COURT FILE NO.: 12-54751
DATE: 2014/01/17
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MONTEL INC.
Plaintiff
(Defendant by Counterclaim)
– and –
KIPAWA SALES & SERVICES INC. AND GERALD JOHNSON
Defendants
(Plaintiffs by Counterclaim)
(“Action No. 1”)
Marisa Victor and Julia Kennedy, for the Plaintiff (Defendant by Counterclaim)
Cheryl McLuckie as agent for Daniel Mayo, for the Defendants (Plaintiffs by Counterclaim)
AND BETWEEN:
COURT FILE NO.: 12-55409
JOHNSONS FILING & SHELVING SYSTEMS INC.
Plaintiff
– and –
MONTEL INC. AND CHARLES OLIVIER & MONTEL SMARTSPACE OTTAWA INC.
Defendants
(“Action No. 2”)
Cheryl McLuckie as agent for Daniel Mayo, for the Plaintiff
Marisa Victor and Julia Kennedy, for the Defendants
HEARD at Ottawa: September 11, October 8 and 13 and November 15, 2013
REASONS FOR JUDGMENT
kane j.
MOTIONS ARGUED
[1] The parties have over four days argued multiple motions in Action No.1 and Action No. 2. The plaintiff in Action No. 1 and the defendants in Action No. 2 have not filed a defence to counterclaim or defences to the claim respectively given the relief sought in their motions.
[2] The parties shall herein be referred to as follows:
(a) Montel Inc. (“Montel”)
(b) Kipawa Sales & Service Inc. (“Kipawa”)
(c) Gerald Johnson (“Johnson”)
(d) Johnsons Filing & Shelving Systems Inc. (“Johnsons Shelving”)
(e) Charles Olivier (“Olivier”)
(f) Montel Smartspace Ottawa Inc.(“Montel SS”)
GENERAL BACKGROUND
[3] Montel is a Québec manufacturer of office shelving systems. Its head office is in Brossard, Québec. Montel uses the services of corporate distributors to carry on its business of sales and installation of shelving with federal departments and agencies in the cities of Ottawa and Gatineau (the “National Capital Area”).
[4] Johnsons Shelving, and Kipawa sell, install and service office shelving and storage systems. Each of those corporations carries on business in Eastern Ontario and Western Québec. One of the principle sources of business activity for Johnsons Shelving and Kipawa is the federal government and its departments.
[5] Johnson controls Johnsons Shelving. He is also a vice-president, a director and shareholder of Kipawa. According to the pleadings, Kipawa has aboriginal status in contracting with the federal government.
[6] Montel SS is incorporated federally with offices located in the City of Gatineau acting as a distributor for Montel in sales to federal departments and agencies.
[7] Johnsons Shelving frequently shared its shelving installation and service contracts with Kipawa. On occasion, Kipawa purchased shelving directly from Montel for resale to a purchaser in which case Montel would invoice Kipawa for the product sold and delivered. Such sales by Montel to Kipawa are the subject of Action No. 1.
[8] Johnsons Shelving alleges in Action No. 2 that it is an Ontario corporation with its headquarters in Ottawa. It alleges that Johnsons Shelving was appointed the exclusive distributor of Montel in Eastern Ontario and Western Québec, pursuant to a Distribution Agreement dated February 10, 2003, [the “Distribution Agreement”] pursuant to which, Johnsons Shelving over the years sourced work with the federal government for the purchase and installation of shelving on behalf of Montel.
[9] In some cases shelving from Montel would be sold by Johnsons Shelving directly to the purchaser. In other cases, Johnsons Shelving would market the opportunity and obtain a sales order in which cases Montel would sell directly to the customers with Johnsons Shelving carrying out the installation, sometimes alone or sometimes in partnership with Kipawa. In the first case, Montel would bill Johnsons Shelving for goods sold and delivered to it. In the latter case, the purchaser would contract directly with Montel for the purchase and installation with Montel granting a subcontract for installation to Johnsons Shelving.
[10] Johnson frequently identified potential purchasers and participated in the preparation of bids and contract preparation. The Distribution Agreement contemplates Johnsons Shelving providing such marketing services in consideration for which Montel would pay a 4% commission to the distributor Corporation.
[11] In its claim in Action No. 2, commenced on September 4, 2012, Johnsons Shelving alleges that it had pursued a potential business opportunity since 2005 for the sale and installation of shelving with Libraries and Archives Canada (“Library”) and the (“Library Contract”) in Ottawa pursuant to its role as the exclusive distributor of Montel under the Distribution Agreement. It is alleged that its marketing efforts were successful in negotiating Library’s purchase and installation of a large quantity of shelving to be manufactured by Montel. Due to the size of that contract, Montel and Johnsons Shelving agreed that the Library Contract would be directly between Library and Montel. Johnsons Shelving alleges that the Library Contract was awarded to Montel in November or December, 2011.
[12] Johnsons Shelving in Action No. 2 alleges that it and Kipawa were identified in the Library Contract as subcontractors responsible for the installation of the shelving purchased. Johnsons Shelving further alleges that it agreed with Montel to limit its commission entitlement under the Distribution Agreement in relation to the Library Contract to 2%.
[13] Johnsons Shelving in Action No. 2 alleges that Olivier caused the federal incorporation of Montel SS and that he is the sole director of Montel SS with its head office located in Gatineau, Québec.
[14] Johnsons Shelving alleges in Action No. 2 that Montel advised it on January 24, 2012 that it had engaged Montel SS as its new exclusive distributor within the National Capital Region as of December 6, 2011.
[15] The installation services under the Library Contract were not granted by Montel to Johnsons Shelving or Kipawa and instead were performed for considerable compensation by Montel or its agents. In addition, Montel did not under the Distribution Agreement engage the services of Johnsons Shelving for the sale and distribution of its products in 2012 after the appointment as area distributor of Montel SS.
[16] Johnsons Shelving alleges in Action No. 2 that Montel breached the Distribution Agreement in terminating its appointment as exclusive distributor in the National Capital Area, in failing to provide notice in accordance with the Distribution Agreement in relation to its appointment of Montel SS as exclusive distributor, in its breach of the agreement to subcontract the installation and service of the Library Contract to Johnsons Shelving and Kipawa and in its failure to pay a reduced 2% commission agreed to.
[17] Johnsons Shelving in Action No. 2 claims its lost profit regarding the Library Contract installation are $82,500. It claims recovery of the unpaid 2% commission owing to it in relation to the Library Contract in the amount of $105,000. Johnsons Shelving further claims an accounting of shelving contracts obtained by the defendants in Action No. 2 with the federal government in the National Capital Area in 2012. Such claims are based on breach of contract, inducing breach of contract, intentional interference with economic relations and unjust enrichment against Montel, Olivier and Montel Space.
[18] Johnsons Shelving, as to Action No. 2, seeks to add Kipawa as a plaintiff and to amend the statement of claim in relation thereto.
