ONTARIO

SUPERIOR COURT OF JUSTICE

OSHAWA COURT FILE NO.: CV-08-58140-00

DATE: 20141125

BETWEEN:

950342 Ontario Ltd. c.o.b. as Quality Club Leasing and Mark Connon

Plaintiffs

– and –

1095909 Ontario Inc., 1095909 Ontario Inc. c.o.b. as Wynn Family Properties, 1312443 Ontario Inc. c.o.b. as Wynn Properties Inc., 1312443 Ontario Inc. c.o.b. as Wynn Family Properties Inc., 1312443 Ontario Inc., Wynn Properties Inc., Jeffrey Wynn and 2117321 Ontario Ltd. c.o.b. as Ultimate Fitness Nutrition & Health Club Limited

Defendants

Mark Connon, In Person, for the Plaintiffs

David Dolson, for the Defendants

HEARD: November 18 and 19, 2014

REASONS FOR JUDGMENT

gilmore J.:

Overview

[1] This case is a Simplified Rules case in which the plaintiff, Mark Connon (“Mr. Connon”), seeks damages of $45,500, and the corporate plaintiff, 950342 Ontario Ltd. c.o.b. as Quality Club Leasing (“Quality Club”), seeks damages of $54,500. The damages claimed relate to certain leased and owned gym equipment which the plaintiffs claim were wrongfully sold or removed by the defendants. By way of previous court order, Mr. Connon was given leave to represent Quality Club at trial.

[2] At the commencement of trial, the court was advised that an agreement had been reached to dismiss the case, without costs, as against the defendants 2117321 Ontario Ltd. and Ultimate Fitness Nutrition & Health Club Limited (“Ultimate Fitness”). That left only Jeffrey Wynn, the Wynn Family and their related companies as defendants.

Status of 950342 Ontario Ltd.

[3] At the beginning of the defendants’ case, counsel introduced two documents which had not been previously disclosed to the plaintiffs, nor were they contained in the defendants’ affidavit of documents. One of these documents was a Corporate Profile Report of 950342 Ontario Ltd. (Exhibit 9). This document showed that the company was incorporated on November 12, 1991. Mr. Connon was listed as the sole officer and director.

[4] The second document was a Certificate of Status for 950342 Ontario Ltd., which indicated that the corporation was dissolved on January 28, 2008 (Exhibit 8). No dispute was made as to the authenticity of these documents, given that they were issued by the Ontario Ministry of Government Services.

[5] The problem which arose was that Mr. Connon had not seen the documents before and was not, apparently, aware that his corporation had been dissolved, although he admitted he was winding it down in 2007 and 2008. The date of the dissolution was problematic, in that Mr. Connon’s claim on behalf of the corporate plaintiff was issued on November 5, 2008, almost 10 months after the date of dissolution. The position of the defendants was that any claim made by the corporate plaintiff was a nullity since the corporation did not exist on the date the claim was issued. Further, since the claim was a nullity it could be not resurrected by an amendment and, even if it could, would be outside the limitation period.

[6] Given that Mr. Connon was taken by surprise by these documents after he had closed his case, he was permitted to re-open his case and give evidence concerning the documents. Mr. Connon noted that he had assigned the Quality Club lease to himself, personally, by way of assignment dated March 30, 2007. He relied on that assignment with respect to the total damages claimed. Counsel for the defendants noted that no one was ever given notice of the assignment, nor was a financing change statement filed in relation to the assignment.

[7] The statement of claim, and its two amended versions, clearly identify 950342 Ontario Ltd. as a plaintiff and claim a specific amount of damages on its behalf. Unfortunately, a claim cannot be made by a non-existent entity. As such, the court has no choice in this case but to consider only the damages claimed by Mr. Connon personally. In 602533 Ontario Inc. v. Shell Canada Ltd., 1998 1775 (ONCA), the Ontario Court of Appeal made it clear that even if a dissolved corporation is revived, the revival cannot cure an intervening expiry of the limitation period. Had Mr. Connon claimed all the damages personally, he may have been in a position to rely on the 2007 assignment. However, in these somewhat unfortunate circumstances he cannot.

Factual Background

[8] Mr. Connon has been in the fitness business for most of his life. He owns and manages fitness clubs, and leases equipment to his own clubs and others. He worked with Mr. Steven Reeves, as a partner, in the Toronto Athletic Club in the 1990’s. When that club was sold he and Mr. Reeves began to look for sites for a new club. A location was found at 505 Hespeler Road in Cambridge. Mr. Connon, Mr. Reeves and two other partners spent $400,000 to renovate and develop this location into a fitness facility, operated by 1197193 Ontario Inc., known as Fit For Life (“FFL”). Mr. Connon and the three other partners each owned 25 per cent of the shares in FFL.

