment, the Deputy Judge made the following comments about other actions:
The Plaintiff did not plead res judicata. He was correct in not doing so. This claim is analogous [sic] to one in which a landlord sues a defaulting tenant for certain payments in arrears or a promissee [sic] suing a debtor under a note for only some payments already due. Neither claimant would be precluded from instituting a future action for subsequent payments not made.
The claim is for payments due at the time that this claim was commenced. The Plaintiff waives a claim for the excess above the jurisdiction of this court.
The claim is for a number of payments in excess of $ 64,000. The plaintiff asks for payment of only 3 of the 7 invoices in order to bring the claim within the jurisdiction of the court.
[20] The first section of the Deputy Judge’s reasons that I have reproduced in the previous paragraph is in the section entitled earlier actions. The second and third paragraphs are in the section entitled analysis.
c) The New Evidence Application
[21] Counsel for the Appellants also sought leave to introduce new evidence. Specifically, there are a series of e-mails from Mr. Freedman to various people at the Appellant stating that the Court has found in the Respondent’s favour. As a result, Mr. Freedman expects that all seven invoices will be paid. In an e-mail dated April 9th, 2022, Mr. Freedman specifically makes a demand for payment of all seven of the invoices based on the Deputy Judge’s decision.
[22] In addition, in an e-mail dated April 10th, 2022, Mr. Freedman states:
As you are aware the Court has already ruled in Sloane's favour. The Court agreed that the Agency Agreement is valid and payment to Sloane continues through Q1 2022. No surprise right? There are 7 Overdue Invoices. September 30, 2020 through March 31st, 2022. Beacon has absolutely no further excuses. I expect to be paid the 7 overdue Invoices immediately. Some of these Invoices date back over 1 1/2 years.
[23] Counsel for the Appellant seeks to tender this new evidence on the basis that it satisfies either the test in R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759 or the test in Sengmueller v. Sengmueller, (1994) 1994 8711 (ON CA), 17 O.R. (3d) 208. The tests are broadly similar. The test in Palmer requires the following four criteria to be met (at p. 775):
(1) The evidence should generally not be admitted if, by due diligence, it could have been adduced at trial provided that this general principle will not be applied as strictly in a criminal case as in civil cases: see McMartin v. The Queen[5].
(2) The evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial.
(3) The evidence must be credible in the sense that it is reasonably capable of belief, and
(4) It must be such that if believed it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result.
[24] Counsel for the Respondent did not take a position on this motion. As a result, I advised the parties during the course of the hearing that I would receive this evidence as I was satisfied that the test in Palmer had been met. I will now briefly set out my reasons for that determination.
[25] All four Palmer factors are satisfied. First, there is no way that this evidence could have been obtained for the trial as these e-mails did not come into existence until after the trial. Second, the evidence is relevant as it bears on the issue of whether the Respondent waived any excess amounts and was prepared to accept the jurisdiction of the Small Claims Court. If these e-mails are accepted, it is clear that the Respondent was not prepared to limit itself to one claim for $35,000.00 although as I will discuss below that should have been clear from the position Mr. Freedman took at trial. Third, the evidence is capable of belief as it emanates from the e-mail account of Mr. Freedman and references the trial decision. Finally, had the Deputy Judge clearly understood Mr. Freedman’s position, it might very well have affected his views on whether he had the jurisdiction to consider this case.
The Positions of the Parties
[26] The Appellant argues that the Appeal should be granted on the basis that the Deputy Judge erred and exceeded his jurisdiction by granting declaratory relief that the contract continued to require payments after its’ term ended. In the alternative, the Appellant argues that the Deputy Judge erred in his interpretation of the agreement, ignored the plain meaning of the agreement and failed to properly consider the evidence before him.
[27] The Appellant also argues that the Deputy Judge’s costs determination should be set aside on the basis that the Appellant was not served with the costs submissions of the Respondent. In the alternative, the Appellant argued that the decision to grant the Respondent costs in the sum of 15% of the value of the claim was contrary to Rule 19.05 of the Small Claims Court Rules.
[28] The Respondent argues that the Appellant’s appeal should be dismissed. On the jurisdictional question, the Respondent argues that it did not waive its right to bring a second Small Claims Court action for the payment of the final three invoices. Instead, the Respondent argues that each invoice is a separate cause of action and that, as a result, it can advance two separate claims in the Small Claims Court.