ACTION NO. 1
[19] In Action No. 1, Montel seeks judgment against Kipawa for breach of contract and breach of trust, a declaration that amounts received by the defendant constitute trust funds for the benefit of the plaintiff, an accounting and tracing of monies received by the defendant or, in the alternative, the same $134,769 on the basis of unjust enrichment.
[20] In that same statement of claim, Montel seeks judgment against Johnson as being jointly and severally liable for the unpaid debt of Kipawa, a declaration that Johnson assented or acquiesced in his capacity as a director, in Kipawa’s failure to remit payments received from purchasers to pay its liability to Montel. Montel seeks a declaration under s. 13(3) of the Construction Lien Act, R.S.O. 1990, c. C. 30 that Johnson is jointly and severally liable to the plaintiff for the indebtedness of $134,769.
[21] Montel further claims an administrative fee of 1.5% per month from the date of each invoice, or 18% per year, as provided for under the Distribution Agreement.
[22] In Action No. 1, Montel alleges that Kipawa by a series of purchases, bought product which Montel delivered to it, invoiced for the same and has not been paid. The defendants do not dispute this allegation.
[23] The defendants merely dispute the allegation that the $134,769 and administrative fee are due and owing.
[24] The defendants however do further dispute the allegation that payments received by Kipawa from such federal departments or agencies constitute trust funds under the Construction Lien Act and that the retention of such payments by Kipawa constitute a breach by it and Johnson as a director of that Corporation, of the trust fund provisions of that legislation.
[25] The defendants in their statement of defence specifically allege that the product sold and delivered do not constitute improvements to land under the Act and that such legislation does not apply to land owned by the federal Crown.
[26] The defendants further deny that the sale or supply of such product by Montel constituted an improvement or value to such federal departments or agencies for the benefit of Kipawa thereby entitling the plaintiff to judgment in the amount of $134,769, on a quantum meruit basis.
[27] The statement of defence does not state a reason why Kipawa, having purchased and received the above product for the stated price from Montel, is not liable to pay Montel. Both defendants however in their counterclaim seeking a declaration that any amounts owing to Montel shall be set-off against the losses or damages claimed in the counterclaim.
[28] The foundation of the counterclaim is the alleged termination by Montel without notice or cause, of a Distribution Agreement dated February 10, 2003, pursuant to which Johnsons Shelving was the exclusive distributor of Montel products within a geographic area. The counterclaim alleges that the Distribution Agreement required outstanding orders or quotations to be completed upon termination of the agreement, which included a contract awarded in December, 2011, for the supply of shelving to Library & Archives Canada (“ Library Canada” and “Library Contract”) and that Montel, contrary to its agreement and designation that Johnsons Shelving and Kipawa would carry out the installation and servicing of the Library Contract, awarded such work to Montel SmartSpace Ottawa Inc. (“Montel SS”).
[29] The defendants in their counterclaim allege that the loss of the Library Contract resulted in:
(a) loss of profit to Kipawa of $250,000,
(b) loss of profit to Johnsons Shelving of $82,500, which resulted in a loss in that same amount to Johnson because Johnsons Shelving bonuses are profits to Johnson, and
(c) loss of a 2% commission for the marketing and preparatory work on the Library Contract, being $105,000, payable by Montel to Johnson as agreed upon.
[30] The counterclaim alleges that the termination of the Distribution Agreement resulted in further damages to Johnson and Kipawa in the form of lost sales and installation work from Montel for the period January to March, 2012.
[31] Johnsons Shelving in Action No. 2 claims $187,500 damages for the alleged wrongful termination of the Distribution Agreement and the awarding of the installation and servicing work under the Library Contract to Montel SS instead of Johnsons Shelving and Kipawa. As a result, Johnsons Shelving claims lost profit of $82,500. Johnsons Shelving also claims payment of a 2% sales commission on the Library Contract payable to it or, at its option, to Johnson in the amount of $105,000. In claiming this 2% commission in Action No. 2, it is apparent that Johnsons Shelving has elected to claim that commission itself rather than have Johnson claim the same. Neither the claim in Action No. 2, nor the counterclaim in Action No. 1, alleges that the 2% $105,000 commission is payable to both Johnson and Johnsons Shelving.
[32] Johnsons Shelving in Action No. 2 claims the same $82,500 loss of profit on the Library Contract and the same $105,000, 2 % commission related to the Library Contract as claimed by Johnson in his counterclaim in Action No. 1.
[33] Johnsons Shelving in Action No. 2 also claims recovery of commissions and profits it would have earned in 2012 but for the termination of the Distribution Agreement. It therefore seeks an accounting of shelving contracts with the federal government in the National Capital Area during 2012 in order to calculate the quantum of such damages. Johnson seeks the same remedy for the period January to March, 2012, in his counterclaim in Action No. 1.
MOTION TO STRIKE STATEMENTS OF DEFENCE, COUNTERCLAIMS AND JUDGMENT AGAINST KIPAWA
[34] Montel brought a motion in Action No. 1 requesting:
(a) An order striking out Kipawa’s Statement of Defence,
(b) An order striking out the counterclaim of Kipawa and Johnson, and
(c) Judgment against Kipawa in the amount of $134,769 plus interest.
[35] Montel alleges that the statements of defence disclose no reasonable defence to the claim for payment regarding goods sold and delivered. Montel further alleges that the counterclaims disclose no reasonable cause of action as the claims therein are contained in Action No. 2. It is noted however that one of the motions brought by Montel seeks dismissal of the claim in Action No. 2 on the basis that pursuant to a contract between the parties, this court lacks jurisdiction to determine such dispute.
[36] Montel’s claim against Kipawa for payment of the cost of goods sold and delivered is not defended on its merits. It is rather the claim of set-off contained in the counterclaims which are raised as a shield against such liability.
ANALYSIS
[37] A set-off is a defence. It bears a similarity to a counterclaim. A set-off can be pleaded as a counterclaim. The differences between a set-off and counterclaim have practical consequences. Where the defendant has no defence to the plaintiff’s claim but asserts a counterclaim, the court may grant a motion for summary judgment on the plaintiff’s claim but stay execution thereof pending determination of the counterclaim. Where the defendant has no defence to the plaintiff’s claim other than a set-off, the court may not grant judgment on the plaintiff’s claim until the defendant’s right to a set-off is determined: Morden & Perell, Law of Civil Procedure in Ontario, 1st ed. p. 310 (LexisNexis Canada, 2010).
[38] There are two types of set-off; one under the common law which is narrow in scope, the other being the equitable right of set-off which has a broader scope.
[39] Legal set-off is recognized under the Courts of Justice Act, R.S.O. 1990 c. C.43 s.111. It permits a defendant to claim set-off as a defence in an action for payment of a debt.
[40] Legal set-off is narrow because “debt”, means a liquidated sum of money demand that can be ascertained with certainty and the claims must be mutually enforceable: Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193.