[9] FFL entered into a lease with the defendant, Wynn Family Properties (the “Landlord”), on April 13, 1999. The 10 year lease was signed on behalf of FFL by Mr. Reeves, witnessed by Mr. Connon and was to commence on June 1, 1999. For the first five years of the lease FFL was to pay $6,233.33 a month, and for the remaining five years of the lease, $7,791.67 per month. An additional amount related to taxes, maintenance and insurance (“TMI”) was added to each month’s rent. This monthly amount was calculated by using the previous year’s totals and adding the potential estimated increases for the current year. There was an annual adjustment each year when the actual tax, maintenance and insurance amounts paid by the defendant had been calculated.

[10] Mr. Connon testified that in 2004 the YMCA in Cambridge built a new facility which directly competed with FFL. As Mr. Connon was in the business of leasing fitness equipment, he thought it would be timely to upgrade the equipment at FFL. As such, he leased a large amount of various types of equipment to FFL through the plaintiff, Quality Club. The lease required monthly payments of $2,185, inclusive of tax, for a period of 60 months. The PPSA registration for the equipment at the 505 Hespeler Road location was located at Tab 1 of Exhibit 1. Mr. Connon’s evidence was that he always registered a PPSA in relation to leased equipment so he could keep track of it. He had a large inventory of equipment and was often buying, selling and leasing equipment at multiple locations.

[11] The defendants argued that the PPSA registration was deficient. According to the provisions of a Minister’s Order issued in 2007, a debtor which is an artificial body (this includes corporations) must register a PPSA under the incorporated name of the corporation.[^1] Accordingly, Mr. Connon was required to register the debtor as 1197193 Ontario Inc. and not the trade name of Fit for Life. Given the deficiency in the registration, the PPSA could not be properly searched and there was, therefore, insufficient notice of any security interest.

[12] The defendants also argue that there was no evidence of any payments flowing between FFL and Quality Club. Not a single cheque was produced. The defendants submit the lease was a sham and, in any event, does not establish that Quality Club owned the equipment.

[13] According to Mr. Connon, he began to have issues with the leased premises around the same time as he leased the equipment to FFL. The roof was leaking badly and the women’s locker room became virtually unusable as a result. This affected staff and client morale. The Landlord was unresponsive, despite the numerous attempts and requests by Mr. Connon to have the roof repairs done. He described the situation as having been ignored and stonewalled by the Landlord. He claimed that Leslie Wynn would hang up on him or use abusive language.

[14] The defendants’ called Mr. Vinh Luong as a witness. He was the property manager for this location throughout the time FFL was a tenant. He is still an employee of the Wynn family. His evidence contradicted that of Mr. Connon. He testified that the Landlord repaired the roof when requested. The problem in the ladies’ locker room was of the tenant’s own doing, as a ventilation system had been installed by the tenant which created the problem.

[15] Mr. Connon was very concerned about the morale at FFL at this point and the erosion of business from the YMCA competition. In order to try to regain some market share he put spin bikes into FFL. His fitness instructors had been asking for them as they were the latest trend in fitness. He purchased 15 spin bikes and one instructor’s bike from Quality Club, and installed them at FFL. The total cost, inclusive of tax, was $14,999.45. He also brought in eight pieces of Cybex equipment, which he owned. He intended to put these in the ladies’ locker room area, but was unable to do so because of the leaking roof. He kept them in storage on the premises waiting for the repairs to be done.

[16] Unfortunately, FFL fell into arrears of rent. A notice of distress was served and FFL was locked out in November 2006. Exhibit 7, Tab 10, was a statement of rental payments and arrears, which came from the Landlord’s computer tracking system. It showed that the arrears of regular and additional rent as of October 16, 2006, were $41,201.59. Mr. Connon did not dispute the additional TMI charges during the term of the lease, although in his testimony he indicated that he thought it was unfair of the Landlord to charge him $33,000 in additional rent in May 2006, which was all of the TMI charges for 2004 and 2005.

[17] Once locked out, Mr. Connon could not access the equipment leased from Quality Club, the spin bikes and Cybex equipment that he personally owned, his office equipment, banking documents and the personal effects that had been on the premises.

