Fine Jewellery Inc., 2012 ONSC 7359

COURT FILE NO.: CV11-436104
DATE: 20121231
SUPERIOR COURT OF JUSTICE – ONTARIO

RE: noble jewElery and merchandising co. Ltd. , plaintiff

AND:

epic international fine jewellerY inc. o/a CACHET FINE DIAMOND JEWELLERY, LAWRENCE TOLLMAN, MAUREEN TOLLMAN and FOXY TOLLMAN, defendants

BEFORE: Stinson J.

COUNSEL: David W. Levangie , for the plaintiff/moving party

Kenneth H. Page , for the defendants/responding parties

HEARD: November 30, 2012

ENDORSEMENT

[ 1 ] This is a motion for summary judgment brought by the plaintiff ("Noble"). Its claim against the corporate defendant ("Epic") seeks payment of the outstanding balance for wholesale jewelry sold and delivered by Noble to Epic. The claim against the individual defendants (Lawrence Tollman ("Tollman"), his spouse Maureen Tollman who is also known as Foxy Tollman ("Mrs. Tollman")) is founded on the allegation that the individual defendants guaranteed payment of the indebtedness owed to the plaintiff.

[ 2 ] The defendants dispute the indebtedness on the ground that they returned some of the goods to the plaintiff and thereby became entitled to a credit that erased the balance of the indebtedness. They assert that the questions relating to quantification of the plaintiff's claim and the liability of the individual defendants under their alleged personal guarantees raise factual disputes that may only be resolved following a trial. They therefore argue that these are genuine issues requiring a trial, such that an order for summary judgment is not appropriate.

background

[ 3 ] In July 2010, Tollman (who is the sole director and president of Epic) approached the plaintiff's account manager, Thierry Bordas ("Bordas") about the possibility of the plaintiff supplying Epic with jewelry for its operations in Canada. Bordas and Tollman were known to one another, arising from prior business dealings in the jewelry business. According to Bordas, when he met with Tollman to discuss their possible business relationship, he explained that Noble's operations were supported by financing from its bank which charged 15 percent interest on outstanding amounts. He stressed that it was imperative that Tollman ensure that payment in full was made on all of Noble's invoices, because Noble would be charged interest at 15 percent by its bank and would pass that expense onto Tollman and Epic in the event they failed to make timely payment. According to Bordas, Tollman agreed to this condition and also agreed that he would be personally responsible for the debts of Epic in the event that Epic failed to make payment.

[ 4 ] For his part, the evidence of Tollman is that at no time was the personal guarantee of any of the parties ever discussed. Instead, according to his evidence, the arrangement was entered into good faith and due to the long term friendship and association between Tollman and Bordas. He also denied that the parties ever discussed or arranged 15 percent interest on overdue accounts.

[ 5 ] Between September and December 2010, Epic ordered and Noble sold and shipped to Epic jewelry items totalling US$353,642.68. Between January and March 2011, Epic purchased a further US$70,838.77 worth of jewelry from Noble. There is no dispute that Epic received the goods, and that it resold some of them. Epic did not, however, make timely payment of Noble's invoices: as of June 1, 2011, Epic was indebted to Noble for more than US$300,000 on account of overdue invoices.

[ 6 ] As a consequence of Epic's failure to pay the invoices, on June 1, 2011, Bordas sent an e-mail to Tollman demanding the return of the inventory. He advised that "as soon as we will have the inventory re-imported to Thailand we will check all pieces and issue the corresponding credit notes."

[ 7 ] Following that demand, Epic returned a large quantity of jewelry to Noble. Noble inventoried the jewelry returned and issued a credit to Epic for an amount equivalent to the price at which the goods had originally been sold by Noble to Epic, namely, US$237,673.77. Noble also issued a credit note for three sets of earrings that had been returned with a total value of US$3,672.74. Following these credits, the total due from Epic to Noble stood at $107,186.42. Epic delivered a cheque for US$50,000 to be applied against its receivables, but the cheque was returned NSF, resulting in a $250 bank charge. As a result of the foregoing, according to Bordas, the total due from Epic to Noble was $107,436.42.