[41] The court in Marketing Products Inc. (c.o.b. Great Lakes Audio and Video) v. 1254719 Ontario Ltd. (c.o.b. Tech Electronic Services) (2000), 11 C.P.C. 5th, 201 (C.A.) held that legal set-off has several conditions. First, both obligations must be debts and the debts must be mutual obligations. Moreover, the debts must be either liquidated sums or money demands which can be ascertained with certainty: see Telford v. Holt, supra.
[42] The court in Marketing, supra, stated:
19 The motions judge determined that Tech's claim for legal set-off did not meet these conditions. He reasoned:
Tech has not pleaded any liquidated sum or any amount which can be ascertained with certainty. Rather, it has asked for an accounting, reimbursement and damages. Such claims can only be asserted in a counterclaim and not as a set-off. The terms of the agreement between the parties, respecting payment of commissions and dealing with warranty claims are themselves in dispute, rendering it impossible at this stage to ascertain any amount with certainty.
20 I agree with this analysis. Tech's pleadings are fatal to its claim for legal set-off. In its counterclaim Tech seeks an accounting, reimbursement and damages relating to rebates or commissions. This language is far removed from the specificity mandated by the fixed or ascertainable language of the case law.
21 In Telford v. Holt, Wilson J. cited with approval Halsbury's Laws of England on this point, at p. 11:
- Nature of the right. The right conferred by the Statutes of Set-off was a right to set off mutual debts arising from transactions of a different nature which could be ascertained with certainty at the time of pleading ... a claim which sounded in damages [could not] be set off at law against a plaintiff's claim. The fact that a claim was framed in damages precluded the raising of a set-off at law, notwithstanding that the claim might have been differently framed in a way which would have permitted such a set-off.
In my view, Tech's pleadings run afoul of this clear definition of the nature of the right of legal set-off. Tech has framed its purported set-off in accounting, reimbursement and damages. It is entitled to pursue these remedies, but by way of a counterclaim, not legal set-off.
[43] Based on the above analysis, the defendants do not have a legal right of set-off. Their claims are for damages and an accounting of lost profit which they seek to pursue by counterclaim but are not a common law right of set-off. They are not a claim for recovery of a “debt” or liquidated amount.
[44] As to an equitable right of set-off, this court relies upon the decision in Algoma Steel Inc. v. Union Gas Ltd. (2003), 2003 CanLII 30833 (ON CA), 63 O.R. (3d) 78, paras. 29, 53 and 54.
[45] The court in Algoma, supra, held that equitable set-off is available where there is a claim for a sum whether liquidated or unliquidated. The court in Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, 41 D.L.R. (4th) 385, at pp. 211-12 S.C.R., pp. 398-99 D.L.R., approved a statement of the applicable principles for equitable set-off found in Cobra [Coba] Industries Ltd. v. Millie's Holdings (Canada) Ltd. (1985), 1985 CanLII 144 (BC CA), 20 D.L.R. (4th) 689, 36 R.P.R. 259, (B.C.C.A.) at pp. 696-97 D.L.R. Those principles are:
The party relying on a set-off must show some equitable ground for being protected against the adversary's demands.
The equitable ground must go to the very root of the plaintiff's claim.
A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim.
The plaintiff's claim and the cross-claim need not arise out of the same contract.
Unliquidated claims are on the same footing as liquidated claims.
[46] Lord Denning in Federal Commerce at p. 1078 All E.R. and which was quoted with apparent approval by Wilson J. in Telford at pp. 213-14 S.C.R., p. 400 D.L.R. stated:
We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? . . . This question must be asked in each case as it arises for decision; and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff's demands that are so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.
[47] Kipawa does not allege in its defence or counterclaim that these purchases of product from Montel were in any way related to the Distribution Agreement which forms the underlying basis of the counterclaim or to Johnsons Shelving. No equitable grounds are cited beyond the proposition that Kipawa should not have to pay money to Montel if Montel owes money to Kipawa.
[48] Kipawa’s cross-claim cannot be said to be so clearly connected with the demand for payment by Montel in Action No. 1 that it would be manifestly unjust to allow Montel to enforce payment without taking into consideration the cross-claim.
[49] The underlying foundation of the counterclaim involves the Distribution Agreement to which neither defendant in Action No. 1 is alleged to be a party.
[50] The only status of Kipawa in relation to the Distribution Agreement is in the form of an “arrangement” between itself and Johnsons Shelving according to the pleadings in Action No. 1.
[51] The status of Johnson in relation to the Distribution Agreement is a practice of Johnsons Shelving distributing its profits via dividend to Johnson.
[52] The above connections of these defendants in their counterclaim are independent of and distant from the alleged debt owing by Kipawa to Montel.
[53] I conclude that Kipawa has not established that it is entitled to a legal or equitable right of set-off as a defence to the claim made by Montel.
[54] The defendants however deny the plaintiffs allegation as to the applicability of the Construction Lien Act and the alternative claim by Montel involving trust funds and breach of trust. That claim appears to be made in order to establish liability against Johnson. That claim is defended. That defence however is separate from Montel’s claim for payment of a debt by Kipawa.
[55] Kipawa has not however defended the claim of Montel for payment of a debt for goods sold. It does not dispute that liability beyond seeking the right of set-off. Kipawa’s “defence” therefore as to breach of the obligation to pay a debt, is not a true defence. That portion of its defence, if any, is struck without leave to amend. The balance of Kipawa’s defence involving the claim of construction lien will remain and is not struck.
[56] Similarly, any “defence” by Johnson as to this debt owing to Montel is also struck without leave to amend. Johnson’s defence however of the claim against him involving the Construction Lien Act and trust monies is defended and will remain.
DEFAULT JUDGMENT
[57] Montel seeks default judgment against Kipawa under Rules 19.01(2) and 27.09(1) of the Rules of Civil Procedure: Courts of Justice Act, R.R.O. 1990 Reg. 194, based on this court’s decision to strike the “defence” of this claim for debt owing.
[58] Rule 19.01 grants jurisdiction to the registrar to note a party in default and is not applicable to the relief sought.
[59] In the event of its defence is struck, Kipawa presented a motion to stay Action No. 1 until determination of the counterclaims and/or determination of Action No. 2.
[60] Rule 27.09(1) provide that where a defendant does not dispute the claim of the plaintiff in the main action, but asserts a counterclaim, the court may stay the main action or grant judgment, with or without a stay of execution, until the counterclaim is disposed of. Accordingly, it is necessary to examine the counterclaims as Montel seeks an order striking that pleading.
[61] In the counterclaim, the defendants do not allege that they are parties to the Distribution Agreement. They alleged the inappropriate termination by Montel of the Distribution Agreement with Johnsons Shelving which is not a party to Action No. 1.
[62] The counterclaim suggests that Montel was aware that Kipawa would be conducting the installation under the Library Contract together with Johnsons Shelving and that both of those companies had been identified as the installers on such Library Contract with the purchaser. Kipawa alleges that in anticipation of performing this installation, it hired two additional employees.