[29] The Respondent argues that the interpretation of the Deputy Judge was reasonably supportable and should not be interfered with on appeal. Finally, in respect of the costs, the Respondent argues that the costs award was justified because of the poor conduct of the Appellant in the proceeding. In support of this argument, the Respondent relies upon section 29 of the Courts of Justice Act.
Issues
[30] The following issues are raised by the submissions of the parties:
a) Is the claim within the jurisdiction of the Small Claims Court?
b) Was the Deputy Judge’s interpretation of the contract supportable?
c) Did the Deputy Judge improperly award costs of fifteen (15) percent of the action to the Respondent in spite of the fact that the Respondent was self-represented?
[31] Given my conclusion that the claim was outside of the jurisdiction of the Small Claims Court, I will only address issues 1 and 3. The question of the proper interpretation of the agreement is to be left to the Superior Court judge who decides this action.
Issue #1- Is This Claim Within the Jurisdiction of the Small Claims Court?
[32] No. To explain my reasons for that conclusion, I will provide a more detailed review of the positions of the parties on this issue and then will analyze the relevant legal principles.
Positions of the Parties
[33] The Appellant argues that the Deputy Judge erred by providing the Respondent with declaratory relief. The Appellant also argues that the decision of the Deputy Judge permits the Respondent to split its case. The Appellant argues either that the decision of the Small Claims Court judge is a nullity or, in the alternative, that the Respondent waived any claim to any trailer fee in excess of $35,000.00.
[34] The Respondent argues that it sued for the invoices that it had in its’ possession at the time it commenced the claim. The Respondent also argues that it did not seek any declaratory relief. In essence, the Respondent’s argument is that each separate invoice is a separate cause of action. In support of its position, the Respondent relies on the decisions in Hyadecky v. Hydro One Networks Inc., [2014] O.J. No. 1249 (Small Claims. Ct.) and Annex Publishing and Printing Inc. v. 866175 Ontario Ltd. (C.O.B. Lifestyle and Wellness), [2002 O.J. No. 1802 (Small Claims Ct.).
Analysis
[35] I start with the standard of review that applies to this appeal. On a question of law, the standard of review is correctness. On questions of fact, the standard of review is palpable and overriding error. On questions of mixed fact and law the standard lies upon a spectrum. Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.
[36] In this case, the question that I have to determine is whether each invoice triggers a separate cause of action, which is a question of contractual interpretation. If the answer to that question is yes, then the Deputy Judge did not exceed his jurisdiction. If the answer to that question is no, then I must consider whether the Respondent waived its right to enforce the remaining invoices. These are questions of mixed fact and law and, as a result, some deference is owed to the Deputy Judge’s findings. Creston Moly Corp. v. Sattva Capital Corp, 2014 SCC 53, [[2014] 2 S.C.R. 633.
[37] However, as a matter of law, there is no dispute that the jurisdiction of the Small Claims Court is limited to $35,000.00. Section 23(1) of the Courts of Justice Act, R.S.O. 1990 c. C.43 states that the jurisdiction of the Court to provide monetary relief is limited to the prescribed amounts. Section 1 of Regulation 626/00 states that the maximum amount of a claim in the Small Claims Court is $35,000.00 and the maximum amount of a claim over which a Deputy Judge may preside is $35,000.00. These statutory provisions must inform my determinations in respect of this appeal.
[38] The Respondent relies on the Annex Publishing decision to support its argument that the Deputy Judge was only adjudicating the question of three invoices and was acting within his jurisdiction. In my view, Annex Publishing is distinguishable and does not support the Respondent’s position in this case.
[39] In Annex Publishing, the Defendant, L&W, published a quarterly magazine and the Plaintiff, Annex, printed it. L&W failed to pay for two separate printings of the magazine and Annex brought two claims for $10,000.00 in the Small Claims Court. One claim was brought in Toronto and the other in Simcoe County. Annex successfully argued that these claims were separate actions as there were separate contracts for each printing of the magazine. That conclusion fits the facts in Annex Publishing, as there was no requirement for L&W to use Annex for the next printing of the magazine simply because they had been used for the last printing. Similarly, there was no requirement for Annex to print the next printing of the magazine simply because they had printed the last one. The two printings that gave rise to the two actions were separate events resulting in s separate contracts. The failure to pay each invoice was a separate cause of action.
