CITATION: OLA Staffing v. 2156775 Ontario Inc., 2017 ONSC 7318

COURT FILE NO.: CV-14-498715

DATE: 20171211

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

OLA STAFFING INC.

Plaintiff

– and –

2156775 ONTARIO INC. o/a D’ANGELO BRANDS

Defendant

Kathryn J. Bird and Kathleen D. Tate, for the Plaintiff

G.N. Hemsworth, for the Defendant

HEARD: September 28, 2016 and June 21, 2017

REASONS FOR JUDGMENT

kristjanson j.

[1] From 2008 to 2013, OLA Staffing Inc. supplied temporary workers to the manufacturing plant operated by the defendant D’Angelo Brands. It brings this motion for summary judgment on a series of unpaid invoices for services of temporary employees provided to the defendant in January-February, 2013. The defendant, D’Angelo Brands, has admitted liability for these unpaid invoices. However, D’Angelo Brands raises an equitable set-off defence, based on the OLA Staffing’s alleged participation in fraud, negligence or breach of contract relating to a series of invoices from the period 2008-2013, involving different workers. D’Angelo Brands’ Night Manager allegedly arranged for three “phantom labourers” who did not work at the plant, but signed timesheets authorizing their hours. The timesheets were then remitted to OLA Staffing, OLA Staffing paid the phantom labourers, invoiced D’Angelo Brands for labour not supplied. OLA Staffing claims it had no knowledge of the scheme, which was entirely controlled by the D’Angelo Brands Night Manager. D’Angelo Brands argues that summary judgment should not be granted in light of the equitable set-off defence, and the need for trial on the set-off.

Factual Background

[2] OLA Staffing is a personnel placement agency that provides temporary staffing and other services to Ontario businesses. The temporary staff provided are employed by OLA Staffing, but they follow the assignments and directions made by OLA Staffing’s clients. OLA Staffing contracted with D’Angelo Brands to provide temporary personnel in its Mississauga plant starting May 2008.

[3] D’Angelo Brands began using OLA Staffing temporary labour in 2008, with a written contract confirmed in February, 2010. With respect to temporary employees, the “Terms and Guarantee” portion of the contract provides that:

The Client also agrees that OLA Staffing Inc. shall not be held responsible for shortages or losses resulting from damage, theft, loss, or negligence on the part of OLA Staffing Inc. employees.

Timesheets are to be authorized with a client’s signature and submitted to OLA Staffing Inc. so they can be processed weekly thus generating a pay cheque for the employee and an invoice for the client.

[4] The “Agreement To and Confirmation of Fees” portion of the contract provides that all invoices are due in net 15 days, and all overdue invoices are subject to a 1.5% finance charge every 30 days.

[5] D’Angelo Brands would request temporary personnel for general labour duties at its manufacturing plant for all shifts. The requests for temporary personnel on the night shift were made by a D’Angelo Brands employee, Mr. Ayodeji Awotunde (Awotunde), the Night Manager. Awotunde would send a request for temporary staff by email or phone call to OLA Staffing. If temporary personnel did not arrive as scheduled for a shift, Awotunde would advise OLA of that fact.

[6] Pursuant to the contract, D’Angelo Brands was responsible for submitting timesheets approved by D’Angelo Brands to OLA Staffing every week. The timesheets recorded the hours worked by OLA staff. OLA Staffing did not independently verify the hours recorded on the timesheets, but relied on the D’Angelo Brands staff member authorized to submit the timesheet. When a staff member sent by OLA did not appear for his or her shift, the D’Angelo Brands employee would notify OLA Staffing so that the employee would not be paid for time he or she did not work. OLA Staffing would also from time to time call employees to check in on them.

Unpaid Invoices January 2013 to March 2013

[7] The claim involves invoices by OLA Staffing for temporary personnel provided to D’Angelo Brands between January 7, 2013 and March 3, 2013. Eight separate invoices were rendered for temporary personnel services in this time, for a total amount of $173,091.16 (the “unpaid invoices”).

[8] D’Angelo Brands admits that it received the services, and that it has not paid the invoices. D’Angelo Brands has claimed that the amounts owed under the unpaid invoices should be set-off against amounts D’Angelo Brands paid to OLA Staffing under a dishonest scheme in a prior period as discussed below. There is otherwise no issue taken with the amount of the unpaid invoices and the fact that they are owed.

