Forest City Fire Protection v. General Refrigeration Canada, 2015 ONSC 2346

COURT FILE NO.: 3658/14

DATE: 2015-05-01

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Forest City Fire Protection Ltd., Plaintiff

AND:

1099516 Ontario Inc. o/a General Refrigeration Canada, Mejor Singh Natt and Don Thompson, Defendants

BEFORE: Heeney R.S.J.

COUNSEL: Charles L. Mackenzie Q.C., for the Plaintiff

Rod R. Refcio, for the Defendants

HEARD: April 10, 2015 at London

ENDORSEMENT

[1] This is a motion for summary judgment brought by the plaintiff, seeking the total amount due under its contract with the corporate defendant, General Refrigeration, including interest and collection costs as provided for in the contract. The plaintiff also seeks judgment for the same amounts against the two personal defendants, who are admitted to be officers of General Refrigeration, for breach of trust, pursuant to s. 13 of the Construction Lien Act, R.S.O. 1990, c. C.30.

[2] General Refrigeration was the general contractor for the installation of a drive-in freezer at the premises of Cantrina Warehouse Inc. in Brampton. It solicited a quote from the plaintiff for the installation of the fire suppression equipment component of the project.

[3] The plaintiff submitted a Fire Sprinkler Quote dated October 21, 2013. The document was four pages in length, and quoted a price of $25,400 plus HST. Approximately one month later, on Nov. 25, 2013, a person by the name of Hardeep signed the quotation on behalf of General Refrigeration, after having amended the contract price downward to $24,200 plus HST. It is not disputed that Hardeep had authority to sign the contract on behalf of the corporation.

[4] A Purchase Order was issued by General Refrigeration dated Nov. 25, 2013 for the contract price of $27,324, inclusive of HST. It was followed by another Purchase Order dated January 27, 2014, for certain additional work. The price for that work was $4,294 inclusive of HST.

[5] The work was done by the plaintiff as required, and invoices were issued on January 29, 2014 for $27,346, and on January 31, 2014 for $4,294. No payment has been made by the defendants on these accounts.

[6] Mr. Refcio, for the defendants, acknowledges that the work was done and the plaintiff is entitled to summary judgment for the principle amounts due on both invoices, as against General Refrigeration. The dispute is with respect to the claim for interest at 2% per month (26.8% per annum) as well as the claim for “all legal fees and costs” incurred in collecting the overdue account, both of which are expressly provided for in the contract. The claim for liability on the part of the personal defendants is also disputed.

[7] The defendants filed an affidavit sworn March 6, 2015 by the president of General Refrigeration, the defendant Don Thompson, in response to this motion. The only thing it offers as an excuse for non-payment is that they tried to negotiate a payment schedule with the plaintiff but were unsuccessful. This is, of course, no defence, particularly since the defendants have been paid by the customer, Cantrina Warehouse Inc., the full contract price of $480,000.

[8] As to the claim for interest and legal costs, Mr. Thompson states that the plaintiff never advised any representative of General Refrigeration that in the event of non-payment, they “would charge a onerously high interest rate and also charge excessively high legal fee rates for collecting on any unpaid amounts owing”.

[9] The Fire Sprinkler Quote is four pages in length, and each page reflects that fact. Mr. Hardeep signed his acceptance of the quotation on page two, which was numbered as “Page 2 of 4”. On page 3 of 4, in bold capitals, the words “TERMS OF PAYMENT” are found. Those terms provide that any amounts owing after 30 days from the date of the invoice “shall be subject to a service charge rate of 2% per mount compounded monthly (equivalent to 26.8% per annum) on all sums unpaid until paid in full.” The contract goes on to say that “[i]n the event of any action or proceedings to collect any amount due, the customer agrees to pay for any collection costs incurred by Forest City Fire Protection Ltd. or its agents and/or all legal fees and costs and all seizure and sale costs.”

[10] The defendants rely on Tilden Rent-A-Car Co. v. Clendenning, 1978 1446 (ON CA), [1978] O.J. No. 3260 (C.A.), to argue that the plaintiff has a positive duty to bring such “onerous” terms to their attention, and are not bound by those terms despite having agreed to them in writing. That case involved a customer who signed a standard form contract when he rented a car from Tilden. He indicated that he wished to purchase the additional insurance coverage that was offered. In doing so, a clause on the front of the contract provided that his liability for damage to the vehicle “is limited to NIL”. However, on the back of the contract, “in particularly small type and so faint in the customer's copy as to be hardly legible”, were a series of exclusions, which the company ultimately relied upon to deny coverage after the plaintiff was involved in an accident.

