COURT FILE NO.: CV-09-373946

DATE: 20120914

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Shoppers Drug Mart Inc.

Plaintiff

• and -

6470360 Canada Inc. c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc. and Michael Wayne Beamish

Defendants

Kenneth Prehogan and Scott McGrath, for the Plaintiff

Joseph Jebreen and Michael Walsh, for the Defendants

HEARD: August 15, 23, and September 4, 2012

Morgan J.

[1] Can a party to a contract that has received more than a million dollar overpayment and then entered a mutual release with the paying party before the overpayment was discovered, in effect keep the change?

[2] If not, is the sole director, officer and shareholder of the company that received the overpayment – a company that was not yet incorporated at the time of contracting with the payer – personally liable for any monies owed back to the payer? Furthermore, can the accounting exercise needed to sort out the balances owing between the parties be done in the context of a motion for summary judgment?

[3] These questions arise in a series of simultaneous motions. The Plaintiff, Shoppers Drug Mart Inc. (“Shoppers”), moves under Rule 20 for summary judgment on all issues, while the personal Defendant, Michael Wayne Beamish (“Beamish”), moves under Rule 21 for dismissal of the claim against him as disclosing no cause of action and, alternatively, under Rule 20 for summary judgment dismissing the claim against him for lack of evidence.

I. The Contract

[4] Shoppers is a drug store franchisor that has over a thousand retail stores across Canada. On or about October 11, 2005, after a short pilot project limited to the province of Alberta, Shoppers contracted with Energyshop Consulting Inc. (“Energyshop”) to manage and pay utility bills for Shoppers’ stores on a nationwide basis (the “Contract”). The Contract was apparently never formally executed, but both sides say that it was agreed to and binding. As of mid-October 2005, they both acted in accordance with the agreement reflected in the unexecuted Contract.

[5] Despite having “Inc.” at the end of its name, Energyshop was not incorporated. Beamish negotiated the Contract on behalf of this unincorporated entity, and then several weeks later, on October 31, 2005, he incorporated 647, with himself as the one director, officer and shareholder.

[6] From 2005 to 2007, the name Energyshop was used as an unregistered trade name under which 647 did business. In 2007, it announced that it was changing its name to Powerhouse Energy Management Inc. (“Powerhouse”), another unincorporated entity and unregistered trade name which 647 thereafter used in the same way as a de facto business name. Both sides agree that Shoppers did not realize until after the Contract terminated that neither Energyshop nor Powerhouse were the actual names of the entity with which it had contracted, and that they were being used as business names for 647 (a name of which Shoppers had been unaware).

[7] Nevertheless, the evidence is clear that Shoppers believed that it had contracted with a corporate entity, and not with an unincorporated proprietorship. The evidence is equally clear that the flaws in 647’s incorporation and trade name process were errors of form, not substance. That is, Beamish was ignorant of the fact that his company’s trade names should have been formally registered and that 647, once incorporated, should have formally adopted the previously agree-upon Contract with Shoppers. There is no evidence that Beamish intended to, or ever did, hold himself out as contracting personally with Shoppers. Both sides at all times understood that they were dealing with a corporate party.

[8] After entering into the Contract in October 2005, Shoppers directed utility companies to send their bills for Shoppers retail outlets to Energyshop (later Powerhouse). 647 then collected and organized the bills, and summarized groups of invoices on a spreadsheet sent on a periodic basis as a “remittance summary” to Shoppers. Each remittance summary specified the total of that period’s utility bills payable by Shoppers and, separately, specified the processing fee for this service payable to 647 (in its guise as Energyshop or Powerhouse). These processing fees ranged from $5.00 per invoice (from commencement of the Contract to July 2008) to $5.50 per invoice (from July 2008 to termination of the Contract).

[9] Shoppers treated the remittance summaries as invoices. On receiving a remittance summary, Shoppers would review it and transfer the invoiced amount (i.e. the total utility bills payable for the period and the processing fee for that period) to a designated bank account opened by 647 at the Toronto-Dominion Bank (the “Clearing Account”). The Clearing Account was used to receive all funds from Shoppers and, in turn, to pay Shoppers’ utility bills; 647 had a separate Toronto-Dominion Bank account which it used to pay its own operating expenses (the “Operating Account”). In accordance with this arrangement, the only transfers of funds from the Clearing Account to the Operating Account should have been the periodic transfer by 647 of the processing fee portion of Shoppers’ remittance payments.

[10] It is apparent from the evidence that 647 was frequently late in paying Shoppers’ utility bills, resulting in numerous late fees being charged by the utility companies. Parts C and D of the Contract set out liability for late fees. In short, 647 was responsible for all late fees charged by utility companies unless the cause of the lateness was a delay by Shoppers in transferring funds to the Clearing Account of more than 5 days after receiving a remittance summary. In that case, the late fees payable by Shoppers would appear on the next period’s remittance summary, whereas all late fees not caused by Shoppers’ 5 day delay would be absorbed by 647 and would not be billed to Shoppers. Late fees never appeared on the remittance summaries prepared for Shoppers by 647, and for the first two years of the Contract it would appear that Shoppers was unaware that any late fees had been charged by the utility companies and paid by 647.

[11] By early 2007, late fees had become onerous for 647. In a February 2007 email, Shoppers agreed to accommodate 647 by expediting its review and turning around payments within two days of receiving a remittance statement. In mid-2007, a new contractual arrangement was discussed by the parties that would have further alleviated some of the pressures on 647. Under the proposal for a new contract presented by 647 to Shoppers in July 2007, the provisions making Shoppers liable for only those late fees incurred due to its own five day delay would have been eliminated and replaced with silence on the issue of late fees. In addition, the July 2007 proposal would have seen Shoppers’ change its method of payment by providing a continuous $20,000.00 advance float to 647 from which bills would be paid and then adjusted for after payment.

