COURT FILE NO.: CV-12-109643-00

DATE: 20120705

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

PETER HEASTY Plaintiff – and – 1648290 ONTARIO LTD. o/a DEALER SOLUTIONS CANADA and FARID AHMAD Defendants

Colin Still, for the Plaintiff

D. Gordon Bent, for the Defendants

HEARD: July 4, 2012

REASONS FOR DECISION

DiTomaso j.

THE MOTION

[ 1 ] The plaintiff, Peter Heasty (“Mr. Heasty”) seeks an order directing non-party Douglas Ford Ltd. and the defendants 1648290 Ontario Ltd. o/a Dealer Solutions Canada (“DSC”) and Farid Ahmad (“Mr. Ahmad”) to pay into court “any monies forthcoming from the Douglas Ford Ltd. transaction” pursuant to Rule 45.02 of the Rules of Civil Procedure .

OVERVIEW

[ 2 ] DSC is in the business of brokering the purchase and sale of car dealerships in Canada. Mr. Heasty was engaged as an independent contractor on or about November 7, 2011 by DSC, and the terms of his engagement are set out in the unsigned independent contractor agreement (“ICA”) marked as Exhibit “A” to Mr. Heasty’s affidavit sworn June 11, 2012.

[ 3 ] Mr. Ahmad is the operating mind, shareholder, and officer of DSC since June 13, 2005.

[ 4 ] Paragraph 3 of the ICA sets out a commission income split table setting out Mr. Heasty’s commission, ranging anywhere from 27.5% to 37.5% for his services, payable to him upon the completion of a transaction.

[ 5 ] Mr. Heasty has been involved with and worked on the Douglas Ford Ltd. transaction and claims commissions. However, after a few months of working with DSC, the contract relationship between Mr. Heasty and Mr. Ahmad broke down. After five months, Mr. Heasty voluntarily terminated his relationship with the defendants.

[ 6 ] It is alleged that Mr. Heasty has become a competitor of DSC, which he denies.

[ 7 ] Mr. Heasty claims commissions that are owed to him as a result of the Douglas Ford Ltd. transaction. He is concerned that if an order is not made, the defendants may or will not pay him the commissions to which he is entitled. The defendants deny that they will not pay him commissions, although the quantum of commissions might well be a contractual issue.

[ 8 ] Accordingly, Mr. Heasty brings this motion for payment of all monies received by DSC in respect of the Douglas Ford Ltd. dealership transaction.

POSITIONS OF THE PARTIES

Position of Mr. Heasty

[ 9 ] Mr. Heasty submits that he has satisfied the three essential elements required to support an order that monies be paid into court pursuant to Rule 45.02. He argues that he has established the following:

(a) A right to a specific fund;

(b) That there is a serious issue to be tried; and

(c) The balance of convenience favours granting relief to him.

Position of the Defendants

[ 10 ] The defendants submit that paragraph 5 of the ICA provides that Mr. Heasty is entitled to any commission payable once DSC has received payment from a client for a “Completed Transaction”. It is submitted that there are no transactions completed or scheduled to be completed for which Mr. Heasty is entitled to any commission. In fact, there are no signed sale agreements for the sale of any of the dealerships referred to in paragraph 9 of Mr. Heasty’s affidavit. There are no pending or scheduled closings.

[ 11 ] Rather, what exists is a signed letter of intent, dated April 5, 2012 (“LOI”) regarding the Douglas Ford Ltd. transaction. The LOI is not legally binding on the parties. The obligations of the parties are expressly subject to the negotiation and execution of a definitive asset purchase agreement and related agreements and instruments in the form and substance satisfactory to each of the parties.

[ 12 ] On or about June 20, 2012, the parties agreed to terms of an amended letter of intent, with an extended due diligence period but, to date, no binding asset purchase agreement has been negotiated or executed between the parties. The terms are confidential.

[ 13 ] DSC admits that paragraph 3 of the ICA provides that Mr. Heasty is entitled to a commission of 27.5% for his defined services on a completed transaction but states that such provision only applies where Mr. Heasty has provided full services defined in the ICA and expected of him throughout the stages of a transaction from inception to completion of a sale.

[ 14 ] It is submitted that the voluntary departure of Mr. Heasty, while in the early stages of the prospective four dealership matters, disentitles him to full commission, if not all commission, since he did not provide the full services expected of him and others were necessarily involved after his departure to deal with the four prospective matters, including the Douglas Ford Ltd. transaction.