[11] Dubin J.A., speaking for the court, said the following, at paras. 20-22:

In ordinary commercial practice where there is frequently a sense of formality in the transaction, and where there is a full opportunity for the parties to consider the terms of the proposed contract submitted for signature, it might well be safe to assume that the party who attaches his signature to the contract intends by so doing to acknowledge his acquiescence to its terms, and that the other party entered into the contract upon that belief. This can hardly be said, however, where the contract is entered into in circumstances such as were present in this case.

A transaction, such as this one, is invariably carried out in a hurried, informal manner. The speed with which the transaction is completed is said to be one of the attractive features of the services provided.

The clauses relied on in this case, as I have already stated, are inconsistent with the over-all purpose for which the contract is entered into by the hirer. Under such circumstances, something more should be done by the party submitting the contract for signature than merely handing it over to be signed.

[12] He concluded, at paras. 32-33 as follows:

In modern commercial practice, many standard form printed documents are signed without being read or understood. In many cases the parties seeking to rely on the terms of the contract know or ought to know that the signature of a party to the contract does not represent the true intention of the signer, and that the party signing is unaware of the stringent and onerous provisions which the standard form contains. Under such circumstances, I am of the opinion that the party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, and, in the absence of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum.

In the case at bar, Tilden Rent-A-Car took no steps to alert Mr. Clendenning to the onerous provisions in the standard form of contract presented by it. The clerk could not help but have known that Mr. Clendenning had not in fact read the contract before signing it. Indeed the form of the contract itself with the important provisions on the reverse side and in very small type would discourage even the most cautious customer from endeavouring to read and understand it. Mr. Clendenning was in fact unaware of the exempting provisions. Under such circumstances, it was not open to Tilden Rent-A-Car to rely on those clauses, and it was not incumbent on Mr. Clendenning to establish fraud, misrepresentation or non est factum. Having paid the premium, he was not liable for any damage to the vehicle while being driven by him.

[13] In Karroll v. Silver Star Mountain Resorts Ltd., 1988 3094 (BC SC), [1988] B.C.J. No. 2266 (B.C.S.C.), McLachlin J. (as she then was), considered Tilden, and concluded that it was an exception to the general rule that a person who signs a contract is bound by the terms thereof, even if he has not read them. At p. 5 of the decision, she said this:

In the usual commercial situation, there is no need for the party presenting the document to bring exclusions of liability or onerous terms to the attention of the signing party, nor need he advise him to read the document. In such situations, it is safe to assume that the party signing the contract intends to be bound by its terms.

But situations may arise which suggest that the party does not intend to be bound by a term. In Tilden the hasty, informal way in which the contract was signed, the fact that the clause excluding liability was inconsistent with the overall purpose of the contract, and the absence of any real opportunity to read and understand the document given its length and the amount of small print on its reverse side, led the court to conclude that the defendant should have known that the plaintiff had no intention of consenting to the onerous exclusion in question. In these special circumstances, there was a duty on Tilden to take reasonable measures to bring the exclusion clause to the attention of Mr. Clendenning.

[14] Following an analysis of other relevant caselaw, she concluded at p. 6 as follows:

It emerges from these authorities that there is no general requirement that a party tendering a document for signature to take reasonable steps to apprise the party signing of onerous terms or to ensure that he reads and understands them. It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question, that such an obligation arises. For to stay silent in the face of such knowledge is, in effect, to misrepresent by omission

[15] Applied to the case at bar, my first observation is that this was not a standard-form contract. It was, instead, a customized commercial document that was prepared and sent by the plaintiff to the General Refrigeration at the latter’s request. The defendant did not sign in haste, but held on to the document before signing and returning it more than one month later. The fact that the defendant amended the purchase price before returning the document shows that it must have been read. There are no circumstances whereby a reasonable person should have known that the defendant was not consenting to the terms in question.

[16] Furthermore, there is nothing inconsistent between the clauses in question and the rest of the contract, which is in contrast to Tilden, where the clauses on the back of the contract contradicted the clauses on the front.

