ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-00379213-0000

DATE: 20120608

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PCM TECHNOLOGIES INC.

Plaintiff

– and –

DANIEL O’TOOLE, carrying on business as “PHOENIX SYSTEMS”, and 478161 ONTARIO LIMITED

Defendants

Evan L. Tingley, for the Plaintiff

Justin M. Jakubiak, for the Defendants

HEARD: March 26, 27, 28, 29, 30, and April 2, 2012

t. mcewen j.

reasons for decision

introduction

[1] The Plaintiff PCM Technologies Inc. (“PCM”) brings this action against Daniel O’Toole, carrying on business as “Phoenix Systems” (respectively “O’Toole” and “Phoenix”) and 478161 Ontario Limited (“478161”) as a result of an agreement signed between PCM and Phoenix dated February 28, 2007 (“the Agreement”). Pursuant to the Agreement, Phoenix provided certain computer software and services to PCM. It is PCM’s primary submission that it entered into the Agreement with Phoenix and as such O’Toole is personally liable for the damages allegedly sustained. In the alternative, PCM also makes its claim against 478161. For the reasons below, I found that the Agreement was entered into between PCM and Phoenix. Accordingly, O’Toole is personally liable for any damages awarded. Throughout the body of this judgment, I will refer to all dealings as having taken place between PCM and Phoenix, except in those instances when O’Toole was personally involved.

[2] PCM asserts that the computer software and services provided by Phoenix were wholly inadequate. PCM alleges that Phoenix negligently misrepresented the capabilities of the computer software program that was purchased; that Phoenix violated Section 15 of the Sale of Goods Act, R.S.O. 1990, c. S. 1; and that Phoenix breached the Agreement.

[3] PCM therefore claims damages under a number of headings including refund of the cost of the Agreement and other associated damages that will be discussed further below.

Overview

[4] PCM is a company that, amongst other things, provides customized background music to businesses in Canada and the United States. Prior to 2007, it primarily used two systems to manage its customer accounts and accounting functions. The program it used with respect to customer accounts was called Maximizer and the system used for accounting was called QuickBooks. These two systems did not integrate. PCM wanted to obtain a system in which it could integrate the customer accounts and account information since its customer base was growing. PCM was seeking greater efficiencies in this regard.

[5] PCM looked to a number of companies to see which could best satisfy its needs. One of these companies was Phoenix. After meetings with various companies and discussions amongst PCM senior management, PCM determined that Phoenix offered the best solution to PCM’s customer management and accounting needs.

[6] Phoenix, through O’Toole, represented that software developed by a company called SYSPRO would best satisfy PCM’s needs. SYSPRO had developed customer relationship management software (“CRM”) which it claimed allowed users to track and manage all customer and supplier needs. O’Toole also advised that SYSPRO had developed enterprise resource planning software (“ERP”) that was designed to manage accounting needs.

[7] O’Toole advised PCM that the SYSPRO systems provided complete integration between the CRM and ERP software which was what PCM was looking for in new software. Specifically, the Agreement stipulated as follows:

… Most CRM Solutions do not offer the level database integration that companies really need to gain superior insight and win competitive battles. SYSPRO CRM is an exception. It offers total integration with SYSPRO ERP modules, providing the wealth of real-time date that enables customer visibility and service.

[8] In the summer and fall of 2007, Phoenix staff began working with PCM staff with respect to the installation and operation of the SYSPRO software. In addition to the CRM and ERP functions the Agreement also provided that Phoenix would sell to PCM a software program known as Optio Document Management and Delivery Software (“Optio”). Optio was designed to allow PCM to print, fax or email all documents both internally within the company and externally with customers and other entities. After some initial delays the system was implemented on November 1, 2007 (“the go-live date”).

[9] From the outset there was difficulty with SYSPRO and Optio. First and foremost, the CRM and ERP programs could not integrate. The problem essentially stemmed from the fact that the CRM program had a 40 character limit with respect to inputting customer information. Unbeknownst to PCM, the ERP program had a 30 character limit. PCM staff spent significant time entering customer information into the CRM program utilizing 40 characters. When PCM uploaded the customer information into CRM it was automatically transferred to ERP as per the promised integration. The problem that arose is that ERP, being limited to 30 characters, automatically shortened the customer information to 30 characters. The problem was compounded by the fact that the truncated customer names were then automatically transferred back to CRM, thus altering the 40 character names that PCM had spent a great deal of time preparing. This created several problems for PCM in properly identifying clients and subsequently communicating with them. This problem was never fixed. Thus, the promise of integration was not fulfilled.

