Thyssenkrupp Elevator (Canada) Inc. v. 1147335 Ontario Inc., 2015 ONSC 503
COURT FILE NO.: CV-04-280219
DATE: 20150220
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Thyssenkrupp Elevator (Canada) Inc., Plaintiff
AND:
1147335 Ontario Inc., Defendant
BEFORE: Carole J. Brown, J
COUNSEL: Robert Drake, for the Plaintiff
Tanya Pagliaroli and Andrea Bolieiro, for the Defendant
HEARD: January 30, 2015
REASONS FOR DECISION
[1] The defendant/appellant, 1147335 Ontario Inc. ("the defendant" or "the appellant"), appeals from the decision of Master Albert pursuant to Rule 54.09(3) to oppose confirmation of the Master's Report issued May 10, 2013, regarding ten lien claim actions tried together by reference under the Construction Lien Act, RSO 1990, c. C 34 for unpaid services and materials under the elevator maintenance contract concluded between the parties. The defendant originally opposed confirmation of the Report on numerous grounds including, inter alia, an allegation of bias against Master Albert and a challenge to the quantum due and owing to Thyssenkrupp. The defendant has now abandoned those grounds of appeal and appeals only on the Master's decision regarding equitable set-off. The Master determined that the defendant's defence of equitable set-off had not been proven on the evidence before the Master.
[2] The defendant/appellant submits that the Master, in dismissing its defence of equitable set-off in the amount of $75,000, ignored broader principles of equity and fairness governing the defence, relying instead on a strict contractual interpretation; misinterpreted the contractual provisions governing the suspension of services and termination; and in requiring the defendant to prove that the payment it made in order to secure a new maintenance contractor flowed directly from a strict breach of the contract by Thyssenkrupp Elevator (Canada) Inc. ("Thyssenkrupp "or "the plaintiff/respondent").
[3] The defendant/appellant submits that the Master confined herself to analyzing the parties' strict rights and obligations under the contract and overlooked Thyssenkrupp's breaches of the parties' long-standing course of conduct in its obligation to perform the contract in good faith. The appellant argues that, in this way, the Master ignored the broader principles of equity and fairness, and estoppel and good faith that support the defence of equitable set-off. As a result, they submit that the Master failed to properly address the Owners' defence of equitable set-off. Further, the defendant/appellant argues that the Master misinterpreted the contract provisions governing the suspension of service and termination and, without any basis in evidence, concluded that Thyssenkrupp had merely suspended service and not terminated it. They maintain that by so doing, she ignored the defendant's/appellant's unchallenged evidence that Thyssenkrupp had terminated the contract.
[4] Finally, they argue that the Master erred in requiring the Owners to prove that the payment they made in order to secure a new maintenance contractor flowed directly from a strict breach of the contract by Thyssenkrupp.
[5] The plaintiff maintains that the defendant's ground of appeal is advanced for the first time on this appeal: namely that Thyssenkrupp ought to have been estopped from suspending maintenance services as a result of any flood at one of the defendant's five buildings and relates to amounts incurred following the plaintiff's suspension of services due to the long outstanding arrears of $122,810.30, and after notice of the suspension was sent. It points out that the set-off claim is tied to alleged "inadequate maintenance" performed by Thyssenkrupp as set forth in the amended statement of defence and counterclaim. It argues that the set-off relates to a flood which occurred at one of the defendant's five buildings after the plaintiff had suspended maintenance services and sent notice to the defendant of the suspension, which was, however, received after the flood. The plaintiff maintains that the evidence establishes that the owners retained a new elevator maintenance contractor, Schindler Elevator Corporation, and, subsequently, replaced them with Quality Allied Elevator, which negotiated the pre-maintenance charge sought as set-off as an upfront lump sum payment to reduce monthly maintenance charges. It is the position of the plaintiff that the defendant chose not to raise this at the time of the trial, that as this promissory estoppel argument was not raised at trial, it is not certain that there is a full evidentiary record in this regard, that the record before the Master is the only record that can be considered by this Court and, accordingly, that this does not raise a reviewable error in Master Albert's reasons that would warrant intervention by this Court.
