COURT FILE NO.: 09-8418-00CL

DATE: 20131218

ONTARIO

SUPERIOR COURT OF JUSTICE

Commercial List

B E T W E E N:

BDO DUNWOODY LIMITED as Receiver for Wesbell Networks Inc.

Michael Simaan, for the Plaintiff

Plaintiff

• and -

BELL CANADA

Jennifer Teskey and Guy White, for the Defendant

Defendant

HEARD: in writing

MESBUR J

ADDENDUM TO REASONS FOR DECISION

[1] In my decision in this contract interpretation case I held that the defendant’s interpretation of the contract as permitting setoff was correct. I also agreed with the plaintiff’s assertion it was entitled to the contractual interest rate on unpaid amounts, rather than simply the prejudgment interest rate. I left the arithmetic to the parties.

[2] About three weeks after I released my decision in June, 2013, the parties appeared before me to settle the judgment. They raised issues of how to interpret the judgment. I ordered them to appear before me in the fall of 2013 (when the court resumed sitting after the summer break) to resolve the set-off and interest issues.

[3] They appeared before Morawetz J to schedule a motion to settle the judgment. He ordered them to proceed by way of motion in writing under r. 37.12(4) unless I directed them otherwise.

[4] Sadly, in the six months since I released the decision, they have been unable to agree on the correct calculations of what, if anything, is still owed.

[5] I have now received facta, briefs of authorities and calculations from each of the parties. They have finally agreed on the appropriate pre- and post-judgment interest rates. They agree that the rate for both is 19.56%. They disagree on the calculation, however, of the set-off to which Bell is entitled.

The set-off amount:

[6] The set-off relates to the amount Bell paid to Key Equipment in relation to paying out Wesbell’s obligations on the lease. The difference in the parties’ positions arises in two ways.

[7] First, Wesbell argues that since Bell elected to take over the lease payments, rather than pay out the entire balance of the lease in one payment, it should only be entitled to set off what it paid on a declining balance basis. It says since Bell paid out the lease over time, it had the use of the money (less monthly payments) over the remaining term of the lease, it should not be entitled to set-off the full amount of the remaining lease obligations.

[8] Second, Wesbell says Bell should not be entitled to set-off the tax portion of the payments it made. It takes the position that Bell did not call any evidence regarding the tax treatment of the payments it was seeking to set off. It argues that there “would be an automatic tax input credit that Bell would be entitled to through the tax paid on these lease payments … it was incumbent upon them [Bell] to explain why such a credit did not apply in the present case (in the event it did not apply.)”[^1]

[9] Bell’s response is simple. It says “Bell relieved Wesbell of its $2.1 million obligation to Key when it assumed the lease. Wesbell obtained the full benefit of Bell’s assumption immediately – Wesbell’s obligation to Key, as a consequence of Wesbell’s default under the lease, was a liquidated damages claim of approximately $2.1 million, which was extinguished through Bell’s assumption of the lease.”[^2] To support its position, Bell points to Wesbell’s statement of affairs in its bankruptcy proceedings in which it quantified its outstanding obligation to Key Equipment as the entire balance under the lease.

[10] Bell argues that since it relieved Wesbell of this entire obligation, it is entitled to set-off the entire amount against what it owes Wesbell under the contract. I agree.

[11] The question is what are the debts owing between Bell and Wesbell. That is what gives right to the right of set-off in section 111 of the Courts of Justice Act [^3]. I determined Bell was entitled to contractual set-off because Wesbell owed an outstanding obligation to Key and Bell was required to assume it since Bell had agreed to indemnify Wesbell for this obligation. As between Bell and Wesbell, Bell relieved Wesbell of its entire obligation under the lease. That obligation creates the set-off amount. Wesbell was relieved of its entire obligation to Key immediately when Bell was obliged to take over the lease. As I see it, the entire obligation, as between Bell and Wesbell, is the set-off amount. I therefore agree with Bell’s analysis and find Bell entitled to claim the sum of $2,135,114.94 as the set-off amount, unless I am persuaded there should be some further adjustment on account of tax.

The tax issue”

[12] No one raised any issue about the tax on the lease payments at trial. The question of tax was never mentioned. Wesbell now suggests, as a “throwaway” line its factum that Bell would be entitled to tax input credits for the tax it paid on the lease payments, and should therefore not be entitled to set off any portion of their payments to Key that relate to tax.

[13] That is an argument that Wesbell could and should have raised at trial. It knew Bell was claiming set-off of the full amount of the entire sum due to Key including tax. This was clear from Bell’s statement of defence, which specifically included applicable taxes in the amount it sought to set off. As I see it, had Wesbell had an issue with the taxes as part of the set-off amount, Wesbell, not Bell, bore the burden of calling the necessary evidence to persuade the court that portion of the amount claimed was not proper set-off. It did nothing. Raising the issue now is tantamount to attempting to re-open the trial to call new evidence. Wesbell has failed to meet the test required to reopen a trial.

[14] The Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. [^4] held that a party seeking to introduce new evidence after the conclusion of a trial must show two things:

a) First, that the evidence, if presented at trial, would probably have changed the result; and

b) The evidence could not have been obtained before trial by the exercise of reasonable diligence.

[15] Clearly, Wesbell could have led evidence about tax inputs. It could have cross-examined Bell on the issue. It could have raised the issue on examination for discovery. It did none of this. Wesbell does not suggest it had no way of knowing about the tax input issue. To the contrary, it simply says “there would be an automatic tax input credit that Bell would be entitled to through the tax paid on these lease payments”[^5] without any basis for saying so. I infer from this statement that Wesbell could have called evidence, cross-examined or discovered on this issue. It was readily available to them to do so at trial. They failed to do so, even though they knew from the time the defence was delivered Bell claimed set-off for the full amount of the balance of the lease, including tax. It is manifestly unfair for Wesbell to raise an argument now that it could have, and should have, raised at trial. It fails to meet the test for fresh evidence. I therefore reject this argument.

Conclusion:

[16] Bell is entitled to a set-off in the amount of $2,135,114.94. This set-off amount reduces the final invoice of $3,639,605.55 to a balance owing of $1,504,490.61 (“Balance Owing”) from Bell to Wesbell as of September 19, 2009.

[17] Bell paid nothing on account of the Balance Owing until October 22, 2012 when it paid $1,671,866.72 to Wesbell. From September 19, 2009 to October 22, 2012 interest accrued on the Balance Owing at 19.56%. Interest on the Balance Owing to October 22, 2012 is $1,109,253.19. The October 22, 2012 payment reduced the Balance Owing plus interest to $941,877.08. (the “October 22, 2012 Balance”)

[18] Interest continued to accrue on the October 22,2012 Balance at 19.56%. Bell made a payment of $1,070,034.64 on July 5, 2013. As of July 5, 2013, interest on the October 22, 2012 Balance came to $128,157.56. That interest plus the October 22, 2012 Balance totals $1,070,034.64.

[19] I therefore conclude Bell’s obligation to Wesbell as of July 5, 2013 following the judgment was $1,070,034.64. Bell paid that sum in full on July 5, 2013. The draft judgment attached as tab F to Bell’s factum will therefore issue.

MESBUR J.

Released: 20131218

[^1]: Paragraph 27 of Wesbell’s factum.

[^2]: Paragraph 10 of Bell’s factum. [underlining in the original]

[^3]: R.S.O.1990 c. C.43

[^4]: 2001 SCC 59

[^5]: Paragraph 27, Wesbell’s factum