Court File and Parties

COURT FILE NO.: CV-16-556607 DATE: 20180831 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BLACKJET INC., Plaintiff AND: SKYLINE INVESTMENTS INC., SKYLINE ESPLANADE CORP., SKYLINE EXECUTIVE ACQUISITIONS INC., SKYLINE PORT MCNICOLL DEVELOPMENT, SKYLINE BLUE MOUNTAIN DEVELOPMENT, and SKYLINE HOTEL AND RESORT, Defendants

BEFORE: Dietrich J.

COUNSEL: David A. Schatzker, for the Plaintiff/Moving Party Rob Winterstein, for the Defendants/Responding Parties

HEARD: August 16, 2018

Endorsement

[1] The plaintiff Blackjet Inc. (“Blackjet”) brings a motion for summary judgment in its action against the defendants Skyline Investments Inc. et al. for unpaid fees. Blackjet operates as an advertising agency. The defendants carry on business as developers of resort properties across Ontario.

[2] Blackjet provided marketing and other services to promote the defendants’ resort properties. The services were provided pursuant to an Agency Agreement dated January 6, 2015. The defendants terminated the Agency Agreement in May 2016 and Blackjet brought a claim for amounts owing by the defendants.

[3] In its statement of claim, Blackjet claims amounts owing for unpaid monthly invoices, a retainer cancellation fee, and late payment fees.

[4] On the motion, Blackjet abandoned its claim for a retainer cancellation fee and seeks $243,190.73 comprised of unpaid monthly invoices ($195,935.22); ii) a reconciliation fee ($35,675); and iii) late payment fees ($11,580.51).

[5] The defendants dispute that they owe Blackjet $243,190.73. They submit that they are entitled to certain deductions from this amount for fees to which the plaintiff is not entitled in accordance with the terms of their business arrangement.

The Agency Agreement

[6] The Agency Agreement was operative from January 6, 2015 until it was terminated by the defendants in May 2016. The relevant provisions of the Agency Agreement are as follows:

5. Agency Compensation, Travel & Hourly Reconciliation Client hereby agrees to pay a Professional Services Fee of $12,000/month which shall be paid in 24 monthly installments. Based on a total of 2400 hours. Time costs will be reconciled between agency and client on a monthly basis. Should agency services exceed this time input, the client agrees to compensate the agency for their time based on the agreed upon hourly rate. Conversely, should agency time consistently be unutilized, the agency agrees to compensate the client based on the agreed upon hourly rate. Expenses that may accrue, such as delivery expenses or couriers, may not be able to be accurately estimated in advance of production, and shall not be included in the estimates, and shall be billed separately. The client agrees to reimburse all travel expenses at cost +5%. Vehicle expenses will be reimbursed at $0.52/km. The client also agrees to pay all invoices within 45 days of the invoice date and will be subject to a 5% penalty on late payment. [Emphasis added.]

6. Termination Should the client or agency decide to terminate the Agency Agreement for any reason, each party agrees to provide 3 months written notice in advance of termination. In advance of termination, total hours will be reconciled to fairly normalize costs for both parties. [Emphasis added.]

[7] Essentially, the Agency Agreement offered Blackjet 2400 hours of marketing work over two years (1200 hours/year), or 100 hours per month at a rate of $120/hr., with the possibility of earning more should the monthly hours exceed 100. The Agency Agreement required Blackjet to give the defendants a credit should the monthly hours be fewer than 100. In addition to these services, at the request of the defendants, Blackjet took on some projects outside of the scope of the Agency Agreement. This additional project work was to be pre-approved by the defendants and billed at a blended rate of $120/hour. Blackjet was not permitted to allocate any hours spent on these projects to the 100 hours per month covered by the Agency Agreement.