[18] Mr. Connon subsequently discovered that the premises had been leased to the former defendant, Ultimate Fitness. The lease between Ultimate Fitness and the Landlord was produced as Exhibit 7, Tab 17. Mr. Connon’s evidence was that the gym equipment, in Schedule C1 to that lease, was the same equipment which had been leased to FFL by Quality Club. This was denied by the defendants’ witness, Leslie Wynn, who testified that the equipment at the premises had never changed between 1999 and 2006 and, in any event, he was not aware of, nor had he been given notice of, any leased equipment being in the premises.

[19] Mr. Connon also referred to a bill of sale between Jeffrey Wynn and Ultimate Fitness dated November 10, 2006, which confirms the sale of the gym equipment referred to in paragraph 24 of the lease, and in Schedule C1 of the lease, for $25,000. Mr. Connon’s evidence was that this was the equipment owned by Quality Club and leased to FFL. The defendants had no right to sell the equipment to Ultimate Fitness. Further, he claims that the gym equipment owned by him personally was either wrongfully sold or removed from the premises.

Valuation and the Legal Issues

[20] Given that Mr. Connon cannot pursue the claim on behalf of 950352 Ontario Ltd. for the reasons given above, the court is left with determining what claim he may have in his own name. I should add that, even if 950352 Ontario Ltd. had not been dissolved, I agree with the defendants’ counsel that the legal requirements with respect to the naming of the debtor in the PPSA registration may not have been met, and therefore the security interest in the gym equipment would be in question.

[21] At trial, Mr. Connon’s evidence was that the $45,500 he is claiming personally against the defendants is made up of the $15,000 he paid for the spin cycles, some children’s playland equipment he bought for $10,000 at an auction and was stored at the premises, the $10,000 he paid to take the Quality Club lease “off the books”, and the eight pieces of Cybex equipment that were meant for the ladies locker room. His evidence was that he paid $1,800 for each piece of the Cybex equipment, but he could not remember when he bought it. He did not have receipts or any documentary evidence with respect to the purchase of the Cybex equipment or the playland.

[22] Mr. Luong and Mr. Wynn testified that they had never seen the playland, the Cybex equipment or the spin bikes. Their evidence was consistent that the equipment never changed between 1999 and 2006, and was never updated.

[23] Some remarks on credibility must be made at this point in terms of the existence of the equipment as claimed by Mr. Connon. I accept Mr. Connon’s evidence concerning the existence of both the spin bikes and the Cybex equipment (apart from the Cybex equipment noted in Schedule C1 of the Ultimate Fitness lease which formed part of the equipment under the Quality Club lease). I accept that he was trying to do his best to revive a club that was suffering from competition from the YMCA, disinterested partners, and a landlord who failed to respond and repair. Spinning was very popular at the time, and I accept that Mr. Connon felt an obligation to meet popular demand by providing spin cycles and the Cybex equipment, targeted at the female members of the club. I also accept that his gesture in doing so related to an attempt to boost morale amongst staff at the club.

[24] Where Mr. Connon’s evidence differs from that of Mr. Wynn on a particular point, I prefer Mr. Connon’s evidence. While it was apparent that Mr. Wynn has substantial experience in the gym business and with commercial tenancies, he was condescending in his attitude towards Mr. Connon, who has a similar level of experience. During Mr. Connon’s testimony, Mr. Wynn laughed derisively, snickered and looked bemused. He may have thought such behaviour was helping his case. It was not. During his cross-examination, he was argumentative and condescending. He occasionally had to be redirected to answer a question instead of skirting it.

[25] I found Mr. Connon’s evidence to be reliable and credible. He was realistic about the fact that some personal circumstances and the passage of time meant that he could not remember certain things, and that documents had been lost. He conceded that he did not get back to the Landlord when he should have in June 2006, as his mother was ill and dying. He told the court he should have returned the Landlord’s calls when the club rent was in arrears at that time, but he did not. His frustration with the Landlord and with Leslie Wynn was palpable. Notwithstanding the evidence of Mr. Luong, a long-time employee of the Wynn family, I accept that Mr. Connon’s experience with the Landlord was not a good one, and that the response time for repairs by the Landlord was unacceptably slow or non-existent.

[26] It is clear from the evidence that the spin bikes and the Cybex equipment owned by Mr. Connon were not part of Schedule C1 of the lease between Ultimate Fitness and the Landlord, and apparently were never seen by Mr. Wynn. It is unknown where they went. I infer they were removed or sold as their whereabouts are still unknown.