[63] The issues on this motion are to be determined on the pleadings. This court must however consider the other relief being requested in the series of motions before it, as some of them are interrelated and include a motion for consolidation of these actions, a motion to add Kipawa as a plaintiff in Action No. 2 and amend the pleadings therein.
[64] As stated, the claim in Action No. 2, para. 17, is the allegation of Johnsons Shelving that Montel had agreed to pay it, or at its option Johnson, the 2% commission of $105,000. Johnsons Shelving in Action No. 2 seeks judgment itself for this commission thereby identifying its selection to have such commission paid to itself, and not Johnson as he claims in his counterclaim.
[65] The defendants in paragraphs 11 and 12 of their counterclaims in Action No. 1, allege a separate cause of action entitling them to damages based upon an “agreement” between Johnson, Johnsons Shelving and Kipawa, “and both with Montel”, to share the installation and servicing of the Library Contract and that Montel “agreed that Kipawa” would be included as a partner or contractor in the installation work for the” Library Contract. These allegations of an agreement with Montel, and a breach thereof by Montel, are repeated in the requested amendment to the statement of claim in Action No. 2, paras. 1A(a), 14(a) and 16, together with the request to add Kipawa as a plaintiff in that action.
[66] Johnsons Shelving is not entitled to commence multiple proceedings based on the same cause of action seeking the same relief. Either this alleged cause of action in the counterclaim potentially proceeds or it proceeds as a claim in Action No. 2, as amended. This duplicity cannot continue.
[67] The 2% commission claim and the claim for $82,500 loss of profit are both related to the Library Contract. For the purposes of this analysis, the claim in the counterclaim is duplicitous and is therefore struck on the basis that the same claim by Kipawa may be presented in Action No. 2 which is the conclusion of this court on another motion for the reasons hereafter stated.
[68] The next issue is whether Johnson and/or Kipawa may, in the alternative, sue in the counterclaim for damages on a contract which they are not a party to but where the termination of which prevented Kipawa from receiving its anticipated share of the installation work under the Library Contract and deprived Johnson of receipt of dividend payments of profit from Johnsons Shelving. In short, may the defendants in their counterclaim sue as third-party beneficiaries pursuant to Johnsons Shelving’s contractual rights under the Distribution Agreement?
[69] There is equal duplicity in the case of the claim of Johnsons Shelving in Action No. 2 of the $82,500 loss of profit claim and Johnson’s counterclaim on Action No. 1 for non-receipt of the same amount.
[70] Kipawa’s counterclaim for lost profit of $250,000 is also duplicitous of that same claim it seeks to present as a plaintiff in Action No. 2.
[71] Montel further argues that such counterclaim or claim in Action No. 2 has no legal basis based upon the decision of the Supreme Court in Design Services Ltd. v. Canada (Public Works & Government Services), 2008 SCC 22, 2008 S.C.C. 22. Montel presents this decision as authority for the principle that a third-party beneficiary to a contract may not sue for damages on that contract.
[72] The issue in Design, supra, was whether an owner in a tendering process owed a duty of care in tort to a subcontractor of an unsuccessful bidder. Absent any privity of contract with the owner, the subcontractor was unable to establish a claim for breach of contract and accordingly asserted a claim in tort for the economic loss it had suffered.
[73] Paragraphs 11 and 12 of the counterclaim however seek damages for breach of an “agreement” to install the shelving in the Library Contract and further unidentified and unascertained damages. The claim of $250,000 for loss of profits to Kipawa under the above paragraph is therefore based upon a breach of a contractual “agreement” between Johnson, Johnsons Shelving, Kipawa and Montel. It is to be noted that there are no dates, location or consideration pled in relation to that “agreement”.
[74] The Court in Design, supra, identified five different categories of negligence claims for which a duty of care has been found with respect to economic losses. Having determined that none of those were available to the claimant, the court then examined whether a new duty of care should be recognized with respect to pure economic loss. I do not interpret this decision as authority for the principle that a claimant who alleges a contractual “agreement” may not sue upon that “agreement” for damages.
[75] This analysis leads me to the following conclusions. The counterclaim of Kipawa is duplicitous to the same claim it requests and will be permitted to bring in Action No. 2. It cannot remain duplicated in the counterclaim and is therefore struck from the counterclaim.
[76] Johnsons Shelving has elected in Action No. 2 to claim damages in the amount of $187,500 plus an accounting for and calculation of future loss of profit. This figure of $187,500 is identified in paragraphs 16 and 17 of the counterclaim in Action No. 1 as the share of Johnsons Shelving’s installation work of $82,500 plus the 2% sales commission in the amount of $105,000 payable by Montel on the Library Contract.
[77] The claim of Johnsons Shelving in Action No. 2 to the 2% sales commission regarding the Library Contract reflects the election by the plaintiff to claim such commission itself rather than exercising its option, as referred to in paragraph 17 of the statement of claim in action No. 2, to direct payment thereof to Johnson. This is another instance of duplication in claims being made by Johnson in his counterclaim and by Johnsons Shelving in Action No. 2. For the same reasons, this court strikes Johnson’s counterclaim as both the existing loss in relation to the Library Contract and the future anticipated loss of profits, are claimed by Johnsons Shelving in Action No. 2.
[78] In the result, both duplicitous counterclaims in Action No. 1 are struck with no leave to amend.
[79] The following factors are relevant as to why this court dismisses the counterclaims of Johnson and Kipawa in priority to the claims of Johnsons Shelving and Kipawa in Action No. 2. As stated, the claims of Johnsons Shelving and Kipawa in Action No. 2 duplicate and consume claims contained in the counterclaims in Action No. 1. The nature of the counterclaim of Johnson is more directly associated with the claim being made by Johnsons Shelving in Action No. 2. The principal focus in Action No. 2 is and will become the interpretation and applicability of the 2003 Distribution Agreement and the 2008 Distribution Agreement as well as the breach or termination thereof. These are matters distinct from the original and residual claim made by Montel in Action No. 1. The duplicity involving the Distribution Agreement as the foundation to the counterclaims and the direct issue concerning the same in Action No. 2, must end with the concentration of the claims regarding the Distribution Agreement being within Action No. 2 where the principal claimants will be the plaintiffs.
MOTION TO STAY ACTION NO. 1
[80] The defendant Kipawa by cross-motion seeks an order that Action No. 1 by Montel against it be stayed if its defence in Action No. 1 is struck. In this motion, Kipawa acknowledges that the issues in the counterclaim in Action No. 1 and the claim in Action No. 2 are similar. I have already determined that any claim by Kipawa is to be brought in Action No. 2.
[81] The court’s jurisdiction to stay an action is discretionary under s. 106 of the Courts of Justice Act. As already indicated, the purchase and delivery of product to Kipawa, beyond any indebtedness owing, has no relationship to the termination of the Distribution Agreement and whether or not Johnson and Kipawa may have incurred damages as a result.
