Court File and Parties

COURT FILE NO.: CV-14-5029-00 DATE: 2016 08 05

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MAS AUTOWORKS Plaintiff – and – TIRES “N” SUCH INC. Defendant

Counsel: Mark A. Klaiman, Counsel for the Plaintiff Roberto R. Cucci, Counsel for the Defendants

HEARD: June 20, 2016

Endorsement

Trimble J.

Nature of Motion:

[1] This is a motion for summary judgment brought by the Plaintiff under Rule 20 of the Rules of Civil Procedure. This action arises out of a failed asset purchase transaction whereby the Plaintiff was to purchase certain assets of the corporate Defendant. Included among these assets were the property known as 1788 Drew Road, Unit 5, in Mississauga, the Defendant’s corporate name and various chattels. The Plaintiff sues for return of its $85,000 deposit.

Issue and Disposition:

[2] Is there a genuine issue requiring a trial? There is not. The Plaintiff is entitled to return of its $85,000 and the Defendant to return of its assets as contemplated by the Agreement. The Defendant’s counterclaim remains, however. I address this at the end of these reasons.

Facts:

[3] The Plaintiff and Defendant originally entered into an asset purchase transaction whereby the Plaintiff was to purchase certain of the Defendant Corporation’s chattels, soft assets and real estate. The agreement of purchase and sale dated October 8, 2013 set the price at $515,000.

[4] The Defendant was unable to provide certain documents and clear title before the closing date. Accordingly, so the deal could be completed, the parties agreed to sever the agreement into two parts: one for real property and one for chattels. The price of the land was $430,000. The price of the chattels was $85,000.

[5] The transfer of the real property completed. Before the asset transfer could be completed, however, the Defendant’s corporate charter was dissolved. The parties agreed that for $1 consideration, the $85,000 the Plaintiff paid to purchase the chattels was to be held in trust by the Defendant’s lawyer until certain conditions were satisfied. These conditions were contained in paragraph 1 of the agreement and were:

a) The corporate status of the Defendant was to be reinstated;

b) The Defendant was to provide an HST Clearance Certificate;

c) The Defendant was to provide appropriate corporate documentation to give effect to the APS and all necessary resolutions, consents and directions;

d) The Defendant was to provide a Clearance Certificate under the WSIB (Purchase Certificate); and

e) The Defendant had to comply with the terms of the APS.

[6] All of these conditions were to be satisfied by six months, or June 12, 2014. If not, the Defendant’s lawyer was required to return the $85,000, the APS was to be considered void, and the Defendant was entitled to retrieve its physical assets. The Plaintiff, however, was entitled to keep the phone number, e-mail and website.

[7] Other than the reinstatement of the Defendant’s corporate status, the conditions were not satisfied by June 12, 2014.

[8] On April 20, 2014, the Defendant advised the Plaintiff that the corporation’s registration was reinstated and the corporation was now active. On April 24, the Plaintiff’s counsel advised that items b) to d) of paragraph 1 of the Agreement were still outstanding.

[9] By June 12, 2014, items b) to d) of paragraph 1 of the Agreement were still outstanding. On June 23, the Plaintiff’s lawyer wrote and demanded return of its $85,000. Defence counsel responded on June 24 saying that he had filed documents with the WSIB and CRA that were necessary to fulfill the conditions but was still waiting for a response. He asked for a 30 day extension to satisfy the conditions. Nothing was attached to the letter.

[10] On June 27, Plaintiff’s counsel advised that as Defendant’s counsel had not attached any proof of the documents the Defendant’s counsel mentioned, there would be no extension. He followed up on July 2 for a reply his June 27 letter. In response, Defendant’s counsel said he was resending the CRA and Corporate documentation. On July 4, Plaintiff’s counsel advised that the WSIB clearance and the HST clearance were still outstanding, and the CRA letter provided, was late. Negotiations continued based on promises to deliver the missing documents. By August 1, 2014 the Defendant had still not provided ownerships for certain vehicles that were to be transferred. Without the ownerships the Plaintiff could not re-plate the vehicles, which were towed for not being plated. The Plaintiff demanded return of $65,000 failing which it would sue. It is clear that by August 1, the Plaintiff considered the transaction null and void.

Position of the Plaintiff:

[11] Is there a genuine issue requiring a trial?

[12] The Plaintiff submits that there is no genuine issue requiring a trial. The Defendant breached its contract and the return of the $85,000 is the agreed upon remedy.

[13] The Plaintiff acknowledges that the Defendant made efforts to obtain the necessary documentation, but says that the Defendant failed to inform the Plaintiff of their progress or to complete the deal in time contemplated.

