ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-11-441541
DATE: 20121122
B E T W E E N:
Heli-Transport Inc. Plaintiff/Moving Party - and - Kingsview Iron Ore Limited Defendant/Responding Party
Isabella Massimi & Nicole Westlake , for the Plaintiff/Moving Party
Robert M. Isles, for the Defendant/Responding Party
HEARD : October 19, 2012
GOLDSTEIN J.:
[ 1 ] The Defendant Kingsview Iron Ore Limited (“ Kingsview ”) is in the mining exploration business. It explores for minerals in isolated areas of northern Quebec. The isolation and lack of roads in the area in which it explores necessitates the use of helicopter transport. Kingsview hired the Plaintiff Heli-Transport Inc. (“ Heli-Transport ”) to move personnel and material around. Heli-Transport says that Kingsview won’t pay. It has sued and brings a motion for summary judgment in the amount of $126,368.97. Kingsview disputes the amount owing and has counter-claimed for damages. In my view, this is not an appropriate case for summary judgment. For the reasons set out below, the motion is dismissed.
BACKGROUND
[ 2 ] In 2011 Kingsview and Heli-Transport entered into an agreement for helicopter transportation services (“ the Agreement ”). The Agreement provided that Heli-Transport would provide helicopter services for a period of 72 days during the summer of 2011. Schedule “A” to the Agreement set out the specific Flight Charges and Accessory Fees that Kingsview would be responsible for paying:
Flight Charges
a) Hourly Rate:
$1,495 per hour plus applicable taxes
b) Minimum charges for the period:
72 days at 3.5 hrs/day = 252 hours
c) Positioning fee:
Included to camp
d) Depositioning fee:
Included back to Trois Rivieres, P.Q.
Accessories fees:
a) Fuel:
Supplied and/or paid by the client
b) Crews (room and board):
Supplied and/or paid by the client
c) Crews (ground transportation):
Supplied and/or paid by the client
d) Crew rotation costs:
Supplied and/or paid by the client
e) Parts and equipment transport cost:
Supplied and/or paid by the client
f) SNA/Airport cost:
Supplied and/or paid by the client
g) Communication fee:
Supplied and/or paid by the client
h) Other fees:
Skyconnect if com used by client
i) Cargo Insurance:
Per tariff and contract
[ 3 ] The Agreement also provided specific terms for the calculation of flight times. The pilot was required to complete a report after every flight, which was signed by a Kingsview representative. Heli-Transport issued invoices to Kingsview which the Agreement required Kingsview pay within 30 days.
[ 4 ] The Agreement also specified that if Heli-Transport was required to commence legal proceedings in order to collect on its invoices, it would charge a 20% surcharge on whatever amount was owed.
[ 5 ] Heli-Transport issued invoices totalling $569,398.97 between July 21 2011 and September 14 2011. Kingsview paid some of the invoices. After deducting those payments and certain other amounts Heli-Transport says that the amount owing is $126,368.97, as well as the 20% surcharge and interest of 2% per month (as set out in the Agreement).
[ 6 ] Kingsview disputed many of the fees charged by Heli-Transport. In fact, after reviewing a spreadsheet prepared by a Kingsview employee Heli-Transport reduced its claim by approximately $43,000.00. Kingsview disputes whether Heli-Transport is entitled to charge for certain charges that it already paid for as set out in Schedule “A” to the Agreement. Kingsview also claims that the flight charges are excessive and disputes charges relating to unnecessary crew rotations.
[ 7 ] Kingsview also claims it was charged for extra flights, including at least one flight by a pilot to allegedly pick up fishing licences. That pilot, Julien LeClair, has been at the centre of controversy and his actions are the subject of numerous Kingsview complaints. For example, Kingsview claims that the Heli-Transport mechanic stationed at the mining camp shot a dog belonging to a local worker. Kingsview alleges that the mechanic shot the dog with the help of LeClair. LeClair brought the rifle with him to the Kingsview mining camp in violation of the Kingsview ban on drugs, alcohol, and weapons at the camp. Kingsview says that the shooting caused a disruption in relations between Kingsview and the local Inuit community, which are of the utmost importance. LeClair flew the helicopter to the local police detachment at the request of the police. Senior Kingsview personnel were required to spend time and effort to meet with local Inuit leaders to smooth over relations. Kingsview says that since LeClair caused the problems, Heli-Transport should not have invoiced for those flights. Furthermore, the dog issue had caused problems that eventually resulted in the loss of a bore hole at great expense to Kingsview.