[40] The contract in this case is different. There is clearly only one agreement between the parties. The rights to trailer fees arise out of the one agreement, and the trailer fees are calculated based on the terms of the one agreement. The fact that there are separate invoices does not matter. The contractual right to the payments in this case flows from the terms of the contract, which had been entered into years previously. It does not matter that the payments were periodic payments that were not all due at the time that the action was commenced. The payments all arose under the same contract.
[41] Put another way, so long as the Notes were outstanding, the rights of the Respondent to collect trailer fees continued to exist. Unlike the Annex Publishing case, here neither party had to take any further steps to create contractual rights or obligations. The corollary of that fact is the fact that the Respondent must be limited to only one action to enforce its’ rights against the Appellant. Any other conclusion would be both unreasonable and unsupportable.
[42] Rule 6.02 of the Rules states that “a cause of action shall not be divided into two or more actions for the purpose of bringing it within the court’s jurisdiction.” Similarly, at law the Plaintiff must sue for all applicable damages in a single proceeding. Athanassiades v. Lee, [2010] O.J. No. 4605 (Small Claims Ct.) at para. 35. Plaintiffs are not allowed to litigate in installments. Williams v. Kameka, 2009 NSCA 107 at para. 44.
[43] Having determined that all of the Respondent’s rights flow from one contract, it follows that the Respondent was obligated to bring one action to enforce those rights. As a result, either the Respondent waived the entirety of the excess amounts over $35,000.00 that were otherwise owing or the Deputy Judge had no jurisdiction to hear and decide the case.
[44] It was also not open to the Deputy Judge to grant judgment on three invoices and provide declaratory relief that the contract had been breached. Hradecky, supra. See also section 97 of the Courts of Justice Act. The Deputy Judge’s jurisdiction in this case was limited to no more than $35,000.00 for the entirety of the Respondent’s claims for trailer fees.
[45] This brings me to the issue of waiver. There is no basis in either fact or law to conclude that the Respondent’s intended to waive the excess trailer fees. Mr. Freedman’s statements at trial (as described at paragraph 16, above) should have made it clear that the Respondent was not waiving the amounts payable under the invoices. Even if those statements were not clear, the Deputy Judge had an obligation to determine the intentions of the Respondent and make it clear that the claim was limited to $35,000.00 before he proceeded with the case.
[46] In any event, however, the Deputy Judge’s own findings suggest that he was permitting the Respondent to split its’ case. For example, at the outset of his analysis, the Deputy Judge states, “the claim is for payments due at the time that this claim was commenced.” This statement strongly suggests that the Deputy Judge was treating separate invoices as being separate causes of action. For the reasons set out at paragraph 40, they were not.
[47] As a result, the decision of the Deputy Judge is a nullity and must be set aside. As noted in Annex Publishing (at para. 32):
32 "Cause of action" is an expression that refers to all of the facts necessary to give rise to a claim: see Royal Bank v. Metcalfe (1985), 3 C.P.C. (2d) 228. Where a single cause of action is split in order to bring it to Small Claims Court in parts, the court has no jurisdiction to deal with any of the parts. All of the split-up claims are nullities. A judgment obtained in such a split up claim is also a nullity: Traditional Air Systems Inc. v. Custom Gas Heating Ltd. (1995). 86 O.A.C. 72; [1995) O.J. No. 3039; Maple Lodge Farms Ltd. v. Penny Lane Fruit Market Inc ., [1997] O.J. No. 4401. A claim for the unpaid balance on a running account could be viewed as a single cause of action: see Maple Lodge Farms, above, and Bartor Developments Inc. v. Leon's Furniture Ltd. (1997), 1997 997 (ON CA), 103 O.A.C. 314; [1997) O.J. No. 3763.
[48] In this case, the single cause of action was split into two claims to bring it within the jurisdiction of the Small Claims Court. That makes it a nullity, and the decision of the Deputy Judge must be set aside.
Issue #2- Did the Deputy Judge Err in his Interpretation of the Contract?
[49] Given that I have found that the Deputy Judge did not have the jurisdiction to consider this claim, the decision is a nullity and this issue does not arise.
Issue #3- Costs
[50] The Deputy Judge awarded the Respondent costs in the sum of $5,250.00 plus disbursements of $422.00. The Respondent was self-represented. Given that the decision was a nullity, that costs award is set aside.