[14] The Plaintiff submits that being provided these documents and being notified of their progress was fundamental to this contract. That is why they conditions were placed in the contract. These conditions were meant to provide comfort to the Plaintiff. They were meant to ensure the Plaintiff knew the nature of the assets being purchased and their associated liabilities. A failure to communicate compliance with the conditions within the agreed upon period was a breach of a fundamental term of the contract. Both performance of the conditions and communication of that performance were fundamental to the contract.

[15] The Plaintiff submits that the following conditions in paragraph 1 were not complied with:

a) An HST Clearance Certificate was not provided before the deadline;

b) Corporate documentation giving effect to the APS and all necessary resolutions, consents and directions were not provided before the deadline;

c) A WSIB Purchase Certificate was not provided; and

d) The Defendant did not comply with the terms of the APS.

[16] The Plaintiff argued only the failure to meet b) and d).

[17] With regards to the HST Clearance Certificate, it seems clear that a letter of comfort sufficient to satisfy this condition was provided; it was simply provided after the agreed upon deadline.

[18] With regards to the WSIB Purchase Certificate, the Defendant provided a Statement of Account. This is not equivalent to a Purchase Certificate. In any event, the Statement of Account was provided after the deadline.

[19] The Plaintiff pleads that the parties reached an agreement with the assistance of counsel. They were free to contract as they did, and they intended to make strict compliance with the conditions a fundamental term of the contract.

[20] The Plaintiff relies on the agreement to return the $85,000 and keep the soft assets contemplated, because of the Defendant’s failure to perform the contract. The Plaintiff submits this is analogous to a wrongful dismissal where there is a fixed term of employment: the damages in the event of breach were already agreed upon.

Position of the Defendant:

[21] The Defendant says that the Plaintiff has kept most of the Defendants’ assets and now demands return of the entire of the Plaintiff’s money.

[22] The Defendant submits that there are genuine issues requiring a trial, although it acknowledges there was a breach of the contract. It characterizes its breach of contract and minor and technical. The Plaintiff got all the documents it requested; except that one of them was provided 21 days late. The Defendant submits that this was not a fundamental breach that destroyed the entire purpose of the contract. It did not deprive the Plaintiff of substantially the whole benefit of the contract.

[23] The Defendant says that the following issues require a trial:

a) The contract is vague and requires evidence.

b) Was the $1 consideration included in or excluded from the $85,000? Was either sum ever paid.

c) The Plaintiff must prove his damages. Only rescission entitles the Plaintiff to return of his funds. Otherwise, he must prove his damages in the normal course.

d) The Defendant’s breaches were technical. The parties did not say that any technical breach results in forfeiture of the $85,000.

e) Damages must be proportional to the breach. There is no evidence that the Plaintiff suffered damages of $85,000. Further, damages must be actual. Here, they are not.

Disposition:

[24] There is no genuine issue for trial. The motion for Summary Judgment is granted. The Defendant will return to the Plaintiff its $85,000.

Analysis:

The Test on a Summary Judgment Motion.

[25] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada concluded that summary judgment motions must be granted whenever there is “no genuine issue requiring a trial.” The court indicated, at para. 49, that the test under Rule 20.04 would be satisfied if the judge could reach “a fair and just determination on the merits of a motion for summary judgment.”

[26] I adopt Justice Perell’s analysis of summary judgment jurisdiction and powers as set out in Canada Mortgage and Housing Corporation v Greenspoon, 2015 ONSC 6882. Perell J. said:

[21] As a matter of procedure, rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if: “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[22] With amendments to Rule 20 introduced in 2010, the powers of the court to grant summary judgment have been enhanced. …

[23] In Hryniak v. Mauldin, 2014 SCC No. 7, the Supreme Court of Canada held that on a motion for summary judgment under Rule 20, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers enacted when Rule 20 was amended in 2010. The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.

[24] If, however, there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under rules 20.04(2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if their use will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[25] Hryniak v. Mauldin encourages the use of a summary judgment motion to resolve cases in an expeditious manner provided that the motion can achieve a fair and just adjudication. Speaking for the Supreme Court of Canada, Justice Karakatsanis opened her judgment by stating:

Ensuring access to justice is the greatest challenge to the rule of law in Canada today. Trials have become increasingly expensive and protracted. Most Canadians cannot afford to sue when they are wronged or defend themselves when they are sued, and cannot afford to go to trial. … Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.

[26] At para. 22 of her judgment in the companion case of Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, Justice Karakatsanis summarized the approach to determining when a summary judgment may or may not be granted; she stated:

Summary judgment may not be granted under Rule 20 where there is a genuine issue requiring a trial. As outlined in the companion Mauldin appeal, the motion judge should ask whether the matter can be resolved in a fair and just manner on a summary judgment motion. 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. If there appears to be a genuine issue requiring a trial, based only on the record before her, the judge should then ask if the need for a trial can be avoided by using the new powers provided under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice.

