ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-199/09 SR
DATE: 2013-10-23
BETWEEN:
Michael Arkilander and 1141545 Ontario Ltd.
Plaintiffs
– and –
Barry Michasiw and Barry Michasiw carrying on business as The Auto Doctors
Defendants
Alan Arkilander, for the Plaintiffs
James M. Longstreet, for the Respondents
HEARD: October 8 and 9, 2013
REASONS FOR JUDGMENT
R.D. Gordon J.:
Overview
[1] The parties to this action were involved in a business relationship for several years, ending in the spring of 2009. The claim and counterclaim have been brought to settle the accounts among them.
Background
[2] The Plaintiff, Michael Arkilander, is a Sudbury businessman who was engaged primarily in electrical contracting. He is the controlling mind of 1141545 Ontario Ltd. (“114”) which was the owner of property known municipally as 1005 Martindale Road in the City of Sudbury.
[3] Barry Michasiw is also a Sudbury businessman. He is a licenced mechanic and used car salesman.
[4] One of Mr. Michasiw’s business sidelines involved purchasing, from insurance companies, vehicles that had been written off in motor vehicle accidents. He would complete the repair work necessary to make them roadworthy and resell them at a profit. Eventually, he and Mr. Arkilander worked together on this business sideline, with Mr. Arkilander purchasing the vehicles and Mr. Michasiw undertaking the costs of repair. Once a vehicle sold, each would recoup their costs and the profits would be split equally between them.
[5] In 2001, Mr. Michasiw entered into a lease with 114 by which it would occupy the property at 1005 Martindale Road. Eventually a lease dated August 3, 2001 was signed, which contained, among other things, the following provisions:
It was for a term of one year beginning October 1, 2001.
Monthly rent was $1,593.41 plus GST.
The Tenant was to pay the real property taxes for the property.
The Tenant was to pay the electricity and gas charges for the property.
Should the Tenant hold over after the expiration of the lease and the Landlord accept rent for the premises, the Tenant would hold the premises as a monthly tenant only but subject in all other respects to the terms and conditions of the lease.
[6] Mr. Michasiw testified that he was an unsophisticated businessman who signed this lease so that he would be able to transfer his sales licence. He says he did not understand that the lease made him responsible for the real estate taxes or that the terms of the lease would continue to apply after the one year term had expired.
[7] Although the parties had various discussions about Mr. Michasiw purchasing the property, and offers were from time to time prepared, no written agreement for the purchase and sale of the property was ever signed. However, Mr. Arkilander testified that he accepted from Mr. Michasiw the sum of $10,000 along with a snowmobile valued at $5,000 as a deposit against the purchase of the property and he acknowledges that Mr. Michasiw should be given credit for this amount. Mr. Michasiw testified that he transferred the snowmobile at the agreed consideration of $5,000 but that he paid cash of $15,000 to Mr. Arkilander in two separate installments of $7,500 each. Of course, there is no documentation to substantiate the cash transactions alleged by them.
[8] By 2005 the municipal taxes on the property were substantially in arrears. In fact, by August 1, 2005, arrears stood at $29,279.51 and the City was threatening to sell the property on account of taxes.
[9] Mr. Arkilander testified that Mr. Michasiw acknowledged his responsibility to pay the property taxes and a plan was put into place with the municipality to stave off the tax sale proceedings. The agreement was that Mr. Michasiw would pay $20,000 forthwith and the balance of the arrears, along with penalties, subsequent taxes and administration charges in 17 payments of $2,000 each beginning April 1, 2006, along with a final payment of $724.80 on September 1, 2007. In addition, to reflect an increase in 114’s costs of borrowing against the property, the monthly rent was increased to $2,400.
[10] Notwithstanding his refusal to accept that the lease terms required him to pay the real property taxes, Mr. Michasiw testified that he agreed to pay them because he continued to be interested in purchasing the property and knew that they would have to be paid eventually. He says he agreed to make payments in order to pay the taxes current through the end of 2006, however, he says that the increase in rent to $2,400 was done so that payment of the taxes would be included in his monthly payment and would thereafter be the responsibility of 114.