[10] In addition to the failure to integrate, PCM alleges that it suffered a number of other problems as a result of the software provided by Phoenix being defective. Essentially, the main problems are as follows:

(i) In addition to the lack of integration, the CRM system itself is faulty and continues to crash on a regular basis.

(ii) PCM bills its clients on a monthly basis. At the time of the go-live date it had approximately 1,500 customers. Given the failure to integrate and other difficulties there were chronic problems in providing customers with accurate billings and sending billings at all.

(iii) SYSPRO could not create a commission report as promised. PCM’s commission structure was very complex and prior to entering into the contract with Phoenix, PCM would have to use several Excel spreadsheets to calculate commissions for its sales staff. SYSPRO could not calculate the commissions as promised.

(iv) SYSPRO was to provide PCM with the capability to have forms online that visitors to its website could review, complete and submit to PCM. This did not occur.

(v) CRM could not send emails using the HTML format. These would include emails that had the capability to incorporate logos, images, fonts of different types and attach hyperlinks. As a result, PCM could only send emails that were basic in format and thus, in PCM’s view, were unprofessional in nature.

(vi) In addition to the lack of integration, CRM continues to inaccurately list contact information, duplicate information and provide unreliable information concerning customer contacts.

(vii) The software system has never been able to successfully implement a proper credit hold system, meaning that when a customer is in arrears, as would be evidenced in the ERP program, the information cannot be integrated into the CRM program so that PCM staff, when dealing with customers will automatically know that an account is overdue.

(viii) SYSPRO will not allow PCM to communicate between multiple offices. PCM has offices in Concord, Ontario and Chicago, Illinois.

(ix) The Optio system did not operate properly and this rendered PCM’s existing facsimile line inoperable.

[11] The difficulties between PCM and Phoenix continued for the months following the go-live date. PCM continued to make complaints at meetings and via email. Phoenix acknowledged certain difficulties and denied others. Phoenix claimed that PCM, with respect to certain of its complaints, was the author of its own misfortune since it was not attending at meetings or providing Phoenix with the information that it required.

[12] Ultimately, Phoenix appointed Allan Weiss (“Weiss”) to take over the handling of the PCM account in or about August of 2008. In emails that passed between Weiss and PCM upper management, Weiss conceded that the integration did not happen and PCM’s expectations were dreadfully mismanaged.

[13] Gina Rizhanovsky (“Rizhanovsky”), the CEO of PCM, and Weiss had a number of email exchanges that were frequently copied to others at both PCM and Phoenix.

[14] Essentially, Rizhanovsky and Weiss tried to work together to solve the problems, but met with limited success. Ultimately, PCM and Phoenix entered into a Phase II Implementation Plan (“Phase II”). This Agreement was signed on November 12, 2008. In Phase II, Phoenix agreed to carry out the following tasks at no additional cost to PCM:

(1) Phoenix Systems will upgrade PCM to the latest level of CRM.

(2) Phoenix Systems will complete the online forms project, as per the original signed quotation, within 30 days of execution of this document.

(3) PCM is to provide Phoenix Systems with detailed specifications of the Commissions Report. Phoenix Systems will then write and provide to PCM the Commissions Report as per the specs provided by PCM.

(4) Phoenix Systems will write and implement the “Credit Hold” SQL trigger, which Phoenix Systems has already agreed to write and implement for PCM by November 10^th, 2008.

(5) Design and implementation of the three previously agreed-upon Optio forms, as per previous separate agreement.

[15] It was agreed further that once the above items were completed by Phoenix, and approved by PCM, any further obligations by PCM under the agreement would be considered completed. In or about the time Phase II was being negotiated, PCM made it clear to Weiss that in the future it would not be using Phoenix to provide ongoing maintenance and licensing assistance but rather would be retaining the services of another company. This type of company is commonly referred to as a Value Added Reseller (“VAR”).

[16] Weiss never stipulated that if PCM changed to a different VAR it would affect Phoenix’s obligations to complete Phase II. No language to that effect was inserted into Phase II.