[6] It is the position of the plaintiff that the Master, in carefully considered reasons of 64 pages, found that Thyssenkrupp was entitled to collect on its unpaid accounts, and was entitled to suspend services due to the non-payment, as it did. She further found that the claim of equitable set-off had not been established. She dismissed the set-off claim finding, inter alia, that the owners had failed to prove "that upgrades of $5,000 per elevator were needed because Thyss failed to properly perform maintenance services required by the elevator contracts."
[7] As the Master heard these lien claim trials by way of reference, she was required to provide pretrial direction necessary to prepare the reference for trial. In this case, twelve such pretrial hearings were required, such that she gained familiarity with the cases, evidence and witnesses, and conducted, in essence, case management of the actions.
The Law
The Standard of Review
[8] A motion or cross-motion brought pursuant to Rule 59.04 is to be dealt with substantially as an appeal from the Report. The matter is not to be retried. The Master's Report will not be interfered with unless there had been some error of principle demonstrated by the Master's reasons, some absence or excess of jurisdiction or some patent misapprehension of the evidence. The award should not be disturbed unless it appears to be unsatisfactory on all of the evidence: Jordan v McKenzie, [1987] O.J. No. 1193, 26 C.P.C. (2d) 193; Zeitoun v Economical Insurance Group, 2008 20996 (ON SCDC), 2008 91 O.R. (3d) 131 ( Ont. Div. Ct.), aff’d 2009 ONCA 415 (OCA); Heyday Homes Ltd. v Gunraj, [2005] O. J. No. 3986.
Equitable set-off
[9] Section 111 of the Courts of Justice Act recognizes the right to a set-off. In an action for payment of a debt, the defendant may, by way of defence, claim the right to set-off against the plaintiff's claim of a debt owed. The test for legal set-off requires that the claimant meet two conditions: (1) the claims must be for "debts" or for "liquidated" damages; and (2) both debts or claims for liquidated damages must be mutual cross-obligations. Mutual debts are those due from each party to the other for liquidated claims, or money demands which can be ascertained with certainty at the time of pleading. An assignment of the debt will destroy the mutuality. A winding up order will also destroy the mutuality required for set-off at law. Therefore, the claim of the party must be enforceable at the commencement of the winding up proceedings before legal set-off can be claimed.
[10] Equitable set-off is available whether the defendant's claim is liquidated or unliquidated and whether or not it arises out of the same contract. There is no requirement for mutuality. The constituent elements of set-off, which must be established are as follows:
There must be some equitable basis to resist the plaintiff's claim;
The equitable ground must go to the essence of the plaintiff's claim; and
A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to enforce the plaintiff's claim without taking into consideration the defendant's claim.
See: Courts of Justice Act, R.S.O. 1990, c. C 43, as amended, s.111; Telford v Holt, 1987 18 (SCC), [1987] 2 SCR 193.
[11] At trial, the defendant relied on equitable set-off.
Analysis
Was This Issue before the Master
[12] As regards equitable set-off, the issue as set forth in the amended statement of defence and counterclaim and as argued before the Master was whether the amount sought as a set-off was required to be paid by the defendant to Quality, a contractor retained after the defendant terminated the contract on December 23, 2004, to "put the elevators into working condition so that a successor elevator maintenance provider would be prepared to become contractually obligated to continue the maintenance". Thus the set-off claim was tied to Thyssenkrupp’s alleged inadequate maintenance of the elevators. It was argued and determined in favour of the plaintiff at the trial of the lien actions.
[13] On this motion, the defendant founds their set-off claim on Thyssenkrupp’s abrupt denial of service during an emergency, namely the flood in one building, in breach of the parties' long-standing conduct to accept late payment and Thyssenkrupp’s good faith performance of the contract. In this regard, the plaintiff argues that this ground of appeal is new, was not advanced in the actions nor argued at trial, that had an argument of estoppel been raised during the proceeding below, the plaintiff would have developed a more fulsome record as regards this issue, which was not done, as the argument was not raised and, accordingly, there is not a full record of evidence in this regard. Further, as regards the argument of estoppel, it is the position of the plaintiff that the defendant seeks to use estoppel as a sword rather than the shield. The plaintiff/respondent argues that the defendant seeks to use this "sword" in order to claim damages and equitable set-off.
[14] The defendant argues that the Master overlooked the parties' long-standing course of conduct and their continued provision of services throughout the duration of the contract despite late payments and overdue amounts outstanding. They argue that the Master overlooked this conduct on the part of Thyssenkrupp and its obligation to perform the contract in good faith.