[27] Two appraisals of the equipment in the premises in November 2006 were prepared at the request of the Landlord in November 2006. These were prepared for the purposes of the bailiff. The G. & R. appraisal conducted by George Restiaux valued the chattels in the gym at $12,900. The appraised chattels were those in Schedule “A” of the appraisal. Schedule “A” was not attached. Interestingly, the same issue arose with the second appraisal. That appraisal was prepared by Ronald Herchal and dated November 3, 2006. His valuation of the chattels in Schedule “A” was $14,800. Again, Schedule “A” was not attached. Mr. Wynn could not provide any information about why those schedules were not attached. He assumed that the equipment listed in those schedules was the same as the equipment listed in Schedule C1 of the lease between Ultimate Fitness and the Landlord, because it was his belief that Schedule C1 was prepared based on the schedules to the appraisals. Perhaps the missing schedules could have provided some confirmation concerning the whereabouts of the spin bikes and the Cybex equipment owned by Mr. Connon.

[28] With respect to the value of the spin bikes owned by Mr. Connon, he relies on his invoice to Quality Club for $15,000 (Exhibit 1, Tab 9). The defendants submit that this is not a realistic value for several reasons. First, the transaction between Mr. Connon and Quality Club to purchase the bikes was not arm’s length. Mr. Connon was the sole director and officer of 950342 Ontario Ltd., which operated Quality Club. The defendants submit that the price of the spin bikes at $806 each, and the instructor’s bike at $953, was inflated and unrealistic. The bikes were not brand new. Further, the Danbury appraisal submitted by Mr. Connon, and dated November 30, 2007, values 13 Reebok spin cycles at $2,275 or $175 each. Mr. Connon argued that although he provided the Danbury appraisal, it was based on a forced liquidation value. This is different than what one could obtain at an auction. In support of this, Mr. Connon provided an extensive list of gym equipment items from an auction he attended in June 2007. He noted there was not a single spin cycle for sale in the extensive auction list. This is because spin cycles were very popular at that time. A premium could be charged for them both new and used.

[29] As for the Cybex equipment, Mr. Connon has no documentary evidence to support either ownership or price. He recalls paying $1,800 for each piece but could not recall when he bought them. At the price quoted by Mr. Connon, the Cybex equipment he owned would have been worth in the range of $14,400. He pointed to the Cybex equipment for sale at the June 2007 auction. The price of the pieces ranged from $100 to $700. He conceded that this is perhaps a more realistic view of what the Cybex equipment was worth at the relevant time.

[30] Based on all of the above, I find that the defendants either wrongfully sold, or removed, gym equipment owned by Mr. Connon personally; namely, the spin bikes and the eight pieces of Cybex equipment. Valuing this equipment for the purpose of quantifying damages is difficult, given the passage of time and the fact that no appraisal is available of these exact items at that time; however, a fair valuation of the Cybex pieces would be the average of the listed auction price for such equipment in 2007, or $400 each. Accordingly, the total for the eight pieces of Cybex equipment would be $3,200. As for the spin bikes, I agree with the defendants that the non-arm’s length transaction, and the value in Mr. Connon’s own appraisal for such items, would indicate that the prices in Mr. Connon’s invoice to Quality Club should be adjusted. An average of the lowest price ($175 – from the Danbury appraisal) and the highest price ($806 – from Mr. Connon’s invoice), or $490 per bike, would be more realistic. The instructor’s bike would be proportionally higher at $550. This would result in a total, for all the spin cycles, of $7,900 and, adding in the assessment of the Cybex equipment, would result in an overall value of $11,100. I do not include any damages for the children’s playland as there was no reliable evidence available as to its value. The $10,000 paid by Mr. Connon to take the lease “off the books” is also not included. I view this as an internal accounting exercise with no concrete value for the purpose of assessing damages.

[31] As the damages are owed to Mr. Connon personally, there is no set off against the rental arrears as those are owed by the dissolved numbered company.

Final Order

[32] Given all of the above I make the following orders;

(a) The claim by 950342 Ontario Ltd. c.o.b. as Quality Club Leasing is dismissed; and

(b) The remaining defendants in this action shall pay to Mark Connon, personally, total damages in the sum of $11,100.

[33] If the parties are unable to agree on costs, I will receive written submissions on a seven day turnaround, commencing with the moving party, followed by responding submissions, then reply submissions, if any, commencing December 9, 2014. Cost submissions shall be no more than two pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my assistant at Alissa.Livesey@ontario.ca. If no submissions are received by December 30, 2014, the issue of costs will be deemed to have been settled as between the parties.

Justice C.A. Gilmore

Released: November 25, 2014

[^1]: Minister’s Order under the Personal Property Security Act s. 1 and s. 16(4)2.