Dishonest Scheme August 2008 - December 2013

[9] From August, 2008 to January, 2013, D’Angelo Brands Night Manager Awotunde requested temporary personnel from OLA Staffing to perform general labour duties at the manufacturing plant during the overnight shift. In February 2013, D’Angelo Brands advised OLA Staffing that they had discovered that Awotunde was involved in a dishonest scheme.

[10] The scheme alleged by D’Angelo Brands involved the following elements:

(1) The requests for temporary night-shift workers were made by Awotunde.

(2) Awotunde requested specific workers by name. Commencing in August, 2008 he began to request George Gudu, Reuben Edorodion, and Rosemond Effah (the “phantom labourers”) amongst other workers.

(3) At the request of Awotunde, OLA Staffing assigned George Gudu, Reuben Edorodion, and Rosemond Effah to work at D’Angelo Brands on the night shift.

(4) OLA Staffing confirmed by email the names of workers to be sent on a given shift as a result of Awotunde’s request. Other D’Angelo Brands employees were copied on these emails including the Office Manager and Frank D’Angelo, CEO.

(5) Awotunde completed and submitted time sheets for hours worked by Edorodion, Gudu and Effah, even though the three workers did not work at the plant.

[11] On the basis of the hours recorded by Awotunde on the timesheets, OLA Staffing would pay the workers and invoice D’Angelo Brands for services rendered by the workers.

[12] OLA Staffing relied on the timesheets sent by Awotunde, and was never advised by D’Angelo brands that the hours recorded on the timesheets were inaccurate until February, 2013.

[13] D’Angelo Brands contacted the Peel Regional Police, which conducted an investigation; charges were eventually laid. On about November 26, 2013, the Peel Regional Police Fraud Bureau confirmed that OLA Staffing was not involved in the misconduct of Awotunde, and/or Edorodion, Gudu and Effah.

[14] On this summary judgment application, Edorodion has admitted he did not work the hours invoiced. However, there is no admissible evidence regarding Gudu and Effah.

Other Actions

[15] D’Angelo Brands commenced an action against Awotunde, Gudu, Edorodion, and Effah. Awotunde subsequently committed suicide, and D’Angelo Brands has been unable to locate a representative of the estate in order to continue with the action. D’Angelo Brands settled with Edorodion as discussed in the next section.

Edorodion Minutes of Settlement Not Disclosed

[16] The summary judgment claim was partially argued in September, 2016 at which point it was adjourned because D’Angelo Brands had been unable to obtain the Crown disclosure brief in light of pending criminal dates. After obtaining at least some of the Crown disclosure brief, the hearing of the summary judgment was re-scheduled. It was during this adjournment that D’Angelo Brands, for the first time, produced a settlement it had reached with Edorodion in August, 2015.

[17] D’Angelo Brands has admitted that of the $155,606 claimed, $84,856.16 is on account of payments made by D’Angelo Brands to OLA Staffing for Edorodion’s labour. The terms of the settlement included payment of $10,000 by Edorodion to D’Angelo Brands. The Minutes of Settlement state:

The Plaintiff, D’Angelo, acknowledges that the within settlement is in complete satisfaction of any and all amounts owing to him from Reuben Edorodion.

[18] Despite OLA Staffing’s request for full disclosure of all documents relating to D’Angelo Brands quantification of the damages underlying the set-off claimed, D’Angelo Brands withheld the fact from OLA Staffing that it had reached a settlement with Edorodion in 2015 with respect to monies that are at issue in this litigation. The settlement has a direct impact on the calculation and quantification of D’Angelo Brands’ alleged damages.

[19] OLA Staffing argues that D’Angelo Brands improperly failed to disclose the existence of the settlement, and that “D’Angelo Brands continued its claim for set-off against OLA Staffing for the very same funds that D’Angelo Brands was willing to forgo in its settlement with Edorodion, the ultimate recipient of the money.” It was improper for D’Angelo Brands to sue for recovery of moneys it has already recovered from Edorodion ($10,000), and to fail to disclose the financial settlement which directly affects the damages which D’Angelo Brands may claim.

Equitable Set-Off Claim

[20] After this lawsuit was commenced, D’Angelo Brands raised an equitable set-off defence, claiming that it had paid OLA Staffing the sum of $155,606 for services which were not provided, plus the estimated $120,000 costs of the internal D’Angelo Brands investigation, in the total amount of $275,606.