[12] The parties both agree that the July 2007 arrangement was never signed. Counsel for 647 takes the position that, much like the October 2005 Contract, the unsigned July 2007 draft agreement was agreed upon and binding on the parties. Counsel for Shoppers, by contrast, argues that the July 2007 arrangement was nothing more than a proposal that was never agreed upon and that it never bound the parties.

[13] It is obvious from the parties’ ongoing business relationship after July 2007 that no new contractual arrangement was ever entered into. Unlike the unsigned October 2005 Contract, the unsigned July 2007 draft agreement was never acted upon and its terms never became the basis of their ongoing business dealings. The main feature of the July 2007 proposal by 647 – the advance by Shoppers of a float from which its utility bills would be paid – never transpired. From July 2007 until the termination of the contract in early 2009, Shoppers continued to pay in accordance with remittance summaries provided by 647 just as it had done before.

[14] The one difference that took place after the July 2007 discussions between the parties was that Shoppers began to receive remittance summaries on a weekly rather than a bi-weekly basis. This, together with the expedited turnaround time for payment that Shoppers had implemented at 647’s request several months prior to the July 2007 proposal, was an administrative accommodation. It did not amount to a new contractual arrangement.

[15] Counsel for 647 contends that under the new July 2007 agreement, all late fees became the responsibility of Shoppers to pay. Presumably, since the new agreement would have been silent on the issue of late fees, the responsibility for those fees would have fallen to Shoppers since the utility bills were billed to Shoppers. Counsel for 647 also contends that there is an issue of credibility with respect to the July 2007 agreement, in that Shoppers’ Vice President for Retail Accounting, Angelo Mariano (“Mariano”), swears in his affidavit that there were no discussions toward a revised arrangement in mid-2007, whereas the trail of email correspondence between the parties indicates otherwise.

[16] Counsel for Shoppers counters that it would have been unthinkable for Shoppers to have agreed to be responsible for all late fees, including those caused by 647’s own tardiness; indeed, he argues that this would be such a commercially unreasonable position for Shoppers to have put itself in that it cannot possibly be assumed to be the basis of an unsigned agreement that does not say so explicitly. Shoppers’ position here reflects the thinking of the Supreme Court of Canada in Eli Lilly & Co. v. Novopharm Ltd., 1998 791 (SCC), [1998] 2 SCR 129. At para. 56 of his judgment for a unanimous court, Iacobucci J. stated that, “it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties”. Counsel for Shoppers also contends that any issue of credibility among the two sides’ witnesses over discussions toward a new 2007 agreement is beside the point, since no new agreement was ever concluded.

[17] The fact is that, other than the expedited processing unilaterally adopted by Shoppers as described above, and 647’s unilateral name change from Energyshop to Powerhouse, the parties carried on after July 2007 in the same way as they did before July 2007. The remittance summaries did not contain late fees for Shoppers to pay, even though 647 concedes that it continued to incur late fees. In fact, having never billed for late fees at the time, 647 now demands that the old late fees be tallied up and deducted from any monies that it must repay to Shoppers. However, the clear suggestion of the evidence in the record is that Shoppers was no more responsible for late fees after July 2007 than it was before that date – i.e. only for those incurred due to Shoppers’ 5-day delay as set out in Parts C and D of the Contract.

[18] I can only conclude that no new material terms were introduced in 2007 and that no new agreement was reached. The Contract of October 2005 continued to govern the parties’ relationship.

II. The Termination

[19] In August 2008, Shoppers received an anonymous phone call stating that substantial late fees were regularly being incurred by 647 (which the caller referred to as Powerhouse) due to late payment of utility bills. In September 2008, Shoppers received an anonymous fax containing what appeared to be excerpts of financial statements of Energyshop indicating that 647 was using Shoppers’ funds for activities other than the payment of utility bills. These anonymous tips prompted Shoppers to conduct an internal audit of 647.

[20] 647 states that Shoppers never advised it of the anonymous communications it had received. It also contends that the audit did not reveal any significant deficiencies in its business. Shoppers, on the other hand, states that the audit found that 647 was chronically late in its payment of utility bills for Shoppers stores, resulting in its regularly incurring late fees. None of this had ever shown up on the remittance summaries since, in accordance with the terms of the Contract, the late fees were not due to Shoppers’ delay in payment into the Clearing Account and 647 could not pass on those late fees to Shoppers.

[21] Shoppers concluded that there was something seriously amiss with 647’s method of business. Contrary to Shoppers’ expectation, the audit revealed that 647 did not pay the utility bills in accordance with the remittance statements and as the funds were transferred to the Clearing Account. As Shoppers’ counsel put it, Shoppers began to see 647 as operating in Ponzi-like fashion, using Shoppers’ money to fund its own operations and applying new funds transferred by Shoppers on the basis of each new remittance summary to pay older utility bills and the late fees thereon.

[22] By January 2009, the busy year-end season had concluded and Shoppers found a new service provider to perform similar functions as 647. On February 2, 2009, Shoppers provided 647 with written notice of termination of the Contract. Shoppers also had prepared, and delivered to 647 together with the termination letter, a draft transition agreement which set out a proposal for managing a short transitional period.

[23] Shoppers and 647 negotiated the terms of the transition arrangement over the course of the following month. On February 25, 2009, the parties signed a final version of the agreement (the “Transition Agreement”) which provided that 647 would cease to process utility bills as of February 2, 2009, that it would provide to Shoppers copies of all bills currently processed as of February 2, 2009, that it would forward to Shoppers any bills received after that date, and that it would not make payments to any utilities on behalf of Shoppers after February 2, 2009 without Shoppers’ written consent.

