ONTARIO

SUPERIOR COURT OF JUSTICE
TORONTO SMALL CLAIMS

VK MACHINING & MANUFACTURING LTD.

Plaintiff

-and-

AGM AUTOMATION SYSTEMS INC.

Defendant

Court File No. SC-10-00106747-00D1

AGM AUTOMATION SYSTEMS INC.

Plaintiff by Defendants Claim

-and-

VK MACHINING & MANUFACTURING LTD.

Defendant by Defendant’s Claim

BEFORE: Deputy Judge Catharine M. Buie

COUNSEL: Max Kolvar, VK Machining & Manufacturing Ltd.
Ariel A. Niyazov, Counsel for AGM Automation Inc.

HEARD: January 24, 2012, February 6, 2013

SUBMISSIONS: May 6, 2013

RELEASED : July 18, 2013

JUDGMENT ON THE MAIN ACTION

AMENDMENTS

On consent the following amendment was made:

[1] The Style of Cause was amended. VK Machining & Manufacturing Ltd.

[2] The Style of Cause is amended AGM Automation Systems Inc. also known as AGM Automation Inc. as both appear on the record.

COURTS DISCRETION

[3] The Plaintiff is a corporation. By analogy to the Civil Rules of Procedure the Plaintiff should have been represented by counsel. However, the Court after listening to submissions, felt it was just in this instance to allow Mr. Max Kovlar, who is a graduate of University of Toronto, to represent the Plaintiff as it is a “one man” Corporation. In making this decision, I was cognizant that requiring the Plaintiff to retain counsel would result in an undue financial hardship to the Plaintiff Corporation.

PLAINTIFF’S CLAIM

[4] The Plaintiff is claiming the sum of $6,373.60 for product produced and delivered. Amended Statement of Claim

[5] During this process, it was agreed that there would be Judgment for the Plaintiff (herein referred to as VK) in the amount of $5,885.10 and Interest pursuant to the Courts of Justice Act against AGM Automation Systems Inc. (herein referred to as AGM).

DEFENDANTS CLAIM

[6] The trial proceeded on the Defendant’s (AGM) claim against VK .

[7] AGM claims the following:

a) $2,691.00;

b) $22,309 plus interest for loss profits and damages sustained by AGM caused by VK breach of contract, malicious conduct which caused irreparable harm to AGM’s reputation and loss of business;

c) Pre-judgment and Post Judgment Interest; and

d) Costs

FACTS and FINDINGS

[8] VK brought this action to collect an outstanding account rendered AGM.

[9] AGM defended the action and issued its claim.

AGM is incorporated in the Province of Ontario and is an OEM and Systems Integration company which designs and builds a variety of custom automatic assembly and materials handling systems.

[10] VK is a company incorporated in the Province of Ontario carrying on the business of manufacturing and selling automotive products.

Since 2005, though both companies sell to other companies, they also were sub contractors for each other.

[11] This action arises out of a contract which AGM had with Phillips Engineering Technologies (referred to Phillips) for the manufacture of parts. Pursuant to that contract AGM issued PO#911231 to VK for the manufacture of a part (referred to as “part’) with the delivery date being ASAP. (Exhibit 1Tab C)

[12] At the time of issuing the POA, AGM had unpaid accounts with VK.

[13] On December 9, 2009 VK issued invoice 2650 and the terms for payment were 30 days. (Exhibit 1 Tab D).

[14] Mr. Alexander Gimelshtein testified that the majority of his dealings were with Vadim Kovler whom he had believed was the President of the Company, when in fact the evidence shows, it is Mr. Kovler Sr.

[15] Mr. Kovler testified that due to the outstanding invoices, telephone calls were made requesting payment of the outstanding invoices. Mr. Gimelshtein while testifying that it was vital that the “ part” be released denied that AGM received a demand letter for payment nor received any verbal requests.

I have weighed the evidence of both men and I accept the evidence of Mr. Kovler over that of Mr. Gimelshtein. I find that demands for payment were made by VK

I also accept that AGM needed the “part” in order to complete the work on the part to remit it to Philips pursuant to its contract with Phillips.

[16] The parties agree that a meeting took place between AGM and VK at the premises of VK. However, the parties disagree as to what occurred during that meeting.

Mr. Kovler testified that he explained due to VK’s financial situation that the outstanding receivables to be addressed forthwith by AGM and that Alex Gimelshtein offered, due to the outstanding invoices, that the payment terms would be changed and payment for the “part” would be COD. He testified that pursuant to this agreement, the Invoice was changed to COD. (Exhibit 1 Tab E).