[ 8 ] Bordas continued to pursue Tollman for payment in June, July and August 2011. Among other assurances, Tollman advised that it was his intention to sell the family home and inject more money into Epic so that he would have better cash flow to continue to pay. On July 19, 2011, Tollman sent the following e-mail:

Dear Thierry,

As I have explained to you the transfer of our house took 2 weeks longer than we anticipated, the closing should be in place within the next 5 days give or take and the funds will be wired into our account by the bank.

We will then wire to Noble the funds as arranged, the balance will be wired over a period of time. As you are aware we concluded to sell our property to pay Noble more promptly but during the sale period the sample line was asked to returned [sic] which we did to its entirety.

We are not dishonest people and I assure you Noble will be paid out to the last penny.

Awaiting your reply.

Thanking you

Lawrence

The foregoing e-mail was labeled "Without Prejudice".

[ 9 ] Despite the foregoing assurances, no further sums were paid by the defendants. As a consequence, the plaintiff commenced this action on September 29, 2011. In their statement of defence, the defendants admitted that Epic purchased the goods but denied the payment terms for the orders. The defendants also disputed that they had received proper credit for the goods returned, asserting that the value of the goods they returned substantially exceeded the amount of credit that the plaintiff gave them. The defendants also alleged that the plaintiff retained diamonds belonging to Epic, the value of which it claimed to set off against the plaintiff's claim.

[ 10 ] Following the exchange of pleadings, the plaintiff elected to bring this motion for summary judgment. The parties exchanged affidavits and conducted cross-examinations.

analysis

[ 11 ] As the Court of Appeal stated in Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 at para. 38 , with reference to the amended Rule 20:

The purpose of the new Rule is to eliminate unnecessary trials, not to eliminate all trials. The guiding consideration is whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.

As the Court went on to observe (at para. 44):

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".

[ 12 ] As directed by rule 20.04(2.1) in determining whether there is genuine issue required in trial, I am required to consider the evidence submitted by the parties and I may (1) weigh the evidence, (2) evaluate credibility, and (3) draw reasonable inferences, unless I conclude that it is in the interest of justice for these powers to be exercised only at a trial. For purposes of determining whether I should exercise the powers under rule 20.04(2.1), the Court of Appeal provided the following guidance (in para. 50):

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?

[ 13 ] The present case is relatively straight forward. Only three witnesses swore affidavits. The fact situation is not complex. There are few documents and the affidavits are relatively brief. The cross-examinations elicited important concessions or qualifications. Overall, in my view, this is a case where I am in a position to develop a full appreciation of the evidence and issues without need for a trial; this is not a case where I need to have the evidence presented by way of a trial narrative, nor one in which I need to experience the fact-finding process firsthand. Rather, I believe this is a case that is capable of being decided on the paper record before the court and I therefore propose to do so.

[ 14 ] Based upon the pleadings and the evidence filed by the parties, and following the cross-examinations, the dispute centers on four issues, as follows:

1. The allegation by the defendants that the plaintiff should have credited Epic's accounts with the current market value of the gold and diamonds returned, calculated as at the date of the return, as opposed to the original purchase price at which the products were sold by Noble to Epic;

2. the correct valuation of the diamonds supplied by Epic to Noble, and the resulting credit due as against the debt claimed by Noble;

3. whether the plaintiff had established on the evidence a personal guarantee by Tollman and Mrs. Tollman; and

4. what interest rate was appropriate on the outstanding invoices.

[ 15 ] For the most part, resolution of the foregoing issues requires me to make findings of fact. In turn, this requires me to consider and weigh the evidence and evaluate the credibility of the deponents. The key conflicts on the evidence arise between the affidavits of Tollman and Bordas: what was said at their meetings, what were the terms of their agreements and in particular what credit is due to each side arising from the returned inventory and the diamonds.

[ 16 ] The evidence of Mrs. Tollman addressed merely the question of her alleged personal guarantee. It is not directly contradicted, as the plaintiff concedes there was no direct contact with her. Nor is there any record of direct written communication with her. Given her lack of direct involvement in the dealings between the parties, her evidence does not bear on any question apart from her potential personal liability. Given the absence of any evidence to contradict hers, I accept that she never agreed to personally guarantee Epic's debt to Noble.

[ 17 ] I turn now to evaluation of the credibility and reliability of the evidence of Tollman and Bordas, beginning with Tollman.