[24] In addition, the Transition Agreement contained a mutual release in which each of the parties released the other from all claims which each party every had up to the date of the Transition Agreement, other than the rights and obligations contained in the Transition Agreement itself. Further, the Transition Agreement contained a final reconciliation in which the parties agreed that Shoppers had, during the life of the Contract, overpaid 647 by $47,000, and that this amount was to be reimbursed or offset by 647 to Shoppers’ credit.

[25] Counsel for 647 argues that the Contract could only be terminated on 90 days’ notice, and that the termination was therefore invalid. On this basis, 647 claims damages from Shoppers in the form of lost profits up until the end of the term of the Contract, which would have been in December 2010.

[26] It is obvious, however, that both sides signed a Transition Agreement that mutually confirmed the termination of the Contract. Although Shoppers now says, for reasons that will be explored below, that the mutual release clause does not prevent it from bringing its claim for reimbursement of funds overpaid to 647 beyond the $47,000 specified in the Transition Agreement, it is hard to take seriously any assertion by 647 that it did not agree to the termination of the Contract. As discussed below, the Transition Agreement was massively in 647’s financial favour, and it readily agreed to its terms – which included termination of the Contract as of February 2, 2009.

III. The Overpayment

[27] On January 27, 2009, six days prior to termination of the Contract, Shoppers wired $561,428.00 to the Clearing Account, representing the total amount owed in respect of four remittance summaries received from 647 on that date. Those wired funds were received in the Clearing Account on January 30, 2009. On that same day, January 30, 2009, three days prior to termination of the Contract, Shoppers received another batch of seven remittance summaries from 647, and in accordance with these summaries Shoppers wired another $808,910.16 to the Clearing Account. Those funds were received in the Clearing Account on February 4, 2009.

[28] Accordingly, when Shoppers delivered the termination notice to 647 on February 2, 2009, it had recently transferred $1,370,338.32 to the Clearing Account. Of this amount, $3,780.12 was earmarked for 647’s processing fees and $1,366,558.20 was earmarked for payment of the utility bills summarized on the Jan. 27th and Jan. 30th remittance summaries.

[29] These funds were not used by 647 to pay Shoppers’ utility bills – not the ones contained on its Jan. 27th and Jan. 30th remittance summaries, and not any other ones. Shoppers was not aware, and was not advised by 647, of the non-payments. The following month, beginning on February 25, 2009 (which, ironically, was the same day as the Transition Agreement was finally signed), Shoppers began to receive notices of default from various utilities in respect of outstanding invoices that it thought had been paid by 647 in accordance with the Jan. 27th and Jan. 30th remittance summaries.

[30] The position taken by 647 is that the non-payment of utility bills after February 2, 2009 was in accordance with Shoppers’ express instructions to it. At para. 138 of its factum, 647 explains, “Shoppers, by its letter dated January 30, 2009 [i.e. the termination letter delivered on Monday, February 2, 2009], instructed 647 not to process any invoices after the date of the receipt of the Termination letter. 647 was given no reason to suppose that Shoppers was unaware of the transfers or that Shoppers was unaware that its instruction to cease processing utility bills would leave outstanding unpaid bills.”

[31] Shoppers had just transferred more than $1.3 million to 647 that would not now be applied to utility bills. Moreover, the termination letter was accompanied with a draft transition agreement that indicated that Shoppers had calculated that it had overpaid 647 by a mere $47,000. One can only wonder what Shoppers would have had to do to give 647 “reason to suppose” that Shoppers was unaware that its stop payment instruction, taken literally, would leave over $1.3 million in unpaid utility bills.

[32] Taking Shoppers’ termination letter as literally as possible, 647 did not use the over $1.3 million to pay Shoppers’ utility bills, even though those funds were transferred on the basis of remittance statements 647 had just sent the previous week. 647’s interpretation of Shoppers’ notice, in other words, was not only literal, it was literalist in the most obtuse sense of that term. As one court in the United States has put a similarly literalist interpretation, it is “a ‘gotcha’ construction that ignores the obvious import of the policy.” Barrientos v. Jones, 2012 UT 33, at para. 53 (Sup Ct Utah).

[33] 647 combined its ‘stop payment’ interpretation of the termination letter with a view that, as counsel put it at para. 139 of its factum, “647 had no duty to disclose facts regarding the reconciliation of 647’s accounts to Shoppers during the negotiation of the Transition Agreement.” Accordingly, when the Transition Agreement was signed on February 25, 2009, with its mutual release clause and its $47,000 reconciliation figure, Shoppers was still unaware that its $1.3 million had never been used to pay utility bills. The Transition Agreement, in other words, was signed by Shoppers in ignorance of the true state of its accounts. Unknown to Shoppers at the time, but well known to 647, the Termination Agreement would give 647 a massive windfall.

[34] As indicated above, it was not until later in the day of Feb. 25th that Shoppers got the first inkling from a utility company that something was seriously wrong with the state of its accounts. Over the course of the next few days of correspondence with various utilities and with 647, Shoppers finally discovered that its $1.3 million had not been used for utility bills (or for Shoppers’ benefit at all) as intended when the funds were transferred.

IV. The Unjust Enrichment

[35] 647’s actions with respect to the funds that Shoppers sent to the Clearing Account at the end of January 2009 did not stop with its non-payment of utility bills. Even accepting the most literal construction of the termination letter, 647 could have, and should have, reimbursed the funds to Shoppers or, at the very least, held them in the Clearing Account pending a full reconciliation.

