ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-9391-00CL
DATE: 20140214
B E T W E E N:
maritime-ontario freight lines limited
Plaintiff
- and -
callidus capital corporation, sam fleiser, samuel fleiser, howard usher, newton glassman and joe farina
Defendants
Steven Bellissimo, for the Plaintiff
Sanj Sood, for the Defendants except Joe Farina
HEARD: December 9 to 13, 2013
Spence J.
REASONS FOR DECISION
[1] The Plaintiff, Maritime-Ontario Freight Lines Limited (“Maritime”), claims against the Defendant, Callidus Capital Corporation (“Callidus”), on account of its alleged breach of its obligation to pay certain invoices of the Plaintiff in the total amount of $104,585.86 for shipments by Maritime to UWG Inc. and UWG Global Inc. (collectively, “UWG Global”).
[2] Maritime carries on business as a freight forwarder throughout Canada. Callidus was a secured creditor of UWG Global.
[3] UWG Inc. was placed into receivership on February 28, 2008 pursuant to the Order of this Court (the “RO1”) and an Approval and Vesting Order of this Court granted on the same day providing for the transfer of the business of UWG Inc. to UWG Global Inc. (“Global”). Callidus became the majority shareholder of UWG Global Inc. After the granting of the RO1, Maritime communicated with Global and Callidus about arrangements for the payment of outstanding invoices of Maritime and its current invoices for shipping following the granting of the RO1.
[4] On November 10, 2009, this Court granted a receivership order in respect of Global (“RO2”). On December 7, 2009, this Court granted an Approval and Vesting Order for the transfer of the business of Global to Encore Sales (“Encore”). During the period after November 10, 2009 and prior to December 7, 2009, Maritime communicated with Global about payment of outstanding invoices.
[5] Based on its communications with Celeste Pereira (“Pereira”), the Operations Manager of Global and the defendant Sam Fleiser (“Fleiser”), the President of Callidus and, after the granting of the RO1, a director of Global, Maritime claims that Callidus has an obligation to pay the amount of the outstanding invoices and is in breach of that obligation.
[6] The principal issue in this case is whether Pereira, in the capacity of an agent of Callidus, assured Maritime that if it continued to ship to UWG and its successor, Global (the “Distributor”), regardless of their being in receivership, the outstanding accounts and the accounts that would arise from future shipments by Maritime to the Distributor would be paid.
[7] In its Statement of Claim, Maritime pleads that Pereira did so and that Callidus is accordingly liable for the damages it suffered by reason of the fact that it has been left with unpaid invoices, the amounts of which have been agreed between the parties.
[8] Callidus contends that Pereira acted at all times in her dealings with Maritime as an employee of the Distributor and never as agent of Callidus and that Pereira did not give the assurance in issue.
[9] The Receivership Order (“RO1”) for UWG was made on February 28, 2008 and the assets of UWG Inc. were sold to UWG Global Inc. (“Global”). Almost two years later, a Receivership Order (“RO2”) was made for Global on November 10, 2009 and approval was given for the sale of its assets to Encore Sales (“Encore”).
[10] Prior to the granting of the RO1, Callidus had been the principal first secured creditor of UWG. After the granting of the RO1, Callidus continued in that role and position in respect of Global and Fleiser joined the board of Global. Global was dependent upon Callidus for loans to enable it to meet its expenses. The approval of Callidus was required for Global to make payments on its expenses when its indebtedness to Callidus exceeded its borrowing base as recognized by Callidus. In such a state of “over advancement”, the approval of Callidus was needed for the payment of Global’s expenses before Callidus would make any advance to Global necessary to enable it to pay those expenses. The Callidus approval had to be given by Fleiser on behalf of Callidus in response to requests from Global.