The Position of the Parties

[8] The defendants submit that Blackjet is not entitled to the total amount allegedly owing as shown on the outstanding invoices. They submit that this amount should be reduced by Blackjet’s: i) alleged reconciliation fee of $35,675; ii) alleged double-billing on the Copeland House project of $25,572.80 (for 203.74 hours of work); iii) alleged double-billing on the Pavilion Sales Office project of $4,203.60 (for 31 hours of work); and iv) monthly invoice for April 2016 in the amount of $13,500 for work that was allegedly not done; as well as an amount of $26,035.20 for 192 un-reconciled hours for the months of January, February and March, 2016. These figures total $104,986.60.

[9] The defendants further submit that Blackjet breached the terms of the Agency Agreement by failing to reconcile the hours spent on the defendants’ projects on a monthly basis and by failing to appoint an account manager who would be responsible for day to day management, reporting to the defendants and budgeting.

[10] Blackjet submits that it is owed $243,190.73. In addition to the outstanding fees for hours billed, Blackjet claims the reconciliation fee. It calculates this fee by tallying the total number of hours worked for the defendants in accordance with the Agency Agreement prior to the termination of the Agreement. This number, it submits, is greater than 100 hours per month multiplied by the 16 months between January 2015 and May 2016. Blackjet submits that it worked 1,646 hours in 2015 and at least 216.85 hours in 2016. There are no employee timesheets available for April and May of 2016 because the data storage provider previously retained by Blackjet to store this information advised that this data is no longer accessible. The total recorded data shows Blackjet worked 1,863.09 hours during the 16-month period, as opposed to 1600 hours if it had worked only 100 hours per month. From January 6, 2015 to May 10, 2016, Blackjet issued 16 monthly invoices of $13,560.00, each based on 100 hours per month at $120 plus tax. However, if the total hours worked are reconciled on termination, in accordance with section 7 of the Agency Agreement, Blackjet submits it would be entitled to $120 per hour for the additional 263.09 hours worked, or $31,570.80 plus HST, for a total of $35,675 as a reconciliation fee.

[11] Blackjet disputes that there was any double-billing with respect to the Copeland House project or the Pavilion Sales Office project as alleged by the defendants. It submits that the time billed in the regular monthly invoices did not relate to the specific digital media campaign for Copeland House but to other digital media services and other unrelated work. Regarding the Pavilion Sales Office project, Blackjet submits that the time billed in the regular monthly invoices did not relate to tasks specific to the Pavilion Sales Office project, but for more general marketing services.

[12] Regarding the invoice for the month of April, 2016, Blackjet submits that while it is true that no work was done in the month of April, the invoice relates to work that had been done in earlier months but had not yet been billed when the Agency Agreement was terminated.

[13] Regarding the invoices for January, February and March of 2016, in respect of which the defendants claim there were 192 un-reconciled hours, Blackjet submits that while the recorded hours for these three months was only 108.85, as opposed to 300, additional hours had been worked in prior months for which the defendants had not been billed when the Agency Agreement was terminated.

Issues

[14] The issues in this matter are:

1. Is there a genuine issue requiring a trial in this matter?
2. Are the defendants entitled to a reduction in the amount owing to Blackjet for alleged double-billing?
3. Did Blackjet breach the terms of the Agency Agreement by failing to reconcile the hours spent on the defendants’ work on a monthly basis?
4. Is Blackjet entitled to fees based on a reconciliation of hours on the termination of the Agency Agreement?

Analysis

1. Is there a genuine issue requiring a trial in this matter?

[15] Having considered the evidence filed on this motion and the submissions of counsel, I conclude that summary judgment is appropriate in this case. Most of the essential facts are not in dispute. I am able to make the necessary findings of fact, apply the law to the facts, and make a determination on the merits. I am satisfied that there is no genuine issue requiring a trial with respect to Blackjet’s claim.

[16] Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence. The Supreme Court in Hryniak v. Mauldin, 2014 SCC 7 (S.C.C.) held at para. 49:

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 where 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.

[17] The powers available under Rules 20.04(2.1) and (2.2), namely, to weigh the evidence; to evaluate the credibility of a deponent; and to draw a reasonable inference from the evidence, are presumptively available to me. They are only unavailable where it is in the interest of justice for such powers to be exercised only at trial.

