Superior Court of Justice – Ontario
Citation: Can Trans Xpress Inc. v. Invoice Payment System Corporation, 2015 ONSC 2227 Court File No.: CV-15-0054-00 Date: 2015-04-08
Between: Can Trans Xpress Inc.
And: Invoice Payment System Corporation
Before: Lemon, J.
Counsel: George Corsianos and John Whitehead, for the Applicant Douglas Levitt, for the Respondent
Heard: February 12, 2015
Endorsement
The Issue
[1] The applicant, Can Trans Xpress Inc., seeks a declaration that an agreement that it has with the respondent, Invoice Payment System Corporation, is terminated and no longer in full force and effect. In order to carry out that termination, it also seeks a buy-out statement from IPS, and a release letter so that Can Trans can move its business elsewhere. Finally, it seeks an order discharging a PPSA registration registered by IPS.
Background
[2] This application was argued on the paper record only. Although I asked counsel if they wished an opportunity to cross-examine on the affidavits or to call viva voce evidence, both declined. I warned counsel that it was unlikely that I would be able to make a finding of credibility but both confirmed that they wished to proceed.
[3] Although there is some dispute between the parties as to what may have been said, both before and after the contract was signed, this case relies upon contract interpretation and legal principals rather than anything that occurred between the parties. To the extent that arguments were advanced based on what the parties may have said at some time in the past, or their motives for their actions, I put no reliance on those arguments. I cannot make a determination on this record as to who is telling the truth.
[4] With that in mind, the facts are fairly straightforward.
[5] Can Trans is an Ontario trucking company. IPS is a company involved in factoring accounts receivable. Can Trans entered into a factoring agreement with IPS on May 15, 2013.
[6] In essence, Can Trans assigned approved accounts receivable at a discount rate to IPS. IPS then collected the full face value of the accounts receivable from Can Trans’ customers and both parties would benefit. IPS would make its income from the price differential; Can Trans would get paid immediately upon the assignment of the accounts receivable without waiting for the customer to pay, thereby increasing cash flow.
[7] A notice of the assignment was sent to Can Trans’ clients directing payment by them to IPS. That notice stated that the assignment and direction of payment would remain in full force and effect until Can Trans’ customers were notified by IPS.
[8] A personal guarantee was executed by the president of Can Trans indemnifying IPS for Can Trans’ debts.
[9] And finally, IPS registered a PPSA security against Can Trans’ accounts receivable.
[10] In 2014, Can Trans realized that it could get a reduced rate of financing from another factoring company. Can Trans decided to move its business. It takes the position that, in order to do so, it needed to:
(a) give 30 days notice to terminate the agreement under the contract;
(b) obtain a buy-out statement from IPS indicating what amount was due to IPS on invoices previously assigned to IPS;
(c) make payment of that amount to IPS to discharge the amount owing on the assigned invoices;
(d) get a release letter from IPS directing customers of Can Trans to pay Can Trans again:
(e) have IPS discharge the PPSA security.
[11] On July 25, 2014, Can Trans gave notice to terminate the agreement. Can Trans also asked IPS to provide it with a buy-out statement.
[12] IPS refused to release Can Trans; it took the position that the invoices previously sold were IPS’ property. It declined to provide the buy-out statement.
[13] Can Trans provided bank drafts to IPS based on its own calculations of the amounts necessary for Can Trans to discharge its liability to IPS. IPS has refused to accept payment.
[14] In its factum, IPS refers to the following material terms of the agreement:
a) Pursuant to sections 1 and 7 of the Agreement, IPS would buy invoices that: (i) Can Trans rendered to its clients (collectively the “Invoice Payers” and each individually an “Invoice Payer”); (ii) Can Trans offered to sell to IPS; and (iii) IPS agreed to purchase (collectively the “Purchased Invoices” and each individually a “Purchased Invoice”);
b) Pursuant to sections 3 and 6 of the Agreement, IPS would purchase the Purchased Invoices for 96.75% of the face value of same;
c) Once purchased, IPS would acquire all right, title and interest to and in the Purchased Invoices:
d) IPS’ program is a “full recourse” program, in that, pursuant to sections 8 and 12 of the Agreement, IPS was entitled to recover from Can Trans the amount of any Purchased Invoice that IPS had purchased from Can Trans and that was not paid by the Invoice Payer within 90 days of the invoice date.
e) Pursuant to section 14 of the Agreement, Can Trans was required to execute the notice of assignment, and same had to be delivered to the Invoice Payers of the Purchased Invoices; and
f) Pursuant to section 17 of the Agreement, Can Trans could terminate same by giving 30 days’ written notice, and Can Trans would remain liable to IPS for the outstanding Purchased Invoices.