[ 8 ] Earlier in the summer LeClair had been rotated in to the Kingsview mining camp. He was allegedly a disruptive influence and was asked to leave. According to Kingsview, Heli-transport had promised that LeClair would no longer be flying out of the Kingsview mining camp. LeClair was rotated back in at the end of August contrary to Heli-Transport’s promises and brought the rifle with him despite knowing the policy. Kingsview says that LeClair’s actions not only gave rise to the events that caused it damages (and which form the subject matter of the counter-claim), but also resulted in excess charges that it is not responsible for paying.
ANALYSIS
[ 9 ] Sub-rule 20.04 of the Rules of Civil Procedure states:
(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[ 10 ] In Combined Air Mechanical v. Flesch , 2011 ONCA 764 the Court of Appeal stated:
50 We find that the passages set out above from Housen , at paras. 14 and 18, such as "total familiarity with the evidence", "extensive exposure to the evidence", and "familiarity with the case as a whole", provide guidance as to when it is appropriate for the motion judge to exercise the powers in rule 20.04(2.1). In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can 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?
[ 11 ] Ms. Massimi argues for Heli-Transport that this is a simple case of invoices that are unpaid. The flight log books were signed by Kingsview’s chief geologist. The services were provided and haven’t been paid for. Ms. Massimi further argues that summary judgment can be granted in respect of the plain and obvious charges that Kingsview must pay notwithstanding the counterclaim.
[ 12 ] Ms. Massimi also argues that summary judgment can be granted notwithstanding that Kingsview has a counterclaim for unliquidated damages: Agway Metals Inc. v. Dufferin Roofing Ltd., [1991] O.J. No. 9 (Gen.Div.) ; affirmed [1994] O.J. No. 3671 (C.A.) . She argues that Kingsview is still free to pursue its counterclaim once summary judgment is granted.
[ 13 ] Although there is certainly merit to Ms. Massimi’s argument, I do not believe that summary judgment is appropriate under these circumstances. The principles and the test for equitable set-off is set out in Algoma Steel Inc. v. Union Gas Ltd. , 2003 30833 (ON CA) , [2003] O.J. No. 71, 63 O.R. (3d) 78 (C.A.) at paras. 26 and 29 :
[26] Equitable set-off is available where there is a claim for a sum whether liquidated or unliquidated. In Telford v. Holt , 1987 18 (SCC) , [1987] 2 S.C.R. 193, 41 D.L.R. (4th) 385, at pp. 211-12 S.C.R., pp. 398-99 D.L.R., Wilson J., speaking for the court, approved a statement of the applicable principles for equitable set-off found in Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd. and Tsang (1985), 1985 144 (BC CA) , 20 D.L.R. (4th) 689, 36 R.P.R. 259 (B.C.C.A.) at pp. 696-97 D.L.R. Those principles can be summarized as follows:
The party relying on a set-off must show some equitable ground for being protected against the adversary's demands.
The equitable ground must go to the very root of the plaintiff's claim.
A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim.
The plaintiff's claim and the cross-claim need not arise out of the same contract. [page89]
Unliquidated claims are on the same footing as liquidated claims.
[29] It seems to me that a very helpful test is set out in a passage from the reasons of Lord Denning in Federal Commerce at p. 1078 All E.R. and which was quoted with apparent approval by Wilson J. in Telford at pp. 213-14 S.C.R., p. 400 D.L.R.:
We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? . . . This question must be asked in each case as it arises for decision; and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.
[ 14 ] Kingsview claims not only a set-off for damages, it also disputes the amounts owed under the invoices. Kingsview says that some of the charges are excessive and there is some evidence in the affidavit material to support that claim. Mr. Isles argues for Kingsview that the Agreement was a “time and materials” agreement requiring very complete record-keeping by Heli-Transport: Smith v. Raza , 2003 11743 (Sup.Ct.) . I have some doubts about whether this case can be accurately considered a “time and materials” case as Mr. Isles argues; that said, there is certainly a dispute about the accuracy of the flight reports.
