Court File and Parties

COURT FILE NO.: CV-12-0451060

DATE: 20130211

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sentry Metrics Inc., Plaintiff

AND:

Robert Ernewein et al., Defendants

BEFORE: Himel J.

COUNSEL: Sean N. Zeitz, for the Plaintiff

Steven Bellissimo, for the Defendants

HEARD: January 29, 2013

ENDORSEMENT

[1] Sentry Metrics Inc. (“Sentry”) moves for an order for judgment on terms that it says were accepted in an offer of settlement between the plaintiff and the defendants for the sum of $35,000. The defendants agree that there was an agreement to settle the matter entered into by the parties but asks the court to exercise its discretion to not enforce the settlement due to lack of good faith.

FACTUAL BACKGROUND:

[2] Sentry Metrics Inc. is a company which provides clients with “customized information security and governance, risk and compliance solutions”. Robert Ernewein, also known as Robert Banks, is the sole officer and director of Bankside Chase Corporation (“Bankside”), a company that specializes in information technology recruitment. In December 2011, Sentry retained Bankside to provide services in identifying candidates to fill eight positions of employment. The parties negotiated a retainer set out in a letter dated January 9, 2012 which stipulated that Sentry would pay Bankside $55,652.50 inclusive of HST. This amount represented approximately $6,500 per individual to be recruited by Bankside. Bankside was given an exclusive right to fill the positions up to and including February 28, 2012. After that date, Sentry reserved the right to ask for a full refund for all positions not filled. The money was to be held in trust and as each candidate was hired, Bankside was to submit an invoice. The plaintiff asserts that by February 28, 2012, the defendant had not filled any of the eight positions.

[3] Sentry arranged a meeting with Mr. Banks for February 27, 2012, but he did not attend. Sentry says it was unable to locate or contact the defendants after February 27, 2012. Sentry states that it learned that Banks had disconnected his e-mail address, was operating under a different name and had disconnected his telephone and fax numbers.

[4] On April 20, 2012, Sentry attended before the Master and obtained an order for substituted service and served the defendants with its statement of claim. The defendants’ counsel served and filed a Notice of Intent to Defend and asked counsel for Sentry to contact him to explore settlement. The parties negotiated through correspondence from June 5, 2012 to June 15, 2012. Sentry accepted the defendants’ offer of $35,000 and sought a Full and Final Mutual Release with payment to be made by June 29, 2012. The parties negotiated a release and the defendants’ counsel indicated that they would sign it. There was no communication between June 15 and June 28, 2012. On June 28, 2012, counsel for the defendants wrote to the plaintiff’s counsel to advise that his clients had “just discovered” that the plaintiff had hired two of the candidates that were presented to it by Bankside. The defendants were taking the position that “such non-disclosure was intentional and represents bad faith negotiations.” Counsel for Bankside wrote that his clients considered the settlement to be invalidated and that they would not be proceeding.

[5] Sentry moved for judgment under Rule 49.09 in accordance with the settlement terms outlined in the correspondence between the parties.

POSITIONS OF THE PARTIES:

[6] Sentry denies that any non-disclosure was intentional or in bad faith. The hiring of the two employees occurred two to three months after any contractual agreement between the parties. It was under no obligation to advise the defendants or pay the defendants after the contract expired on February 28, 2012. It claims that it was entitled to a full refund of the pre-payment of $55,650.50. It asserts that Sentry was not aware that Bankside put Graham Bignell’s resume forward. Sentry says that it hired Bignell in April 2012 as a result of the services of another company, Intelligent Minds, which was paid $9,040 for those services. Sentry says it did not meet with Mr. Bignell during the course of the agreement with the defendants. As for Derrick Leonce, he had forwarded his resume directly to Sentry and Sentry was not aware that his resume was previously presented to it through Bankside. He was hired in May 2012. As Sentry was unaware that these persons were presented to it through Bankside, it argues that Sentry could not reasonably be expected to disclose the information to the defendants during the negotiation. Moreover, no conditions were attached to the offer made by the defendants and accepted by the plaintiff. The plaintiff claims it has suffered a loss of $55,650 but was prepared to accept $35,000 which leaves the defendants with $20,650.50. The plaintiff argues this is a windfall to the defendants as the amount is more than they were to be paid for two recruits under the earlier agreement.