[11] Following the granting of the RO1, Global had outstanding invoices owing to Maritime and Mr. Morra of Maritime wished to make sure that those invoices would be paid before he authorized more shipments to Global. An exchange of e-mails addressed to this concern occurred in March of 2008 (tab 39 of the Joint Document Brief). The exchange consists of the following e-mails:
Mar. 6:
Fleiser to Morra, cc: Pereira
Mar. 7:
Fleiser to Morra, cc: Pereira
Mar. 11:
Morra to Fleiser, cc: Pereira
Mar. 11:
Fleiser to Morra, cc: Pereira
Mar. 25:
Morra to Fleiser, cc: Pereira
Mar. 26:
Fleiser to Morra, cc: Pereira
[12] Morra says that he understood that Pereira was the Operations Manager at UWG and, from her, that she was working with Fleiser of Callidus.
[13] The e-mails from Fleiser are “Re: UWG Inc./UWG Global”. Below Fleiser’s name as sender, the name and coordinates of Callidus are given. The focus of the Fleiser e-mails is on obtaining credit and regular service from Maritime for Global. The Fleiser e-mails use the term “we” in a few places. The March 7 e-mail from Fleiser says, “We have wired $15,000 to Maritime to cover certain charges.” No copy of the wire transfer was put in evidence. Two subsequent cheques to Maritime in November of 2009 representing payments authorized by Fleiser were put in evidence in the Joint Document Brief at tab 23.
[14] In his March 11 e-mail, Morra says that Celeste [Pereira] had assured him that Maritime “would get paid for all the outstanding invoices”. In his March 11 reply, Fleiser proposes a meeting at UWG “at which we will address all outstanding issues and figure out the way forward together”. On March 25, Morra accepted the proposal. Fleiser then proposed a meeting on April 2 at UWG.
[15] Considering only these e-mails, it appears that at March 25, 2008, Morra did not consider he had a binding commitment from Callidus to pay for all the outstanding accounts.
[16] Morra and Pereira exchanged e-mails in late May 2008 as follows:
May. 21:
Pereira to Morra
May. 22:
Pereira to Morra
May. 22:
Morra to Pereira
[17] Morra’s e-mail of May 22 states, in part, as follows:
To address your request of yesterday where you asked and Sam’s inquiry about terms, I want to suggest to you that I want to get the old stuff cleaned off our books as soon as possible. What I would be prepared to do and it would help both now is that we could run the current shipments on terms of 30 days and when we would get payment it would be about 37 days and we could currently work on cleaning up the old balance in the next few weeks. I was thinking of 3 cheques for the balance which would bring us into line with Sam wanting a couple of months to clean it up. Please call me to discuss. If we could do this then we could have a clean slate with the accounts running on a current basis and ease the cash flow for you as now you are paying current stuff along with a payment towards the old. Let me know what you think. Regards.
[18] There are no further written communications between the parties until the exchange of e-mails between the granting of the RO2 on November 16, 2009 and the Approval and Vesting Order for the sale of assets of Global to Encore on December 7, 2009. The e-mails are as follows:
Nov. 23:
Morra to Pereira
Nov. 24:
Pereira to Morra
Nov. 24:
Morra to Pereira
and
Nov. 26:
Pereira to Morra
Nov. 26:
Morra to Pereira
Nov. 27:
Pereira to Morra
Nov. 27:
Morra to Pereira
Nov. 27:
Pereira to Morra
Nov. 27:
Morra to Pereira
[19] The e-mails on November 26 and 27 do not address the question of the assurances Morra had asked for about payment of invoices.
[20] In his November 23 e-mail, Morra says, with respect to the news of the granting of the RO2 that, “We are a little confused…. We were under the impression that sale [i.e. to Encore] had taken place to become effective sometime in December/09 and that things would continue on to move freight and be paid for it accordingly.” In his e-mail of November 24, Morra said in part:
Celeste, thank you for seeing me today with your kind consideration to continue to move freight with the intention to have us paid for all our services. This will confirm that you and Amar have agreed to pay us weekly as in the past and to see if you can speed up the payments or pay more weekly to get closer to a smaller a/r balance. This will continue for approx. 6 weeks and by that time we should have all the older items paid and what would be left would be payable under the receiver and we would continue to pursue the new owner for future business. If you agree with my understanding please confirm that we have a deal in place for now. I have authorized all the freight to move accordingly.