Positions of the Parties
[15] Can Trans submits that it is an implied term of the agreement that a pay-out statement must be forthcoming to enable Can Trans to settle its debt and withdraw from the arrangement.
[16] It relies upon the principal that Canadian courts require good faith by the parties to a contract. In the words of Mr. Justice Cromwell:
Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce. The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the fact of the expectations of the parties. Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494
[17] Can Trans submits that IPS is holding up the payment of the invoices and the PPSA registration for improper motives.
[18] Secondly, given that the agreement is registered under the Personal Property Security Act, sections (a)(ii) and (b) of that Act provide that the PPSA applies to every transaction that in substance creates a security interest, including an assignment that secures the performance of an obligation and also a transfer of an account or chattel paper even where it does not secure performance of an obligation.
[19] Section 56(1) of the PPSA reads as follows:
- (1) Where a financing statement or notice of security interest is registered under this Act, and,
(a) all the obligations under a security agreement to which it relates have been performed; or
(b) it is agreed to release part of the collateral covered by a security agreement to which it relates upon payment or performance of certain of the obligations under the security agreement, then upon payment or performance of such obligations, any person having an interest in the collateral covered by the security agreement may deliver a written notice to the secured party demanding registration of a financing change statement referred to in section 55 or a certificate of discharge or partial discharge referred to in subsection 54 (4), or both, and the secured party shall register the financing change statement or the certificate of discharge or partial discharge, or both, as the case may be.
[20] Accordingly, once the invoices are paid – by the customer or Can Trans – the obligation has been performed and the discharge should be provided.
[21] In response, IPS submits that it owns the purchased invoices, that Can Trans has no right of redemption in respect of the invoices, and that IPS has no obligation to sell the invoices to Can Trans or to anyone else.
[22] It is IPS’ position that the agreement is clear on its face and is unambiguous, that there is no express right to repurchase and/or redeem the Purchased Invoices, and that there is no basis in law or in fact to imply any terms in the Agreement.
[23] It is submitted that the cardinal principle of contract interpretation is that the Court “should give effect to the intentions of parties as expressed in their written document” and as “gathered from the words they have used”. Further, with respect to the question of whether or not to imply a term in a contract, there is a general presumption that the parties have expressed every material term, whether oral or written, which they intended should govern their agreement.
[24] The terms and conditions of the Agreement are clear and unambiguous. There are no facts that would warrant the Court to imply a term in the agreement that gives Can Trans the right to repurchase or redeem the invoices.
[25] A factoring of an invoice is effectively a sale of that invoice, because when an invoice is factored, it is assigned absolutely to the transferee with no revisionary right in the transferor.
[26] IPS’ reason for taking this position is immaterial but, nevertheless, IPS has legitimate business and other reasons for taking this position.
[27] If IPS was required to sell the invoices to Can Trans or to anyone else, the result would be extremely deleterious to IPS’ business, as the Court would effectively be requiring IPS to dispose of property that IPS purchased in good faith and for value without regard for the impact that such disposition would have on IPS’ ability to carry on business.
Analysis
[28] On the basis of the material before me, I can make no finding that IPS is acting for good or bad motives. The interesting issue of how the principles of good faith set out in Bhasin v Hrynew cannot be applied in this proceeding.
[29] Similarly, on this record, I cannot determine what affect the interpretation of this contract might have on IPS or the factoring business generally. IPS asks that I make my decision on the basis of this contract wording alone. I agree. If the result is not what IPS prefers, it is, of course, able to redraft its agreements for the future.
