Court File and Parties

COURT FILE NO.: CV-15-539802 DATE: 20190710 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Infinite Media Ltd. Plaintiff – and – remBrand Sports Inc. (o/a Trilogy Athletes and o/a VIKTRE) and Al Steele Defendants

COUNSEL: Dora Sung, for the Plaintiff Albert Steele, self-represented and with leave to act for remBrand Sports Inc.

HEARD: May 21-23, 2019

GLUSTEIN J.

REASONS FOR JUDGMENT

Nature of action and overview

[1] This action arises out of a contract dated November 21, 2012 (referred to by the parties as the “Master Sales Agreement” or “MSA”) signed by the defendant remBrand Sports Inc. (“remBrand”) for website development and configuration services provided by the plaintiff Infinite Media Inc. (“Infinite”). At various times, remBrand operated business in its own name, and later as “Trilogy Athletes” (“Trilogy”) and currently as “VIKTRE”.

[2] The defendant, Al Steele (“Steele”) is the President of remBrand. The principal of Infinite is its Managing Director, Brad Sellors (“Sellors”).

[3] Steele acted on his own behalf at the hearing and with leave (on consent) as representative of remBrand. Infinite was represented by counsel.

[4] remBrand initially defaulted on certain monthly payments under the MSA. Under s. 11(c) of the MSA, remBrand also agreed to “pay all of Infinite’s reasonable legal and administrative expenses incurred in connection with such proceedings”.

[5] remBrand then signed a promissory note dated July 4, 2014 in the amount of $57,630, for the outstanding payments and interest under the MSA as of that date (the “Note”). Steele signed the Note as “President, CEO, and Chairman” of remBrand.

[6] Steele also signed a “Letter of Guaranty” (the “Guarantee”) by which he personally guaranteed “the full, prompt, timely, faithful and complete performance of all of [remBrand’s] financial obligations resulting from the Note”.

[7] Under the Note and Guarantee, remBrand and Steele respectively agreed to pay “[a]ll costs, expenses and expenditures including without limitation, all legal costs incurred by [Infinite] in enforcing” the Note and Guarantee.

[8] Other than one payment of $2,500 on July 22, 2014, remBrand made no payment on the Note. Steele did not make a payment under the Guarantee. The parties agree that the principal amount owing under the Note and Guarantee is $55,130 (the amount of $57,630 less the $2,500 paid). remBrand acknowledges owing that amount under the Note, and Steele acknowledges that he owes that amount under the Guarantee.

[9] Under the MSA, there remained additional future monthly payments owed by remBrand (the “Future Payments”). remBrand did not make any such Future Payments.

[10] Consequently, on September 5, 2014, Sellors, on behalf of Infinite, sent a letter to Steele as “President, CEO, Chairman” of “Trilogy Athletes a.k.a. remBrand Sports”, entitled “Notice of Material Breach under Project Statement dated November 21, 2012 and Notice of Default under Promissory Note dated July 4, 2014 by Trilogy Athletes a.k.a. remBrand Sports” (the “Notice of Material Breach Letter”).

[11] remBrand acknowledges owing $2,166.67 for the Future Payments which were due under the MSA from July 2014 until the Notice of Material Breach Letter.

[12] The issues before me at this trial can be summarized as follows:

(i) Infinite seeks $72,771.60 [1] in interest on the principal amount owing under the Note and Guarantee at 2% per month based on the invoices delivered under the MSA. The defendants submit that no such interest obligation was established under the Note or Guarantee, and, as such, interest owing on the principal amount under the Note and Guarantee should be in the amount of $3,583.45, based on the rate of 1.3% under the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”). Both parties agree that 1.3% per year is the proper CJA rate, if it were to apply;

(ii) Infinite seeks payment by remBrand of an additional $63,000 in Future Payments, plus $76,540 in interest based on the invoice interest rate of 2% per month. [2] The defendants submit that no amounts are due for Future Payments [3] since the defendants submit that the MSA was terminated after the Notice of Material Breach Letter;

(iii) Infinite also seeks payment by Steele personally for the amount allegedly owed by remBrand for Future Payments. In its Amended Statement of Claim, the only allegation against Steele related to his personal liability for Future Payments was that he was purportedly “seeking to transfer the business assets of Trilogy” as “an attempt to dissipate the assets of Trilogy in order to frustrate Infinite’s ability to collect the amounts owed to it by Trilogy”. In its lengthy written closing submissions, Infinite asserted that Steele “acted in a wrongful manner, by allegedly diverting funds away from [remBrand] into VIKTRE or possibly other as yet unascertained ‘operating names’ or entities; and [Steele] did this on his own initiative for personal gains”.