[36] Instead, following the Feb. 2, 2009 termination letter, 647 proceeded to move large amounts of funds from the Clearing Account to its own Operating Account. In a series of six transactions in just over a three week period, 647 transferred $970,000.00 into the Operating Account. No explanation for these transfers has been offered by 647, except for the general statement at para. 56 of its factum that, at the time of the termination, “647 believed that it was owed hundreds of thousands of dollars in credits.” Needless to say, that belief, even if genuine, was no excuse to simply take for itself funds that had been paid into the Clearing Account by Shoppers for a completely different purpose.

[37] On March 9, 2009, Shoppers commenced the present action and served a notice of motion on 647, the Toronto-Dominion Bank, and Beamish (who alone had signing authority for the Clearing Account and Operating Account), for an order requiring the $1,366,558.20 to be paid into court. By the time this notice was served, there was only $2,106.64 left in the Clearing Account and $794,327.47 left in the Operating Account. Facing a motion for an order securing these funds returnable on March 11, 2009, 647 consented to an order that the funds held in both Toronto-Dominion accounts be paid over to Shoppers.

[38] The Toronto-Dominion Bank has paid Shoppers the total amount of $796,434.11, representing all of the funds that remained in the two accounts. 647 has yet to pay Shoppers the $3,257.81 in costs required to be paid under the consent order (its cheque having been returned for insufficient funds).

[39] In my view, the consent order itself vindicates Shoppers’ view that the failure to use the approximately $1.3 million for Shoppers’ bills, and the transfer of the majority of those funds to 647’s Operating Account, was a wrongful misappropriation of those funds by 647. More than that, it is clear to me that the Transition Agreement, with its mutual release clause and $47,000 reconciliation, was entered into by Shoppers in ignorance of this misappropriation.

[40] 647 characterizes the Transition Agreement, with its mutual release and $47,000 reconciliation clauses, as having been agreed to by Shoppers under a unilateral mistake which, it argues, “in the absence of some misrepresentation, deceit, or fraud on the part of the tther party, is not enough to excuse the confused party from the contract.” Uy v. Great West Life Assurance Co., 2003 CarswellOnt 5049, at para. 26 (Ont Sup Ct). It seems to me, however, that the words of Stephen Waddams, The Law of Contract, 4th edn. (1999), at p. 299, quoted approvingly in 1018429 Ontario Inc. v. FEA Investments Ltd., 1999 1741 (ON CA), [1999] OJ 3562 (Ont CA), more aptly describe the basis on which the Transition Agreement was entered: “A fraudulent misrepresentation is a statement known to be false or made not caring whether it is true or false.”

[41] Although the evidence shows that the $47,000 overpayment figure came from Shoppers, the silence of 647 as to the massive error represented by this figure amounted to a blatant, intentional misrepresentation. 647 either knew the figure to be false by over $1.3 million or, to use Professor Waddams’ phrase, it entered into the mutual release “not caring whether it [was] true or false.” The Court of Appeal has specifically held that a release entered into pursuant to such a misrepresentation will be set aside. Francis v. Dingman, 1983 1985 (ON CA), [1983] OJ No 3204, at para. 52 (Ont CA). In view of this misrepresentation by silence in the face of a million-dollar-plus misappropriation of funds unknown to Shoppers but known to 647, the mutual release clause cannot be relied upon by 647.

[42] Shoppers seeks to characterize the misappropriation of its funds as either a form of fraud, a breach of trust, or an unjust enrichment. It has elements of the first two, although neither is a perfect fit. While the entering into the mutual release was based on a fraudulent misrepresentation, it is not clear that the actual taking of the money was done with fraudulent intent. As Lord Herschell put it in Derry v. Peek (1889), 14 App Cas 337, at 376, fraud is characterized by a complete absence of honest belief. In the present case, 647 appears to have had a dubious and ignorant, but potentially genuine belief that it could use the funds in the Clearing Account to satisfy its claims against Shoppers.

[43] As for Shoppers’ allegation of breach of trust, it is unclear that the funds had the requisite certainty of subject matter to be impressed with a trust. The funds were never specified as trust funds, and although that is not generally a determinative factor, Antle v. Canada, 2010 FCA 280, [2010] FCJ No 1317, at paras. 12-13 (Fed CA), this must be viewed together with the fact that the funds were potentially co-mingled with other funds and not separately accounted for. Certainly there were other, smaller Shoppers projects that used the Clearing Account, and there could well have been non-Shoppers funds as well (although as it turns out, that was not the case – 647’s non-Shoppers clients deposited directly into the Operating Account and bypassed the Clearing Account). In addition, Shoppers on occasion deposited funds directly into 647’s Operating Account where they were co-mingled with non-Shoppers funds, without any separate accounting.

[44] In any case, this combination of factors runs counter to the allegedly trust-like quality of the funds that Shoppers transferred to 647. Air Canada v. M&L Travel Ltd., 1993 33 (SCC), [1993] SCJ No 118, at para. 24 (Ont Sup Ct). The funds in the Clearing Account were clearly earmarked for use in payment of Shoppers’ utility bills (and 647’s processing fees), but this appears to have been a matter of agreement between arm’s length parties to the Contract rather than a matter of implied trust.

[45] What is crystal clear, however, is that 647 has been unjustly enriched by its misappropriation of the Clearing Account funds. 647 was enriched by transferring to its Operating Account funds that did not belong to it, and Shoppers suffered a corresponding deprivation in the loss of those funds. Furthermore, there was no juristic reason (i.e. legal requirement or donative intent) for 647’s enrichment to have taken place. All of the requirements of unjust enrichment have been met by 647’s taking of Shoppers’ funds. Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] SCJ No 21, at paras. 30, 44 (Ont Sup Ct).

[46] Neither the Contract nor the Transition Agreement gave 647 the right to retain funds that Shoppers had wired to the Clearing Account pursuant to remittance statements. Even if the funds were not formally impressed with a trust, 647 clearly took money that it was not meant to have. Equity requires the misappropriated funds to be returned to Shoppers as their rightful owner.