[11] Mr. Michasiw made payment of $15,000 to the City by way of draft dated October 19, 2005 and a further payment of $5,000 by way of cheque on February 9, 2006. In addition, the evidence established that he made seven payments of $2,000 to the City and refunded Mr. Arkilander for three other payments of $2,000 which he had made. From the date of Mr. Michasiw’s last payment of $2,000 on January 15, 2007, to the end of April, 2009 when Mr. Michasiw left the premises, no further payments were made on account of taxes except a single payment of $4,000 made by Mr. Arkilander on September 22, 2008. The result is that upon termination of the rental, the arrears were $29,797.48. The Plaintiffs claim this amount plus reimbursement of the $4,000 payment made in September.
[12] The Plaintiffs also allege that the property was left with evidence of environmental contamination that required the expenditure of $3,000 for an environmental assessment report. They claim reimbursement of that cost. Once a credit of $15,000 is applied to the Defendant from the deposit monies paid, the Plaintiffs claim is for $21,417.
[13] Mr. Michasiw disputes the claims of the Plaintiffs for the reasons set out above. In addition, he says he did nothing to the property that would have required an environmental assessment and has been provided no evidence that one was even completed for the property or if it was, for what purpose. He also makes a claim of his own against the Plaintiffs. He seeks repayment of the deposit he says was for $20,000, and seeks also to obtain judgment for an additional $37,501 for the cost of repair work he did to vehicles owned by the corporate defendant from time to time between 1997 and 2002. The Plaintiffs dispute payment on the following bases: (1) That all of the repair work has been paid; (2) That the work was done for a corporate body that is not part of these proceedings; and (3) That in any event, the limitations period for collection of these costs has long passed.
Analysis
[14] It has been said many times, and for good reason, that friendships and business relationships should be kept separate. When they are not, and the relationship sours, the task of proving who owes what to whom can be a nightmare. This is such a case.
[15] The parties have radically different views of the nature of theie business relationship. Because they were on very good terms for many years, little was committed to writing, formal demands were not made between them and details of many conversations are long forgotten.
[16] Neither party was a particularly compelling witness. The best that can be done in circumstances like these is to examine the surrounding circumstances in hope of finding some piece of evidence that corroborates what one or the other is saying and to make appropriate findings of fact based upon common sense inferences.
Are There Taxes Owing by the Defendant?
[17] I have little doubt the Defendant was responsible for the payment of taxes and knew it. The signed lease agreement provides for that liability and, had it not been so, there is no good reason for the Defendant to have made payments to the City of over $40,000 in 2005/06/07. That being said, common sense dictates that when it was discovered in 2005 that no significant payment had been made on taxes for almost four years, Mr. Arkilander and 114 would want to put a plan in place which would do two things: 1. Catch up on payments in arrears; and 2. Ensure that ongoing payments would be kept current.
[18] The tax arrears at the end of 2005 amounted to $30,668.46. Taxes for 2006 were $9,820. The two together amounted to $40,508.46. Payments made by Mr. Michasiw were $40,255. That these figures are almost the same does not strike me as coincidence. More likely, it reflects the agreement of the parties to have the outstanding taxes brought up to date.
[19] But what of ongoing taxes? Mr. Michasiw says a $700 increase in monthly payments made to 114 represented payment towards taxes. In support of that position, he points out that $8,400 per year is roughly what the taxes were in 2007 (in fact they were closer to $9,800, exclusive of interest and penalties), that beginning in 2007 he made no other payments towards taxes, and Mr. Arkilander made no demand of him for payment of taxes until he was no longer in possession of the property. In addition, although it was not raised as argument, it seems somewhat unlikely that the Defendant would have agreed to a rental increase of $700 per month, almost 50% of the amount originally agreed upon.
[20] Although it is unclear when the monthly payments to 114 increased to $2,400, Mr. Arkilander filed as Exhibit 29 copies of certified cheque vouchers indicating that payments of $2,400 were made by the Defendant as early as November of 2005. He argued that if the increase was started in 2005, and Mr. Michasiw made other additional payments against taxes in 2005 and 2006, it stands to reason that the $700 increase was for rent and not taxes. Although there is some merit to this argument, there is little to assist me further in determining this to have been the case. The certified cheque vouchers do not indicate what the payments related to, and so they could have been for rent, but they could also have been a contribution towards the penalty and administration fees on the tax sale, or they could have been a combination of both. As the evidence established, the Defendant was often in arrears of rent, so it could be these cheques were, in whole or in part, to bring his rents into good standing. Given the records produced by the parties, I cannot say with any certainty that these payments of $2,400 per month were simply the agreed upon monthly rent.