It was only in its written closing submissions that Infinite raised additional grounds alleging personal liability of Steele for all amounts owed by remBrand: (a) whether Steele acted to “induce a breach of the contract” by remBrand; and (b) whether “Mr. Steele’s personal actions constitute the elements of misrepresentation, falsehood, deceit and fraud”;

(iv) Infinite seeks payment of $49,566.52 in “internal administration” fees to enforce the MSA, Note and Guarantee. The issue before the court is whether the evidence establishes that the administrative expenses sought were incurred, based on the contractual interpretation of the MSA, Note, and Guarantee;

(v) Infinite also seeks “to be determined” damages against both remBrand and Steele personally for “IP [Intellectual Property] Copyright Infringement”, based on an allegation that remBrand permitted individuals from an allegedly rival company to have access to the Infinite system. The defendants submit that there is no evidence to support such a claim;

(vi) Infinite seeks “to be determined” punitive and aggravated damages against both remBrand and Steele; and

(vii) Infinite seeks $66,649.60 in legal fees to enforce the MSA, Note, and Guarantee. The defendants submit that such an amount is not reasonable and propose an amount of $10,000.

Facts

[13] Infinite called both Sellors and Steele as its witnesses. Steele cross-examined Sellors but the defendants led no evidence at trial.

(a) The parties

[14] Infinite develops platforms for knowledge management and educational and learning communities on the internet. By way of example, Infinite created platforms for large international companies to allow resellers of products in over 150 countries to address sales and marketing needs.

[15] remBrand was incorporated in or about September 2012. It later operated under the Trilogy and VIKTRE business names. Steele’s uncontested evidence was that remBrand always remained the corporate entity.

[16] remBrand is an internet-based company connecting “world class” athletes with users, to provide programming, education, and mentorship.

[17] At the date of the MSA, remBrand was a “start-up” company, with no revenue. remBrand was dependent on funding in order to carry on business. At some point, remBrand intended to charge fees for members of peer groups and, upon achieving a certain scale, charging user fees and membership fees.

[18] remBrand only began to earn income in 2016.

(b) The Infinite platform

[19] The platforms created by Infinite are their intellectual property embodied in computer code. There is a “base” platform which is “agnostic” to brands or experiences. Infinite then works with the customer to create the specific experience. This “configuration” work is done at the beginning of the project.

[20] The platform, once developed, enables access to users of the system. In the case of remBrand, “participant” athletes and “user” fans or athletes would be able to generate content and participate in the social network for educational, mentoring, and coaching purposes. There would also be administrators at remBrand who would have access to the platform for control purposes.

(c) MSA

[21] In or about November 2012, a few months after its incorporation, remBrand approached Infinite for the purpose of negotiating an agreement for Infinite’s services. The configuration work requested by remBrand was for “Phase 1”, i.e. the initial building of the community in order to manage users and provide access for administrators, mentors, and users.

[22] Through a series of negotiations, Steele sought that the configuration fees to be paid by remBrand for Phase 1 be deferred over a three-year period. Further, Steele sought discounted fees on the basis that remBrand would require additional services from Infinite over time to provide further functionality to the remBrand network.