[30] It seems odd that IPS can take the position that it has purchased the accounts outright, yet can have a security interest in what no longer belongs to Can Trans. The Ontario Court of Appeal in Fairbanx Corp v. Royal Bank, 2010 ONCA 385 at paras 11 to 13, [2010] O.J. No. 2226 has dealt with this issue as follows:
The concept of the PPSA applying to a transfer of accounts where the transfer does not secure the performance of an obligation, i.e. an absolute transfer, is difficult to reconcile conceptually with the purpose of the Act, which is to provide a priority system for lenders who take security over the borrower’s assets. However, application of the Act to a transfer of accounts is in fact necessary for the effective operation of the PPSA to ensure that one system of priorities based on notice through registration and searches, applies to all transactions that affect entitlement to a borrower’s assets. The effect is that anyone who intends to lend money and to take security on the assets of a debtor, including on its accounts receivable, will be able to ascertain, by searching under the PPSA, whether and to what extent those assets have already been encumbered in any way.
In Ronald C.C. Cuming, Catherine Walsh, Roderick J. Wood, Personal Property Security Law (Toronto: Irwin Law, 2005), the authors explain the policy rationale for extending the registration requirement to the assignment of accounts, at p. 90:
Endemic to each type of transaction is the potential for third-party deception and the consequent commercial disruptions that this entails.... In the case of a transfer of an account, the transferor retains apparent control of the account even though she no longer owns or has any interest in it. By bringing these transactions within the scope of the registration and priority rules of the PPSA, third parties are placed in the position of being able to discover the existence of these interests before dealing with a[n]... assignor.
To the extent that there may be a conflict between the application of the CLPA and the PPSA respecting an assignment of accounts under a factoring arrangement, that conflict is resolved by s. 73 of the PPSA, which provides that in the case of any conflict between the PPSA and any other Act except the Consumer Protection Act, 2002, the applicable provision of the PPSA prevails. The PPSA therefore applies to the assignment of accounts.
[31] IPS has stiputlated its rights under the PPSA in its agreement and relied upon them. Accordingly, the PPSA applies with all of its provisions. Pursuant to s. 56, Can Trans may deliver its request for a payment statement, pay it and have the obligations performed. The registration would then be removed. IPS’ refusal to do so is contrary to the contract and the PPSA.
[32] IPS frames its argument as suggesting that Trans Can is “buying back” a chattel similar to buying back a car. The analogy is not apt. Rather, Can Trans is ensuring that IPS obtains what it contracted to obtain, the fully paid invoices.
[33] Further, paragraph 17 of the contract confirms that Can Trans remains “liable to IPS for the full and prompt payment of invoices assigned/purchased by IPS”. There is nothing to prevent Can Trans from avoiding that liablity by paying the invoices in full.
[34] IPS is concerned that if CanTrans buys out the invoices, IPS will be involved with the transfer of the accounts, rendering a service for which it is not paid. That may be, but it is something that IPS knew to be part of its business. If it has failed to include that in its cost of doing business in the past, it can now deal with that cost in its future contracts.
[35] Accordingly, IPS shall deliver the buy-out statement, and upon Can Trans’ payment, the contract is at an end. IPS shall then provide its customer release letter and discharge the PPSA registration.
Costs
[36] If the parties cannot agree on costs, written submissions may be made to me. The submissions of Can Trans shall be provided within the next 15 days and IPS shall respond within 15 days after receipt of those submissions. Each submission shall be no more than three pages not including any Offers to Settle or Bills of Costs.
Lemon J.
Date: April 8, 2015
2015 ONSC 2227
COURT FILE NO.: CV-15-0054-00
DATE: 2015-04-08
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: CAN TRANS XPRESS INC.,
AND:
INVOICE PAYMENT SYSTEM CORPORATION
BEFORE: Lemon, J
COUNSEL: GEORGE CORSIANOS AND JOHN WHITEHEAD, FOR THE APPLICANT
DOUGLAS LEVITT, FOR THE RESPONDENT
ENDORSEMENT
Lemon J.
DATE: April 8, 2015