[17] PCM then contracted with another VAR, SHEA Business Solutions (“SHEA”), to perform ongoing information technology serves. On November 28, 2008, PCM advised Phoenix that it would no longer be using its services as a VAR. Phoenix then took the position that it could not complete the five items it agreed to in Phase II. O’Toole instructed Weiss that Phoenix could not and would not work on the system with another VAR in place. Thereafter, and up until the present date, PCM has continued to use the CRM and ERP systems. Optio stopped working in or about the middle of 2011. PCM has continued to make monthly lease payments with respect to the Optio system, which will be discussed further below. These payment obligations expire in approximately three months.

[18] In addition to denying liability and damages, Phoenix has its own claim for setoff for certain services it provided to PCM with respect to the period for which Phoenix paid the Optio maintenance fee: November 1, 2008 to October 31, 2012.

issues

[19] The following issues need be determined in this action:

(a) Whether it is O’Toole or 478161 who is liable for any potential damages owed to PCM;

(b) Liability;

(c) Damages;

(i) Residual value of the software and services provided by Phoenix to PCM;

(ii) Calculation of PCM’s damages with respect to the SYSPRO software and related services;

(iii) PCM’s damages for income paid to staff and management as a result of alleged inefficiencies caused by the breach of the Agreement; and

(d) Phoenix‘s claim for setoff.

(a) Liability of O’Toole and 478161

[20] O’Toole denies that he has any liability in his personal capacity. He states that even though Phoenix was not the registered business name for 478161, O’Toole operated and carried on the business as if it were. In fact, however, the Phoenix name was not registered to 478161 until July of 2011.

[21] The evidence and the documentation are clear that all agreements entered into by PCM were with Phoenix. O’Toole never told anyone at PCM they were dealing with a corporation. All cheques written by PCM to Phoenix were written to “Phoenix Systems.” While O’Toole testified at trial that he wrote some cheques to PCM in the name of 478161 no such cheques were introduced as evidence. His evidence suggested that these cheques would have been prepared at a much later date, subsequent to the entering into of the Agreement.

[22] In my view, there is no credible evidence whatsoever that PCM entered into an agreement with 478161, which did not even exist at the time of the Agreement.

[23] The Business Names Act, R.S.O. 1990, c. B 17 provides the following:

Subsection 2(1)

No corporation shall carry on business or identify itself to the public under a name other than its corporation name unless the name is registered by that corporation.

Subsection 2(6)

A corporation and such other persons as are prescribed carrying on business under a registered name or, in the case of a corporation, identifying itself to the public under a registered name, shall set out both the registered name and the person’s name in all contracts, invoices, negotiable instruments and orders involving goods or services issued or made by the person.

[24] This case is similar to the case that was before Gordon J. in Marcel Baril Ltee v. 929454 Ontario Ltd., (C.O.B. Poly-Fusion), [2008] O.J. No. 4506 (S.C.J.). I agree with Gordon J. that the onus is on the Defendants to establish that the contract was with a corporation. The Defendants have failed to discharge this onus on this case. There is simply no evidence that would suggest that PCM knew that it was dealing with anyone other than O’Toole and that he was Phoenix.

[25] Accordingly, any liability should flow against O’Toole personally.

(b) Liability

[26] PCM has framed this action in breach of contract, negligent misrepresentation and breach of section 15 of the Sale of Goods Act, R.S.O. 1990 c. S 1. The parties agree that the test for negligent misrepresentation has been set out by the Supreme Court of Canada in Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, wherein the elements of the tort of negligent misrepresentation were described as follows:

1. There must be a duty of care based on a “special relationship” between the representor and the representee;

2. The representation in question must be untrue, inaccurate, or misleading;

3. The representor must have acted negligently in making said misrepresentation;

4. The representee must have relied, in a reasonable manner, on said negligent misrepresentation; and

5. The reliance must have been detrimental to the representee in the sense that damages resulted.

[27] Phoenix concedes that there was a special relationship but denies that the remaining four elements have been met by PCM.

[28] In my view, Phoenix made untrue, inaccurate and misleading statements and these statements were made negligently. PCM reasonably relied upon the negligent misrepresentations and as a result, suffered damages.