[21] Pereira did not send any e-mail response to this request from Morra for “confirmation” of the “deal” he described.
[22] Pereira sent Morra’s e-mail of November 23 to John Macdonald (“Macdonald”), who was employed by Callidus with respect to the Global receivership, and asked him if she should send Morra’s e-mail to Fleiser. Macdonald then sent the Morra e-mail to Fleiser and asked if he should pay the $12,000 that was “due today”. Fleiser responded on November 24 that Macdonald should pay the $12,000 and whatever payments “you deem necessary to keep UWG functioning normally”. Global cheques to Maritime for $6,652.06 and $22,792.47 were delivered to Maritime.
[23] Morra says that he met with Fleiser and Pereira and at their meeting he advised that he needed payment for the outstanding invoices in order to continue shipping and this was agreed and, while Fleiser wanted time to pay, he was assured that Maritime would be paid. Although there was ambiguous evidence on the point, I conclude from all the evidence that this meeting was the only meeting between Morra and Fleiser.
[24] Morra was cross-examined on whether he was told that Pereira was an employee of Callidus. Morra’s evidence on the point is ambiguous. On all the evidence, Pereira was an employee of UWG and then an employee of Global, but she was never an employee of Callidus and Morra was not told that she was. Fleiser said that Pereira was an employee of UWG and then of Global, but not of Callidus. He said that, as a non-employee of Callidus, she would never be appointed a representative or agent of Callidus and had no authority from Callidus. Fleiser denied that he had ever authorized Pereira to assure Maritime that if it continued shipping to UWG or Global, the outstanding invoices would be paid. He said that Callidus had never guaranteed the payment of the Maritime invoices if Maritime continued shipping. He said that the practice of Callidus was that, when UWG or Global requested funds to enable it to pay suppliers and Callidus was satisfied to advance funds to UWG or Global, it would do so, so that UWG or Global could proceed to make the payments.
[25] Fleiser received from Macdonald a copy of the November 23 e-mail of Morra to Pereira that mentions that Maritime was confused by the notice of RO2 because Maritime was under the impression that “the sale to Encore had taken place to become effective sometime in December 2009 and that they would continue to move freight and be paid for it accordingly”. The e-mail does not seem to mention payment of old invoices. Macdonald asked Fleiser only if Fleiser wished a $12,000 payment, “due today” to be paid to Maritime. Fleiser told Macdonald to make whatever payment decisions during that week deemed necessary “to keep UWG functioning normally”.
[26] Pereira said her responsibilities in UWG and Global were sales and human resources. She was not an officer of the company. She reported to the President of the company, Howard Usher. She said she met with Morra on his first visit to the office as a courtesy, as she worked with the President. She said she did not have the responsibility to deal with Morra with respect to payment of his outstanding invoices. She denied that, as asserted in the March 11 e-mail from Morra to Fleiser, she had assured Morra that he “would get paid for all the outstanding invoices”. She said she had no authority to say so. She said questions about making payments would be referred to the Accounts Payable people and they would forward a list to Callidus, which would decide if payments could be made. She said she did not attend the April 2 meeting of Mora and Fleiser. With respect to the e-mail exchange between herself and Morra on March 22, Pereira said the only reason she would have had to telephone Morra would have been that she learned that deliveries by Maritime were being held up.
[27] The November 24 e-mail from Morra to Pereira “confirmed” that she and Amar (Amarath) Mudili (“Mudili”) (another employee of UWG/Global, in the Accounts Payable department) had agreed to see if they could “speed up payments or pay more weekly to get closer to a smaller a/r balance. This [would] continue for approx. 6 weeks…” Pereira denied that she and Amar had made any such agreement. She said they had no authority to make such a decision. She said she never gave the confirmation requested.
[28] Pereira signed two cheques, copies of which are at Tab 23 of the Joint Document Brief. She said that after the granting of the RO2, the Chief Financial Officer of Global left and Callidus wanted there to be a second signatory along with the President. She said she signed cheques up to a certain amount per cheque if they were approved by Callidus.