[82] When a defendant does not dispute the validity of the plaintiff’s claim but raises a counterclaim by way of defence, courts previously have held that a stay of execution should be granted unless the counterclaim is without merit: Polar Hardware Manufacture Co. Inc. v. Zafir (1983), 1983 CanLII 1944 (ON SC), 42 O.R. (2d) 161 and General Printers Ltd. v. Algonquin Publishing Co. Ltd., [1970] 3 O.R. 287 (C.A.). There are subsequent decisions referred to below however which make a distinction in the case of a summary judgment motion, which is similar to the judgment now sought by Montel.
[83] This court has determined that the two counterclaims in Action No. 1 are struck and cannot therefore form a basis for a stay of Montel’s claim in Action No. 1. To the extent that I am wrong in that conclusion, I would not grant the stay requested based on the following analysis.
JUDGMENT AGAINST KIPAWA
[84] Rule 20.08, in dealing with the summary judgment motions, provide authority to stay enforcement of a summary judgment pending determination of a counterclaim.
[85] In Iraco Ltd. v. Staiman Steel Ltd. (1987), 1987 CanLII 4072 (ON CA), 62 O.R. (2d) 129 (C.A.), the court dismissed an appeal for summary judgment but granted a stay because (a) the plaintiff resided out of the jurisdiction and appeared not to have a local residence or assets in the country, (b) the counterclaim arose out of the same transaction that gave rise to the plaintiff’s summary judgment and (c) the counterclaim did not appear to be meritorious. Based on these factors, the court ordered the defendant to pay the amount of the plaintiff’s judgment in court.
[86] The court in Cuddy Foods Products v. Puddy Bros. Ltd. [2002] O.J. No. 3181, (2002), 35 C.P.C. (5th) 159 (S.C.J.) held that it would be inequitable in the exercise of the court’s jurisdiction to grant a stay of the summary judgment because (a) the nature of the parties as vendor and purchaser in the transaction giving rise to the plaintiff’s claim was separate from the parties contractual relationship involving a different product line, (b) the absence of any complaint as to the product sold being the subject of the summary judgment and (c) the apparent strength of the counterclaim did not exceed the apparent strength of the defence thereto.
[87] The court in Univar Canada Ltd. v. Pax-All Manufacturing Inc. 2008 CarswellOnt 5204 S.C.J.), reviewed the principles underlying equitable set-off and whether a stay should be granted. While a stay may be granted where equitable set-off is refused, the more tenuous the connection between the claims, the less likely it is that a stay will be granted. In determining whether to grant a stay, the court included in its considerations the fact that the defendant did not assert its counterclaim until he was sued by the plaintiff in the main action.
[88] The court in Liu v. Wong, 2010 ONSC 5896 determined that there was no connection between the plaintiff’s claim and the defendant’s counterclaim beyond the identity of some of the parties. As a result, the court held that it would be manifestly unfair to stay the plaintiff’s summary judgment until determination of the validity of the counterclaim about which the court expressed reservations as to its merits.
[89] The claim and the counterclaims in Action No. 1 do not arise out of the same transaction. The counterclaims directly involve the contractual rights of Johnsons Shelving which is not a party to the product sale to Kipawa. The liability issue relating to the sale of product to Kipawa is separate and distinct from the damage claims in the counterclaims based upon an alleged breach of contract with Johnsons Shelving.
[90] It would be inequitable on these facts to grant a stay of Action No. 1 or the execution of any judgment therein in favour of Montel. Based upon the above case law and analysis, the request for a stay of Montel’s claim in Action No. 1 is denied.
[91] This leaves two separate actions with Kipawa being sued for a debt owing in Action No. 1 and its request or agreement to be added as a plaintiff to sue for damages for breach of “an agreement” in Action No. 2 related to the Library Contract and its loss of future anticipated commissions and installation contracts during the relevant period.
[92] I return now to the issue of Montel’s motion for judgment on the debt owing pursuant to Rule 27.09 (1). The wording of this rule is broad enough to permit this court granting judgment. Noting Kipawa in default upon striking its defence and then sending the matter to another judicial officer to enter judgment are unnecessary steps on the facts in this case given the proper wording of this rule.
[93] Termination of the Distribution Agreement and doing so contrary to its terms, are two major events impacting Johnsons Shelving. The lack of response until Kipawa is sued for non-payment for goods sold and received, undermines the request that Action No. 1 or judgment therein, must be stayed until trial of a prior claim which was not asserted for a considerable time.
[94] This court also notes that Johnsons Shelving and Kipawa have numerous issues to overcome to be successful in their claims in Action No. 2.
[95] This court has determined that Kipawa has not in its statement of defence disputed the liability owing to Montel as claimed in Action No. 1. For all of these reasons, judgment shall issue in favour of Montel for the amount claimed in Action No. 1 together with the administrative fee of 1.5% per month as reflected on the invoices from Montel and referred to in the Distribution Agreement.
[96] The above reasons to not stay Action No. 1 apply equally to why there shall be no stay of execution of the above judgment. There shall be no stay of execution.
MOTIONS ON JURISDICTION OF QUEBEC SUPERIOR COURT, VENUE, AND MOTION TO STRIKE BRUNELLE AFFIDAVIT
[97] Johnsons Shelving served a motion dated February 13, 2013, in Action No. 2 to add Kipawa as a plaintiff, amend the claim to include relief requested by the added plaintiff and to consolidate Actions No. 1 and 2. The affidavit of Johnson dated January 31, 2013, was filed in support of that motion. The affidavit states that the relationship between Johnsons Shelving and Montel is governed by the 2003 Distribution Agreement and makes no mention of the 2008 Distribution Agreement.
[98] Montel cross-examined Johnson and Nicole Valois, the president of Kipawa, on their affidavits on April 4, 2013. During the cross-examination of Johnson, he identified his signature on the 2008 Distribution Agreement which was then entered as an exhibit. Johnson was not asked which of these two agreements then governed the relationship between the parties or why his affidavit states the contractual relationship is governed by the 2003 agreement given the provisions in the 2008 agreement that it terminated and replaced all prior agreements between the parties. At the time of his cross examination, Montel knew it had failed to obtain a copy of the contract with written acceptance of the amendments it had inserted, from Johnsons Shelving.
[99] The Montel defendants then filed a cross-motion dated April 5, 2013. Their motion record contains no affidavit from any of the defendants. Instead, Montel filed the above affidavit of Johnson, the transcript of his April 4, 2013 cross examination and the 2008 Distribution Agreement.
[100] Montel’s cross-motion seeks an order dismissing Action No. 2 on the basis that this court lacks jurisdiction. Montel relies upon a provision in the 2008 Distribution Agreement which provides that the parties elect the Superior Court of Québec, in Montmagny, Québec, shall determine any legal disputes involving the agreement. Montmagny is a city northeast of Québec city.