[15] The plaintiff argues further that, based on the evidence before the court, the defendant's attempts to found an argument that there should not have been a denial, suspension or termination of service in the face of an emergency cannot be supported by the evidence which indicates that suspension of the contract occurred prior to the flood.
[16] In this regard, the defendant argues that the Master concluded that Thyssenkrupp had merely suspended service, without any basis on the evidence, and ignored the defendant's uncontroverted evidence that Thyssenkrupp had actually terminated the contract, which required the defendant to find another contractor to provide regular maintenance.
[17] For the reasons stated below, I find that the issue raised on appeal was a new issue which was not argued before the Master.
Was There Some Error in Principle in the Decision of the Master
[18] The defendant maintains that the Master committed an error in principle in determining the issue of set-off by confining herself to analyzing the parties' strict rights and obligations under the contract and overlooking breaches of the its long-standing course of conduct and its obligation to perform the contract in good faith, thus ignoring broader principles of equity and fairness that support the issue of equitable set-off.
[19] The evidence, however, indicates that while the defendant was consistently late in payments under the service contract, which would, pursuant to the contract, permit Thyssenkrupp to suspend services, Thyssenkrupp continued to accept late payment through October of 2003, when, due to the accumulation of overdue amounts, it registered construction liens on the five apartment buildings. On October 21, 2004, it registered further construction liens due to a continued accumulation of late payments. From September 2004, the new credit manager of the plaintiff pursued collection efforts, communicated frequently with the principals of the defendant to demand payment of the overdue amounts and continued to push for payment. Amounts continued to be outstanding and on December 21, 2004, the plaintiff suspended elevator maintenance and notified the defendant by a letter, as required by the contract. On December 23, 2004, the defendant's vice president advised the plaintiff in writing that that "we will now find a replacement maintenance contractor and hereby ask Thyssenkrupp to return any parts or elevator component [sic] they have taken from our properties." Thus, upon receiving word of suspension of service, which could have been restored by the defendant paying the outstanding amounts owing, the defendant instead terminated the contract.
[20] Having read the Master’s decision, I am in agreement with the summary of the Master's findings set forth at paragraph 51 of the plaintiff's factum.
[21] As regards the issue argued by the owner that due to the fact that Thyssenkrupp breached the contracts, the doctrine of equitable set-off precludes Thyssenkrupp from recovering its unpaid accounts, the Master stated "the Owner relies on equitable set-off asserting that Thyss breached the contracts by (1) failing to provide maintenance services as required and (2) terminating service in December 2004.
[22] In this regard, she held as follows:
[104] As to the first alleged breach, for reasons already stated, I find that the owner has not proven that Thyss failed to provide maintenance services required under the contracts. To the contrary, the evidence proves that the elevators were maintained in 2004 at an acceptable level.
[105] As to the second alleged breach, the issue is whether Thyss suspended or terminated the contracts and if so whether Thyss complied with the terms of the contract in doing so. If not, the issue is whether Thyss is precluded from recovering its unpaid accounts for services and materials supplied prior to the breach.
[23] Based on the evidence before her, Master Albert held, in part, as follows:
[114] I find that Thyss suspended the contract for non-payment in accordance with the terms of the contract and gave written notice subsequent to the suspension. Had the Owner paid the arrears Thyss would have been required to resume its role as elevator maintenance contractor. However, instead of paying up the arrears, the Owner terminated the contract with its letter of December 23, 2004. The Owner did not pay the arrears and the contracts were never reinstated.
[116] In conclusion I find that the Owner breached the contracts by failing to pay for materials and services supplied by Thyss to repair and maintain fifteen elevators in five buildings.
[117] The Owner argues that Thyss breached the contracts by wrongfully terminating them. Having found that Thyss gave notice effective December 21, 2004 as required under the contracts, the contracts were not wrongfully terminated and the Owner fails on this point.
[24] The Master found there to be no evidence to support a finding that the elevator maintenance was unacceptable. She found at paragraphs 101 and 102 of her decision that "The onus of proof rests with the Owner to prove its set-off claim. The Owner has not proven that the manner in which Thyssenkrupp maintained the elevators under the contracts caused the Owner to spend $5,000 per elevator for upgrades. I find that the Owner has not proven its claim for set-off of $75,000".
