ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
KNEW ORDER CO., LTD.
Plaintiff
- and -
2291955 ONTARIO INC., carrying on business as TAI GROUPS INC. and CHIA YANG (also known as “JAMES”) SHEN
Defendants
Matthew J. Latella and Ahmed H. Shafey for the Plaintiff
Rolf M. Piehler for the Defendants
HEARD: May 22, 2012
CHAPNIK J.
REASONS FOR DECISION
1The plaintiff seeks an order for recovery of an aircraft engine owned by the Government of Taiwan, specifically the National Airborne Service Corps (“NASC”), an arm of the Taiwanese Ministry of the Interior, without the need to post security.
2The defendants request an order pursuant to rules 44.03 and 44.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for the plaintiff to obtain the bond of an insurer in the amount of twice the value of the engine and to file same with the Sheriff of the City of Toronto. In the alternative, the defendants request the dismissal of the motion and an order that the plaintiff proceed with the dispute resolution mechanism contained in s. 23 and 24 of the Repair and Storage Liens Act, R.S.O. 1990, c. R.25 (“the RSLA”). In the further alternative, the defendants seek an order for the payment into court by the plaintiff of the amount contemplated by s. 24(4) of the RSLA.
BACKGROUND
3On or about June 10, 2011, NASC issued a request for a proposal in respect of the purchase of an airplane engine with an estimated value of $2,500,000 in U.S. funds.
4In July, 2011, the plaintiff tendered a bid and subsequently entered into a contract with NASC for approximately $475,000 in Canadian funds for the overhaul, inspection and return of the engine to NASC.
5It was arranged for the engine to be shipped directly from NASC to United Turbine Corp (“United Turbine”), a company based in Miami, Florida, which specializes in the repair and overhaul of aircraft engines.
6On or about June 16, 2011, the defendants (“the Tai Groups”) and the sole director of the corporate defendant, Mr. Shen, entered into a relationship with United Turbine in which United Turbine agreed to appoint Tai Groups as its representative for overhaul projects in Taiwan. Their relationship was formalized in a Representation Agreement by which a commission of seven (7) per cent of the actual overhaul price would be paid to the defendants.
7On or about June 15, 2011, United Turbine gave the defendants a quotation of US$320,000 for parts and labour to complete the overhaul of the engine (with certain discounts after inspection). The defendants acted, in effect, as a middleman or sales agent between the plaintiff and United Turbine. Subsequently, the plaintiff issued a purchase order to United Turbine in the sum of US$325,000 (including an extra US$5,000 that Mr. Shen indicated would cover costs related to the inspection).
8It is noted that the plaintiff carries on business in the repair and overhaul of aircraft engines and that the defendants had not before been involved in the overhaul of an engine, nor were they qualified as inspectors or certified to conduct the overhaul.
9The engine was shipped directly from NASC to United Turbine on July 27, 2011 and arrived there on or about August 15, 2011. On August 16, 2011, the plaintiff paid the defendants, who were acting as agents for United Turbine the requisite advance payment of seventy (70) per cent of the agreed upon price in accordance with the purchase order, specifically the sum of US$227,500. In doing so, they were allegedly unaware of the fact that United Turbine had, due to the good shape of the engine, reduced its initial quotation from US$320,000 to US$263,654 which, they allege, was supposed to be passed on to the end customer, NASC.
10The engine’s overhaul was completed by United Turbine on November 9, 2011, and an inspection was to take place prior to shipping. The defendants have received the agreed upon commission of seven (7) per cent of the actual overhaul price pursuant to the Representation Agreement. The plaintiff alleges that the defendants interfered with the planned inspection and then unlawfully shipped the engine to Canada on or about November 18, 2011.
11The engine is currently held on the defendants’ behalf in Canada and it is alleged that despite numerous requests by the plaintiff and other parties, they have refused to return the engine to its owner or to the plaintiff. Moreover, the defendants purport to charge the plaintiffs on a daily basis for the storage and maintenance of the engine.
12NASC has granted the plaintiff until June 3, 2012 to fulfill its obligations under their contract by completing the inspection and returning the engine to it. It is alleged that the return of the engine is urgently needed by NASC to perform search and rescue, disaster relief and other airborne services for the people and government of Taiwan.
THE LAW
13The plaintiff brings this motion pursuant to the Courts of Justice Act, R.S.O. 1990, C.43, s. 104 and rule 44.01 of the Rules of Civil Procedure. Under that rule, the court may make an interim order for possession where personal property has been unlawfully taken or is being unlawfully detained by the defendant.
14The test for a finding of unlawful detention was set out by the court in Clark Door of Canada Ltd. v. Inline Fibreglass Ltd. (1996), 45 C.P.C. (3d) 244 (Ont. Ct. J. (Gen. Div.)), at paras. 11, 17 and 18, as follows:
there are substantial grounds for the plaintiff’s assertion that it is the legal owner or entitled to possession of the item;
there are substantial grounds for its claim that the property is being unlawfully detained by the defendants; and
the balance of convenience favours the plaintiff.