[23] As a result of the negotiations, the parties agreed on the terms of the MSA. Infinite agreed to discount the configuration fees and allow payment over a deferred period. I summarize the key terms as follows:

(i) Payments would run from December 7, 2012 to October 1, 2015;

(ii) Configuration costs would be payable over six instalments – with $30,000 in late 2012 and early 2013 ($20,000 in December 2012 and $10,000 in January 2013), $40,000 in late 2013 ($20,000 in each of November and December 2013), and $50,000 in late 2014 ($30,000 in November 2014 and $20,000 in December 2014);

(iii) remBrand would pay monthly network maintenance fees of $1,000 in all other months (except that the October 2013 payment was for $2,000);

(iv) The agreement was structured as a license agreement under which remBrand would have the right to “use” the system by accessing those portions provided to it by Infinite but could not seek to “reverse engineer, decompile, disassemble or translate” the system (ss. 1(r) and 2(a));

(v) The license was “non-exclusive”, so that Infinite could license its intellectual property to other corporations, and was “time-limited” to the period of the contract. The license “does not apply to all or any part of the source code of the System” (s. 2(a));

(vi) remBrand could not permit a third party to use the system without prior written consent of Infinite and, if approved, the third parties could only use the system “for the purposes of providing services” to remBrand (s. 3);

(vii) Infinite maintained ownership of all intellectual property in the system, including source code (s. 4);

(viii) Either party could terminate the agreement “immediately” by giving written notice if “[t]he other [p]arty is in material breach of its obligations under the Agreement”, which included non-payment of invoices within 15 days, if not cured within five days after notification of the breach (s. 9(b));

(ix) Either party could request changes to the fees payable or services to be provided, but no change would be binding unless both parties agreed in writing (s. 10);

(x) Payment was to be made within 15 days from receipt of invoices. If remBrand disagreed or questioned any amount, it was required to “communicate such disagreement to Infinite, in writing, within 30 days of remBrand Sports receipt of such invoice” (s. 11(c)); and

(xi) “In the event that Infinite is required to commence legal proceedings in respect of any failure of remBrand Sports to pay any invoice or invoices issued by Infinite, remBrand Sports agrees that it will pay all of Infinite’s reasonable legal and administrative expenses incurred in connection with such proceedings” (s. 11(c)).

(d) Additional work

[24] Infinite performed the configuration services under the MSA.

[25] Pursuant to a “work order quote” dated March 7, 2013, the parties agreed that Infinite would perform additional work for an additional “total bundled cost” of $7,500.

(e) Interest on outstanding invoices

[26] Infinite provided remBrand with invoices for the entire period of the contract, either at the outset of the MSA or shortly thereafter. In any event, by email dated December 10, 2013, all invoices for the remainder of the MSA were delivered again.

[27] The invoices provided that “[i]nterest of 2% / month will be charged for late accounts”.

[28] remBrand never contested any invoice rendered by Infinite.

(f) The Note and Guarantee

[29] Following the MSA, remBrand failed to make numerous payments. Infinite advised remBrand that Infinite might need to suspend tools or services on the platform, and did suspend administrative access on two occasions. Following an exchange of emails in July 2014, (i) remBrand agreed to provide a promissory note for payment of the then outstanding amount of $57,630; and (ii) Steele agreed to provide a “letter of guaranty” for the amount owed by remBrand under the Note.

[30] The Note and Guarantee arose out of Steele’s proposal to Sellors in a July 2, 2014 email. In return for Infinite restoring “full access to the system”, Steele proposed the following:

• convert outstanding amounts due, to a promissory note payable in 6 equal payments
• first payment due in next 15 days
• note guaranteed by me
• we will make normal monthly contractual payments during that time

[31] By email from Sellors dated July 4, 2014, Sellors confirmed that “[Infinite is] drafting a promissory note based on your proposal” and that “Clinton [4] has a few questions to ensure this is competed correctly”.

[32] By email, Brown confirmed that (i) the promissory note was to be provided by remBrand; (ii) the guarantee was to be provided by Steele; and (iii) for remaining payments under the MSA, “remBrand Sports will also resume the monthly payments due under the contract”.

[33] The Note and Guarantee were dated July 4, 2014.

[34] The Note was entered into by “remBrand Sports a.k.a. Trilogy Athletes Inc.” as “borrower” and Infinite as “lender”. The key terms of the Note are:

(i) remBrand “promises to pay to the lender … the principal sum of $57,630.00 CDN, without interest payable on the unpaid principal” (s. 1);

(ii) The Note would be repaid in six consecutive monthly instalments of $9,605 commencing on July 15, 2014 (s. 2);

(iii) Upon default of any payment, Infinite could declare the full outstanding amount to be owing (s. 4);

(iv) “All costs, expenses and expenditures including without limitation, all legal costs incurred by Lender in enforcing this Note as a result of any default by the Borrower will be added to the principal then outstanding and will immediately be repaid by the Borrower” (s. 5);

(v) “The Note is personally guaranteed by Al Steele … by way of Letter of Guaranty …” (s. 6); and

(vi) “If [RemBrand] defaults on payment as required under this Note or after demand for ten (10) business days, the Guaranty will be immediately provided to [Infinite] and [Infinite] is granted all rights of recourse against the Guarantor to recover all payments under this Note” (s. 7).