[101] After conducting the above cross-examinations and filing its cross-motion record without an affidavit from the defendants, Montel then advised on April 23, 2013, that it was considering filing an affidavit from representatives of the defendants. Johnsons Shelving objected on the basis of Rule 39.02 and the two prior cross-examinations conducted by Montel. The parties then jointly submitted a request for a motion date and schedule which provides that only Johnsons Shelving will be filing a reply affidavit.
[102] Johnson filed a reply affidavit dated July 11, 2013 pointing to the handwritten amendments it had inserted in the 2008 Distribution Agreement and rejected by Montel as well as the handwritten amendments inserted by Montel which Johnsons Shelving did not accept in writing or otherwise.
[103] The Montel defendants on July 23, 2013 served an amended cross-motion to strike Action No. 2 on the basis that this court lacks jurisdiction. The only amendment was the inclusion of an affidavit of Claire Brunelle dated July 26, 2013. Montel obviously concluded that the elephant in the room could no longer be avoided. Brunelle’s affidavit includes a number of business records from Montel subsequent to January, 2009, which she hoped demonstrated conduct evidencing acceptance of the 2008 Distribution Agreement by Johnsons Shelving.
[104] The Montel defendants on August 29, 2013, served a responding record to Johnsons Shelving’s motion to amend and consolidate which included no affidavit of their representative.
[105] On September 23, 2013, Montel cross-examined Johnson on his affidavit dated July 11, 2013. Nothing was made an exhibit on that cross-examination.
[106] On September 27, 2013, the Montel defendants filed a second supplementary cross-motion record. It contains business records from Montel in addition to those attached as exhibits to the Brunelle affidavit.
[107] The issue is whether Montel may serve the Brunelle affidavit after conducting two cross- examinations and apparently agreeing that it would not file an affidavit on the defendant’s motion.
[108] Johnsons Shelving admits that negotiations occurred and that draft versions of a new agreement were exchanged in 2008 but denies that the parties ever concluded a new agreement with the result that the 2003 Distribution Agreement remained operative until improperly terminated by Montel in January, 2012.
[109] Johnsons Shelving acknowledges that Montel presented a new Distribution Agreement in the fall of 2008 with a request that it be executed by November 15, 2008. The draft agreement as presented to Johnsons Shelving was unsigned by Montel. Johnsons Shelving executed that draft agreement but amended certain provisions therein. Some of those amendments were rejected by Montel. Montel then made further amendments to the draft agreement, signed it and returned it to Johnsons Shelving. Johnsons Shelving did not execute its acceptance of the Montel amendments. Montel took no steps to require the return of the contract with written acknowledgment by Johnsons Shelving of its acceptance of Montel’s amendments. An agreement which these commercial parties now consider relevant did not at the time warrant a clear conclusion as to its acceptance or rejection.
[110] Montel argues that commencing in 2009, the parties conducted their activities pursuant to the terms of the 2008 Distribution Agreement and that Johnsons Shelving by its conduct has adopted the amended version of the 2008 agreement returned to it by Montel, even though Johnsons Shelving never signed off on the changes made by Montel nor return a copy of the same.
[111] Johnsons Shelving denies this allegation and submits that its performance and the compensation it received between 2009 and 2011 was pursuant to the terms of the 2003 Distribution Agreement.
[112] Johnsons Shelving further submits that the 2008 Distribution Agreement had a term of one year subject to annual renewals. It submits there was no evidence that the 2008 Distribution Agreement was ever extended beyond 2009 and therefore expired at the end of 2009. The problem with this argument is that the 2008 Distribution Agreement states that it replaces prior agreements which would include the Distribution Agreement with the result that there would be no agreement to terminate when Montel appointed Montel SS as its distributor in January, 2012, thereby eliminating the alleged breach of contract and third-party beneficiary claims in Action No. 2.
[113] Montel sent a letter to Johnsons Shelving dated February 3, 2010 stating that “… you have failed to meet your annual sales commitment of the designated territory and markets, this is to confirm that, as of December 31, 2009, the actual distribution agreement between Montel and Johnson (Shelving) has been terminated and your company will no longer be authorized to represent Montel”.
[114] In his affidavit dated July 11, 2013, Johnson alleges that Montel terminated the Distribution Agreement with Johnsons Shelving on January 24, 2012. The statement of claim in Action No. 2 alleges that Montel appointed Montel SS as its distributor replacing Johnsons Shelving on or about December 6, 2011.
[115] Determination of the above issues should be made with the benefit of full evidence including testimony. There is three years of conduct between 2009 and the end of 2011 between this manufacturer and this distributor to be considered as to whether that business was conducted pursuant to the 2003 agreement, the 2008 agreement or without an agreement. It may well be necessary to decide issues of credibility involving how calculations of entitlements and obligations were made and treated by the parties, when was Montel SS incorporated, by whom and the purpose of its appointment in relation to Johnsons Shelving etc.
[116] Montel is asking this court to infer acceptance of the 2008 agreement by the distributor, based on action of the parties over three years. Montel seeks to avoid the limitations of Rule 39.02 and for permission to file the Brunelle affidavit after cross-examination which includes a few pieces of its business records. It then seeks to introduce further business records not introduced as exhibits on a cross-examination.
[117] Rule 39.02 exists for a reason. A more direct and less nuanced approach to the issue as to which contract governs should have been filed rather than amended cross-motions and supplementary cross-motion records intended to avoid possible cross-examination of a party. Consent is not granted to the late filing of the Brunelle affidavit. The motion by Johnsons Shelving to strike such affidavit is granted.
[118] These motions are not the proper forum to determine these disputed contractual issues. The validity or enforceability of the 2008 Distribution Agreement or whether any distribution agreement was in place as of January 1, 2012, is contested issues requiring a trial. That being the case, the election of the form clause in the 2008 Distribution Agreement is not determinative until the validity of that agreement has been decided. The defendants’ motion to dismiss Action No. 2 is accordingly dismissed.
FORUM
[119] There remains the issue whether this court or the Superior Court Québec in Montmagny is the appropriate forum for the proceeding in Action No. 2.
[120] Montel’s manufacturing operation is located in the province of Québec. The issue is not the quality of the product manufactured but rather what it did or did not contract to do with an Ontario regionally appointed distributor and installer regarding sales of product and installation to purchasers located within the National Capital Area.
[121] In Action No. 2, the plaintiffs’ witnesses and documents are located in Ottawa. To the extent that it is relevant, representatives of purchasers in the designated region are located in Ottawa or Gatineau. The witnesses and documentation of the defendants are located in the province of Québec. The original announcement of the appointment of Montel SS indicated that company was located in the city of Gatineau which is part of the National Capital Area, being the district of performance of the 2003 and 2008 agreements.
[122] The department and agency purchasers of the Federal Government within the area identified in the Distribution Agreement, are primarily located in the City of Ottawa. Some of those federal purchasers are also located in the City of Gatineau, Québec, part of the National Capital Area.