V. The Personal Defendant

[47] As indicated at the outset of these reasons, Beamish, the principal of 647 and the one personal Defendant in this action, has brought both a Rule 21 and a Rule 20 motion seeking to strike the claim or dismiss the action as against him. Beamish’s motion under Rule 20 is more conveniently discussed in the context of Shoppers’ own Rule 20 motion, since both motions consider the same evidentiary record and must meet the same legal test. The test on a Rule 20 motion, and the application of that test to the facts at hand, are discussed in the next section below.

[48] Turning now to the Rule 21 motion, Beamish argues that the Statement of Claim in this action discloses no cause of action against him personally, and that it should therefore be struck under Rule 21.01(1)(b). As a preliminary point, I note that this is a difficult hurdle. It must be “plain and obvious” that there is no reasonable cause of action pleaded. Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 SCR 959, at para. 30. As the Court of Appeal in England put it in interpreting that jurisdiction’s similar rule, “[o]ur judicial system would never permit a plaintiff to be ‘driven from the judgment seat’ in this way without any Court having considered his right to be heard, excepting in cases where the cause of action was obviously and almost incontestably bad.” Dyson v. Attorney-General, [1911] 1 KB 410, at 419 (CA).

[49] In my view, this high hurdle has not been crossed. In the first place, the Statement of Claim here contains an allegation that Beamish is personally liable under the Contract as it was entered into before 647 was incorporated. The claim that the individual who signed the Contract is liable under those circumstances is certainly sustainable at the Rule 21 stage of analysis. Champlain Thickson Inc. v. 365 Bay New Holdings Ltd., [2005] OJ No 4513, at para. 15 (Ont Master), aff’d [2006] OJ No 541 (Div Ct).

[50] In addition to alleging that Beamish is liable under the Contract, there are a number of other causes of action pleaded as against both the corporate Defendant and the personal Defendant. These include allegations of breach of trust, misappropriation, and claims that the corporate veil has been used as a shield against Beamish’s tortious acts. These claims may turn out to be either strong or weak on the evidence at hand, but they are undoubtedly causes of action that can be sued upon. Beamish’s challenge to these causes of action as pleaded has more to do with the technicalities of the draftsmanship – he argues that the claims against Beamish are undifferentiated from those against 647. Those arguments, for the most part, do not go to the substance of the claims made against Beamish, and I would be reluctant to strike a claim on that basis. Courts have often said that cases should be decided on their merits rather than on such technicalities. Indal Metals v. Jordan Construction Management Inc., [1994] OJ No 1616, at para. 13 (Ont Gen Div).

[51] Shoppers’ pleadings are perfectly understandable and Beamish certainly knows the claims made against him. In general, in approaching a Rule 21 motion I am mindful of the longstanding admonition by the Court of Appeal that, “The power to strike out proceedings should be exercised with great care and reluctance.” Rex ex rel. Tolfree v. Clark, 1943 90 (ON CA), [1943] OR 501, at 515 (Ont CA). The court is only permitted to strike out a claim at the pleadings stage where “‘the case is beyond doubt’”. Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 SCR 735, at 740 [citing Ross v. Scottish Union and National Insurance Co. (1920), 1920 437 (ON CA), 47 OLR 308]. Shoppers’ claim against Beamish does not fall into that category.

[52] I would therefore dismiss Beamish’s motion under Rule 21.01(1)(b).

VI. Summary Judgment

[53] As indicated above, Shoppers and Beamish each seek summary judgment – Shoppers on all of the claims raised in the action, and Beamish on the claims raised against him personally. Both rely on Rule 20, and both cite the Court of Appeal’s decision in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] OJ No 5431, at para. 50 for the relevant question that a motion judge must ask: “[C]an the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?”

[54] As noted in Combined Air Mechanical, supra, at para. 40, there are three types of cases that are appropriate for summary judgment. The first, authorized by Rule 20.04(2)(b), is where the parties agree that it is appropriate to determine an action by way of summary judgment. That is not our case. While the parties here cite the same rules and case law, they each argue that their own motion, but not their opponent’s motion, is appropriate to this procedure.

[55] The second type of case in which Rule 20 is the right course to follow is one in which the claims or defences are shown to be entirely without merit. As the Supreme Court said in Attorney General of Canada v. Lameman, 2008 SCC 14, [2008] 1 SCR 372, at para. 10, “[t]rying unmeritorious claims imposes a heavy price in terms of time and cost on the parties to the litigation and on the justice system.” In this, Rule 20 motions often repeat the type of analysis engaged in under Rule 21 – that is, an evaluation of whether the claim itself can succeed regardless of the strength of the evidence. Again, that is not our case. I have already concluded that 647’s acts fall into the categories of misappropriation and unjust enrichment, and that sustainable causes of action have been pleaded against Beamish.

[56] The real question here, for all parties, is whether this is the type of case where there is no chance of success for the side opposing summary judgment. In making this determination, I am cognizant of the powers that the recent amendments contained in Rule 20.04 (2.1) now confer on a motion court: 1. Weighing the evidence; 2. Evaluating the credibility of an opponent; and 3. Drawing any reasonable inference from the evidence. As the Court of Appeal put it:

The prior wording of Rule 20, whether there was a ‘genuine issue for trial’, was replaced by ‘genuine issue requiring a trial’. This change in language is more than mere semantics. The prior wording served mainly to winnow out plainly unmeritorious litigation. The amended wording, coupled with the enhanced powers under rules 20.04(2.1) and (2.2), now permit the motion judge to dispose of cases on the merits where the trial process is not required in the ‘interest of justice’. [Combined Air Mechanical, supra, at para. 44]

a) Summary judgment against 647

[57] As counsel for Shoppers points out at para. 104 of its factum, “[t]he Defendants do not seriously contest that they are in possession of funds that belong to Shoppers.” As already indicated, the fact that they consented to an order requiring the funds in the two bank accounts to be paid over to Shoppers attests to the fact that they concede that the funds that were transferred from the Clearing Account to the Operating Account were Shoppers’ funds and not their own. Rather, as Shoppers again puts it, “the Defendants have put forth various arguments why they should not be required to return those funds.”