[17] As to the suggestion that the terms are “onerous”, one need only refer to General Refrigeration’s own invoice to the customer for this same project. It provides as follows: “Overdue accounts will be charged an Interest at the rate of 2% per month.” General Refrigeration can hardly argue that the provision for interest on overdue accounts charged by the plaintiff is onerous when it is precisely the same rate the defendant charges its own customers.

[18] Unless the provisions regarding interest rates are vague or unclear, or unless the interest rate infringes a statutory provision such as the Interest Act, effect should be given to the contractual rate for the determination of both pre- and post-judgment interest: Capital One Bank v. Matovska, [2007] O.J. No. 3368 (Div. Ct.). In this case, the rate provided for in the contract is neither unclear nor illegal.

[19] This is a motion for summary judgment, which is governed by rule 20.04, which reads as follows:

20.04 (1) Revoked: O. Reg. 438/08, s. 13 (1).

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.

(3) Where the court is satisfied that the only genuine issue is the amount to which the moving party is entitled, the court may order a trial of that issue or grant judgment with a reference to determine the amount.

(4) Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.

(5) Where the plaintiff is the moving party and claims an accounting and the defendant fails to satisfy the court that there is a preliminary issue to be tried, the court may grant judgment on the claim with a reference to take the accounts.

[20] In Hyrniak v. Mauldin, 2014 SCC 7, [2014] S.C.J. No. 7, the Supreme Court of Canada concluded that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.

[21] A party is entitled to summary judgment whenever there is “no genuine issue requiring a trial”. Karakatsanis J., speaking for the court at paras. 49-50, elaborated:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

These principles are interconnected and all speak to whether summary judgment will provide a fair and just adjudication. When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

[22] I conclude that there is no genuine issue for trial as to General Refrigeration’s liability to pay interests and legal fees. The materials filed on this motion enable me to reach a fair and just determination on the merits. I conclude that General Refrigeration is bound by the written contract that it accepted in writing. Tilden is distinguishable, for the reasons outlined above. Accordingly General Refrigeration is obligated to pay interest on overdue amounts as specified, as well as the plaintiff’s collection costs.

[23] The principal amount on the first invoice is $27,346. Interest at 26.8% per annum from February 28, 2014 to May 1, 2015 (427 days) is $8,573.61. The principal amount on the second invoice is $4,294. Interest at 26.8% per annum from March 2, 2014 to May 1, 2015 (425 days) is $1,339.96. Judgment shall issue as against General Refrigeration for the principal amount owed plus contract interest in the total amount of $41,553.57.

[24] The evidence is that legal fees and disbursements for collecting this outstanding account were incurred in the amount of $8,939.07 as of Feb. 5, 2015, which includes all costs incurred up to and including preparation of the initial draft of the Notice of Motion for summary judgment and supporting affidavit. Mr. Mackenzie, for the plaintiff, asked that collection costs up to that date be dealt with as part of the main judgment against the defendants, and that costs incurred after that point in time be dealt with as costs of the action in the customary fashion. I see nothing objectionable in that approach.

[25] An account dated February 5, 2015, in the amount of $8,939.07, has been filed at Tab S of the plaintiff’s Motion Record. The account has been forwarded to the defendants but has not been paid. The plaintiff points out that if the defendants objected to the amount of the account, they had a right to have it assessed under s. 9 of the Solicitors Act, R.S.O. 1990 c. S.15. They have not done so.

[26] Judgment shall issue in that amount as against General Refrigeration for costs owing under the contract.

[27] The next issue is the liability of the personal defendants pursuant to s. 13 of the Construction Lien Act. The statutory trust is created by s. 8, which reads as follows:

8. (1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

[28] Liability of the directors and officers for a breach of trust is provided for in s. 13 of the Act, which reads as follows:

13. (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a) every director or officer of a corporation; and

(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust.

(2) The question of whether a person has effective control of a corporation or its relevant activities is one of fact and in determining this the court may disregard the form of any transaction and the separate corporate existence of any participant.

(3) Where more than one person is found liable or has admitted liability for a particular breach of trust under this Part, those persons are jointly and severally liable.

(4) A person who is found liable, or who has admitted liability, for a particular breach of a trust under this Part is entitled to recover contribution from any other person also liable for the breach in such amount as will result in equal contribution by all parties liable for the breach unless the court considers such apportionment would not be fair and, in that case, the court may direct such contribution or indemnity as the court considers appropriate in the circumstances.