Mr. Kovler testified that he expected to receive a cheque, but instead received a fax which demanded that the part be delivered to AGM no later than 3 p.m. or “all consequences suffered by AGM Automation as the result of the late delivery of the plate will be at VK Machining & Manufacturing Ltd. expense”. (Exhibit 2 Tab G).

Mr. Alex Gimelshtein testified that VK refused to release the part, demanded full payment of all outstanding invoices, and was aware that this “part” was holding up a million dollar project.

Mr. Gimelshtein further testified that he removed $3,500 plus GST from his personal account and Mr. Vadim Kovler refused to accept the same, stating he had to speak to Mr. Kovler Sr.

Mr. Gimelshtein further testified that he spoke to Mr. Kolvar Sr. who made unreasonable demands, including that if Mr. Gimelshtein signed over his house and his car, he could get the “part”. Mr. Gimelshtein stated Exhibit 2 Tab G was his response to those demands.

Mr. Gimelshtein stated that the profit on the “part” was $700.

[17] On December 10, 2009, the same day that Exhibit 2 Tab G was sent, Mr. Tony Kolvar and Mr. Vadim Kolvar attended at the offices of Phillips to see if the invoice could be paid to VK directly as opposed to AGM.

[18] It is that meeting and the payment which was made directly to VK which results in this action.

[19] AGM alleges that during the meeting, VK not only slandered AGM but attempted to solicit business which resulted in the following:

a) The loss of the $700 profit from the “part” ;

b) future earnings; AGM’s revenues from Phillips reduced from $54,600 in 2009 to $3,927 in 2010.

[20] I accept the evidence of Mr. Kolvar that his company had been doing business with Phillips since 2006. I accept the evidence that because of this contractual relationship, Tony and Vadim Kolvar attended at the offices of Phillips and spoke to the General Manager Stephan Lyssy and Mr. Sunil Abraham, the purchasing manager with the intention of asking that the payment be directed to VK as opposed to paying AGM which was the ordinary course of business.

[21] As a result of this meeting, Phillips issued a purchase order to VK for the amount of $3,500. (Exhibit 4 Tab F) and the “part” was given to “Pillips”.

ISSUES

[22] Did AGM and VK agree that the payment terms would be altered to become COD?

[23] If there was an agreement was it breached by AGM?

[24] Did the action of VK in attending before Phillips to request payment, constitute an intentional interference with contractual rights or the tort of intentional harm?

[25] If the answer is yes, what if any damages flow?

FINDINGS/ CREDIBILITY

[26] Over the 2 days during which this trial took place, I had the opportunity to closely observe and listen to the various witnesses and the parties. At the crux of this case is whether or not the court accepts the evidence of the Kolvars over that of Mr. Gimelshtein.

[27] I accept the evidence of both Kolvars. I find that parties agreed that the payment terms would be altered to become COD and that payment was to be made within 24 hours. I accept that the letter sent by AGM on December 10, 2009, was a breach of the Agreement (Exhibit 1 Tab E) and because of that letter, the Kolvars attended at the premises of Phillips to seek payment.

[28] Mr. Abraham testified that the AGM’s revenue from Phillips in 2009 was approximately $50,000. I accept his testimony on this point. Mr. Abraham further testified that after the meeting at Phillips’s offices, he was instructed by his General Manager not to deal with AGM. I do not accept this testimony.

Whether Phillips pays VK directly or AGM is not as relevant as finding a supplier who can manufacture the parts which it needs. I do not accept that a financial dispute, in the amount of $3,500, between VK and AGM would influence a major corporation as to its choice of suppliers if that party could manufacture the needed parts, nor would it refuse to do future business with the said supplier.

[29] Mr. Victor Boutko was the Philips marketing manager from 1996 – 2012. He testified that in 2010 Phillips was undergoing financial problems which resulted in Settlements being made with the unsecured creditors paying .40 cents on the dollar for invoices incurred before July 26, 2010 ( Exhibit 5) and a major reorganization of the Canadian operation.

[30] Mr. Igor Poroshenko who owns Universal Manufacturing Solutions Inc. testified that he had done work for Phillips. However, he stopped working for Phillips in 2009 because he had heard that Phillips was experiencing financial problems.

In December 2009, he had an overdue payment which was overdue by 90 days, though he longer did work for Phillips, he was in contact with the company because of his overdue accounts. He could not recall when, but one day in 2010 he went to the Company and discovered that there was a change in the accounting department, the majority of the staff had left, and a debt restructuring was taking place. He later received emails and an Offer to Settle in the amount of .40 cents on the dollar. (Exhibit 5)

FINDINGS/ LEGAL

[31] Mr. Justice Laskin delivering the judgment of the unanimous Court of Appeal identified the following as the pre-requisite elements for establishing the tort of unlawful interference with contractual or economic relations:[^1]

(a) intention of one party to injure the other;

(b) interference with contractual or economic relations by illegal or unlawful means; and a

(c) resultant economic loss.