15As previously noted, the defendants raise the spectre of security under rules 44.03(1) and 44.04 and also claim a lien under the RSLA.
16Pursuant to rule 44.03(1) of the Rules, on a motion for an interim order for recovery of possession of personal property, the court may order the plaintiff to pay security of twice the value of the property or another amount.
17Rule 44.04 deals with the condition and form of security including the posting of a bond. A repair under the RSLA means an expenditure of money on or application of labour, skill or material to an article for the purpose of altering, improving or restoring its properties or maintaining its condition (see s. 1 of the RSLA).
18Pursuant to the RSLA, s. 3(1), in the absence of a written agreement to the contrary, the repairer has a lien against an article that the repairer had repaired and the repairer may retain possession of the article until the amount is paid.
19Pursuant to s. 3(4), a repairer who commences the repair of an article that is not in the repairer’s actual possession shall be deemed to have gained possession of the article when the repair is commenced and to have given up possession when the repair is completed or abandoned.
ANALYSIS
20This case is distinguishable from most others seeking the recovery of personal property in that there is no dispute here as to who owns the engine. It is owned by NASC who entrusted the plaintiff with responsibility for the overhaul, inspection and ultimate return of the engine. The defendants do not assert ownership and the plaintiff by virtue of its agreement with the owner was, as noted, granted the responsibility for the overhaul, inspection and ultimate return of the engine. I am satisfied that there are substantial grounds for the plaintiff’s assertion that it is entitled to possession of the item. In fact, as I understand it, NASC has now granted the plaintiff until June 3, 2012 to fulfill its obligation to it by completing the inspection and return of the engine.
21Secondly, I am satisfied there are substantial grounds to support the plaintiff’s claim that the property is being unlawfully detained by the defendants. The engine was shipped directly from NASC to United Turbine on July 27, 2011, arriving there on or about August 15, 2011. It was never in the possession of the defendants nor did it come into their possession until they had it shipped to Canada after the overhaul was completed and before the planned inspection would occur. In my view, there are substantial grounds to the plaintiff’s claim that the engine was improperly taken and shipped to Canada contrary to the purchase order and that it is being unlawfully detained by the defendants.
22I do not accept the defendants’ assertion that they are entitled to possession of the engine or a lien with respect to it. The defendants acted only as a middleman or sales agent between the plaintiff and United Turbine. They did not expend monies or apply labour, skill or material for the engine’s overhaul.
23Moreover, the defendants do not satisfy the test of “giving out” for repair as in a subcontract, since the engine was not given out or left for repair with the defendants. It was shipped directly from NASC to United Turbine.
24Accordingly, the defendants are not entitled to a repairer’s lien under the provisions of the RSLA. That Act has no application to the factual matrix in this case.
25As to the defendants’ claims under rule 44 for security and the balance of convenience test, it appears that the only reason the engine is being held by the defendants is as security for the defendants’ claims for compensation, which are disputed by the plaintiff.
26This is not a case such as in Clark Door, supra, in which losing possession of goods may have serious or irreversible consequences and where the possessor may require protection or indemnification in the interim pending trial.
27The engine is housed in a sealed container and is of no use to the defendants. The plaintiff requires the engine to complete its inspection so it can be returned to its acknowledged legal owner. NASC purportedly needs the engine for its business and use, on an urgent basis.
28The balance of convenience clearly favours an order requiring the delivery of the engine to United Turbine for final inspection and then return to its legal owner, the Taiwanese government.
29Given that there are no serious, irreversible consequences to protect or indemnify against, and given the circumstances by which the defendants took possession of the engine, no security need be required or posted by the plaintiff.
CONCLUSION
30An order shall issue requiring the defendants to forthwith deliver the subject engine to the plaintiff or its solicitor, or to whom it may direct, and to pay all costs related to the return of the engine through to its rightful owner, NASC.
31The plaintiff seeks costs of the motion on a substantial indemnity scale given, in its words, “the outrageous and illegal conduct” of the defendants. I have refrained from making any findings on extraneous matters between the parties, and have attempted to focus only on the merits of the plaintiff’s claim for possession of the engine.
32Much of the plaintiff’s argument, as set out orally and in its factum, deals with other issues not directly relevant to this inquiry. In my view, the plaintiff’s claim for substantial indemnity costs in the range of $40,000 to $50,000 for the motion is excessive. When asked, defendants’ counsel requested about $11,000 in costs, if successful. Clearly, the vast majority of work was prepared by the plaintiff and the factual circumstances were somewhat convoluted, but this is not the trial of the action. Taking into account the factors set out in rule 57.01 of the Rules of Civil Procedure, and the reasonable contemplation of the parties, I grant costs to the plaintiff in the all-inclusive sum of $25,000, payable forthwith.
S. Chapnik J.
Released: 20120525
COURT FILE NO.: CV-12-445865
DATE: 20120525
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
KNEW ORDER CO., LTD.
Plaintiff
- and -
2291955 ONTARIO INC., carrying on business as TAI GROUPS INC. and CHIA YANG (also known as “JAMES”) SHEN
Defendants
REASONS FOR DECISION
Chapnik J.
Released: 20120525