[29] The evidence discloses that O’Toole clearly represented to PCM that SYSPRO was capable of being fully integrated between the CRM and ERP programs. This integration would allow PCM to fully integrate its system providing it with greater efficiency and less cost. These representations were not true. I accept the evidence of the President of PCM, Ronan Kleiman (“Ron”), that O’Toole represented to PCM that SYSPRO was the answer to its existing needs. I find that O’Toole made this statement negligently since PCM had only successfully integrated the CRM and ERP systems on one other occasion and O’Toole was unaware of the character limitations, referred to above, that rendered integration between CRM and ERP impossible. A reasonable person in O’Toole’s position should have known the limitations of the product being sold and should have disclosed these limitations. It should have been foreseeable to O’Toole that when dealing with a customer who made specific needs known, misrepresenting the ability of the product being sold to meet those needs would cause that customer to suffer damages. As the Court stated in Queen v. Cognos Inc., “[t]here are many reported cases in which a failure to divulge highly relevant information is a pertinent consideration in determining whether a misrepresentation was negligently made.” I find that O’Toole failed to divulge the fact that SYSPRO had limitations that could prevent it from meeting PCM’s stated needs. Thus, O’Toole breached the standard of care in making these untrue, inaccurate and misleading statements to PCM.

[30] I further accept that PCM reasonably relied upon the negligent misrepresentation in entering into the agreement with Phoenix and had PCM known that SYSPRO cannot provide the integration promised PCM would not have purchased it. I accept Ron’s evidence that O’Toole made it clear to him that the SYSPRO program had all of the advantages PCM wanted and that these representations led PCM to enter into the Agreement with Phoenix. Lastly, as will be outlined below, PCM’s reliance was detrimental in that it suffered damages.

[31] Furthermore, I also find that section 15 of the Sale of Goods Act applies to this case. Section 15 of the Act provides:

Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description that it is in the course of the seller’s business to supply (whether the seller is the manufacturer or not), there is an implied condition that the goods will be reasonably fit for such purpose, ...

[32] Once again, Ron’s evidence was clear that PCM made known to Phoenix its needs and what it required from the SYSPRO program, including integration and commission calculations amongst other issues noted above. Section 51 of the Act further reads:

(1) Where there is a breach of warranty by the seller, or where the buyer elects, or is compelled, to treat a breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but may,

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or

(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty.

(3) In the case breach of warranty of quality, such loss is, in the absence of evidence to the contrary, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

[33] Lastly, I further find that Phoenix breached the Agreement with PCM in that it failed to provide for total integration as set out in the Agreement and provide PCM with a properly functioning software system. PCM established in the evidence that to date, both Phoenix and its new VAR, SHEA, have been unable to accomplish integration. Phoenix made much of the fact that no evidence was called on by PCM from either SHEA or SYSPRO to confirm this assertion. I do not believe that such corroboration is necessary. It is clear that Phoenix was never able to achieve integration and the problem was a significant one. I have no hesitation in accepting the evidence of PCM’s executives who testified at trial, namely, Ron, Rizhanovsky and Samuel Kleiman (“Eli”), the company’s CFO.

[34] Given my findings above, I am therefore of the view that PCM can maintain an action against Phoenix for damages. Any damages awarded against Phoenix will be against O’Toole personally in accordance with my earlier finding.

[35] Phoenix raised a number of other defences that I find have no merit but require comment.

[36] Firstly, Phoenix argued that PCM did not provide evidence that it paid for all of the items for which it now claims damages. I do not propose to go through each and every one of the items that were allegedly not paid for because sufficient oral testimony or documentation was provided with respect to each and every head of damage such that I am satisfied payment was provided for these items.