[27] Justice Corbett provided a useful summary of the Hryniak v. Mauldin approach in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, where he stated at paras. 33 and 34:

33. As I read Hryniak, the court on a motion for summary judgment should undertake the following analysis:

(1) The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;

(2) On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;

(3) If the court cannot grant judgment on the motion, the court should:

(a) Decide those issues that can be decided in accordance with the principles described in (2), above;

(b) Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;

(c) In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.

34. The Supreme Court is clear in rejecting the traditional trial as the measure of when a judge may obtain a "full appreciation" of a case necessary to grant judgment. Obviously greater procedural rigour should bring with it a greater immersion in a case, and consequently a more profound understanding of it. But the test is now whether the court's appreciation of the case is sufficient to rule on the merits fairly and justly without a trial, rather than the formal trial being the yardstick by which the requirements of fairness and justice are measured.

[28] Hryniak v. Mauldin does not alter the principle that the court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial. The court is entitled to assume that the parties have respectively advanced their best case and that the record contains all the evidence that the parties will respectively present at trial: Dawson v. Rexcraft Storage & Warehouse Inc., [1998] O.J. No. 3240 (C.A.); Bluestone v. Enroute Restaurants Inc. (1994), 18 O.R (3d) 481 (Ont. C.A.); Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R. 372 at para. 11. The onus is on the moving party to show that there is no genuine issue requiring a trial, but the responding party must present its best case or risk losing: Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 255 (Gen. Div.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.).

[27] I should add that while I adopt Perell J.’s statement above, I add one qualification. There is no doubt that the parties to a summary judgment motion are deemed to have put their best foot forward. In my view, however, that assumption does not apply in those very rare cases where it is clear to the judge hearing the motion that the parties have evidence on an issue (i.e., not that they will have it later) which they have failed to put in the record, and where doing justice between the parties requires the evidence to be brought forward.

[28] I turn now to the Defendant’s submission that there are issues that require a trial.

Is the Agreement ambiguous?

[29] No. The Defendant agreed to provide certain things to the Plaintiff by June 12, 2014, including a clearance certificate under the WSIB (also known as a “Purchase Certificate”) and a clearance certificate with respect to HST. It is clear that the HST certificate was provided 21 days late. It is also clear that while the Defendant provided a WSIB statement of account, it never provided the WSIB Purchase Certificate.

Are these breaches technical or immaterial?

[30] No. Inferentially, they are central to the deal. That is why the failure to perform them meant that the deal was void.

Was there a failure of consideration?

[31] This issue was raised in argument almost as an after-thought. The question was raised as to whether the $1 consideration was ever paid. I dismiss this argument for two reasons. First, the consideration for the Agreement formed two parts: the payment of $1, and the payment of $85,000 to be held in trust. The latter was paid, of which there is no doubt. If the former was not paid, it was de minimus.

[32] Second, if it is the Defendant’s position that the $1 was ever paid, it led no evidence in this respect. It bears the onus of proving this affirmative defence.

Must the Plaintiff Prove Damages?

[33] No. The Plaintiff is entitled to treat the transaction at an end. It did so. It is entitled to return of its payment of $85,000. Likewise, there is no duty to mitigate. The Plaintiff admits that the Defendant is entitled to return of its chattels. The Defendant says that it is unfair for the Plaintiff to keep the soft assets. I disagree. The provision for the surrender of the soft assets on termination of the agreement was a negotiated term. The parties are entitled to reach such an agreement (see Bowes v. Goss Power Products Ltd., 2012 ONCA 425). Since the Plaintiff is operating a similar business to that operated by the Defendant out of the premises the former purchased from the latter, the term is reasonable on its face.

An Unanswered Question That Requires the Trial:

[34] There is one issue that I cannot resolve on a summary judgment motion: the Defendant’s counterclaim.

[35] In the counterclaim the Defendant says that if the transaction is at an end, the Plaintiff has used the Defendant’s assets for two years, and continued to operate the business. The Defendant has suffered damages as a result.

[36] Under the special powers under R. 20, I order that there shall be a 2 day hearing on liability and quantum of damages in the Counterclaim. I limit the hearing to 2 days in part because the evidence should be limited and because this is proportional given the assets in issue.

[37] I am seized of this matter. If the parties cannot resolve this question within 30 days, they are to make arrangements with the trial coordinator for a 2 day hearing before me.

[38] Costs are reserved until after the hearing above.

Trimble J.

Released: August 5, 2016