SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ANDREAS HAAS, Plaintiff
AND:
LUCA VISCARDI, Defendant
BEFORE: Ferguson J.
COUNSEL: Andrew Ottaway, for the Plaintiff
Paul Gemmink, for the Defendant
HEARD: April 13, 2018
ENDORSEMENT
The plaintiff, Andreas Haas (“Haas”), brings this motion for summary judgment to enforce a settlement agreement (the “agreement”) with the defendant, Luca Viscardi (“Viscardi”).
The agreement required that Viscardi pay $30,000 to Haas and that Viscardi was required to consent to judgment for liquidated damages of $60,000 if he failed to pay the $30,000 within the time required. Viscardi paid $10,000, but failed to pay the further $20,000. The main issue on this motion is whether the relevant provisions of the agreement are enforceable.
For the following reasons, I have determined that the agreement is enforceable, and that Viscardi is liable for the sum of $60,000.
Background
Haas commenced a claim against Viscardi and two other persons in 2015 seeking $200,000 in damages for, among other things, fraudulent misrepresentation. The Court of Appeal eventually stayed the claim against the two other persons, but not Viscardi.
In 2016, Haas and Viscardi negotiated the agreement. The agreement was concluded on December 15, 2016. Both Haas and Viscardi were represented by lawyers.
The agreement contained the following relevant provisions:
The payment schedule at para. 1 (b), provided that:
Viscardi shall pay:
i. $10,000.00 on or before February 15, 2017; $10,000.00 on or before April 15, 2017; and
$10,000.00 on or before June 15, 2017;
Para. 2 provided for a “cure period”:
“[…] If any breach of the payment schedule is not cured within 10 calendar days (the “cure period”), the non-curing defendant shall be considered and will be automatically in breach of this settlement agreement.
Paras. 7 and 8 made the following provisions for liquidated damages:
[...] (b) If Viscardi fails to make the payment contemplated in paragraph 1(b), fails to cure any default within the cure period and/or fails to sign any documents required to be signed [...] he shall be liable to the plaintiff for, and shall immediately pay to the plaintiff, the liquidated amount of $60,000 inclusive of damages, costs, taxes and interest for breach of this settlement agreement, which amount the parties agree is a fair and accurate assessment of the plaintiff’s damages attributable to Viscardi’s several liability or proportionate share of joint liability claimed by the plaintiff in the action […]
The defendants hereby irrevocable instruct their lawyers [...] to accept service of any statement of claim in an action brought by the plaintiff seeking payment from any of the defendants for liquidated damages as described in paragraph 7 above, plus all fees, costs and expenses above described, and the defendants hereby attorn to the jurisdiction of the Superior Court of Ontario with respect to any such claim for liquidated damages, and hereby consent to judgment in respect of any such claim for liquidated damages, plus all fees, costs and expenses above described on a full indemnity basis.
Para. 7 also contains the following provision on liability for fees:
[...] (b) If Viscardi fails to make the payment contemplated in paragraph 1(b), fails to cure any default within the cure period and/or fails to sign any documents required to be signed [...] he shall be liable to the plaintiff for […] all fees, costs and expenses (including legal expenses incurred by the plaintiff on a complete indemnity basis) incurred by the plaintiff resulting from Viscardi’s failure to make the payment”.
The agreement also contained provisions acknowledging that the negotiations were bona fide, that the parties had received independent legal advice, and that Haas agreed to a dismissal of the fraud action.
Viscardi initially honoured the agreement by paying the first installment of $10,000 on February 16, 2017. However, he failed to make the next payment on April 5, 2017, and failed to cure the default within the cure period.
Viscardi’s former lawyer, Camp, stated that Viscardi understood that Haas would take out the consent judgment. However, Viscardi changed lawyers and proceeded to take the position that clauses 7(b) and 8 were unenforceable.
Issues
- There are three issues to be determined on this motion:
(a) whether the action can be decided by summary judgment;
(b) whether the consent judgment clause is or is not a penalty clause;
(c) whether Viscardi should be granted relief on an equitable basis or whether Viscardi should pay a reduced amount in accordance with s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43).
Issue (a): Whether the action can be decided by summary judgment
- Counsel and I agree that this is an appropriate matter to be disposed of by summary judgment. Therefore, it is not necessary to consider the issue further.
Issue (b): Whether the consent judgment contains a penalty clause
Contracts often contain clauses stipulating a remedy in the event of breach. The traditional common law rule is that such clauses will be enforced as long as they represent a genuine attempt to pre-estimate the loss arising from the breach: H.F. Clarke Ltd. v. Thermidaire Corp., 1974 CanLII 1356 (SCC), [1976] 1 S.C.R. 340, at para. 28; John D. McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), at p. 970. Where, however, such a clause is not based on an estimate of damages, and represents a sum that is “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”, the clause will be considered an unenforceable “penalty clause”: H.F. Clarke Ltd. v. Thermidaire Corp., [1976] 1 S.C.R. 340, at para. 28; 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership, (2005) 2005 CanLII 23216 (ON CA), 76 O.R. (3d) 362 (Ont. C.A.), at para. 24.