[37] Phoenix also argued that PCM’s losses, if any, were not reasonably foreseeable. I disagree. In my view, it was clear that PCM would not have entered into the transaction absent the misrepresentation with respect to the quality of SYSPRO and the availability of integration. It was entirely foreseeable that failure of the system to work properly would cause losses to PCM. Phoenix also argued that PCM cannot claim for damages that it describes as economic losses. This case, however, does not fall under the category of economic loss as it is typically seen in the case law when negligence simpliciter is alleged. This case involves claims of breach of contract, negligent misrepresentation and a breach of the Sale of Goods Act. No damages for economic loss as a result of negligence simpliciter are sought. Lastly, Phoenix also alleges that PCM repudiated the Phase II Agreement and as such failed to allow Phoenix the opportunity to conduct the necessary work to eliminate its liability to PCM as per the wording of Phase II. Once again, I disagree. PCM only terminated its relationship with Phoenix with respect to the VAR relationship period. Phoenix knew full well, through Weiss, that the VAR relationship would likely be terminated even if Phase II was signed. Furthermore, PCM having a new VAR is not an impediment to Phoenix being able to complete the requirements of Phase II. O’Toole testified that it would not be possible to complete Phase II given the fact that SHEA was now in place but no rationale or support for this contention was provided. In my view, it is clear that O’Toole, once Phoenix was replaced by SHEA, simply did not want to complete Phase II.

(c) Damages

(i) Residual Value

[38] PCM still uses the SYSPRO software, being the CRM and ERP programs. As noted above, it no longer uses Optio and is letting the lease for that program expire. Even though the CRM and ERP programs will not synchronize, Rizhanovsky and Eli testified at trial that the ERP system is functioning and generally stable.

[39] PCM also continues to use the CRM program and is expanding its use within PCM to additional users. Notwithstanding the fact that PCM still uses CRM, the evidence of Ron, Eli and Rizhanovsky was clear that CRM is not stable and does not function properly. In particular, the problems with CRM include the inability to send emails in the HMTL format and ongoing problems with database integrity including problems inputting customer information and frequent crashing of the CRM system. It continues to produce unreliable information.

[40] In these circumstances, Phoenix submits that there is value in SYSPRO and Optio and even though SYSPRO may be imperfect, PCM has sustained no damages because it still has use of this system that does perform useful functions. On the other hand, PCM submits that even though it continues to use SYSPRO it only does so due to the fact that it has invested so much time and energy into the program and it cannot afford the disruption that would occur if it were to return to the QuickBooks and Maximizer systems. PCM submits it would never have purchased the system had it known of all of its deficiencies and as such it has no residual value at all. I disagree with the positions of both parties.

[41] Residual value may be considered where defective goods are delivered in breach of warranty. Generally, the prima facie measure of damages is the difference between the value the goods would have had if they were in accordance with the warranty, and their actual value. The supplier of the goods, however, may demonstrate that there is residual value in the goods such that damages should equal the purchase price minus any residual value. The onus is on the defendant to prove what, if any, is the residual value of the defective goods: Massey-Harris Co. Ltd. v. Skelding, 1934 34 (SCC), [1934] S.C.R. 431; Ford Motor Co. of Canada Ltd. v. Haley, 1967 72 (SCC), [1967] S.C.R. 437; Evanchuk Transport Ltd. v. Canadian Trailmobile Ltd., [1971] A.J. No. 132 (C.A.); Wojakowski v. Pembina Dodge Chrysler Ltd., 1976 1479 (MB QB), [1976] 5 W.W.R. 97 (Man. Q.B.)

[42] In addition to the problems with integration between CRM and ERP as well as the ongoing problems with CRM, I find that PCM has established that it experienced the problems with SYSPRO that were outlined previously in paragraph 15. In my view, however, Phoenix has also established that SYSPRO does have some residual value. Primarily, PCM admits that the ERP system now functions rather well and PCM continues to use CRM, albeit with ongoing difficulty. I disagree with Phoenix’s position, however, that the residual value is so high as to preclude PCM from obtaining any damages for this breach of warranty. When I review the system that PCM has been left with, I would assess the residual value at approximately 1/3 or 33.33%. In arriving at this assessment I reduced the value of the SYSPRO system by 1/3 given its failure to integrate. I reduced its value by a further 1/3 to take into account the fact that the CRM program does not function at 100% capacity, the Optio system was inadequate and PCM has experienced the problems referred to in paragraph 15 above. This was a difficult assessment given the fact that neither side called any expert evidence with respect to the issue of residual capacity, nor were the parties prepared to concede anything with respect to their respective positions. The Plaintiff sought 100% of the cost of SYSPRO and the Defendant conceded nothing.