[21] In all, what accords with common sense is the following:
The Defendant was responsible for the taxes on the property.
When it was determined that the taxes were far in arrears, the Defendant agreed to pay the taxes current to the end of 2005, to make payment of the 2006 taxes, and to thereafter avoid having them fall into arrears again by making payment of $700 per month to 114, which would then remit payment to the City.
114 collected the $700 per month from the Defendant but did not remit payment of the taxes except to the extent of a single payment of $4,000 in September of 2008.
[22] Exclusive of interest and penalties, the taxes for the property between January 1, 2007 and April 30, 2009 totalled $23,383.37. The Defendant paid 28 months at $700 per month for a total of $19,600. The difference of $3,783.38 remains owing by him.
What Was the Amount of the Deposit?
[23] All parties acknowledge there was consideration paid to 114 in anticipation that the property would eventually be sold to Mr. Michasiw. What they cannot agree upon is how much.
[24] There were several offers to purchase exchanged between the parties, and one might reasonably have expected that they would reflect the amount of the deposit that had been made. One would be wrong.
[25] In an offer prepared in April of 2002 for Mr. Michasiw, the offered price was $200,000 and provided for a deposit of $50,000. It does not reference the deposit as already having been paid.
[26] In an offer prepared in June of 2005 for Mr. Michasiw, the offered price was $200,000 with a deposit of $15,000. This same offer appears to have been discussed between the parties a second time in February of 2006. Neither offer references the deposit as already having been paid.
[27] In December of 2008, Mr. Michasiw presented an offer to purchase the property for $120,000 with a deposit of $5,000. This offer does not reference the deposit as already having been paid but provides that the purchaser shall be responsible for all tax arrears on the property. Mr. Michasiw explained that he reduced the offer from $200,000 to $120,000 because he had paid a deposit of $20,000 ($15,000 cash plus the snow machine of $5,000), he would be paying the tax arrears, the Plaintiffs owed him money for vehicle repair work that would be forgiven, and he felt he had earned equity in the property because of the improvements he had made and the rents he had paid.
[28] Mr. Michasiw also points to other documents he says indicate that he was to have equity of $50,000 in the property, such as the life insurance taken out to secure payment and the “Term Sheet” from the Business Development Corporation (“BDC”) which indicated that there would be an equity investment of $50,000.
[29] It is clear that Mr. Michasiw was interested in buying the property in 2002. It is also clear that he was seeking mortgage financing of $150,000. It is fair to infer from the life insurance policy that the parties had, at one time, contemplated Mr. Arkilander holding the mortgage personally. What is not clear is how Mr. Michasiw’s equity position of $50,000 was to be attained and the agreements do little to assist in that regard. However, one might reasonably question why, if Mr. Michasiw was convinced he had already made a deposit of $50,000 against the property, he would subsequently have prepared offers in which his deposit was to be $15,000.
[30] The onus is on Mr. Michasiw to establish the amount of the deposit. He says it was one amount. Mr. Arkilander says it was a different amount. Neither is more compelling than the other. Except as outlined above there is no documentation to make either position any more likely. In the circumstances, Mr. Michasiw has failed to meet his onus, save as to the $15,000 admitted by Mr. Arkilander.
Is There Money Owing to Mr. Michasiw for Repair Work?
[31] The Plaintiffs/Defendants by counterclaim take the position that this claim is statute barred because the applicable limitation period has passed. However, they did not plead a limitation defence and did not seek leave to plead this defence even after they were provided with the documents upon which Mr. Michasiw relied. A limitation defence is an affirmative defence. If it has not been pleaded it is not before the court and cannot be raised in argument. In my view, a simple denial of the claim being made does not provide sufficient particularity to allow the defence to be applied.
