Nine-North Logistics Inc. v. Atkinson

Ontario Reports

Ontario Superior Court of Justice,

DiTomaso J.

December 15, 2014

124 O.R. (3d) 40 | 2014 ONSC 7243

Case Summary

Civil procedure — Summary judgment — Plaintiff purchasing shares of two transport companies owned by defendant and his partner — Plaintiff failing to pay funds held in escrow to defendant following closing on ground that defendant had breached non-competition clause in share purchase agreement — Defendant moving successfully for summary judgment dismissing claim and granting his counterclaim for release of funds held in escrow — Evidence on motion not establishing that defendant breached non-competition clause — No genuine issue requiring trial existing.

The plaintiff purchased the shares of two transport companies owned by the defendant and his partner. The purchase funds were to be held in escrow until May 31, 2013, at which point they were to be released to the defendant and his partner on a 50/50 basis. The plaintiff released the defendant's partner's escrow funds, but sent the defendant a "payment request" purporting to make a claim [page41 ]against the defendant's escrow funds on the basis that the defendant had breached a non-competition provision in the share purchase agreement as he assisted in providing a specialized refrigerated trailer for the use of a competitor of the plaintiff at no apparent cost. The defendant brought a motion for summary judgment dismissing the claim and granting his counterclaim for the release of funds held in escrow.

Held, the motion should be granted.

The payment request did not comply with the escrow agreement as it did not provide particulars of the claim that the defendant had breached the non-competition agreement. More importantly, there was no evidence that the defendant in fact breached the non-competition agreement by affirmatively assisting or inducing any other person or entity to engage in any competitive business with the plaintiff. There was no genuine issue requiring a trial.

Cases referred to

Byfield v. Toronto-Dominion Bank, [2012] O.J. No. 320, 2012 ONCA 49, 17 C.L.R. (4th) 173, 214 A.C.W.S. (3d) 114; Combined Air Mechanical Services Inc. v. Flesch (2011), 108 O.R. (3d) 1, [2011] O.J. No. 5431, 2011 ONCA 764, 286 O.A.C. 3, 97 C.C.E.L. (3d) 25, 14 C.P.C. (7th) 242, 13 R.P.R. (5th) 167, 93 B.L.R. (4th) 1, 10 C.L.R. (4th) 17, 211 A.C.W.S. (3d) 845; Eagle Professional Resources Inc. v. MacMullin, [2013] O.J. No. 4727, 2013 ONCA 639; Hryniak v. Mauldin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, 2014 SCC 7, 314 O.A.C. 1, 453 N.R. 51, 2014EXP-319, J.E. 2014-162, EYB 2014-231951, 95 E.T.R. (3d) 1, 12 C.C.E.L. (4th) 1, 27 C.L.R. (4th) 1, 21 B.L.R. (5th) 248, 46 C.P.C. (7th) 217, 37 R.P.R. (5th) 1, 366 D.L.R. (4th) 641; Khabouth v. Nuko Investments Ltd., [2013] O.J. No. 4995, 2013 ONCA 671

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 20, 20.04(2)(a), 20.04(2.1), 20.04(2.2)

MOTION by the defendant for summary judgment dismissing a claim and allowing his counterclaim.

Joseph J. Neal, for plaintiff (responding party).

William J. Leslie, Q.C., for defendant (moving party).

DiTOMASO J.: —

Introduction

[1] This is a motion for summary judgment by the moving party, Murray Atkinson ("Atkinson"), to dismiss the plaintiff's claim and grant Mr. Atkinson's counterclaim for the release of funds held in escrow, being the remaining amount of the purchase price owed to him as a result of the plaintiff's acquisition of all shares of two corporations that were owned by Mr. Atkinson and another business partner, Michael Warn. Mr. Warn was [page42 ]paid his share of the escrow funds. Mr. Atkinson did not receive his payment.

[2] Mr. Atkinson states that he is entitled to summary judgment because there is no genuine issue requiring trial and the responding party, Nine-North Logistics Inc. ("Nine-North"), has no real chance of success on its claim (and defence to counterclaim).

Overview

[3] On May 31, 2012, Nine-North entered into a share purchase agreement to buy all shares of Trio Transport Systems Inc. and 1315058 Ontario Inc., which were operating as transport companies. The purchase price was $3,200,000. Included in the share purchase agreement was an escrow agreement whereby $125,000 of the purchase funds were to be held by the escrow agent (Anthony Peckham of Stewart, Esten) until May 31, 2013, and at that point, released 50/50 to Michael Warn and Murray Atkinson, being the beneficial owners of the two corporations.