I note that in Torrey Springs II, the Ontario Court of Appeal suggested that the law should be adjusted to address both penalties and forfeitures under an equitable unconscionability standard – i.e., upholding penalties and forfeitures unless they are somehow oppressive. However, Sharpe J.A. stated at para. 36 that the question should be left to “another day”. Armstrong J.A. made a similar statement in Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 93 O.R. (3d) 1, P. Armstrong J.A. at para. 37. Therefore, the common law of penalty clauses remains in force in Ontario.
The question I must ask, then, is whether the liquidated damages clause in this agreement provided for a sum that was extravagant and unconscionable in comparison to the greatest loss that could conceivably follow from a breach at the time of the agreement’s negotiation.
As the Court of Appeal stated in Infinite Maintenance Sytems Ltd. v. ORC Management Ltd., (2001) 2001 CanLII 24082 (ON CA), 139 O.A.C. 331 (Ont. C.A.) at para. 14, the “most important factor” in determining whether the contractual clause provides a genuine pre-estimate of damages is “quantum”. In this case, Haas gave up his damages and costs claims in the amount of $200,000 against Viscardi in the fraud action in return for the certainty of Viscardi’s payment under the agreement. $60,000 is a more than a fair estimate of Haas’ damages for Viscardi’s breach of the agreement. It is slightly less than one‑third of the $200,000 Hass claimed against the three initial defendants. This amount cannot be said to be “extravagant” or “unconscionable”.
I note that a similar clause in another agreement was recently upheld by this court in Chilikoff v. West Capital Placer Inc., 2016 ONSC 6354, 272 A.C.W.S. (3d) 734. In that case, the plaintiffs made a claim against the defendants in the amount of $325,000. The parties entered a settlement agreement that provided for payment of $75,000 in four instalments. Failure to pay instalments on time allowed the plaintiffs to enforce consent to judgment in the amount of $150,000 without set-off of instalments. In her judgment, Kristjanson J. noted that the fact that this was a settlement agreement was important to the analysis. The parties had signed an agreement compromising claims they could otherwise pursue in in civil litigation in return for the certainty of payment. This is also true in the case at bar.
The second aspect of determining whether the impugned clause in this case is “unconscionable” is the manner in which the agreement was made. A finding of unconscionability requires a finding of inequality of bargaining power and a finding that the terms of an agreement have a high degree of unfairness: Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 243 O.A.C. 6, at para. 45; see also Nguyen v. Tran, 2012 ONSC 2418, 20 C.L.R. (4th) 60 at para. 63.
Courts generally look to whether a party has proven the following four elements in order to establish unconscionability: (a) a grossly unfair and improvident transaction; (b) a lack of independent legal advice or other suitable advice; (c) overwhelming imbalance in bargaining power caused by victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and (d) other party's knowingly taking advantage of this vulnerability: see, for example, Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, 228 O.A.C. 232, at para. 38.
I agree that Viscardi does not meet any of the elements of unconscionability:
(a) the transaction was not “grossly unfair and improvident”. The agreement was the result of lengthy, bona fide negotiations. The agreement brought Viscardi resolution from a costly fraud action seeking $200,000, plus costs. Viscardi needed to comply with his obligations and he knew the consequence if he breached the agreement. Camp confirmed, after Viscardi breached the agreement, that “Luca understands that Mr. Haas will take out the consent judgment for $60,000 under the minutes of settlement and exercise his remedies to collect on that judgment”;
(b) Viscardi did not suffer from a “lack of independent legal advice or other suitable advice” as Viscardi was represented by Camp during the negotiation and signing of the agreement. Viscardi acknowledged when signing the agreement that he had received the benefit of independent legal advice, that he was represented by “competent counsel”, and that he understood and freely and voluntarily accepted each and every term of the agreement;
(c) there was no “overwhelming imbalance in bargaining power” and there was no evidence that Viscardi was vulnerable. Indeed, Viscardi appears to be a sophisticated businessman. The Court of Appeal (in its reasons for the decision on appeal of the stay motion in the fraud action) noted that in other business transactions, Viscardi showed a sign of sophistication, not vulnerability;
(d) there is no evidence that Viscardi was vulnerable or that Haas took advantage of any vulnerability.
This is a case of two competently advised parties with equal bargaining power entering freely into a settlement. Both Haas and Viscardi signed the agreement, which clearly set out their rights and obligations. It is not unconscionable to uphold this agreement.
In conclusion, I find that this term of the agreement should not be considered a penalty clause, as the amount is neither unconscionable or extravagant in relation to the damage suffered by the breach. Nor was the manner in which the agreement was reached oppressive. This clause in enforceable against Viscardi.
Issue (c): Equitable Relief and Relief under s. 98
Under s. 98 of the Courts of Justice Act, a court may grant relief against penalties and forfeitures on such terms as to compensation or otherwise are considered just.
I decline to order such relief. Even if it this were a penalty clause, which I find it is not, it is not extravagant or unconscionable for the reasons above. Nor is there any evidence that it would now be unconscionable to enforce the clause.
Costs
- I am prepared to receive the plaintiff’s submissions on costs within 10 days and the defendant’s within 10 days thereafter. They can be sent by email to Lorie.Waltenbury@ontario.ca.
J.E. Ferguson J.
Date: May 8, 2018