[29] Pereira said Fleiser never gave her advice about how to do her work at UWG and Global. She said she never told Morra that if he continued to ship, the outstanding invoices would be paid and neither Fleiser nor anyone else at Callidus ever told her to do so.
[30] Pereira said that the reason she requested Morra, on May 22, to call her was that she had learned that orders to Maritime were being withheld.
Law and Analysis
Liability of Principal for the Act of the Agent
[31] Maritime alleges in paragraph 7 of its Statement of Claim (“SOC”) that Pereira was “an agent representative and agent” of Callidus at all relevant times.
[32] In paragraph 13 of the SOC, Maritime alleges Pereira assured Maritime that its accounts would be honoured and paid if Maritime continued to ship and stated that Maritime was a preferred shipper. In paragraph 14, Maritime alleges that the instructions and assurances were given and made with the authorization, knowledge and consent of Callidus.
[33] In paragraph 15, Maritime alleges alternatively or, in addition, that “’Fleiser gave direct or indirect authorizations and directions to…[Pereira] to give and make the representations and guarantees that the Plaintiff’s accounts would be paid , if the Plaintiff continued to ship, as a preferred shipper of UWG”. In paragraph 16, Maritime alleges that Callidus “provided, directly or indirectly, direction and instructions to [Pereira…] to give the representations and assurances”.
[34] Paragraph 17 alleges that Callidus is responsible and liable for the conduct and acts of Pereira as its employee representative and agent.
[35] Nothing was said in the evidence or the submissions about UWG or Global having the status of a “preferred shipper”.
[36] On the evidence, Pereira was at all relevant times, an employee of UWG or Global and not of Callidus. Although Morra says he was told she worked for Callidus and he believed she did, he could not identify a source for his belief other than an inference he made from the fact that Callidus was the majority owner of Global.
[37] In essence, the basic claim in these allegations is that Pereira, as the agent of Callidus, assured Maritime that if it continued to ship, all of its invoices, i.e. its outstanding invoices as well as its current invoices, would be paid.
[38] In Monachino v. Liberty Mutual Fire Insurance Co. (2000), 2000 5686 (ON CA), 47 O.R. (3d) 481 at paragraphs 33 to 36, the Court of Appeal set out the following comment on the nature of the authority given by a principal to an agent that can bind a principal to the conduct of its agent:
¶33 Various authors use different terminology in describing what authority other than actual authority can bind a principal to the conduct of its agent. It is referred to as apparent authority or ostensible authority. F.M.B. Reynolds, in Bowstead on Agency, 16th ed. (London: Sweet & Maxwell, 1996) makes the following distinction at p.103:
The authority of an agent may be
(a) actual (express or implied) where it results from a manifestation of consent that h principal expressly or impliedly made by the principal to the agent himself; or
(b) apparent, where it results from such a manifestation made by the principal to third parties.
¶34 The author defines actual authority at pp. 103-104:
Actual authority is the authority which t in part by means of words or writing (called here express authority) or is regarded by the law as having given him because of the interpretation put by the law on the relationship and dealings of the two parties (called here implied authority). ‘An ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties…’ [Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., [1964] 2 Q.B. 480, 502, per Diplock L.J.]
¶35 The author defines the nature of apparent authority at p.366:
Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.
¶36 Apparent or ostensible authority has also been defined by
Diplock L.J. in the leading case of Freeman & Lockyer v.
Buckhurst Park Properties, at p.503:
An ‘apparent’ or ‘ostensible’ authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed on him by such contract.
[39] From this passage, it can be seen that the authority of the agent must be either “actual” or “apparent”. The principle can also be expressed as authority that is either “real” or “ostensible”.
[40] The onus of proving agency lies with the party dealing with the agent to prove either real or ostensible authority. (See: Corporate Cars v. Parlee (2002), 27 B.L.R. (3d) 267 (Ont. S.C.J.) at para. 27, citing Halsbury’s, fourth Edition, p. 434 at para. 725.)