[4] On that date, May 31, 2013, Nine-North sent a letter purporting to make a claim against the escrow funds in regards of Atkinson, for alleged violation of the non-competition covenant in the share purchase agreement. There was no objection to the release of Michael Warn's escrow amount.

[5] Following the closing, Mr. Atkinson's daughter and son-in-law worked for Nine-North. Subsequently, they resigned and joined an alleged competitor, Romeo's Trucking, which business was started in February 2013.

[6] Nine-North alleges that Mr. Atkinson breached the non-competition provision of the share purchase agreement as he assisted in providing a specialized refrigerated trailer for the use of Romeo's Trucking, at no apparent cost. By so doing, Nine-North alleges Mr. Atkinson provided a "springboard" to a competitor and breached his covenant of the share purchase agreement.

[7] Mr. Atkinson denies that he violated the non-competition covenant of the share purchase agreement. He asserts that the escrow funds should be released to him because (a) the purported "payment request" sent by Nine-North on May 31, 2013 was deficient as compared to what was required under the escrow agreement and therefore not valid; and (b) Mr. Atkinson had not breached the non-competition covenant contained in the share purchase agreement.

[8] Mr. Atkinson asserts that the trailer was never owned by Atkinson or a company of his. Therefore, its use or non-use by any other alleged competing company cannot be attributed to him.

[9] He states that the subject trailer was owned by Ray Den Holdings Inc. ("Ray Den"), the sole shareholder being his wife. [page43 ]At the time of swearing his affidavit on March 20, 2014, Mr. Atkinson honestly believed he was not an officer or director of Ray Den. He subsequently learned by seeing a corporate profile filed with the Ministry of Government Services that he had been a director of Ray Den for the past number of years.

[10] Mr. Atkinson was not a director of Ray Den when it was incorporated on March 13, 1985.

[11] The trailer was leased to Trio Transport on a month-by-month basis up until the sale in May of 2012.

[12] Following the sale, the trailer was leased by Ray Den to other drivers. The trailer was leased by Ray Den to Troy Hutchinson, son-in-law, who is part owner of AT Ventures ("ATV") as a result of a request made by Mr. Hutchinson of ATV to Denise Atkinson (wife of Mr. Atkinson) in February 2013.

[13] Subsequently, ATV subleased the trailer to Romeo's Trucking. Mr. Atkinson claims that he has no involvement with the sublease or had any knowledge of it until he returned from a trip to Alaska in late June or July 2013. Mr. Atkinson states that he has no direct or indirect involvement with ATV which makes its own decisions. He is retired from the trucking transportation business.

[14] Mr. Atkinson denies that he in any way affirmatively assisted or induced any other person or entity to engage in any competitive business as defined by the share purchase agreement.

[15] Nine-North observed the trailer at the Romeo's Trucking location in February 2013, still bearing the logo of "Trio Transportation".

[16] Around February 2013, not only did Mr. Hutchinson and Mr. Atkinson's daughter leave the employment of Nine-North, but also a number of drivers left Nine-North and commenced to drive for Romeo's Trucking. Nine-North also alleges that it immediately started losing long-term refrigerated freight customers to Romeo's Trucking. This allegedly resulted in a marked drop in the revenue and profits of Nine-North.

[17] Mr. Atkinson states that he has had no direct or indirect involvement with ATV which makes its own decisions. Further, there is nothing unique or special about the trailer. It is currently being leased by Ray Den to ATV, who subleases the trailer to Romeo's Trucking. Neither Mr. Atkinson nor Ray Den have received any funds from Romeo's Trucking for the lease of the trailer.

The Issue

[18] The issue is whether Mr. Atkinson is entitled to summary judgment because there is no genuine issue requiring a trial. [page44 ]In determining this issue, the critical question is whether Mr. Atkinson breached the non-competition covenant in the share purchase agreement.

Positions of the Parties

Position of the moving party Atkinson

[19] Mr. Atkinson submits that the escrow funds should be released to him because (a) the purported "payment request" sent by Nine-North on May 31, 2013 was deficient as compared to what is required under the escrow agreement and therefore not valid; and (b) Mr. Atkinson has not breached the non-competition covenant contained in the share purchase agreement.