THE ISSUE

[ 15 ] Is Mr. Heasty entitled to the order sought pursuant to Rule 45.02?

ANALYSIS

[ 16 ] There is a signed LOI dated April 5, 2012 from a prospective purchaser for the purchase of selected assets of Douglas Ford Lincoln Sales Limited. Paragraph 5 of the LOI specifically provides “the parties hereto acknowledge and agree that this Letter of Intent shall not be legally binding on the parties. The obligations of the parties hereto are expressly subject to the negotiation and execution of a definitive asset purchase agreement and such related agreements and instruments in form and substance satisfactory to each of the parties hereto. Paragraph 3 of the ICA provides for Mr. Heasty’s commissions ranging from 27.5% to 37.5% for defined services on a completed transaction.

[ 17 ] Rule 45.02 provides:

SPECIFIC FUND

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[ 18 ] I find the following undisputed facts are as follows:

(a) Mr. Heasty had a contract with DSC which provided for the payment of certain commissions ranging from 27.5% to 37.5%. Paragraph 5 of the ICA provides that commissions shall be paid to Mr. Heasty once DSC has received payment from a client for a completed transaction.

(b) As of this time, there are no agreements for sale in respect of the four proposed transactions in which DSC and Mr. Heasty were involved.

(c) Mr. Heasty voluntarily terminated his relationship with the defendants after five months.

(d) There exists a non-binding LOI with the prospective purchaser regarding the Douglas Ford Ltd. transaction.

(e) While Mr. Heasty states that if he does not obtain the order in which he seeks, the defendants may or will not pay him the commissions to which he is entitled. The defendants deny they will not pay Mr. Heasty commissions. Rather, they raise the issue of quantum which is a contractual issue arising if or when an actual deal to purchase the Douglas Ford dealership exists.

[ 19 ] The tests for ordering payment into court pursuant to Rule 45.02 are as follows:

(i) The plaintiff has a claim to a specific fund referable to the litigation;

(ii) That claim must be proprietary in nature to the plaintiff;

(iii) There is a serious issue to be tried respecting the proprietary claim; and

(iv) The balance of convenience favours the granting of the order. [1] , [2]

[ 20 ] The defendants submit that Mr. Heasty cannot establish any of the essential elements required to support a payment into court pursuant to Rule 45.02. I agree for the following reasons.

[ 21 ] I agree with the defendants’ overall position that there is no transaction in existence to give rise to Mr. Heasty’s claim for payment of commission under the ICA and that Mr. Heasty’s claim for payment of commission under a contract does not create the necessary proprietary claim against a specific fund required to justify such an order under Rule 45.02.

[ 22 ] I find that a specific fund referable to the litigation does not exist in this case. There is no binding agreement for the sale of the dealership which could give rise to a payment of commission by the dealership to DSC, and from which Mr. Heasty’s contractual claim for payment of commission from the defendants must necessarily arise.

[ 23 ] What Mr. Heasty seeks is an extreme remedy which should be exercised with caution and used only where necessary to balance the interest of the parties. It can place a defendant in an unfair position because it freezes a fund that would otherwise be available to the defendant for the purposes of operating its business.

[ 24 ] There is no suggestion that the corporate defendant could not pay any commission owing to Mr. Heasty, if such claim ever arises in the future. [3]

[ 25 ] In order to succeed on a motion pursuant to Rule 45.02, a specific fund must be in existence and, in the case of money, be reasonably identifiable as earmarked for the litigation in issue. [4]

[ 26 ] I find in our case that there is no specific fund reasonably identifiable and earmarked to the litigation in issue. Rather, I find that Mr. Heasty’s claim is at best a continent claim at this point in time. It is not a legally enforceable claim and the court is being asked to make an order on a hypothetical situation.

[ 27 ] In our case, as in American Axle , there is no specific fund earmarked to the litigation in issue to be paid into court. In American Axle, the fund was no longer available for payment into court. In our case, no specific fund yet exists.

[ 28 ] Further, I find that Mr. Heasty has not established a proprietary claim. While the ICA provides for commission income splits at paragraph 3, commission allocations are not sufficient to establish a proprietary claim. Mr. Heasty must have a proprietary claim against the specific funds, beyond their utility to satisfy his claim against the defendants. In Sadie Moranis , the Divisional Court specifically held that a claim for an alleged breach of contract for failure to pay commission under a Listing Agreement, does not create a proprietary claim in the plaintiff, but is simply a contractual claim for damages. [5]

[ 29 ] Also, establishing a possible claim for payment of damages for breach of contract does not establish a right to a specific fund. [6]

[ 30 ] A claim for damages is entirely different from a claim for relief involving a special fund “earmarked for the litigation”.