[41] Ostensible authority requires “some statement or conduct on the part of the principal which can amount to a representation that the agent has authority to act on his behalf”. Representations coming from the alleged agent alone are insufficient. (See: Banbiesbrouck v. Missere, [2006] O.J. No. 3282 (S.C.J.) at para. 19; Corporate Cars, supra, at para. 27.)
[42] Maritime submits that an agency relationship can be confirmed and ratified through the principal’s conduct, such as silence, based on Community Savings Credit Union v. United Association of Journeymen, Local 324, 2002 BCCA 214. That decision suggests that the latter part of that statement needs to be qualified with respect to silence. It would be more precise to say that an agency relationship can be enforced and ratified by a principal’s silence if, in the circumstances, the principal had a duty to disabuse the other of its mistaken impression.
[43] On the evidence reviewed above, Pereira never had actual authority from Callidus to give the alleged assurances. That leaves two questions:
(1) whether she gave the alleged assurances; and
(2) if so, whether she did she did so with apparent or ostensible authority from Callidus.
[44] The e-mails of March 6 and 7, 2008 were sent by Fleiser to Morra, with a copy to Pereira. Morra had asked Pereira, who had told him to speak to Fleiser. Morra knew Fleiser was with Callidus, an investor in Global. Fleiser gives the Callidus name and address as his address. The e-mails of March 6 identify Callidus as the major shareholder in Global. In the two e-mails, “we” seems to mean both Callidus and Global in the first e-mail and probably only Global in the e-mail of March 7. While the two e-mails are copied to Pereira, the March 6 e-mail states that all the UWG employees are now employed by the new company, i.e. Global. The only thing said about the old invoices is that “there will be some disappointment at having to write off the old balance”.
[45] In his March 11 e-mail, Morra says that Pereira assured him that Maritime would get paid all the outstanding balance. That stated assurance was obviously contradicted by what Fleiser had said in his March 6 e-mail. It appears from the Morra e-mail that he was still withholding deliveries. So, Morra was clearly not relying on the assurance he said he had from Pereira. Morra says he is still waiting for Fleiser’s return call. The only inference that could be made from this e-mail is that whatever Pereira may have told him, Morra did not think he had an assurance from Callidus yet and that was what he wanted if he was to release shipments. Accordingly, the fact that the responding e-mail from Fleiser later that day did not refer to Morra’s statement about the assurance he had from Pereira could not be taken to mean that Fleiser was confirming it. Moreover, item 2 of his e-mail makes it clear that the matter is still open as an outstanding issue for discussion at the proposed meeting.
[46] Morra says that he met with Fleiser and Pereira on April 2, 2008 at Global and at that meeting it was agreed that the outstanding balance would be paid. Fleiser had said that he wanted more time to make the payments and at the meeting he said he would arrange how the balance would be paid. They would work out the details.
[47] Morra acknowledged that Fleiser never guaranteed the payment of the Maritime invoices.
[48] Morra said that when he met with Pereira on November 24, 2009 she assured him that payment would be made for the previous balance and he understood that would be done and payments would continue to be made for regular shipments which Maritime had been making and would continue to make, so he agreed to release shipments. He acknowledged that he never received a response to his November 24 e-mail asking Pereira to send confirmation of the deal he said they had. After November 24, he made efforts to talk to Fleiser, but never succeeded. Morra said he regarded the two cheques dated November 26 that Maritime received from Global as the first payment on the outstanding balance.
[49] The Morra e-mail to Pereira on November 23 did not refer to the issue of the outstanding invoices.
[50] The Morra e-mail to Pereira of November 24 refers to the outstanding invoices. It states Morra’s confirmation that Pereira and Mudili had agreed “to see if you can speed up payments or pay more weekly to get closer to a smaller a/r balance”, etc. These terms are then referred to as Morra’s “understanding”. The fact that there is no firm arrangement as yet is shown by the fact that Morra goes on to say, “If you agree with my understanding, please confirm that we have a deal for now.”