[21] The sum of $155,606 relates to services provided by the phantom labourers, invoiced between 2008 and 2013 (the “Awotunde invoices”).

Issues

[22] The parties raise the following issues:

Issue #1: Did D’Angelo Brands breach its contract by failing to pay the eight invoices for services rendered January 7, 2013 to March 3, 2013?

Issue #2: Does D’Angelo Brands’ equitable set-off claim require a trial, or is this case suitable for summary judgment?

Issue #1: OLA Staffing Breach of Contract Claim

[23] D’Angelo Brands has breached the contract in failing to pay the eight invoices dated January to March 2013. It admits that it received the services of the temporary personnel. It has not contested liability for the plaintiff’s claim. It does not deny that the invoices are unpaid, nor does it dispute the amount of those invoices. None of those personnel were the phantom labourers. OLA Staffing is entitled to payment of these eight unpaid invoices. OLA Staffing is entitled to summary judgment for its claim, subject only to the issue of set-off.

Issue #2: D’Angelo Brands Set-Off and Summary Judgment Claim

[24] D’Angelo Brands argues that summary judgment should not issue on the plaintiff’s claim, in light of its equitable set-off defence which it argues requires a trial. I do not agree.

[25] 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." In Mayers v. Khan, 2017 ONSC 200, 2017 CarswellOnt 253, Justice Glustein summarized the Hryniak principles as follows at para. 18:

(i) Summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. It is no longer merely a means to weed out unmeritorious claims but rather a “legitimate alternative means for adjudicating and resolving legal disputes” (Hryniak, at paras. 5 and 36)

(ii) An issue should be resolved on a motion for summary judgment if the motion affords a process that allows the judge to make the necessary findings of fact, apply the law to those facts, and is a proportionate, more expeditious and less expensive process to achieve a just result than going to trial (Hryniak, at paras. 4 and 49);

(iii) On a motion for summary judgment, the judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the judge and without using the judge’s fact-finding powers. If there appears to be a genuine issue requiring a trial, the judge should then determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2) (Hryniak, at para. 66); and

(iv) The standard for determining whether summary judgment will provide a fair and just adjudication is not whether the procedure is as exhaustive as a trial, but rather “whether it gives the judge confidence that [the judge] can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Hryniak, at para. 50). A judge must be confident that he or she can fairly resolve the dispute (Hryniak, at para. 57).

[26] The court has before it a very full evidentiary record, including nine volumes of evidence. The parties have conducted examinations for discovery as well as cross-examinations on the motion. The court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (ONSC) at paras. 26-27; aff'd 2014 ONCA 878 (Ont. C.A.). I am satisfied that there is no genuine issue for trial, and confident that I can find the necessary facts and apply the relevant legal principles so as to resolve the dispute fairly.

Evidentiary Issues

[27] The amount of the set-off $275,606 includes a claim by D’Angelo Brands for the costs of investigating misconduct in the amount of $120,000. There is simply no evidence to substantiate the claim that $120,000 was expended in investigating the misconduct, and there is no requirement for a trial for set-off based on the costs of investigating alleged losses on the evidence adduced by D’Angelo Brands.

[28] The quality of the evidence on this summary judgment motion is of concern to the Court. The affidavit of Mr. Monaco contains a number of double hearsay statements such as “I am advised by [someone else] and do verily believe that she was advised by Constable Aujula….”. While hearsay may be admissible on a motion, double hearsay is inadmissible: Ontario v. Rothman’s Inc., 2011 ONSC 5356 at paras. 37 and 42. I ignore all double hearsay.

[29] Further, Mr. Monaco’s affidavit attaches a number of “Statements” made by D’Angelo Brands employees. He does not attest to his belief in the information contained in the witness statements, has not discussed the contents of the witness statements, and has not offered a statement of opinion as to the veracity of the witness statements, as required by Rule 39.01(4) when hearsay evidence is offered on a summary judgment motion. There is no satisfactory explanation provided as to why the affidavits of the individuals were not produced: there is no attempt to establish an exception to the hearsay rule. The Statements are all from D’Angelo Brands employees. The only explanation offered was that counsel did not make efforts to obtain evidence of individuals on this summary judgment motion, because counsel did not think it was necessary to do so.