[7] The defendants dispute that their fax numbers and e-mail addresses were not operational when contacted by the plaintiff. They take the position that they complied with the terms and conditions of the agreement and that the “entire premium was earned.” They also submit that the plaintiff breached its obligations under the agreement by refusing to allow a tour of the facilities, not meeting with the defendants, conducting brief interviews by telephone only, offering salaries at a lower level than discussed and not providing feedback on the candidates presented. As a result, the plaintiff made it impossible for the defendants to fulfill its role. Further, the plaintiff failed to disclose that two of the candidates presented by the defendant had been hired and that the regular fee for such placements is 20% of the salary being paid which would have entitled the defendants to commissions of over $31,440. The defendants argue this amount should be set off against the $55,650.50 leaving a balance of $24,210.50 that may be due to the plaintiff.

[8] The defendants argue that, had they known that the plaintiff had hired the two employees, they would not have settled with the plaintiff. They concede that an agreement was reached with the plaintiff but they ask that the court exercise its discretion in refusing to enforce the settlement.

ISSUE:

[9] Is the plaintiff entitled to judgment in accordance with what the plaintiff asserts was a binding settlement?

THE LAW:

[10] Rule 49.09 of the Rules of Civil Procedure, R.R.O. O-Reg 194, provides:

49.09 Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly; or

(b) continue the proceeding as if there had been no accepted offer to settle.

[11] On a motion for judgment under Rule 49.09, the court must consider whether the parties entered into a binding settlement and whether the moving party is entitled to judgment in accordance with those terms: see Donaghy v. Scotia Capital Inc. [2004] O.J. No. 2157 (Sup. Ct.); affirmed by 2009 ONCA 40, [2009] O.J. No. 178 (C.A.), appeal refused by [2009] S.C.C.A. No. 92. There, Justice Karatkasanis (as she then was) wrote at para. 15:

The principle of finality is an important principle. Settlements entered into with the assistance of counsel should be upheld except in the clearest of cases and in exceptional cases. There was no evidence of fraud or mistaken instructions. Counsel agreed on the payments and on the form of the release. There was no evidence of bad faith.

[12] The court is to conduct a two-step analysis: first to determine whether an agreement was reached utilizing a Rule 20 summary judgment approach. The court must first consider if there are material issues of fact or genuine issues of credibility in dispute regarding whether the parties intended to create a legally binding agreement or there was an agreement on all essential terms. Then the second step is to consider whether, on all the evidence, the agreement should be enforced, taking into account broader evidence not relevant to a Rule 20 inquiry: see Capital Gains Income Streams Corp. v. Merrill Lynch Canada Inc. (2007), 2007 CanLII 39604 (ON SCDC), 87 O.R. (3d) 464 (Div. Ct.) at paras. 9-10. In Bayerische Landesbank Girozentrale v. R.S.W.H. Vegetable Farmers Inc. 2001 CanLII 28050 (ON SC), [2001] O.J. No. 745 (Sup. Ct.), at para. 4 the court held that the principles applicable to a motion for summary judgment under Rule 20 apply to a motion for judgment under Rule 49.09, that is, that judgment may be granted only if there are no genuine factual disputes that require a trial for resolution. So long as the terms of the settlement are clear and unambiguous, extrinsic evidence that contradicts terms in writing of the previously accepted agreement is inadmissible and parole evidence is not admissible to vary the clear terms of a written agreement. If the court finds that an agreement has been reached, then the issue is whether the agreement should be enforced.

[13] Rule 20.04 of the Rules of Civil Procedure provides that the court shall grant summary judgment if the court is satisfied that there is “no genuine issue requiring a trial with respect to a claim or defence.” The relevant amendments to Rule 20 which came into effect on January 2, 2010, expand the powers of a motions judge as follows:

(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:

1. Weighing the evidence.

2. Evaluating credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[14] Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, [2011] O.J. No. 5431 is the leading decision from the Ontario Court of Appeal on the recent amendments under Rule 20. It clarifies that the amendments to Rule 20 were enacted in order to expand the powers of the motions judge and judicial fact finding in summary judgment motions. That power, however, is not unlimited. There will be some cases that cannot be resolved on such a motion and must be sent on to trial.