[20] He states that Nine-North appears to have seized upon the use of a refrigerated trailer as being an act of competition by Mr. Atkinson. However, Mr. Atkinson asserts that the trailer was never owned by him or a company of his. Its use or non-use by any other alleged competing company cannot be attributed to him. Nine-North was well aware of the existence of this trailer at the time of the purchase and could have purchased it at that point, or requested that it not be used by any competitor. Nine-North chose not to purchase the trailer for $27,500, being a mid-range value in December 2012.

[21] Mr. Atkinson submits that there is nothing unique or special about the trailer. There are thousands of identical trailers on the road today and there are numerous companies from which one could buy or lease an identical trailer.

[22] He submits that the trailer currently being leased by Ray Den to ATV who subleased the trailer to Romeo's Trucking. Mr. Atkinson states that he has no direct or indirect involvement with ATV which makes its own decisions.

[23] He further submits that leasing of the trailer owned by Ray Den to ATV (in which Mr. Atkinson has no interest) which subleases to Romeo's Trucking is not competing directly or indirectly with the plaintiff. He has no control over ATV and he has no financial interest in Romeo's Trucking. He denies that Ray Den has provided the refrigerated trailer for the use of Romeo's Trucking at no apparent cost. There is evidence that the trailer was rented by Ray Den to a number of entities including ATV. He further denies that there is any "springboard" provided to an alleged competitor in the absence of any lease payments. Mr. Atkinson further submits that there is no evidence establishing how the sublease to Romeo's Trucking would attack Nine-North's customer base or any evidence how subleasing the trailer to Romeo's Trucking would support any of the losses claimed by Nine-North. He submits that there is no connection between subleasing the trailer to Romeo's Trucking and Nine-North's claim of customer loss. The summary document in the amount of $93,166.89 found at the last page of the exhibit book tab 9 does not establish any loss attributable to any conduct on the part of Mr. Atkinson.

[24] Mr. Atkinson submits that Nine-North claims are without merit and fabricated to bolster its original claim against the escrow funds to prevent Mr. Atkinson from receiving his remaining share of the purchase price. He therefore claims that he is entitled to immediate release of escrow funds being $62,500 plus accrued interest pursuant to the escrow agreement and in the intention of the parties.

Position of Nine-North Logistics Inc.

[25] Nine-North submits that Mr. Atkinson's motion for summary judgment should be dismissed with costs. Nine-North submits that there ought to be a finding of summary judgment in favour of Nine-North and that this court ought to remain seized to determine damages and payment out of the escrow amount by Mr. Atkinson and any balance owed payable by him to Nine-North.

[26] Nine-North asserts that within eight months of closing, Mr. Atkinson's daughter and Mr. Hutchinson left the employ of Nine-North along with six other drivers and started a new company, Romeo's Trucking. A refrigerated trailer was observed in the loading dock of Romeo's Trucking bearing the Trio logo.

[27] Nine-North asserts that Mr. Atkinson breached the non-competition covenant of the share purchase agreement in that he is assisting a competing company by supplying a specialized refrigerated trailer without charge to Romeo's Trucking.

[28] Nine-North asserts that the payments Ray Den allegedly paid by other entities to Ray Den is concocted evidence. Nine-North challenges the credibility of Mr. Atkinson regarding his knowledge of whether he was a director. It is submitted that Mr. Atkinson always managed the trailer and was the directing mind regarding the use of the trailer. The supply of the trailer for use by Romeo Trucking was a "springboard" to attack the customer base of Nine-North.

[29] Nine-North asserts it is incredible that Mr. Atkinson knew nothing of the arrangements involving Ray Den, ATV and Romeo's Trucking. Nine-North further asserts that the evidence is tailored to describe payment arrangements between Ray Den and other entities to give the illusion of legitimacy.

[30] Nine-North submits that Mr. Atkinson was a director of Ray Den who provided financial assistance regarding the trailer to a competitor, Romeo's Trucking. What Mr. Atkinson intended was irrelevant. He is caught by the provisions of the share purchase agreement and therefore is disentitled to receipt of the escrow funds.

[31] Nine-North submits that Mr. Atkinson's motion for summary judgment should be dismissed. In turn, Nine-North claims it is entitled to summary judgment with the subsequent determination of Nine-North's claim for damages.