[30] In a letter dated October 28, 2016 OLA Staffing raised the unfairness of not being able to cross-examine these witnesses. D’Angelo Brands could have taken steps to amend the error but chose not to do so. As the plaintiff submits, “D’Angelo Brands should not be able to submit its case on the core issues in dispute between the parties purely through inadmissible hearsay evidence.” I agree. In light of this, I do not rely on the out-of-court witness Statements for their truth: Rothman’s, paras. 36 and 40; Aria Brands Inc v. Air Canada, 2011 ONSC 4003 at paras. 23-24.

[31] I place no weight on the Statements or the double hearsay comments in Mr. Monaco’s affidavit.

Equitable Set-Off

[32] D’Angelo Brands argues that the defence of an equitable set-off constitutes a genuine issue for trial, and that the motion for summary judgment on the plaintiff’s contract claim therefore should be dismissed. This misses the reality of contemporary requirements for responding to summary judgment motions where equitable set-off is raised as a defence to a liquidated damages claim for which liability has been admitted.

[33] D’Angelo Brands has misapprehended its burden in this matter. It baldly submits, without evidentiary support, that:

[T]here is nothing in the materials submitted by the plaintiff that would give the Judge confidence in his or her conclusions or that the necessary facts can be found and applied to the relevant legal principles so as to resolve the dispute. All of the evidence necessary to support those findings of fact will have to be led at trial providing a more expeditious and less expensive means are arriving at a just result.

[34] D’Angelo Brands argues on the negligence claim, for example, that “there is no evidence provided by the plaintiff dealing with the issue of its negligence in failing to ensure that the labour for which it billed was in fact provided…”. In fact, the burden is on D’Angelo Brands to establish that a trial is required on the allegations that OLA Staffing was negligent, participated in a fraud, or breached the contract, and it simply has not done so.

No Legal Set-Off

[35] It is clear that the claim by D’Angelo Brands does not constitute a legal set-off, since that requires that both obligations must be debts, and the debts must be mutual cross-obligations. In this case, however, the claim is for unliquidated damages, and depends on establishing liability and quantification of damages. It is not a debt, and cannot be the subject of legal set-off.

Defence of Equitable Set-Off

[36] This case demonstrates the critical distinction between a counterclaim and a claim for equitable set-off as a defence. In Royal Bank v. Rizkalla, 1984 CanLII 396 (BC SC), 1984 CarswellBC 450, [1984] B.C.J. No. 2747 McLachlin, J. (as she then was) described the difference between a defence and a counterclaim, as follows at para. 9:

A defence is a contention that the plaintiff's claim is not established. It adopts one or more of the following positions:

(i) an objection on grounds of jurisdiction;

(ii) a denial of the plaintiff's allegations (traverse);

(iii) a submission that if the plaintiff's allegations are true they disclose no cause of action (demurrer); and

(iv) a submission that if the plaintiff's allegations are true there are facts which provide a legal justification for the defendant's conduct (confession and avoidance).

A counterclaim, on the other hand, is an independent action raised by a defendant, which, because of the identity of the parties, can conveniently be tried with the plaintiff's claim. While a counterclaim frequently (although not necessarily) arises from the same events as the plaintiff's claim, and while it may result in reduction of the plaintiff's claim, it is in principle an independent action.

[37] Equitable set-off, where it is established, operates as a defence to a claim. However, the requirements for equitable set-off must be met. The elements were described in Algoma Steel Inc. v. Union Gas Ltd. (2003) 63 O.R. (3d) 78, 2003 CanLII 30833 (ON CA), as follows at para. 26:

1. The party relying on a set-off must show some equitable ground for being protected against the adversary's demands.

2. The equitable ground must go to the very root of the plaintiff's claim.

3. 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.

4. The plaintiff's claim and the cross-claim need not arise out of the same contract.

5. Unliquidated claims are on the same footing as liquidated claims

[38] In Algoma Steel at para. 29, the Court of Appeal explained the necessary degree of interconnectedness between the plaintiff’s claim and the equitable set-off claim as follows:

29 It seems to me that a very helpful test is set out in a passage from the reasons of Lord Denning in Federal Commerce at p. 1078 and which was quoted with apparent approval by Wilson J. in Telford at p. 400:

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 is, 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 [emphasis added].