Mr. Justice Gates in the case of Drouillard v. Cogeco Cable[^2] turned his legal mind to analyzing the first element of the tort, the intention of one party to injure the other and held

““The primary and only target of [the Defendant’s] actions was the Plaintiff. This conduct will satisfy the first element of the tort on its own, even if the predominant purpose might have been to advance [the Defendant’s] interests rather than injure the Plaintiff.[^3] Here there is no evidence before me that [the Defendant] had any other motive but to engineer the Plaintiff’s termination by Mastec. Nor is there any evidence that the Plaintiff’s employment by Mastec would, in any way, adversely affect [the Defendant’s] business interests.”[^4]

[32] Mr. Justice Gates decision was appealed on the second element of the tort: interference with contractual or economic relations by illegal or unlawful means. The Ontario Court of Appeal while accepting that there is uncertainty as how broadly the phrase “unlawful interference” should be interpreted, confirmed that committing an intentional tort does constitute unlawful means.

“Although there remains some uncertainty about how broadly the expression “unlawful interference” should be interpreted, it is accepted that the commission of an intentional tort constitutes unlawful means. This requirement could be satisfied if, for example, Drouillard had established that Cogeco’s actions and interference were defamatory. It has also been held by this court in Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada 2003 27828 (ON CA), (2003), 65 O.R. (3d) 30 at paras. 50-52 (C.A.), that unlawful means also includes acts which the tortfeasor “is not at liberty to commit”. In that decision, the court adopted the view of Lord Denning as expressed in Torquay Hotel Co. Ltd. v. Cousins, [1969] 1 All E.R. 522 at 530 (C.A.), where he stated:

I must say a word about unlawful means, because that brings in another principle. I have always understood that if one person deliberately interferes with the trade or business of another, and does so by unlawful means, that is, by an act which he is not at liberty to commit, then he is acting unlawfully, even though he does not procure or induce any actual breach of contract. If the means are unlawful, that is enough.[^5]”

[33] I do not find that the actions of VK in approaching Phillips for payment of an account which had been rendered to AGM for which AGM had promised payment can be considered as deliberately interfering with the trade or business of another or is an act “which he was not at liberty to commit”.

[34] I also find that AGM did not produce evidence to prove on the balance of probabilities that the actions of VK resulted in Phillips not awarding contracts to AGM. Nor did it produce any evidence which I accept proving that it lost its alleged $700 profit.

[35] Did the actions of VK amount to committing the tort of intentional harm? Kefeli v Centennial College of Applied Arts and Technology[^6] identified the elements of the tort as follows:

• An overt act for which there is no legal justification

• Intention to harm the plaintiff; and

• Harm resulting directly thereby.

As stated previously, I do not find that VK had any intention to harm AGM, nor did AGM suffer direct harm from its actions.

AGM’s action against VK is dismissed.

COSTS

Costs normally follow the event and the court does not see a reason not to award costs.

Section 29 of the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 29; 2006, c. 21, Sched. C, s. 105 (2) states the following “An award of costs in the Small Claims Court, other than disbursements, shall not exceed 15 per cent of the amount claimed or the value of the property sought to be recovered unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding”.

Rule 19.04(1) permits the court to award a reasonable fee to the party if they are represented.

Rule 19.05 permits the court to order a maximum amount of $500 to the non represented party as compensation and expense.

The court awards VK Machining & Manufacturing Ltd. the sum of $500 representing costs on the main action and on the Defendant’s claim pursuant to Rule 19.05.

The court awards disbursements fixed in the amount of $350.00

The court gives Judgment for VK Machining & Manufacturing Ltd. for the sum of $5,885.10 on the main action.

The court awards Pre and Post Judgment interest pursuant to the Courts of Justice act from September 3, 2010.

Date: July 18, 2013 Catharine M. Buie

[^1]: Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada (2003), 2003 27828 (ON CA), 65 O.R. (3d) 30 (C.A.).
[^2]: Drouillard v. Cogeco Cable Inc., [2005] O.J. No. 3166 (S.C.J.). Drouillard v. Cogeco Cable Inc., 2007 ONCA 322
[^3]: Bold emphasis done by D.J. Buie
[^4]: Drouillard par.104
[^5]: Drouillard v. Cogeco Cable Inc., 2007 ONCA 322 para.19
[^6]: Kefeli v. Centennial College of Applied Arts and Technology, 2002 45008 (ON CA), para. 34&35