[ 31 ] In Stearns v. Scocchia [2002] O.J. No. 4244 , G.P. Smith J. held that mortgage payments did not constitute a specific fund. The action was for damages for breach of fiduciary duty and was not based on a claim to a specific fund. The balance of convenience did not favour the plaintiffs Stearns as there was no evidence that the defendants were insolvent so as to be unable to satisfy a judgment. At paragraph 17, Smith J. held:

To secure the mortgage payment in this instance is effectively granting judgment before trial. In my view, this is not what rule 45.02 was intended for . Accordingly, I find that the Plaintiff has not met or satisfied the first test required for a rule 45.02 order.

[ 32 ] Similarly, in our case Mr. Heasty has not established that there is a claim to a specific fund referable to the litigation and that his claim is proprietary in nature.

[ 33 ] I find he has not established there is a serious issue to be tried respecting the proprietary claim as I have ruled that there neither exists a specific fund nor a proprietary claim.

[ 34 ] I come now to the balance of convenience. The potential harm here is that no commissions will be paid to Mr. Heasty. There is no suggestion that the defendants do not have the ability to satisfy their financial obligations. There is nothing to support that they cannot fund payments including any commission payments to which Mr. Heasty could be entitled. There is nothing to support that the defendants are engaged in a bad faith exercise. There is nothing to support that there is a lack of intention to pay any contractual obligations to Mr. Heasty. We are simply left with Mr. Heasty’s speculation, found at paragraph 24 of his affidavit “…It is my belief that if an order is not made quickly, the defendants will refuse to pay me the commissions to which I am entitled”.

[ 35 ] In the Notice of Motion at paragraph 20, Mr. Heasty also states he is concerned that if an order is not made, the defendants “may” not pay him the commissions to which he is entitled.

[ 36 ] I find that on this evidentiary record, Mr. Heasty’s motion is entirely speculative and there is no support for the balance of convenience granting him an order under Rule 45.02. He has not established the potential harm he would incur if the relief is not granted.

[ 37 ] In conclusion, Mr. Heasty has not satisfied the tests for granting the payment into court under Rule 45.02. He has not established a right to a specific fund referable to the litigation. He has not established a claim to be proprietary in nature. He has not established the balance of convenience which favours the granting of the order. Rather, he has a contingent claim for the payment of commissions based on a breach of contract claim which might or might not ever come to pass. Even so, a possible claim for payment of damages for breach of contract does not establish a proprietary claim to a specific fund.

DISPOSITION

[ 38 ] For these reasons, the plaintiff’s motion is dismissed.

COSTS

[ 39 ] I heard submissions from counsel with respect to costs. Counsel for the defendants take the position that this motion was unreasonable, unnecessary, and frivolous It was brought for tactical reasons only. Full indemnity costs are sought. Those costs are sought in the amount of $6.214.00.

[ 40 ] On a partial indemnity scale, the defendants seek costs in the amount of $5,209.00.

[ 41 ] I find that the defendants were entirely successful in opposing the relief sought by Mr. Heasty. Costs follow the event. While I am not satisfied that the defendants are entitled to full indemnity costs, I can see no reason why they should not be entitled to partial indemnity costs in the amount of $5,209.00. The plaintiff, Peter Heasty, shall pay costs in the amount of $5,209.00 to the defendants within the next 30 days.

Justice G.P. DiTomaso

Released: July 5, 2012

[1] Sadie Moranis Realty Corp. v. 1667038 Ontario Inc. , 2011 CarswellOnt 592 (Div. Ct.), at para. 7 .

[2] 167986 Canada Inc. v. GMAC Commercial Finance Corporation , 2009 CarswellOnt 7350 (Div. Ct.), at paras. 33 , 40, and 41.

[3] American Axle & Manufacturing. Inc. v. Durable Release Coaters Ltd , 2007 CarswellOnt 3444, at para. 22 .

[4] American Axle, supra, at para. 27.

[5] Sadie Moranis Reality Corp., supra , at paras. 9 and 10.

[6] 167986 Canada Inc., supra , at para.41.