[39] Do the claims asserted by D’Angelo Brands directly impeach OLA Staffing’s demands, so that it would be manifestly unjust to enforce payment of the OLA Staffing unpaid invoices without taking into account the claims of D’Angelo Brands? D’Angelo Brands argues that although there are a series of invoices, there is one master contract between the parties, and as such OLA Staffing’s claims on the unpaid invoices are so closely linked to the Awotunde invoices that it would be manifestly unjust to proceed on the summary judgment without taking into account the Awotunde invoices and the set-off. I do not agree.

[40] The master contract set out the broad terms and conditions relating to the provision of workers. OLA Staffing’s claim on the unpaid invoices, however, relates to a series of weekly invoices. Each invoice is a separate sub-contract, for different workers, for a different period of time. Each invoice comes due in 15 days, and separately bears interest. The weekly invoices, including the unpaid invoices, were generated based on the weekly timesheets authorized by D’Angelo Brands and provided to OLA Staffing. D’Angelo Brands provided the information about hours of work of the labourers. There is no dispute that Awotunde’s signature on the timesheets was an authorized client signature under the contract.

[41] The eight unpaid invoices span the time period January 7, 2013 to March 3, 2013, for temporary personnel who provided labour approved by D’Angelo Brands. D’Angelo Brands continued to receive temporary labour from OLA Staffing after the date of the unpaid invoices. D’Angelo Brands paid OLA Staffing for subsequent invoices rendered under the same master contract, from March through November, 2013.

[42] The Awotunde invoices span a period from August, 2008 to January, 2013.

[43] The plaintiff’s claim was served on February 21, 2014. No claim was advanced by the defendant on the Awotunde invoices until May 9, 2014.

[44] The unpaid invoices relate to different workers, at a different time from the Awotunde invoices for which equitable set-off is claimed. There is clear prejudice to the plaintiff in the delay in collecting money that is owed to it.

[45] Like the case of Agway Metals Inc. v. Dufferin Roofing Ltd., (1991), 46 C.P.C. (2d) 133 (Ont. Gen. Div.), I find that the transactions were not sufficiently closely linked for equitable set-off to apply. In that case, the defendant had ordered sheet metal in separate shipments from the plaintiff. Each shipment was ordered separately and accompanied by an invoice for that particular shipment. The plaintiff sought summary judgment, and the defendant sought to counterclaim for defects in earlier, allegedly underweight, shipments. The court held that the earlier transactions were not so closely linked to the transactions that were the subject of the claim to give rise to equitable set-off.

[46] I do not find that the equitable set-off directly impeaches the plaintiff’s claim, or that the defence goes to the very root of the plaintiff’s claim, or that it is so clearly connected to the plaintiff’s claim that it would be unjust to permit the plaintiff to enforce it. As the Privy Council held in Government of Newfoundland v. Newfoundland Railway Co. (1888), 13 A.C. 199 (P.C.) at 212, affirmed in Holt v. Telford, [1987] 2 SCR 193, 1987 CanLII 18 (SCC) at para. 29: “There is no universal rule that claims arising out of the same contract may be set against one another in all circumstances.”

[47] The claims asserted by D’Angelo Brands are independent and free-standing. They could have been asserted by counterclaim. They meet the definition set out above of “an independent action raised by a defendant, which, because of the identity of the parties, can conveniently be tried with the plaintiff's claim.” The defendant chose not to assert a counterclaim. In so doing, the defendant assumed the risk that has materialized here – the court has found that the claims founded on the Awotunde invoices do not go to the root of the plaintiff’s claim, and that no equitable set-off is available.

[48] The defendant has failed to provide the kind of evidence essential to demonstrating that a trial is necessary on the plaintiff’s claim. Summary judgment is granted to the plaintiff.

[49] I encourage the parties to agree on costs. If they are unable to do so, then the plaintiff’s Bill of Costs and written submissions not exceeding three pages are due by December 18. The defendant is to provide a responding submissions not exceeding three pages by January 4th. If the defendant takes issue with quantum, rather than simply the scale of costs, then the defendant is to serve its Bill of Costs; otherwise I will place no weight on their submissions on quantum of costs.

Kristjanson J.

Released: December 11, 2017

CITATION: OLA Staffing v. 2156775 Ontario Inc., 2017 ONSC 7318

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

OLA STAFFING INC.

Plaintiff

– and –

2156775 ONTARIO INC. o/a D’ANGELO BRANDS

Defendant

REASONS FOR JUDGMENT

Kristjanson J.

Released: December 11, 2017