[18] The court should first determine whether there is a genuine issue requiring a trial based only on the evidence in the motion record, without using the fact-finding powers set out in Rule 20.04(2.1) and (2.2). The analysis is to be done on a review of the factual record, granting summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and summary judgment would be a timely, affordable and proportionate procedure. The evidence considered by the court on a summary judgment motion need not be equivalent to that which would be available at trial but must be such that the judge is confident that the dispute can be fairly resolved.

[19] A responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit or other evidence, specific facts showing that there is a genuine issue for trial. Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried. A 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.).

2. Are the defendants entitled to a reduction in the amount owing for alleged double-billing?

[20] Based on the record before me, it is evident that Blackjet obtained approval to work on a digital campaign for Copeland House and this project was assigned project number 3015. These services were not intended to be included in the services covered by the Agency Agreement and separate invoices were issued for this service. However, the summary of hours provided by Blackjet to the defendants indicates that 188.59 hours for work on project number 3015 were included in the services provided under the Agency Agreement and included in the monthly billing.

[21] The director and founder of Blackjet, Mr. Robert Galletta, deposed that the digital campaign for Copeland House was not included in the monthly retainer and that it was a completely separate project; there was only one digital campaign for Copeland House. Blackjet has not provided compelling evidence to justify the inclusion of hours spent on project number 3015 in the regular monthly billing pursuant to the Agency Agreement. Accordingly, I find that the defendants were incorrectly charged for 188.59 hours of work related to the Copeland House project in the amount of $25,572.80 (188.59 x $120 + HST).

[22] Similarly, the Pavilion Sales Office project was separately approved by the defendants and assigned project number 2624 by Blackjet. However, 31 hours relating to project number 2624 were included in the services covered by the Agency Agreement. Again, Blackjet has failed to provide persuasive evidence of the basis on which any time spent on project number 2624 should be included in the regular monthly billing. Accordingly, I find that the defendants were incorrectly charged for 31 hours of work related to the Pavilion Sales Office project in the amount of $4,203.60 (31 x $120 + HST).

3. Did Blackjet breach the terms of the Agency Agreement by failing to reconcile the hours spent on the defendants’ work on a monthly basis?

[23] The defendants submit that Blackjet was required to reconcile the hours spent on a monthly basis in accordance with section 5 of the Agency Agreement and failed to do so. The defendants further submit that if Blackjet had reconciled the hours on a monthly basis the defendants would have been in a better position to assess the value they were receiving, to monitor the type of marketing services provided and the time spent on those services, and to evaluate whether the services were translating into tangible sales for the defendants. Mr. Galletta conceded on examination that reconciliations were not carried out monthly. The defendants further submit that Blackjet breached the contract by failing to appoint an account manager who would directly manage communications and provide an hourly budget report each month in order to optimize efficiency in Blackjet’s marketing services.

[24] Based on the record before me, two summaries of the hours spent by Blackjet were provided to the defendants during the term of the Agency Agreement. The first was sent by Mr. Galletta on June 8, 2015 and the second, an “Hourly Budget Report”, was sent by him on October 18, 2015 (including time to September 30, 2105). In his covering email on October 18, 2015, Mr. Galletta specifically notes that Blackjet has “already surpassed the contract amount with 3 months left in 2015” and states: “I’d like to meet with you to discuss this and how we can reconcile.” The Hourly Budget Report shows that Blackjet had completed 1249 hours of work to the end of September, being 49 hours over the 1200-hour allocation for the whole of 2015.

[25] The evidence is that the defendants did not demand any particulars or further information regarding the June 8, 2015 summary of hours spent. Regarding the October 18, 2015 report, the defendants did not ask for explanatory dockets or a more detailed breakdown of the time spent. There was no written objection to the hours claimed. There was only a request for an estimate of the hours spent on branding and integration as compared to specific projects. This estimate was provided.