[ 15 ] These are factual issues associated with the defence that that turn on the credibility of witnesses. Heli-Transport may well be correct that Kingsview can not establish the elements of equitable set-off, but there is enough evidence to persuade me that the counter-claim is sufficiently bound up with Heli-Transport’s claim such that a trial judge will ultimately have to adjudicate on it. For example, the dog-shooting issue led to the alleged bore-hole damage issue and the alleged damages to relations with the local Inuit community. Those issues cannot be separated from Heli-Transport’s claim because Kingsview says (and there is at least some evidence to support the assertion) that these issues led to some of the excessive or unnecessary flight charges. Without hearing from the actual witnesses, I do not believe that the evidentiary conflicts can be resolved.
[ 16 ] I also do not believe that the issue of the surcharge can be resolved in a summary judgment motion. Ms. Massimi argues that the surcharge in the Agreement is a genuine pre-estimation of damages based on a realistic evaluation of the cost of litigation in the event of non-payment. In Calloway REIT (Westgate) Inc. v. Michaels of Canada , [2009] O.J. No. 761 (Sup.Ct.) Hoy J. (as she then was) stated:
85 The common law rule against penalties involves an assessment of the remedy clause at the time the contract was formed. If the stipulated remedy represents a genuine attempt to estimate the damages that the innocent party would suffer in the event of a breach, it will be enforced. If the sum stipulated is "extravagant and unconscionable in amount in comparison with the greatest loss that could be conceivably proved to have followed from the breach" it is a penalty. The common law doctrine does not provide for any discretion to be exercised because of circumstances that exist at the time of the breach. Peachtree II Associates-Dallas, L.P. v. 857486 Ontario Ltd. , 2005 23216 (ON CA) , [2005] O.J. No. 2749 at para. 24 (C.A.), leave to appeal to the S.C.C. refused, [2005] S.C.C.A. No. 420.
86 The onus of establishing that the clause is a penalty clause rests upon the party attempting to set the clause aside. Infinite Maintenance Systems Ltd. v. ORC Management Limited , 2001 (ON CA), at para. 13.
87 Equity also requires that the sum forfeited be out of all proportion to the damage before it will intervene. However, in contrast with the common law penalty rule, equity focuses on the time of the breach rather than the time the contract was entered into and considers whether it is unconscionable for the innocent party to retain the money forfeited. Peachtree II , para. 25
88 While declining to sound the death knell for the common law rule against penalties, the Court of Appeal has highlighted the importance of the general principle of freedom of contract. It has clearly signalled that not all stipulated remedy clauses having penal consequences are unenforceable and that the courts should, whenever possible, favour an analysis on the basis of equitable principles and unconscionability over the strict common law rule pertaining to penalty clauses. Peachtree II , paras. 32 and 36, Birch v. Union of Taxation Employees, Local 70030 , 2008 ONCA 809 , [2008] O.J. No. 4856 (C.A.), paras. 26 and 37 .
89 A determination of unconscionability requires a finding of inequality of bargaining power and a finding that the terms of an agreement have a high degree of unfairness. Birch , para. 45 .
[ 17 ] If I were to grant summary judgment then I would also be inclined to find that the surcharge should be enforced based on principles of freedom of contract and equality of bargaining power. The surcharge would logically follow a finding of liability, unless Kingsview could show that it is not a penalty. I have doubts that Kingsview could do so: it freely entered into the contract for services and (notwithstanding Mr. Isles’s arguments to the contrary) is clearly a player of some sophistication. That said, since I cannot find liability I cannot enforce the surcharge.
[ 18 ] Although this is a close call, in my view the factual issues in this case cannot be resolved only by reference to the documents and the affidavits. Kingsview has persuaded me that there is a genuine issue for trial. I refer to the Court of Appeal again in Combined Air Mechanical , supra :
51 We think this "full appreciation test" provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.
DISPOSITION
[ 19 ] The motion is dismissed. If the parties are unable to agree on costs, I would be pleased to receive a costs outline and a costs submission of no more than two pages from the Kingsview within 14 days, and a responding submission of no more than two pages from Heli-Transport within 10 days thereafter.
GOLDSTEIN, J.
DATE: November 22, 2012
COURT FILE NO: CV-11-441541
DATE: 20121122
ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:
Heli-Transport Inc. Plaintiff/Moving Party - and - Kingsview Iron Ore Limited Defendant/Responding Party
JUDGMENT GOLDSTEIN J.
Released: November 22, 2012