[ 18 ] One of the main issues of contention concerns the basis upon which the calculation is to be made of the credit due to Epic arising from its return of the goods to Noble. In his affidavit, Tollman complained that "the credit applied to the Epic accounts by Noble represents the acquisition costs and not the real value for the inventory. If the correct credit was applied at the time of the merchandise returned, Noble would have mitigated all its outstanding debts with Epic." This assertion was premised on the foundation that, during the relevant period, gold prices went up approximately 50%. This evidence is demonstrably inaccurate, based on the invoices themselves, which reveal a gold price at the outset of the parties' relationship of $1,227 in September 2010 as compared to a price of $1,432 an ounce on the final invoice, in late March 2011: this equates to an increase of approximately $200 an ounce, or less than 20%, less than half of the increase asserted by Tollman.

[ 19 ] Tollman conceded that there was no agreement between the parties to pay for the return jewelry at the market value of its underlying contents. He nevertheless asserted that there was some practice in the industry to credit customers who return goods with their higher market value. With respect, this makes no commercial sense. The plaintiff had no obligation to take its goods back; it demanded their return because Epic had failed to pay for them. It is illogical that it would be held to a requirement to give extra credit to a customer for goods that the customer never paid for in the first place. Tollman's evidence does not accord with common sense.

[ 20 ] At one point in his cross-examination evidence, Tollman claimed that he prepared a listing of the returned goods showing their current market value, before sending them back to Noble in Thailand. He claimed that he submitted that listing and draft credit notes to Bordas, who told him that they would create importation problems in Thailand since higher price invoices would indicate a purchase by Noble as opposed to a return of its own goods. On this basis, Tollman claims, he prepared revised credit notes at the actual purchase price.

[ 21 ] There is no record of any such exchange of the draft credit notes between the parties, although they communicated extensively via e-mail. At his cross-examination, Tollman undertook to produce his version of the draft credit notes. He was unable to locate them. It was conceded by his counsel that these documents were not mentioned in his affidavit documents. I conclude these draft credit notes never existed and Tollman's testimony is false.

[ 22 ] Also conspicuous by its absence is any record of communication between the parties regarding the higher level of credit now claimed by Epic. When Noble received the goods from Epic with the Epic-drafted credit (and submitted) notes listing the purchase price for the various items, Noble conducted an inventory. Noble determined that Epic was entitled to greater credit than its own inventory revealed and it provided that additional credit to Epic. There is no record of any complaint by Epic that the revised, higher credit actually given by Noble was less than the amount to which it was entitled or expected to receive.

[ 23 ] Although Epic's position now is that the correct value of the goods returned by it was such that its remaining indebtedness was completely extinguished, after it returned the goods Epic proceeded to send a cheque for $50,000 on account of its liability. That cheque, of course, was returned NSF. It would have made no sense for Epic to proffer these funds if, as it now asserts, its liability was extinguished when it returned the goods. This fact and this conduct are inconsistent and at odds with Tollman's sworn evidence. It provides yet another reason to disbelieve his evidence.

[ 24 ] Additionally, in his e-mail dated July 19, 2011, Tollman again mentioned the arrangements he was making to sell his house to raise the funds owed to Noble, concluding with the assurance that Noble would be paid out to the last penny. Counsel for the defendants argues that this e-mail is inadmissible because it was marked "Without Prejudice". I disagree. This communication contains no offer of compromise or concession with a view to arranging a settlement. It is merely an explanation as to why the defendants had yet to pay the indebtedness due to the plaintiff and how they intended to do so subsequently. The mere presence of the words "without prejudice" does not confer a privilege against admissibility if the communication was not written for the purpose of attempting to effect a settlement: see Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 3rd ed., (Markham: LexisNexis, 2009) at para. 14.3-7.

[ 25 ] The contents of e-mail communication of July 19, 2011 are both admissible and inconsistent with Tollman's sworn evidence that the debt had been extinguished through the return of the remaining inventory.

[ 26 ] Another aspect of Tollman's evidence that does not withstand scrutiny arises from Epic's claim for credit for certain diamonds that it provided to Noble for incorporation into items of jewelry. Noble acknowledges that it received the diamonds, and it is prepared to give credit at the correct price.