[51] For the reasons set out above, these exchanges of e-mails do not set out or reflect any agreement by Callidus to pay the old invoices of Maritime. Nor do they show that Callidus held out Pereira as its agent. This means that the claim of Maritime must depend on other acts or conduct of Callidus and not on anything in these e-mail exchanges; except to the extent that its other acts and conduct when viewed separately or together with the e-mails establish its claim.
Conclusions
[52] Fleiser’s communications with Morra occurred in the period after the granting of the RO1, up to their meeting on April 2, 2008. Fleiser may have told Morra that Callidus would see what could be done to reduce the amount outstanding of the pre-receivership invoices. It cannot be concluded that he went further than that. In particular, it cannot be concluded that he assured Morra that the invoices would be paid by Callidus. Nor can it be concluded that Fleiser told Morra that Pereira had authority on behalf of Callidus to make comments to Maritime with respect to the payment by Callidus of the outstanding invoices. Nor did Fleiser by his conduct give Morra any reason to believe that Pereira had any such authority.
[53] Pereira may have assured Morra that she would see if payment of the pre-receivership invoices could be speeded up (see Morra e-mail, November 24 at 7:07 a.m., Joint Document Brief, tab 13), but Morra had no reason to infer that that commitment was made on behalf of Callidus in addition to her employer Global. In any event, that assurance did not amount to a commitment that the invoices would be paid.
[54] For the above reasons, the claim against Callidus for the amount of the outstanding pre-receivership invoices based on the alleged agency must fail.
[55] The claim of Maritime is made in respect of unpaid invoices in the total amount of $104,585.86. Counsel advise that $85,455.46 is the amount of the outstanding pre-receivership invoices and $19,128.40 is the amount of the outstanding post-receivership invoices.
[56] In his e-mail to Morra on March 11, 2008 at 5:28, Fleiser told Morra (in Item 1 of the e-mail) that, in respect of current invoices, “We will wire the amount to you on the following Monday as a payment on account. At the end of the month, we will do the account reconciliation and make any adjustments.” As noted above, the e-mail stated that it was from Fleiser at his Callidus address. Morra could reasonably understand this e-mail to constitute a promise made by Callidus to obtain Maritime’s assurance of continued shipping as stated in item 4 of the e-mail. Accordingly, the claim of Maritime against Callidus succeeds on the basis of basic contract law with respect to the unpaid invoices subsequent to the first receivership, in the amount of $19,128.40.
[57] Maritime contends that its claim in respect of the pre-receivership invoices is based on grounds other than the law of agency. Maritime submits that it has a good claim on the ground that it had received a negligent misrepresentation on which it relied to its detriment. However, what Maritime relied upon was not a representation of an existing fact or condition, but its assumption that it had received a promise from Callidus as to what it would do in the future.
[58] Maritime claims for breach of trust, but to make out a claim on that ground, it would need to show that a trust fund was created and no such fund has been established here.
[59] Maritime claims that Fleiser and Pereira had fiduciary duties to Maritime which they breached. However, there is nothing to show that Fleiser or Pereira were ever dealing with Maritime otherwise than at arm’s-length, in the characteristic manner of parties to commercial transactions.
[60] The SOC advances other grounds for the claim and also claims for punitive damages and aggravated damages for reasons which were not argued and do not require comment in view of the determinations made above.
[61] Accordingly, as set out above, Callidus is liable to Maritime in the amount of $19,128.40 for the unpaid post-receivership accounts. The claim of Maritime for the unpaid pre-receivership accounts is dismissed.
[62] If submissions on costs are needed, they may be made to me in writing with a copy by e-mail to my assistant, within 10 days of the release of these reasons for the first submissions, a further 10 days for any response and a further 10 days for any reply.
Spence J.
Released: February 14, 2014
COURT FILE NO.: CV-11-9391-00CL
DATE: 20140214
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
maritime-ontario freight lines limited
Plaintiff
- and -
callidus capital corporation, sam fleiser, samuel fleiser, howard usher, newton glassman and joe farina
Defendants
REASONS FOR decision
Spence J.
Released: February 14, 2014