(ii) Calculation of Damages Regarding the SYSPRO program

[43] Although Phoenix does not admit responsibility to pay any of the damages claimed by PCM, the parties agree that the following amount in paragraph (a) is accurate with respect to the claims of PCM. I accept that PCM has proven the remaining amounts in paragraph (b) to (p), subject to the issue of liability:

a)

Paid for software (invoice 022933 dated March 20, 2007, exhibit 1, tab 4

$94,315.00 + GST of $5,658.90, total $99,973.90

b)

Paid for training documentation (purchase order 050207.Phoenix dated May 7, 2007, exhibit 1, tab 10)

$5,088.00

c)

Paid for quotations module (invoice H00506 dated April 30, 2007, exhibit 1, tab 7, page 3)

$2,650.00

d)

Paid for Optio software ($299.00 x 60, + H.S.T)

$20,306.10

e)

Paid to increase from 6 to 8 users (purchase order 700067 dated November 28, 2007, exhibit 1, tab 38)

$9,037.56

f)

Paid for Optio maintenance fee (April 30 to October 31, 2007, invoice H00505 dated April 30, 2007, exhibit 1, tab 8, page 1)

$1,677.78

g)

Paid for Syspro license fee (June to October 31, 2007, invoice H00276 dated February 28, 2007, exhibit 1, tab 8, page 2)

$3,212.50

h)

Paid for Syspro, CRM and Optio maintenance and licensing fees (November 1, 2007 to October 31, 2008, invoice 023773 dated August 31, 2007, exhibit 5, page 1)

$16,078.56

i)

Paid for Syspro annual support (November 1, 2007 to October 31, 2008, exhibit 5, page 2)

$6,201.45

j)

Paid for “project management”, “project management documentation” and “ERP training manual” (exhibit 5, pages 4, 6 and 8)

$3,376.50

k)

Paid for Optio forms (invoice J00991, July 31, 2008, exhibit 1, tab 77)

$3,150.00

l)

Failure to include commissions module ($7,500 +HST, commission quote dated November 22, 2007, exhibit 1, tab 30)

$8,475.00

m)

Failure to provide credit hold trigger ($1,125 + HST, email from defendant dated March 5, 2008 , exhibit 1, tab 71, page 2)

$1,271.25

n)

Cost of dedicated fax line ($33.40 + GST from June 2008 to December 2009 (19 months), invoices at exhibit 1, tab 115)

$666.33

o)

Cost of terminal server ($5,250 + GST, Asyntech invoice dated March 11, 2009, exhibit 1, tab 116)

$5,512.50

p)

Cost of outlook exchange ($6600 + GST, Asyntech invoice dated April 14, 2009, exhibit 1, tab 17)

$6,930.00

[44] With respect to the damages claimed in a) through k), I am satisfied that these items fall within the analysis where PCM received 33.33 % of the value of the Agreement. Therefore, 66.66% of the total of these items is $113,823.51. I award that amount to the Plaintiffs.

[45] With respect to items l) and m), these claims involve the failure to provide certain services that PCM alleges Phoenix agreed to provide due to the deficiencies in the contract. With respect item l), I do not award anything for this amount since the evidence at trial was contradictory as to exactly who was responsible for the commission reports not being effectively produced. While initially there were undoubtedly problems with Phoenix, there was evidence at trial, particularly from Eli, that PCM failed to provide all reasonable information to Phoenix so that the commission reports could be prepared. In any event, PCM never paid any money to Phoenix for this amount and in my view cannot recover monies that were never spent. The same can be said for item m). PCM never paid any monies in this regard and I have allowed PCM damages for the failure of the overall system to work.

[46] With respect to item n), I would award PCM the full amount of the cost of the dedicated fax line of $666.33. I accept the evidence of PCM that SYSPRO rendered its fax line in operable and it absorbed these extra costs.

[47] Similarly, I would allow the full cost of the terminal server noted in item o) of $5,512.50. I accept that Phoenix represented to PCM that SYSPRO would allow interaction between the Concord and Chicago offices which never occurred, necessitating the cost of the server. Lastly, I also allow the full cost of the outlook exchange noted in item p) as a result of the faulty software purchased from Phoenix of $6,930.00.

[48] PCM is therefore entitled to the following damages with respect to SYSPRO:

Items a) – k)

$113,823.52

Items n) – p)

$13,108.83

Total

$126,932.35

(iii) Damages for Income Paid to Management and Staff

[49] Additionally, PCM claims damages with respect to monies it had to pay staff and management as a result of inefficiencies caused by the breach of the Agreement.