[123] Montel is selling product in this case to purchasers in Ontario through its appointed Ontario distributor, Johnsons Shelving, for the National Capital Area. The majority of the installation work, based upon the location of such purchasers, is in Ottawa where both Johnsons Shelving and Kipawa are located and carry on business. Payment by these federal purchasers and by the plaintiffs in Action No. 2 when they buy directly from Montel, originates from Ontario. The Library Contract sale was to a purchaser in this region as was the installation of the product sold in Ottawa and/or Gatineau, within the National Capital Area.
[124] Based upon the above factors, this court has primary jurisdiction. The second issue therefore requires determination of Montel’s motion objecting to Ottawa as not being the appropriate or convenient forum for this action.
[125] The unsigned 2008 Distribution Agreement was an offer sent by Montel to Johnsons Shelving. Johnsons Shelving signed the agreement with amendments which constituted a counter offer. Montel then signed the agreement but made amendments which constituted a counter offer. The parties now dispute which agreement governs. Montel’s argument that the 2008 agreement was executed in Québec is premature.
[126] Montel’s argument on this motion relies upon the enforceability of the form clause in the 2008 Distribution Agreement, the enforceability of which was disputed. The law of the contract is not provided for in the 2003 Distribution Agreement. The selection of Québec as the law of the contract in the 2008 Distribution Agreement is premature and not determinative for the above reasons.
[127] Given the then volume of business conducted by Montel with the federal government, enforceability of any judgment obtained against it in Action No. 2 should not be an issue nor require that enforcement proceedings be taken by Johnsons Shelving in the Province of Québec.
[128] For the above reasons, Ontario is the most appropriate and at least as convenient a forum to proceed with Action No. 2. The motion by Montel that this action must proceed in the province of Québec and that Ontario is not the appropriate convenient forum is dismissed.
MOTION TO ADD KIPAWA, AMEND THE CLAIM AND CONSOLIDATE ACTIONS NOS. 1 AND 2
[129] Johnsons Shelving seeks to add Kipawa as a plaintiff in Action No. 2 and an order that Actions Nos. 1 and 2 be consolidated or tried together on the grounds that: (a) Kipawa is a party to a joint venture arrangement with Johnsons Shelving with respect to the installation of product supplied under the Distribution Agreement between Johnsons Shelving and Montel, (b) the plaintiff sought to be added has suffered loss as a result of the termination of the Distribution Agreement and is therefore a necessary party, (c) no statement of defence has yet been filed and (d) the counterclaims in Action No. 1 and the claim presented in Action No. 2 have common questions of fact and law involving several similar parties, warrant consolidation or a joint trial in order to avoid duplication and the risk of inconsistent or contradictory determinations by the court.
ADDING PARTIES AND AMENDING PLEADINGS RULES 5.03, R. 5.04 and 26.01
[130] In support of the requested addition of Kipawa as plaintiff, Johnsons Shelving relies upon Rules 5.03 and 5.04 (2).
[131] Rule 5.04 (2) creates a broad discretion to add a party unless non-compensable prejudice would result.
[132] The proposed amendments as to Kipawa allege that; (a) it is in the business of sales and service of office shelving, (b) it had an ongoing joint venture arrangement with Johnsons Shelving which included those two corporations working jointly or by subcontract on projects to sell and install shelving from Montel to the federal government, (c) it had an agreement with Johnsons Shelving, and together with Montel, whereby it and Johnsons Shelving were to reform the installation and servicing of the Library Contract, (d) Montel agreed that Kipawa would be included as a partner or contractor in the installation work of the Library Contract and relying upon this agreement by Montel, Kipawa hired two extra employees, (f) the award by Montel of the Library Contract installation work to Montel SS in contravention of the Distribution Agreement, caused damages to Kipawa in the form of lost profit in the amount of $250,000, (g) the improper notice of termination of the Distribution Agreement also results in additional loss including commission to Kipawa on other federal government sales and installation work for the contract period January to March 2012 and (h) Kipawa pleads and relies upon the doctrine of third party beneficiary as established by the Supreme Court of Canada.
[133] In its motion, Johnsons Shelving seeks consolidated or the trials be heard together because they have: (a) questions of law and fact in common, (b) that the relief claimed arises out of the same transactions or occurrences and (c) the actions have some of the same parties.
[134] The Montel defendants in Action No. 2 argue that Kipawa should not be added as a plaintiff because the proposed amendments do not meet the test under Rule 26.01 as they constitute an improper pleading, disclose no tenable cause of action and the addition of such party would constitute an abuse of process.
[135] The Montel defendants further submitted that the requested consolidation of these actions be denied. One of the grounds for opposing consolidation is the distinctive nature of the cause of action in Action No. 1 as compared to the nature of the proceeding in Action No. 2.
[136] The considerations on a motion to add a party as set forth in Iovate Health v. Welch, 2008 CanLII 17560 (S.C.J.) para.7 are:
(a) the amended pleading must be legally tenable and in accordance with the rules of procedure,
(b) compliance with the requirements of R.5.03,
(c) not delay the ultimate hearing,
(d) not constitute an abuse of process and
(e) not result in irreparable prejudice.
[137] The court in Essa v. Panontin, 2010 ONSC 691, determine that:
(a) On a motion to add a party the issues are not:
(i) the credibility of the moving party,
(ii) the factual and evidentiary merits or the evidentiary weight of a proposed new claim, and
(iii) whether the party to be added is able to prove its claim.
(b) The only issues are:
(i) whether the proposed amendment discloses a legally tenable cause of action,
(ii) whether the proposed amendments are clearly impossible of success, and
(iii) draft amendments are to be read generously with allowances for deficiencies in drafting.
AMENDING PLEADINGS RULE 26.01
[138] A summary of the principles applicable on a motion to amend under Rule 26.01 are set forth below based upon a reading of the following authorities, namely: Brookfield Financial Real Estate Group Limited v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818, Morden & Perrell, Law of Civil Procedure, supra, Wilson v. Legacy Private Trust, 2013 ONSC 1046, Marks v. Ottawa (City), 2011 ONCA 248, 280 O.A.C. 251, Schembri v. Way, 2012 ONCA 620 and Andersen Consulting v. Canada (Attorney General) (2001), 2001 CanLII 8587 (ON CA), 150 O.A.C. 177 at para. 34. The principles are:
(a) Rule 26.01 is mandatory. Amendments must be allowed unless the opposing party demonstrates prejudice that must arise as a result of the amendment that cannot be called to buy costs. Pre-existing prejudice unconnected to the amendment is not relevant.
(b) The allegations in the proposed pleading are taken to be true and provable on the motion to amend unless the facts alleged are based on the Sumter or speculative conclusions incapable of proof.
(c) The court on a Rule 26.01 motion does not examine the factual merits or motives of the party seeking the amendment.
(d) One issue on the motion is whether as a matter of law, the amendment raises a tenable claim or defence. This permits an analysis of the merits of the amendment so as to avoid a subsequent challenge that there is no legal basis to the claim or defence so added.
(e) No amendment should be allowed which, if originally pleaded, would have been struck.