[29] In Sunview Doors Ltd. v. Academy Doors & Windows Ltd., 2010 ONCA 198, 101 O.R. (3d) 285 (C.A.) at paras. 83-84, the court described how a breach of trust under s. 8 is proven:

In order for Sunview to establish that it was the beneficiary of a trust under s. 8(1) of the Act, it must prove that

(i) Academy was a contractor or subcontractor;

(ii) Sunview supplied materials to the projects on which Academy was a contractor;

(iii) Academy received or was owed moneys on account of its contract price for those projects; and

(iv) Academy owed Sunview money for those materials.

Once all four elements of the trust are proven, the onus then shifts to the contractor, in this case Academy, to demonstrate that payments made from trust funds were to proper beneficiaries of the trust: see St. Mary's Cement, at pp. 600-601 O.R., Central Supply, at para. 21, supra.

[30] The materials filed on this motion for judgment enable me to make the following findings of fact:

• General Refrigeration was a contractor for the installation of a drive-in freezer at the premises of Cantrina Warehouse Inc.;

• The plaintiff supplied work and materials to that project;

• General Refrigeration received payment in full on account of its contract price for this project;

• General Refrigeration owed money to the plaintiff on the two invoices submitted to it, both of which were in accordance with the Purchase Orders provided by General Refrigeration.

[31] The plaintiff is, therefore, a beneficiary of the trust monies received by General Refrigeration. The onus thus shifts to the defendants to demonstrate that payments made from the trust monies were made to proper beneficiaries under the trust. They have failed to do so. They have provided no accounting at all as to what they did with the $480,000 received from Cantrina Warehouse Inc. It follows that they have failed to discharge the burden of proof on them. I find that General Refrigeration has committed a breach of trust.

[32] The next issue is whether Mejor Singh Natt and Don Thompson are liable under s. 13 of the Act. It is not disputed that Mejor Singh Natt and Don Thompson are officers of General Refrigeration. Mr. Natt is described in the corporate filings at the Ministry of Government Services as the President. Mr. Thompson describes himself as the President in his own affidavit. One may draw the inference that the President is in control of the company and is aware of its financial position on an ongoing basis. This would include an awareness of accounts receivable and accounts payable.

[33] It is not disputed that General Refrigeration has been paid in full for the entire project by the customer, which means that they have been paid in full for work that was done, in part, by the plaintiff. Despite having been paid $480,000 for the project, all of which is impressed with a trust in favour of the plaintiff and other suppliers of services and materials, General Refrigeration failed to set aside a sufficient portion of that trust money to pay the plaintiff’s invoices.

[34] The personal defendants were, or should have been, aware that the plaintiff’s invoices were fully outstanding. Aside from the invoices and reminder invoices sent directly by the plaintiff, there was also a series of demand letters from counsel retained by the plaintiff. There was an e-mail exchange directly between plaintiff’s counsel and Don Thompson regarding the outstanding invoices. Notwithstanding that, nothing has been paid.

[35] The defendants’ response to the allegations of breach of trust is a bald denial. In para. 11 of Mr. Thompson’s affidavit, he states:

I verily believe that neither myself, nor the Co-Defendant, Mejor Singh Natt, have ever personally or knowingly misappropriated any funds owing to the Defendant [sic].

[36] It is settled law that a party on a motion for summary judgment must put his best foot forward. He is not entitled to rest on bald denials, but must “lead trump” or risk losing.

[37] Mr. Thompson’s affidavit, at para. 4, states that upon receiving the invoices from the plaintiff, representatives of General Refrigeration attempted to facilitate a payment schedule, but were not able to come to an agreement. This confirms his awareness that the bills had not been paid. There would have been no need for a payment schedule if the defendants had simply paid the plaintiff out of the money they received from the customer. The fact that they did not leads to the inference that the trust money received from Cantrina Warehouse Inc. went somewhere else.

[38] A failure to set up a proper system to receive, monitor and disburse trust funds is sufficient, in and of itself, to constitute a breach of trust: Arborform Countertops Inc. v. Stellato, 1996 7999 (ON SC), [1996] O.J. No. 1275 (S.C.J.) at para. 15. There is no evidence that the personal defendants set up such a system. $480,000 is a substantial sum, and I infer that the personal defendants were, or should have been, aware of its receipt. It was incumbent upon them to ensure that this trust money was disbursed to those to who were entitled to receive it.