[58] To be sure, the defences raised by 647, and in particular its damages and set-off claims, are voluminous. 647 and Beamish argue at paras. 101-2 of their factum that “the within motion is not one of those rare cases” where there are “numerous affidavits, conflicting evidence and a voluminous record that can nonetheless satisfy the ‘full appreciation’ test and be resolved by the motions judge using the new powers set out in Rule 20.04(2.1).” [quoting Honest Art Inc. v. Decode Entertainment Inc., 2012 CarswellOnt 1492, at paras. 12 (Ont Sup Ct)].

[59] The Defendants do concede that the court in Honest Art, supra, at para. 4, held that “the full appreciation test was qualitative not quantitative”. Nevertheless they stress at para. 105 of their factum that, “[t]here are here 8 volumes of motion records filed on this motion which include 21 affidavits sworn by Mariano, Beamish, Hocking, 2 employees of Weirfoulds and 1 employee of Jebreen & Walsh LLP.” The factum goes on at para. 106 to count the number of pages filed by the parties on the motion (1081 pages in the motion records and 498 pages of cross-examination transcripts).

[60] I pause here to observe that although the record is, indeed, composed of a lot of paper, the affidavit evidence on liability issues (I will address quantum issues in the next section below) is not overly varied or complicated. Mariano is Shoppers’ sole affiant. Beamish is the Defendants’ sole affiant. I am advised that cross-examinations took place over two days. Gregory Hocking (“Hocking”) is an accounting expert whose affidavit and report was filed by 647, but who is accepted as authoritative by Shoppers and whose evidence has been used by Shoppers as well as by 647. The other affiants are members of the two law firms representing the parties, who have deposed to mechanical matters that did not require cross-examination.

[61] It is important to keep in mind that a voluminous evidentiary record does not in itself bar a court from a “full appreciation” of the evidence. See *Fairview Donut Inc. v. The TDL Group Corp.*, 2012 ONSC 1252 (Ont Sup Ct). That is all the more true where arguments about sheer volume look, as they do here, like much ado about rather little.

[62] I have little trouble arriving at a full appreciation of the evidence, and I conclude that it is in the interest of justice to determine the issues here on a summary judgment basis. In their four years of dealing with each other, the parties appear to have infrequently met or spoken. Their communication method was primarily by email, and the printouts of their email correspondence are all reproduced in the record before me.

[63] Substantively speaking, the case involves interpretation of the Contract (which is in writing), interpretation of the chain of events that lead up to the aborted 2007 draft agreement (the correspondence and draft of which are also in writing), interpretation of the termination letter and Transition Agreement (both also in writing), and financial and accounting matters based on a written record of remittance summaries, invoices, and documented bank transfers. For a contractual arrangement that lasted four years and involved millions of dollars in volume of business, there is remarkably little reason for viva voce evidence. Virtually the entire relationship is on paper.

[64] More than that, and much as 647 argues otherwise, the issues themselves are simply not that confusing or complex. Shoppers’ Mariano made this very point in an email to Beamish on February 27, 2009 regarding the ‘stop payment’ instruction in the termination letter:

Wayne: Let me clear up some of the confusion for you. Funds were sent to you before the letter and therefore the bills needed to be paid. Either pay the bills ASAP or return the funds. AM.

[65] As concluded in Part IV above, 647 misappropriated money that rightfully belonged to Shoppers. It did not return those funds (except the funds returned pursuant to the March 11, 2009 consent order). 647 was thereby unjustly enriched. In addition, the mutual release contained in the Transition Agreement was premised on a fraudulent misrepresentation by 647 when it remained silent regarding the funds that it had misappropriated from Shoppers. This misinformation rendered the release unenforceable insofar as it purports to bar Shoppers’ claim for the return of all misappropriated funds.

[66] All of these conclusions are readily reached without requiring a trial. Summary judgment will be granted in Shoppers’ favour as against 647. The only remaining question in that regard, which will be discussed in the Part VII below, is: how much must 647 repay?

b) Summary judgment by Beamish

[67] As for Shoppers’ claim against Beamish personally, there is little in the record to prove Shoppers’ case. While Beamish was sloppy in his incorporation of 647 and in the use of unregistered trade names for that company, there was no intent to mislead Shoppers in any of that. Shoppers had calculated that it contracted with a corporate entity (although it did not know that entity’s correct name). It fully expected to deal with a limited liability corporation, and that in fact is what it was dealing with in 647.

[68] Separate from the contractual point, Shoppers argues strenuously that the circumstances here require a lifting of the corporate veil. It contends, at para. 148 of its factum, that “Beamish controlled 647, committed a fraud by misappropriating Shoppers’ money for the benefit of himself and his company, and Beamish is the cause of Shoppers’ loss.” Accordingly, counsel for Shoppers argues, the relevant criteria for lifting the corporate veil have all been met. Woodbine Truck Centre Ltd. v. Jantar Building Systems Inc., [1977] OJ No 1555, at paras. 25-26 (Ont Gen Div).