[32] Mr. Arkilander also argued that the work alleged by Mr. Michasiw was done for a different corporate body which is not part of these proceedings. Most of the repair orders filed in support of the claim reference “Goliath Electrical”. Mr. Arkilander explained that at the time in question he was the controlling mind of two companies: 114, which operated Goliath Auto Sales and owned the property in question, and Goliath Electrical and Goliath Contracting, which were the business names of Goliath Contracting Limited. However, he provided no other proof of the incorporation of this other company, no business name registrations showing what body carried on business at Goliath Contracting or Goliath Electrical and no evidence that Mr. Michasiw knew or ought reasonably to have known that Goliath Contracting and Goliath Electrical were corporate bodies. When a person seeks to avoid payment of a debt by alleging that the debt was in fact with a corporate body, the onus is on that person to establish that he or she took reasonable steps to bring the existence of the corporation to the attention of the other party, or that the other party knew or ought reasonably to have known that he was dealing with a corporate body. Mr. Arkilander has not met his onus in this regard.
[33] Lastly, Mr. Arkilander and 114 defend the claim on the basis that any amounts due to Mr. Michasiw have been paid. In this regard, they point out that Mr. Michasiw’s documentary evidence does not include invoices (but rather repair orders), does not contain a running customer account as one might reasonably expect, and is for a significant amount that one might expect to have been pursued for collection before now. Mr. Arkilander says his business operated by paying all invoices within thirty days of issuance and it is more likely than not that any invoices issued by Mr. Michasiw were treated in this same fashion. In response, Mr. Michasiw says the documents which have been filed represent what his business often used in the place of invoices and that no collection was previously undertaken because he felt the outstanding amounts would eventually be credited to him as part of the deposit on purchase of the property.
[34] Although I am satisfied that Mr. Michasiw completed the work reflected in the various repair orders, I am not persuaded that the amounts remain outstanding. Whatever Mr. Michasiw’s current situation, when this repair work was done, he was a relatively small businessman. It is not likely that he would sit on more than $35,000 of outstanding repair bills without demand for payment or some sort of action to collect for 10 years. This is particularly so when the financial dealings between the parties involved him having to pay significant sums of money on account of tax arrears (as noted above) and ongoing rent. If he was legitimately owed these repair costs one might reasonably have expected him to try and set off the amount owed to him against the amounts he owed.
The Environmental Assessment
[35] Mr. Arkilander testified that he was required to obtain an environmental assessment when trying to sell the property after Mr. Michasiw had left and alleged that the requirement for same was due to the condition in which the building was left. Mr. Michasiw testified that he left the building in good condition, did nothing that would have necessitated such an assessment and was not advised of any problem until the Plaintiffs’ claim was issued.
[36] If Mr. Michasiw had done something to call into question the environmental integrity of the property, I would have thought the report would confirm it or that there might be photographs of the problem area. However, Mr. Arkilander did not file the report, or the invoice, or anything associated with it. Its author was not called as a witness.
[37] I note that it is not unusual for a lender to require an environmental assessment for a commercial property. In my view, on the evidence before me it is at least as likely that this is what necessitated the report as anything Mr. Michasiw did.
[38] In the circumstances, Mr. Arkilander has failed to meet the onus of establishing that the expense was incurred due to the actions of the Defendant.
Conclusion
[39] There is properly due to 114 from Mr. Michasiw, the sum of $3,783.38. There is properly due to Mr. Michasiw from 114 the sum of $15,000. Once set off, the balance due to Mr. Michasiw is $11,216.62. Accordingly, judgment shall issue in favour of Mr. Michasiw against 114 for that amount. Insofar as the lease and property is concerned, there can be no doubt Mr. Michasiw knew he was dealing with the corporation. There is no basis to find liability on the part of Mr. Arkilander personally.
[40] If the parties are unable to agree on costs they may make written submissions to me within 45 days, not to exceed five pages in length each. They may wish to consider that the amount ultimately found to be due in this action is well below the ceiling for damages in the Small Claims Court.
Mr. Justice Robbie D. Gordon
Released: October 23, 2013
COURT FILE NO.: C-199/09 SR
DATE: 2013-10-23
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Michael Arkilander and 1141545 Ontario Ltd.
Plaintiffs
– and –
Barry Michasiw and Barry Michasiw carrying on business as The Auto Doctors
Defendants
REASONS FOR JUDGMENT
R.D. Gordon J.
Released: October 23, 2013