[ 27 ] In his affidavit, Tollman swore that the diamonds in question had a value of $10,000. By way of a reply affidavit, Bordas produced Epic's invoice to Noble for those diamonds, showing a price of $4,218.30. In the face of that document, Tollman initially maintained his position that the value of the diamonds was $10,000, although he conceded when he brought them into Thailand he declared them at $4,215. He claimed that the number $4,218.30 was just a number that he "pulled out of the air", whereas the Epic invoice expressly recites a carat weight of 3.27 carats at a rate of $1,290 per carat which equates to $4,218.30. Once again, Tollman's evidence is demonstrably false.

[ 28 ] In view of the foregoing, I have no hesitation in reaching the conclusion that Tollman is not a credible witness and that I should not and cannot place any reliance on his evidence, save where it is supported by or otherwise corroborated by independent evidence or documentation.

[ 29 ] Turning to the evidence of Bordas, counsel for the defendants did not take me to any significant portion of his affidavit or cross-examination that raised any concerns regarding his credibility or the reliability of his evidence. This is not to say, however, that I accept the plaintiff's case without qualification. Viewed in the overall context of the parties' relationship, however, Bordas' evidence makes sense. While he had a previous business relationship with Tollman, he was aware that Tollman was starting a new venture. It is therefore logical that he would both acquaint Tollman with the terms upon which he was prepared to supply product to him, but as well to require Tollman's personal guarantee as a condition of doing so. Otherwise, Noble would be shipping a significant quantity of valuable merchandise to a fledgling enterprise with which it had no prior relationship nor credit history and without recourse in the absence of a personal guarantee from the principal.

[ 30 ] The documentary record is also consistent with and in no way contradicts Bordas' evidence.

[ 31 ] The only aspect of Bordas' evidence that concerns me is his belief that Mrs. Tollman somehow gave a personal guarantee. This appears to be Bordas' interpretation of what he was told by Tollman, and his understanding of the corporate make up of Epic, of which both Tollman and Mrs. Tollman are officers. Given that Bordas' belief was based on an understanding created by Tollman's statements to him, I do not consider that this detracts from his credibility or the reliability of the remainder of his evidence.

[ 32 ] I am also impressed by the fact that, after Epic returned much of the inventory to Noble, Noble determined that the Epic inventory was erroneous. It proceeded to credit Epic with a greater sum that Epic itself had claimed. This reflects honest business practices on the part of Noble. There can be no suggestion that Noble or Bordas acted in a questionable or unscrupulous fashion.

[ 33 ] Overall, therefore, I conclude that I am in a position to weigh the evidence and evaluate the credibility of the two principal witnesses, Tollman and Bordas. In my view, the interest of justice does not require a trial in order to permit me to do so fairly. The numerous flaws in Tollman's evidence as outlined above as compared to the virtually unchallenged evidence of Bordas allow me to conclude with confidence that, wherever there is a material conflict between the evidence of the two, I prefer and can accept the evidence of Bordas. In turn, I am able to make findings of fact based upon the paper record before me.

[ 34 ] I therefore turn to the four specific issues that arise for consideration on the evidence.

1. Credit due to Epic for return inventory

[ 35 ] I accept and find as a fact that there was no arrangement between the parties by which Epic was entitled to a credit for returned merchandise at any price higher than the price at which the goods were initially sold to it by Noble. I reject the evidence of Tollman that any greater sum was due. Instead, I find that in relation to merchandise returned, Noble gave full and proper credit to Epic. This means that the correct amount for the accounts receivable due by Epic to Noble as of June 21, 2011 was US$107,186.42. Adding on the NSF charge of $250 results in gross liability of $107,436.42.

2. Credit due for Epic's diamonds

[ 36 ] For the reasons indicated previously, I reject Tollman's evidence that Epic was entitled to additional credit of $10,000 for the diamonds that it supplied. Instead, I accept and find as a fact that the proper credit to which Epic was entitled for these diamonds was the sum set out in Epic's original invoice for same, namely, US$4,218.30.

[ 37 ] Counsel for the plaintiff conceded that Epic had not yet received credit for the diamonds. Accordingly, the correct amount of the receivable should be reduced by their value. This results in a net principal sum due of US$103,218.12.