[69] The evidence demonstrates, however, that everything that Beamish did was done in his corporate capacity and for 647’s benefit. Although there is evidence from the Hocking expert report that 647 employed Beamish and several of his family members, and that presumably some of the misappropriated funds were applied by 647 toward those salaries, I do not view this as a personal misappropriation by Beamish. Hocking is clear, and Shoppers has no evidence to the contrary, that those salaries were earned in the usual course of employment and were modest in scope.

[70] 647 undoubtedly benefitted from the misappropriation of Shoppers’ funds and must be ordered to repay what it owes; however, its employees are not subject to that liability. If Beamish’s family members and Beamish himself are said to have personally acted wrongfully by virtue of their position with 647, then so did any employee of the company.

[71] There is no evidence here that Beamish or the other employees stripped 647 of assets, transferred assets out of the company so as to render it judgment-proof, or paid out fraudulent preferences to themselves or other creditors over Shoppers. See Creasey v. Breachwood Motors Ltd., [1992] BCC 638 (QBD). Barring such evidence, employees do not assume a corporation’s liabilities just because they work for, and receive a normal salary from, a corporation that acts wrongfully.

[72] More to the point, it is elementary corporate law that Beamish does not share a legal identity with the corporation of which he is sole director, officer, and shareholder. Salomon v. Salomon & Co., [1897] AC 22. The separate identity concept is foundational to Anglo-Canadian law, and applies even where the evidence demonstrates that the corporation has been involved in impropriety. As the English courts put it in a recent confirmation of the Salomon principle, “it is not permissible to lift the veil simply because a company has been involved in wrong-doing, in particular simply because it is in breach of contract.” Dadourian Group International Inc. v. Simms, [2006] EWHC 2973, at para. 683 (Ch D), aff’d [2009] EWCA Civ 169 (CA).

[73] To put it another way, the corporate veil should be pierced not where a corporation has misappropriated funds, but where the very use of the corporation is to hide that misappropriation. “[I]t would make undue inroads into the principle of Salomon’s case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough.” Trustor AB v. Smallbone and others (No. 2), [2001] 3 All ER 987, at 996 (HC).

[74] Absent evidence that the incorporation of 647 was itself done for purposes that are illegal and/or fraudulent, a court should be reticent to ignore the corporate structure under which it did business. See Chan v. City Commercial Realty Group Ltd., 2011 ONSC 2854, [2011] OJ No 2136 (Ont Sup Ct). Likewise, without evidence that the corporation was used as nothing more than a shield by Beamish to avoid personal liability, a court must be careful to avoid imposing responsibility on him merely because he is the person behind the company. See Pelliccione v. John F. Hughes Contracting and Development Co., 2005 34822 (ON SC), [2005] OJ No. 4132,at para. 124 (Ont Sup Ct).

[75] Accordingly, I would dismiss Shoppers’ summary judgment motion as against Beamish and grant Beamish’s summary judgment motion dismissing the action against him personally. The evidence shows that Shoppers contracted with a corporation, not with an individual, and, moreover, there is no evidence of personal wrongdoing that would lead to a piercing of the corporate veil. There is, to use the words of Rule 20.04(2)(a), “no genuine issue requiring a trial” with respect to Beamish’s defence of the personal claim.

VII. The Amount of Judgment

[76] Before turning to the specific numbers at issue, there are two preliminary points to be made. In the first place, incomplete evidence of loss or set-off is not in itself a reason to refuse summary judgment. Counsel for 647 indicated that there a number of claims of loss that should be set off against Shoppers’ claims, but that certain of these cannot yet be quantified due to the time consuming task of sifting through all of 647’s financial and accounting records. However, no adjournment was requested, and both parties had ample time since commencement of the action in March 2009 to complete their investigations.

[77] To the extent that some evidence is missing from the record at this point, it must be taken as unproven. “A party is no longer entitled to sit back and rely on the possibility that more favourable facts may develop at trial.” Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 7979, at para. 29 (Ont SC). An incomplete evidentiary record is not the type of thing that will improve with trial of an issue. Rather, it is simply a sign that the party has not “put its best foot forward” on the motion. Rutherford v. RBC Dominion Securities Inc., 2011 ONSC 6002, at para. 9 (Ont SC).

[78] Secondly, it adds great credibility when one side relies on evidence produced by the opposite side. This is especially the case where, as here, a plaintiff relies on a forensic accounting report produced by a defendant in quantifying the plaintiff’s loss. As already indicated, 647 retained an Hocking to prepare a report tracing the funds sent by Shoppers to the Clearing Account. As Defendants’ expert, Hocking had full access to 647’s banking and financial records, and thus was in a better position than Shoppers would have been to follow the trail of the funds. In relying for the most part on the Hocking report, Shoppers has put forward a well documented, credible quantification of its losses.

[79] As already explained, the only transfers to the Operating Account of funds Shoppers deposited into Clearing Account should have been the processing fees paid to 647 by Shoppers. All of the other funds that Shoppers deposited into the Clearing Account were to be used for payment of utility bills. Both sides agree that during the course of the Contract, $363,213 was billed by 647 and paid by Shoppers on account of 647’s processing fees. This should have been the total amount of Shoppers money transferred by 647 between the two bank accounts.

[80] The Hocking report revealed that $3,398,975 was in fact transferred from the Clearing Account to the Operating Account. A further $18,000.68 was lost by Shoppers due to credit cheques issued by various utility companies which 647 failed to pass on to Shoppers before they became stale dated. Added to that is $8,715.57 that was paid by Shoppers into the Clearing Account for processing fees that 647 never performed.

[81] Subtracted from the money that 647 transferred into the Operating Account is $367,475 that 647 actually used to pay Shoppers’ utility bills, and $796,424.11 that was recovered from the Toronto-Dominion Bank on the Mareva injunction motion and consent order. Based on the Hocking report and other backup evidence in the record, Shoppers has a claim of $2,261,782.14 owing to it by 647.