Analysis

Summary judgment -- Guiding principles

[32] The court's jurisdiction to grant summary judgment is set out in Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Pursuant to subrule 20.04(2)(a), the court shall grant summary judgment where there is "no genuine issue requiring a trial".[^1]

[33] When deciding whether or not to grant summary judgment, the motion judge may employ his or her powers under rule 20.04(2.1) to weigh the evidence, evaluate the credibility of a deponent or draw any reasonable inference from the evidence.[^2]

[34] In Hryniak v. Mauldin, the Supreme Court of Canada recently ruled on the proper interpretation of the new summary judgment rule that came into force in 2010. The court confirmed that the new rule makes summary judgment appropriate in a wide number of cases and that the motion judge can use the new powers in rules 20.04(2.1) and 20.04(2.2) in an expanded number of cases:

The new rule, with its enhanced fact-finding power, demonstrates that a trial is not the default procedure. Further, it eliminated the presumption of substantial indemnity costs against a party that brought an unsuccessful motion for summary judgment, in order to avoid deterring the use of the procedure.

The new powers in Rules 20.04(2.1) and (2.2) expand the number of cases in which there will be no genuine issue requiring a trial by permitting motion judges to weigh evidence, evaluate credibility and draw reasonable inferences.

[T]he amendments are designed to transform Rule 20 from a means to weed out unmeritorious claims to a significant alternative model of adjudication.[^3] [page47 ]

[35] In Hryniak, the Supreme Court stated:

[T]hat summary judgment rules must be interpreted broadly, favouring proportionality and fair access to affordable, timely and just adjudication of claims.[^4]

[36] A trial is not required if a summary judgment motion can achieve a fair and just adjudication. An issue ought to be resolved on a motion for summary judgment if the motion provides a process which allows the judge to make the necessary findings of fact, apply the law to those facts and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.[^5]

[37] The key principles on a motion for summary judgment are well established. The moving party bears the initial onus of demonstrating that there is no genuine issue requiring a trial. In order to be successful, the moving party must present a case capable of being decided on the record before the motion judge.[^6]

[38] On a motion for summary judgment, the judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the judge and without using the judge's new fact-finding powers. There will be no genuine issue requiring trial if the summary judgment process provides the motion judge with the evidence required to fairly adjudicate the dispute and is a timely, affordable and proportionate procedure within the mean of rule 20.04(2)(a).[^7]

[39] If there appears to be a genuine issue requiring a trial, the motion judge should then determine if the need for a trial can be avoided by using the new powers under rule 20.04(2.1) and (2.2). Those new powers can be used provided it would not be against the interest of justice. The use of those powers will not be contrary to the interests of justice if they will lead to a fair and just result that will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.[^8]

[40] The standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that he or she can find the necessary facts and apply the legal principles so as to resolve the dispute.[^9]

[41] The onus is on the moving party to establish there is no genuine issue of material fact requiring trial. Where the moving party does this, the responding party must either refute or counter the moving party's evidence or risk summary dismissal. The responding party cannot rely solely on allegations or denials in its pleadings but must set out, through admissible evidence, specific facts requiring a trial. Both parties are expected to put their best food forward. The party resisting summary judgment must "lead trump or risk losing". There is no reason to infer that better evidence would be available at trial.[^10]

Disposition

[80] For the above reasons, I grant Mr. Atkinson's motion for summary judgment. Nine-North's claim is hereby dismissed. Mr. Atkinson's counterclaim is granted for judgment against Nine-North for

(a) the sum of $62,500 pursuant to the escrow agreement between the parties;

(b) a declaration that the escrow agent shall release the remainder of the escrow amount together with prejudgment interest from May 31, 2013 to the date of judgment at the applicable interest rate provided by the Courts of Justice Act, R.S.O. 1990, c. C.43 in effect on May 31, 2013;

(c) post-judgment interest in accordance with the Courts of Justice Act;

(d) costs; and

(e) Mr. Atkinson abandons his claim for aggravated punitive and/or exemplary damages.

[81] As for costs, counsel agree that costs are to be determined by way of written submissions. Mr. Atkinson shall serve and file a concise statement of costs not exceeding two pages in length, together with a costs outline and draft bill of costs and brief of authorities within ten days of this judgment. Within ten days thereafter, the plaintiff, Nine-North Logistics Inc., shall serve and file its same materials. Any written submissions in reply shall be served and filed within the next seven days thereafter. All written cost submissions are to be delivered to my judicial assistant at Barrie.

Motion granted.