(f) The proposed amendment must be shown to be an issue for the trial and prima facie meritorious. This analysis involves the application of the principles on a motion to strike a claim or defence under Rule 21.01 (1) (b).
(g) A party may bring a novel claim or seek to establish a new tort or defence if the facts alleged reasonably permit a realistic possibility of succeeding with such claim, tort or defence.
(h) The second issue for examination on such motion is whether the proposed amendment complies with the rules governing pleadings, including sufficient particularity.
ANALYSIS
[139] There is no reason at this early stage why Kipawa should not be added as a plaintiff under the above principles, subject to the appropriateness of the claim it intends to make.
[140] The proposed amendment seeking a declaration to set-off damages owing to Montel in Action No. 1 is no longer relevant on this motion.
[141] The amended statement of claim includes the following:
(a) 19B As additional grounds for its claims, Kipawa pleads and relies on the doctrine of third-party beneficiaries as established by the Supreme Court of Canada in Fraser River Pile & Dredge v. Can-Dive Services, 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108.
[142] The issue in the Fraser River, supra, was whether a third-party beneficiary may rely on waiver of a subrogation clause to defend against a segregated action on the basis of a principal exception to the privity of contract doctrine. In arriving at its decision, the Court determined there was reason to relax the doctrine of privity of contract thereby permitting a third-party beneficiary to the insurance contract to defend the tort claim on the basis of the contract. In arriving at that conclusion, the Court at p. 126 stated:
In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. …. the determination in general terms is made on the basis of two critical and cumulative factors: (a) did the parties to the contract intend to extend the benefits in question to the third party seeking to rely on the contractual provisions? and (b) are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract… as determined by reference to the intentions of the parties?
[143] The Montel defendants rely upon the decision of the Supreme Court in Design Services Ltd., supra. That Court reviewed whether an owner in a tendering process, owes a duty of care in tort to subcontractors, namely whether the court should legally recognize a new duty of care in tort not to award a contract to a noncompliant bidder. The Court is clear at para. 13 that whether a third-party beneficiary to a contract may bring an action in damages for breach of contract are not in issue. This case is authority that the exception to privity of contract may be used by a non-party as a defence, but not as a cause of action.
[144] The common law takes pride in its ability to evolve over time. This includes recognition of new causes of action as occurred in Fraser River, supra. The above quotation from that decision by the Supreme Court may or may not be sufficient justification to create an exception to the doctrine of privity of contract on the facts of this case. The factual foundation to permit a court to analyze whether such an exception should be created is much better established with the benefit of evidence at trial rather than on a motion seeking leave to place that issue before the court for determination.
[145] For the above reasons, the objection to proposed paragraph 19B is rejected.
[146] Kipawa in paragraph 1A (a) seeks “damages in the amount of $250,000 for loss of profit to date and such further losses as will be ascertained and communicated” before trial. Kipawa identifies its loss of profit in paragraph 16A, as $250,000. What is missing in paragraph 1A (a) is the basis for that damage claim, perhaps breach of contract.
[147] The amended statement of claim is deficient in its lack of particulars and requires amendment. That being said, paragraph 14A alleges that Kipawa and Johnsons Shelving had an agreement with Montel which, because it is not specified otherwise, I take to mean, a verbal agreement. The date and consideration thereof are not pleaded. What is pleaded is that Kipawa, pursuant to this agreement with Montel, was to share in the installation and servicing of the Library Contract. That, according to paragraphs 16 and 16A, did not occur because Montel breached the above agreement with Kipawa and awarded the installation work to Montel SS. This is a traditional claim for damages for breach of contract. Paragraph 1A (a) must be amended to say that.
[148] What is also missing in the statement of claim is the factual foundation and the nature of the claim contained in paragraph 19A. The amended pleading recites the fact that Kipawa previously was retained to participate in installation work on product sales by Montel or Johnsons Shelving. That is not a legal reason entitling Kipawa to damages for installation contracts which may be awarded by Montel in 2012. No facts are alleged beyond the Library Contract to form the foundation or entitlement regarding this claim. For that reason, paragraphs 1A (b) and 19B are not approved and are to be deleted from the amended pleading.
[149] The Plaintiffs in Action No.2 are required within 30 days from the date hereof to file an amended statement of claim addressing the above deficiencies. These shall include full particulars regarding the alleged agreement by Montel that the installation and servicing of the Library Contract was to be performed by Johnsons Shelving and Kipawa. The proposed amended claim is otherwise approved.
CONSOLIDATION OR CONSECUTIVE TRIALS
[150] The motion by Johnsons Shelving requests an order that the two actions be consolidated or tried together pursuant to Rule 6.01.
[151] The Montel defendants oppose this motion and argue that the two actions, if allowed, must proceed to trial separately. Several of their arguments to support this position contemplate the possibility that its claim for judgment against Kipawa in Action No. 1 and the plaintiff’s motion to add Kipawa as a plaintiff in Action No. 2 will be unsuccessful which is not the case.
[152] Given the fact that Montel has recovered judgment against Kipawa, there is a distinct possibility that Montel will not proceed with its alternative head of relief under the Construction Lien Act against the defendants in Action No. 1.
[153] The counterclaims in Action No. 1 have been dismissed. There is no common question of law or fact between the remaining claims of Montel against Johnson in Action No. 1 involving construction lien trust money and quantum meruit and the failure to pay for product sold to Kipawa and the plaintiffs’ claims for improper termination of a distribution contract in Action No. 2. The relief requested in each of those claims do not arise out of the same transaction(s). There is no risk of inconsistent decisions involving these two actions to warrant a consolidation of those two actions. Johnsons Shelving has failed to demonstrate the necessity of consolidation based on the requirements under Rule 6.01.
[154] The remaining claim against Johnson in Action No. 1 is very narrow. In order to reduce legal costs for the parties however, that remaining claim in Action No. 1 should proceed to trial immediately before or immediately after Action No. 2. That sequence will be determined by the trial judge.
[155] Consecutive trials are ordered.
COSTS
[156] The parties may make brief written submissions as to costs. The Johnson parties shall deliver and submit their written submissions as to costs within 20 days from the date of this decision. The Montel parties shall submit their reply and cost submissions within 20 days thereafter. Any reply by the Johnson parties should be served and filed within 10 days thereafter. The parties should keep in mind that success on these motions has been divided. They should expect that result to impact any cost decision.
Kane J.
Released: January 17, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MONTEL INC.
Plaintiff
(Defendant by Counterclaim)
– and –
KIPAWA SALES & SERVICES INC. AND GERALD JOHNSON
Defendants
(Plaintiffs by Counterclaim)
(“Action No. 1”)
JOHNSONS FILING & SHELVING SYSTEMS INC.
Plaintiff
– and –
MONTEL INC. AND CHARLES OLIVIER & MONTEL SMARTSPACE OTTAWA INC.
Defendants
(“Action No. 2”)
REASONS FOR JUDGMENT
Kane J.
Released: January 17, 2014