[82] Against this, 647 claims set-off for certain losses that it has incurred. First, it argues that $412,750 deposited into the Operating Account from sources other than Shoppers ($50,000 deposited by Beamish and $362,750 form other sources) should be deducted from the amount owing to Shoppers. 647 contends that these funds should not be recovered by Shoppers as they were not taken from Shoppers. This argument, however, misconstrues the trail of funds traced by Hocking. Shoppers must recover funds that were transferred from the Clearing Account to the Operating Account, not funds that happened to find their way into the Operating Account. The former were earmarked for use for Shoppers’ benefit, while the latter were funds that 647 could spend as it saw fit. There should be no deduction for funds deposited directly into the Operating Account from other sources that never touched the Clearing Account.

[83] 647 also claims that certain fees for projects other than utility bill management services were paid by Shoppers into the Toronto-Dominion accounts, and that these should likewise be deducted from any amounts to be refunded to Shoppers. However, 647 has been unable to produce evidence of these amounts. As already indicated, I must take these amounts as unproven assertions. No adjustment can be made on the basis of claims for which there is no evidence.

[84] In addition, 647 makes a number of claims for matter which could only have been charged to Shoppers if the July 2007 draft agreement had been signed. These include payments for setting up new utility accounts on newly constructed Shoppers stores, and late fees subsequent to July 2007 when 647 alleges Shoppers became responsible for all such fees. As explained in Part I above, the draft agreement of July 2007 was never concluded and was never in force. No set-off or other claims can be made under that aborted agreement.

[85] Under the October 2005 Contract it was, of course, possible for 647 to charge Shoppers with late fees incurred on utility bills if the reason for the lateness was Shoppers’ payment more than 5 days after receiving a given remittance statement. In an affidavit, Beamish asserts that 647 incurred over $96,000 in late fees as a result of Shoppers taking more than 5 days to transfer funds. However, no backup documentation is provided to support this bald assertion. By simply checking the dates that Beamish alleges he sent the remittance summaries against its payment records, Shoppers has been able to show that at least half of the late fees referred to by Beamish were not the result of Shoppers’ delay.

[86] In my view, Beamish’s affidavit alone does not prove that any late fees are owed by Shoppers. It must be recalled that during the entire course of the parties’ relationship, not a single late fee ever appeared on a remittance summary as invoiced by 647 to Shoppers. Having not charged Shoppers with late fees all along, and having failed to produce any utility bills or other backup documentation to establish its claim that there are late fees owing to it under the Contract, 647 cannot set off any alleged late fees against the money it owes to Shoppers.

[87] Separate from the Contract, Shoppers and 647 had entered into a call centre agreement in which 647 provided after-hours call centre services for maintenance support to all Shoppers outlets in Ontario and Quebec. Shoppers paid $9.75 per store per month for this service. Although the Contract was terminated on February 2, 2009, the call centre agreement continued in force until March 31, 2009. Shoppers has apparently not paid the outstanding invoices under that agreement for the months of January, February, and March 2009 in the total amount of $22,881.

[88] Likewise, 647 claims that there are $2,316 in utility bill processing fees that were invoiced to Shoppers and payable under the Contract, but that have not been paid. Shoppers has no answer to either the call centre claim or the outstanding process fee claim. I see no reason why $25,197, representing $22,881 in call centre fees and $2,316 in utility bill processing fees, should not be set-off by 647 against the monies that it owes to Shoppers.

[89] 647 also maintains that it has not been paid the $75,600 in fees it was owed for services provided under the Transition Agreement. Counsel for Shoppers takes great objection to this claim, expressing the view that the only activity that 647 engaged in under the Transition Agreement was to wrongfully take more than $1.3 million of Shoppers’ money. No services were performed by 647 which actually facilitated any transition, and Shoppers adamantly refuses to pay a service fee for what it views as egregious conduct on 647’s part.

[90] I agree with Shoppers. I see no value obtained by Shoppers for the services that 647 supposedly performed under the Transition Agreement. 647’s conduct during this period appears to me to have been nothing but self-serving and wrongful. Shoppers has nothing to pay for here.

[91] 647 further claims damages for loss of income that it would have made had the Contract, the call centre arrangement, and the new construction fees continued until the end of the term of the Contract in December 2010. As already conclude in Part II above, the Contract was validly terminated in February 2009, and it does not lie with 647, who stood to benefit enormously from the Transition Agreement that accompanied the termination, to argue that the termination never took place. I have also already concluded in this section that in any case no new construction fees were owing as that agreement had never been concluded.

[92] As for the call centre arrangement, it is impossible to divorce this from the overall relationship between the parties. When Shoppers terminated the call centre agreement in March 2009, it had just learned that 647 had misappropriated at least $1.3 million of its money. It is a bit much to expect any party to continue in a business relationship under those circumstances. If 647 suffered lost revenue in respect of the call centre, it brought that misfortune on itself.

[93] Finally, 647 claims certain losses that it suffered as a result of unexpected expenses flowing from the termination of the Contract – an increased rental cost for its facility that it no longer needed, and employee termination costs. In my view, these are costs of doing business which it agreed to absorb when it signed the Transition Agreement. These losses are not recoverable from Shoppers.

VIII. Conclusion

[94] In the result, Shoppers has established its claim for reimbursement of 647’s unjust enrichment in the amount of $2,261,782.14, minus set-offs established by 647 in the amount of $25,197. Accordingly, Shoppers will have judgment requiring 647 to pay it a total of $2,236,585.14, plus pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, RSO 1990, c. C.43.

[95] The parties may make written submissions regarding costs, to be submitted to me within 10 business days of the date of release of these reasons for judgment.

Morgan J.

Released: September 14, 2012