[51] However, I should address the issue of the appropriate quantum of costs for the hearing below. Mr. Freedman was representing his company and was not a lawyer. As a result, it appears that Rule 19.05 of the Rules of the Small Claims Court (“the Rules”) O. Reg. 258/98 apply. That rule states:
19.05 The court may order an unsuccessful party to pay to a successful party who is self-represented an amount not exceeding $500 as compensation for inconvenience and expense.
[52] Given that Mr. Freedman was self-represented, the Deputy Judge erred in law by awarding costs of $5,000.00 to Mr. Freedman. Costs should have been limited to no more than $500.00 for inconvenience. Mr. Freedman was, in my view, a self-represented litigant.
[53] Counsel for the Respondent argues that the award of costs was designed to sanction Beacon for its poor conduct under Rule 19.06 of the Rules. I reject this assertion. As noted in Stewart v. Toronto Standard Condominium Corp No. 1591, 2014 ONSC 795 (Div. Ct.) at para. 7;
[7] In my view, rule 19.06, when it refers to “otherwise acting unreasonably”, must be interpreted as referring to the conduct of a party within the proceeding. The rule is not intended to give the Small Claims Court a broad and unfettered discretion to make awards of compensation regarding the conduct of a party that is unrelated to the matter over which the Small Claims Court has jurisdiction. This interpretation is also consistent with the wording of s. 29 of the Courts of Justice Act, to which all of the Small Claims Court rules are subject, that makes it clear that the conduct to be considered when assessing a penalty is conduct in the proceeding.
[54] In this case, the Deputy Judge failed to identify any conduct on the part of the Appellant that would have justified a deviation from the provisions of Rule 16.05. Having reviewed the materials filed on appeal, I see no basis to justify this higher award of costs.
[55] For the reasons set out above, the outcome of the trial should have resulted in a dismissal of the action for lack of jurisdiction. The Appellant was also represented by a non-lawyer, Mr. Nelson. However, the parties have not made submissions on the costs of the proceeding below in light of my disposition of the appeal. If the parties cannot agree on those costs, then that issue will be dealt with by way of written submissions.
Conclusion and Next Steps
[56] For the foregoing reasons, the Deputy Judge’s decision is quashed as a nullity. This action will proceed as a Simplified Rules action under the Rules of Civil Procedure. The parties are to agree on either whether the pleadings from the Small Claims action can be used in the Superior Court of Justice action and/or whether amendments are necessary. The parties are also to agree on a timetable for the action. All of this is to be done within thirty (30) days of today’s date.
[57] I retain jurisdiction to address any of the issues set out in the previous paragraph that the parties are unable to agree upon. If the parties reach agreement, they may submit the appropriate orders for my signature through the trial office. If they are not able to reach agreement within thirty (30) days, they are to advise the trial office and a 9:30 a.m. appearance will be booked before me to discuss the outstanding issues.
[58] The parties are encouraged to agree on the costs of the appeal and of the proceeding below. Failing agreement, the Appellant is to serve and file its costs submissions on both proceedings together within fourteen (14) calendar days of the release of these reasons. Those submissions are to be no more than three (3) single-spaced pages exclusive of bills of costs, offers to settle and case-law.
[59] The Respondent shall have fourteen (14) calendar days from the receipt of the Appellant’s costs submissions to serve and file its costs submissions. Those submissions are also to be no more than three (3) single-spaced pages exclusive of bills of costs, offers to settle and case-law.
[60] For filing the costs submissions, the parties are required to both upload those submissions to CaseLines and provide my judicial assistant with an electronic copy of them. There are to be no extensions to the timelines for costs submissions, even on consent, without my leave. If costs submissions are not received in accordance with the timelines set out above, there will be no order as to costs.
LeMay J.
Released: January 9, 2023
CITATION: Sloane Capital Corp. v. Beacon Holdings Ltd., 2023 ONSC 184
COURT FILE NO.: DC-22-23
DATE: 2023 01 09
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
SLOANE CAPITAL CORP.
Plaintiff (Respondent)
- and –
GREG NELSON and BEACON CONSUMER HOLDINGS LTD.
Defendants (Appellant)
REASONS FOR JUDGMENT
LeMay J.
Released: January 9, 2023