[25] While the basis of the claim for set-off was that Thyssenkrupp’s performance of the maintenance was so deficient that the defendant had to pay a fee of $5,000 per elevator to Quality to take the job after it terminated Thyssenkrupp, and after the contract with Schindler had also ended, on the basis of the evidence presented, and the testimony of the witnesses, Master Albert held that the $5,000 per elevator was just a down payment on the monthly maintenance fees. She held that "Mr. Sokoloff [the principal of Quality] merely required an upfront lump sum payment to reduce monthly maintenance charges, much like a larger down payment on a car lease reduces monthly car lease payments". While the defendant argued that the Master's findings as regards the amounts paid to the contractor which are sought as set-off were contradictory, I am not persuaded by that argument, having read the Master' decision.
[26] The appellant argues that the Master failed to consider the equitable principle of promissory estoppel. The appellant argues that all facts necessary to consider it are in evidence. It argues that while it was not pled, the court should have considered it and erred in not doing so.
[27] As regards whether the ground of appeal is advanced for the first time on this motion, namely that Thyssenkrupp ought to have been estopped from suspending maintenance services as a result of the flood at one of the five buildings and relate to amounts incurred following the plaintiff's suspension of services, the Master framed the issue before her as follows:
[103] The Owner argues that because Thyss breached the contracts the doctrine of equitable set-off precludes Thyss from recovering its unpaid accounts.… the Owner relies on equitable set-off asserting that Thyss breached the contracts by (1) failing to provide maintenance services as required and (2) terminating service in December 2004.
[28] In fact, the issue before the Master was whether, due to the alleged breach of contract as regards provision of maintenance services and/or termination of services, Thyssenkrupp was precluded from recovering the unpaid accounts, not whether Thyssenkrupp ought to have been estopped from suspending maintenance services as a result of the flood or whether, as a result, the defendant is entitled to amounts incurred after suspension of services. As this was not pled, raised at trial or argued in closing submissions and was, therefore, a new issue not previously raised before the Master, I do not intend, on the record for me, to embark upon such an issue at this juncture and am not prepared to find that she erred in not considering it.
[29] In any event, based on the facts, I am of the view that there was a change in conduct as regards late payment, that the new credit manager for Thyssenkrupp was and had been pressing the defendant for payment, which at that time was over $100,000 in arrears. In that regard, the Master based her decision on the evidence of the witnesses and her assessment of credibility. As regards her assessment of credibility, she is owed deference, as she was in a position to watch, listen and analyze the witnesses' evidence and demeanors.
[30] As regards the issue before the Master, she found that Thyssenkrupp had not breached the contracts, by failing to provide maintenance services or by providing inadequate services, and she found that Thyssenkrupp did not terminate the services, but rather suspended the service. Based on the evidence before the Master, her conclusions in this regard are not made in error.
Conclusion
[31] Based on all of the foregoing, the record before me, which was also before Master Albert, and the submissions of counsel, I find that there was no error in principle. There is no legal error which the Master has committed. Nor was there any absence or excess of jurisdiction on the part of the Master. Finally, I am satisfied on all of the record before me that there was no patent misapprehension of the evidence on the part of the Master which would permit this Court to interfere with the decision of the Master. I have considered the Master's complete, thorough and considered reasons and am of the view that she considered all of the evidence presented over the six-day trial and did not misapprehend the evidence. At the trial, she weighed the evidence, assessed credibility and made her findings of fact. She gave a thorough summary of the viva voce evidence in her decision. Indeed, having seen the witnesses and heard the evidence, she was in the best position to make such findings and to draw factual conclusions therefrom. This Court should not interfere with factual conclusions based on a difference of opinion over the weight to be assigned to underlying facts, nor to differently assess the credibility of witnesses: Housen v Nikolaisen, 2002 SCC 33.
[32] Based on all the foregoing, I uphold the decision of the Master and confirm her Report of May 10, 2013.
Costs
[33] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.
Carole J. Brown, J
Date: February 20, 2015
CITATION: Thyssenkrupp Elevator (Canada) Inc. v. 1147335 Ontario Inc., 2015 ONSC 503
COURT FILE NO.: CV-04-280219
DATE: 20150220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Thyssenkrupp Elevator (Canada) Inc., Plaintiff
AND:
1147335 Ontario Inc., Defendant
REASONS FOR JUDGMENT
Carole J. Browne, J.
Released: February 20, 2015