[39] On this issue, I again conclude that there is no genuine issue for trial. The materials filed on this motion enable me to reach a fair and just determination on the merits. On the inferences drawn from the circumstantial evidence, and in the absence of any accounting or other evidence from the personal defendants as to where the trust money went, or that it was disbursed to persons other than the plaintiff without their knowledge or acquiescence, I conclude that Mejor Singh Natt and Don Thompson knew or reasonably ought to have known that General Refrigeration was committing a breach of trust. It follows that those personal defendants are jointly and severally liable for that breach of trust. Accordingly, they are held to be jointly and severally liable for the invoices, including contract interest, in the amount of $41,553.57, and costs of collection up to February 5, 2015 in the amount of $8,939.07.

[40] The final issue is costs, over and above the contract costs already awarded.

[41] Mr. Mackenzie, on behalf of the plaintiff, has provided a costs outline, claiming costs of $10,852.13 on a partial (60%) recovery basis, $16,064.26 on a substantial (90%) recovery basis and $17,801.63 on a full (100%) recovery basis. These costs were all incurred after February 5, 2015. Although they are supported by time dockets, these claims are difficult to assess because the dockets are not added up, nor am I able to discern what time was spent by Mr. Mackenzie and what time was spent by his law clerk. The amounts claimed for fees are broken down as between Mr. Mackenzie and the law clerk, but not the time spent. Furthermore, the hourly rates are not specified.

[42] I have added up the time spent as shown on the dockets, and it shows 57.6 hours expended on this file. This does not include time spent actually arguing the motion, which took less than one hour. The case was not complex, as reflected both by the fact that counsel did not feel the need to cross-examine on the affidavits, and by the brevity of the argument. It is difficult to justify the expenditure of so much time after preparation of the initial draft of the Notice of Motion and supporting affidavit. I do note, though, that some additional time would have been incurred due to the fact that the defendants failed to serve an Affidavit of Documents as required by the rules, thereby compelling the plaintiff to search out all relevant documents on its own.

[43] The defendants served an Offer to Settle dated March 31, 2015, in which they proposed paying two payments of $21,500 each by May 1 and June 1 respectively, in full satisfaction of the plaintiff’s claim, including interest and costs. This offer is well below the amount awarded to the plaintiff, even prior to dealing with the issue of costs since February 5, 2015.

[44] The plaintiff served an Offer to Settle dated April 1, 2015, in which it agreed to accept $48,000 in full satisfaction of all of its claims, payable by April 9, 2015. Upon payment, it would consent to an order dismissing the action without costs. This offer is less than the amount I have already awarded to the plaintiff, before considering costs incurred after February 5, 2015. The plaintiff has clearly beaten its offer.

[45] This would appear to justify an award of costs at or near a substantial recovery basis. However, in assessing costs I must be mindful of the factors set out in Rule 57.01. To begin with, costs of $8,939.07 were already awarded as part of the main judgment, and must be taken into account when determining what additional costs the plaintiff is entitled to. As I have already noted, the case was not complex, and I find the time expended after February 5 to be excessive. Costs should bear some proportionality to the amount in dispute. Ultimately, the costs award must reflect an amount that the unsuccessful party could reasonably expect to pay.

[46] An award of $10,000 in costs, all inclusive, is, in my view, a fair and reasonable amount for the defendants to pay. It will bring the total amount of costs recovered by the plaintiff to about $19,000. For a relatively simple action, in which the principal and interest amount claimed was only just over $41,000, and which has been disposed of by way of a motion for judgment, without cross-examinations or discoveries, that might seem somewhat high. However, it is slightly below the amount claimed by the plaintiff on a partial indemnity basis. Furthermore, a significant costs award is justified by two factors: the defendants agreed in their contract to pay “all legal fees and costs”, which supports an award approaching complete indemnity; and, the plaintiff beat its Offer to Settle.

[47] Accordingly, the defendants shall, jointly and severally, pay to the plaintiff its costs incurred after February 5, 2015, fixed at $10,000.

[48] This judgment shall bear post-judgment interest at the contract rate of 26.8% per annum.

“T. A. Heeney R.S.J.”

Regional Senior Justice T. A. Heeney

Date: May 1, 2015