[26] I find that Blackjet did breach the Agency Agreement by failing to provide monthly reconciliations and failing to appoint an account manager as required by the Agency Agreement. However, I also find that the defendants did not request reconciliations when they were not delivered on a monthly basis. When the summaries of hours were delivered, the defendants did not make any written objection to the hours or respond to Mr. Galletta’s offer to meet to discuss reconciliation. In his email covering the October 18, 2015 report, Mr. Galletta specifically alerted the defendants to the fact that Blackjet was well over budget on the hours for 2015. Notwithstanding, the defendants did not protest or ask for detailed time dockets. The defendants continued to send new work to Blackjet. Accordingly, I see no basis on which to reduce Blackjet’s fees based on these technical breaches of the Agency Agreement. The defendants were well aware of the breaches and took no action to enforce their rights under the Agency Agreement when they had the opportunity to do so.

4. Is Blackjet entitled to additional fees based on a reconciliation of hours on the termination of the Agency Agreement?

[27] Blackjet claims additional fees of $35,675, as a reconciliation fee, on the basis that it provided 263.09 hours of additional service (above the 100 hours/month over 16 months). In light of my findings relating to Blackjet’s double-billing, the 188.59 hours and the 31 hours incorrectly charged for the Copeland House project and the Pavilion Sales Office project, respectively, must be deducted from the 263.09 additional hours. This leaves 43.5 additional hours with a value of $5,898.60, including HST, as a reconciliation fee.

[28] The defendants submit that Blackjet is not entitled to any reconciliation fee because it failed to include a claim for such a fee in its statement of claim. Instead, it sought a retainer cancellation fee, which, as noted, it did not pursue on this motion. Had this matter proceeded to trial, the trial judge would have had discretion to permit Blackjet to amend its pleadings to include its claim for a reconciliation fee. I find it more likely than not that Blackjet would have been permitted to amend its pleadings to seek an additional amount for work done in accordance with the Agency Agreement. On a plain reading of section 7 of the Agency Agreement, upon termination of the Agency Agreement by either party, the total hours are to be reconciled to “fairly normalize costs for both parties.” I find that Blackjet is entitled to rely on this provision as the basis for its entitlement to the reconciliation fee for the additional hours worked and not billed as part of the monthly billings.

[29] Blackjet also relies on this provision to justify the fees billed on the invoices for January, February, March, and April, 2016. For the months of January, February and March, 2016, Blackjet provided fewer than 300 hours of service in total; and for the month of April, the record shows that Blackjet provided no services at all. However, in calculating the hours of service provided over the course of the 16 months during which the Agency Agreement was operative, Blackjet demonstrates that it provided, on average, more than 100 hours in each month. Accordingly, Blackjet submits that it is therefore entitled to be compensated by the defendants for the additional time based on the agreed upon hourly rate. I agree. Pursuant to section 7 of the Agency Agreement, Blackjet is entitled to be paid for all hours worked in accordance with the terms of the Agency Agreement prior to its termination. The purpose of section 7 is to reconcile the hours upon termination of the Agency Agreement so that Blackjet is neither underpaid nor overpaid for its work and the defendants are neither overcharged nor undercharged for the services provided.

Disposition

[30] Blackjet is entitled to judgment in its action in the amount of $180,660.29. This sum represents $172,057.42 in unpaid fees and $8,602.87 in late fees. I arrive at the $172,057.42 figure by taking $231,610.22 (being the total amount of the unpaid invoices of $195,935.22 plus the reconciliation fee of $35,675) and deducting from it: i) $25,572.80 for double-billing on the Copeland House project; ii) $4,203.60 (for double-billing on the Pavilion Sales Office project); and iii) $29,776.40 (the reduction of excess hours above 1200/year from 263.09 to 43.5 owing to double-billing on the above-noted projects), which leaves a balance of $172,057.42. The late fees are calculated at 5% of this amount.

[31] Blackjet shall also be entitled to pre-judgment interest and post judgment interest at the current prescribed rates. Post judgment interest shall run from the date of this endorsement.

Costs

[32] Given that success was divided on this motion, I make no award as to costs.

Dietrich J.

Date: August 31, 2018