[50] In this regard, PCM claims the following:

Invoices of Lisette King (exhibit 1, Tab 113)

$25,582.00

Salary of Anita Roopchand (exhibit 2, page 2)

$35,350.04

Salary Jamee Kate de Jesus (exhibit 2, page 2)

$27,433.34

Time spent by PCM management

$20,000.00

[51] Firstly, I am not prepared to award the Plaintiff any damages related to its claim for time spent by PCM management dealing with issues related to Phoenix. There is no basis in law to allow PCM management reimbursement for time it spent dealing with the Phoenix issue. There is no evidence that dealing with Phoenix, in any way, shape or form, took these managers away from other business activities that may have generated PCM profit and there was no claim for any type of loss of profit by PCM. In fact, the evidence has shown that from 2007 to date, PCM’s customer base has at least doubled. Furthermore, counsel for PCM could not provide me with any case law to support this submission.

[52] Insofar as the invoices of Lisette King and the salaries of Anita Roopchand and Jamee Kate de Jesus are concerned, I also do not award any damages with respect to these items. The evidence provided by the PCM witnesses at trial fell far short of proving any damages with respect to the additional costs of these workers. Anita Roopchand and Jamee Kate de Jesus’ T4 slips were produced for the 2008 work year. PCM claimed that these employees dedicated 100% of their time to dealing with Phoenix difficulties in 2008. I do not accept this submission. Firstly, it is clear from the outset that the parties expected the system would take three to six months to implement even if everything worked properly. Furthermore, both of these women were hired prior to the go-live date to provide assistance. Lastly, and most importantly, no concrete evidence was provided to me that would allow any rational calculation as to how much money was spent on Phoenix issues related to Phoenix’s failure to honour the Agreement as opposed to other accounting items. I am not prepared to make a guess as to what these damages may be, if any.

[53] For similar reasons I reject the claim of PCM with respect to the invoices of Lisette King. Ms. King did not provide testimony and the invoices that were submitted into evidence that were provided to PCM by her do not support the claim that all of her services, or alternatively, how many of her services, were necessitated by the failures of Phoenix. As such, this claim is also dismissed.

(d) Phoenix’s Claim for Setoff

[54] Firstly, PCM paid the Optio maintenance fee for the year 2007-2008. Phoenix now seeks payment with respect to the Optio maintenance fee from November 1, 2008 to October 31, 2012. Phoenix did not, however, render any invoices until April 2010 when it provided PCM with two invoices dated October 1, 2008 and October 1, 2009, respectively. It should be noted that these invoices bore consecutive invoice numbers. Thereafter, PCM immediately disputed the invoices on the basis that they were not owing, they bore consecutive invoice numbers and O’Toole had conceded earlier that the Optio licences were not under maintenance. O’Toole did not respond to PCM’s concerns which were outlined in an email to him prepared by Rizhanovsky.

[55] Phoenix relies upon two subsequent invoices dated October 1, 2010 and October 1, 2011 (again consecutively invoiced) for the remaining two years. There is no evidence that these were even provided to PCM.

[56] In the circumstances, I find that Phoenix provided the invoices as a tactic in this litigation to reduce its exposure in this action and that it did not provide any services, nor did PCM agree that should provide any services, with respect to the Optio licences.

[57] Accordingly, the claim for setoff has not been made out by Phoenix.

disposition

[58] For the above noted reasons, O’Toole is to pay PCM the sum of $126,932.35 plus prejudgment interest.

[59] In the event that the parties are unable to agree on the issue of prejudgment interest or costs, I will obtain written submissions. PCM is to provide written submission not to exceed 5 pages within 21 days of this judgment. Phoenix will have 14 days thereafter to respond and PCM, 7 days thereafter to reply.

T. McEwen J.

Released: June 8, 2012

COURT FILE NO.: CV-09-00379213-0000

DATE: 20120608

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PCM TECHNOLOGIES INC.

Plaintiff

– and –

DANIEL O’TOOLE, carrying on business as “PHOENIX SYSTEMS”, and 478161 ONTARIO LIMITED

Defendants

REASONS FOR DECISION

T. McEwen J.

Released: June 8, 2012