3. Personal guarantees

[ 38 ] The evidence of Bordas was that, when he agreed to supply the jewelry to Epic, Tollman agreed that he would be personally responsible for the debts of Epic in the event that Epic failed to make payment. In his affidavit, Tollman denied this agreement. For the reasons explained above, I accept the evidence of Bordas and reject that of Tollman on this point. I therefore find as a fact that Tollman agreed to be personally responsible for Epic's indebtedness to Noble. This finding is further bolstered by and consistent with the e-mail from Tollman dated July 17, 2011 in which he confirmed his intention to sell his personal residence in order to pay off the debt.

[ 39 ] The evidence that I accept, however, does not support a finding that Mrs. Tollman ever agreed to assume personal responsibility for Epic's indebtedness to Noble. While Bordas may have gained that impression based upon the assurances given by Tollman, coupled with Lawrence's assurance that they were selling their house to pay the debt, there is no direct evidence upon which I can base the finding that Mrs. Tollman agreed to accept personal liability.

[ 40 ] Based upon the paper record before me, and my assessment of the credibility of the deponents, I am confident that I can find as a fact that Bordas and Tollman made an oral agreement by which Tollman agreed to guarantee the indebtedness of Epic to Noble, and I so find. I am aware that no formal written guarantee document was prepared at the time, and that during the course of the parties' business relationship, the guarantee was based on an oral agreement. I am also conscious of the provisions of s. 4 of the Statute of Frauds , R.S.O. 1990, c. S.19, relating to the requirement of writing for a guarantee. The defendants did not plead the Statute of Frauds , however. The law is clear that in order to raise this defence, the statute must be pleaded: see Severin v. Vroom (1977), 1977 1037 (ON CA) , 15 O.R. (2d) 636 (C.A.). This allows the parties to explore the issue as required, to focus on the question whether the statute is applicable, whether some relevant documents may exist, or whether there may be an answer by the plaintiff, such as part performance or the like.

[ 41 ] It was I who raised the question of the potential applicability of the Statute of Frauds , in relation to the guarantee issue. Counsel for the plaintiff pointed out that the statute had not been pleaded. Counsel for the defendants allowed that it was "an oversight" but he made no request to amend the statement of defence to raise it as a formal issue. In my view, therefore the Statute of Frauds not having been pleaded, the alleged absence of a written document is no answer to the plaintiff's claim on Tollman's oral guarantee of Epic's indebtedness.

[ 42 ] Counsel for the plaintiff submitted that, even if the statute did apply its requirements were met. Specifically, he referred to Tollman's e-mail dated July 19, 2011. Read as a whole, he submitted, it amounted to a personal assurance from Tollman that he would use his personal funds to cover Epic's liability to Noble. In view of the fact that the defendants did not plead the Statute of Frauds , I am not called upon to decide this point.

[ 43 ] I therefore hold that, as guarantor, Tollman is liable to pay Epic's indebtedness to Noble. The plaintiff has failed to make out the case as against Mrs. Tollman, however.

interest

[ 44 ] Based upon my assessment of the credibility and reliability of the evidence of the two principal witnesses, I accept that of Bordas in relation to the interest claim, and reject Tollman's denial that this topic was discussed. Specifically, I find as a fact that Tollman agreed that Epic would pay Noble's interest costs of 15% per year once the Noble invoices became overdue. I further find that the invoices specified their due dates and that they were in accord with the terms to which the parties had agreed. I therefore conclude that the correct calculation of the sums due by Epic to Noble can be carried out by the arithmetical calculation achieved by determining the due date for each invoice and applying appropriate interest charges thereafter, after subtracting the payments received and credits due to Epic on account of returned merchandise and the diamonds it supplied to Noble. If there is any dispute between the parties concerning the correct calculation of this sum, I may be spoken to.

conclusion and disposition

[ 45 ] For these reasons, judgment shall issue in favour of the plaintiff as against the defendants Epic and Lawrence Tollman in the full amount claimed, consistent with the calculations described above. The action as against Maureen Tollman and Foxy Tollman is dismissed.

[ 46 ] In relation to costs, the parties agree that if successful, Noble should recover $8,000 for the costs of the motion. Noble is also entitled to its costs of the action, which I hereby fix at the all inclusive sum of $8,850.98. Those costs shall be payable by the defendants Epic and Lawrence Tollman. There will be no costs payable by or to Maureen Tollman.

Stinson J.

Date: December 31, 2012