CONCLUSION:

[15] In the case before me, I apply the two step analysis required when construing a matter under Rule 49.09. The defendants concede that there was an agreement to settle reached between the parties. Where the parties agree on all essential terms and make reference to finalizing mutually acceptable settlement documentation, the courts have held, so long as there was a mutual intention to create a legally binding relationship, that the contract is binding: see Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. no. 721 (Gen. Div.), affirmed [1995] O.J. No. 3773 (C.A.) citing Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (Ont. C.A.). In Ferron v. Avotus Corp. 2005 CanLII 29655 (ON SC), [2005] O.J. No. 3511 (Sup. Ct.) at paras. 30-1,, the court held that the failure of the plaintiff to communicate his acceptance of the documents did not discharge the parties from the settlement and the plaintiff could not rely on a paragraph in the minutes of settlement that the settlement was effective only when the last party signed the minutes as it was inappropriately included. Judgment was granted to enforce the settlement that had been arrived at by counsel. In the case at bar, I find that there was an accepted offer to settle as the parties intended to create a legally binding agreement and there was an agreement on all essential terms. It was not conditional on any events occurring.

[16] The second part of the analysis is, having found that an agreement existed, whether, on all the evidence, the agreement should be enforced: see Capital Gains Income Streams Corp. v. Merrill Lynch Canada Inc., supra at paras. 8-10. The court has the discretion to not enforce a settlement that it considers to be unreasonable, that would result in an injustice or where there is good reason not to enforce it: Streams Corp. Merrill Lynch Canada Inc. supra at para. 14. When deciding whether to exercise its discretion to enforce an accepted offer, the court is required to take a broad approach and consider all of the evidence. In Olivieri v. Sherman, 2009 ONCA 772, 183 A.C.W.S. (3d) 541 at para. 35, the court held that the failure to consider manifestly important factors such as one party’s repudiation claim and the prejudice it would suffer if the enforcement were ordered, was held to be an error.

[17] Another example of circumstances where the court exercised its discretion to not enforce a binding agreement was discussed in Milios v. Zagas (1998), 1998 CanLII 7119 (ON CA), 38 O.R. (3d) 218 (C.A.) at paras. 20-1, where the court found that the plaintiff’s counsel had received instructions to settle based on a mistake. The court considered certain factors in exercising its discretion not to enforce a settlement including that: no order had been taken out, the prejudice to the plaintiff outweighed the prejudice to the defendant and no third parties would be affected.

[18] In conclusion, I find that there are no genuine issues requiring a trial for their resolution. In deciding whether to enforce the settlement, I take into account the following factors: (1) the parties entered into settlement discussions and concluded an agreement without the defendants requiring any conditions concerning the hiring of any candidates that may have been presented to the plaintiff through the defendants; (2) the plaintiff had no reason to believe that it had hired any individuals referred by the defendant as is evidenced by the fact that the plaintiff paid another recruiting company for the referral of one of those employees; (3) the plaintiff had no reason to believe that there were conditions attached to the settlement agreement; (4) there were no misrepresentations made by the plaintiff during the negotiation of the agreement and there was no bad faith; (5) The defendants will retain over $20,000 which is a windfall and there would not be an injustice to the defendants if the settlement is enforced; (6) the plaintiff would suffer financial prejudice by having to commence and continue a law suit to claim the monies paid to the defendants; (7) there is no good reason not to enforce the settlement in the circumstances of this case.

[19] The principle of finality requires that settlements entered into with the assistance of counsel should be upheld except in the clearest of cases. Good public policy dictates that settlements be encouraged. It would be inconsistent with that policy to refuse to enforce a settlement agreement unless there is a good reason for doing so: see Estate of Galevski 2012 ONSC 3460, [2012] O.J. no. 2657. For the reasons outlined above, I am satisfied that the motion under Rule 49.09 should be granted for judgment in favour of the plaintiff in accordance with the accepted offer in the amount of $35,000, inclusive of disbursements and HST. Further, the parties shall execute and exchange mutual full and final releases.

[20] With respect to the issue of costs, counsel submitted costs outlines which I have considered. The plaintiff seeks costs on a substantial indemnity basis. That scale of costs is reserved for “rare and exceptional” cases, where the conduct of the party against whom costs is ordered may be considered reprehensible or where there are other special circumstances that justify costs on the higher scale. In my view, the partial indemnity scale, which is intended to provide indemnification for costs reasonably incurred in the course of the action, is the appropriate scale.

[21] Counsel with carriage of this case was called to the Ontario Bar in 2005 and his hourly rate is $325. I have reviewed and considered the attendances, the amount of time spent on preparation, the importance of the matter, the complexity of the case, the conduct of the parties, the nature of the issues raised, the work performed, and the results achieved. I also consider what would be fair and reasonable in the circumstances.

[22] Accordingly, I fix costs in the amount of $7,690.88 inclusive of fees and disbursements and HST payable by the defendants to the plaintiff within 30 days.

Himel J.

Date: February 11, 2013