[35] The Guarantee was entered into by Steele as “guarantor” and Infinite as “lender”. The key terms of the Guarantee are:

(i) Steele “shall assume the full, prompt, timely, faithful and complete performance of all of [remBrand’s] financial obligations resulting from the Note” (s. 1);

(ii) If remBrand is in breach of its obligations under the Note, Infinite “may proceed against the Guarantor without any other requirement or condition that [Infinite] first exhaust its recourses against [remBrand]” (s. 2); and

(iii) “All costs, expenses and expenditures including without limitation, all legal costs incurred by the Lender in enforcing this Letter of Guaranty or the Note as a result of any default by the Borrower or Guarantor will be added to the amounts then outstanding and will immediately be repaid by the Guarantor” (s. 5).

(g) Default under the Note and Guarantee

[36] The only payment made by remBrand on the Note was for $2,500 on July 22, 2014, leaving an outstanding balance of $55,130.

(h) Future Payments

[37] In addition to the outstanding amounts owed under the Note and the Guarantee, there remained subsequent payments of $63,000 owing under the MSA (previously defined as the “Future Payments”).

[38] The defendants agree that remBrand owes Infinite an additional $2,166.67 for Future Payments due on August and September 2014, as well as on a pro rata basis up to the September 5, 2014 date of the Notice of Material Breach Letter.

[39] Further Future Payments after the date of the Notice of Material Breach Letter until the end of the MSA total $60,833.33. remBrand failed to make these payments.

(i) The Notice of Material Breach Letter and the issue of whether Infinite terminated services

[40] As noted above, remBrand failed to make the payments owed under the Note [5], and breached its obligations to pay Future Payments under the MSA, subsequent to the Note.

[41] Further, RemBrand did not attempt to restructure payment under s. 11(c) of the MSA.

[42] By the Notice of Material Breach Letter dated September 5, 2014, Sellors, on behalf of Infinite, wrote to Steele, as “President, CEO, Chairman” and advised that:

In light of the circumstances outlined above, this letter serves as formal notification of Trilogy’s material breach under s. 9(b)(i) of the [MSA’s] Terms and Conditions and notice of Trilogy’s default under the Promissory Note. Infinite will be terminating its services unless Trilogy cures its material breach within five (5) days of the date of this letter … If payment is not made by that time, Infinite will terminate its services and forward this matter to litigation …

[43] The defendants led no evidence in support of their case. Further, as a witness called on behalf of Infinite, Steele did not establish that remBrand, or the athletes or users on the network, were “cut off” from the system in any way after the letter was sent.

[44] Sellors gave evidence that after the Notice of Material Breach Letter, there was no service cancellation, except for Infinite’s help desk services which were extremely limited. Sellors was cross-examined on that evidence. The defendants offered no evidence to challenge his position. Consequently, I accept Sellors’ evidence.

[45] On two prior occasions of non-payment by remBrand, Infinite had suspended remBrand’s access to “administrative tools”, which was the secure portion of the system requiring passwords and emails. However, at all such times, the public portion of content was available as a public website, and all users had access to the system.

[46] The defendants rely on the excerpted passage from the Notice of Material Breach Letter cited at paragraph 42 above, as well as the pleading in the Amended Statement of Claim at paragraph 30 that “Under the [MSA], Infinite was entitled to suspend service for failure to make payment and Infinite did so on or about September 5, 2014”, to submit that Infinite terminated services as of the Notice of Material Breach Letter. However, the evidence at trial did not support that position.

[47] First, there is no evidence in the record as to any complaints by remBrand of a loss of service. As an internet-based company which requires, for its livelihood, an operating social network to allow its users to participate, it strains credulity that remBrand would not have raised any concern that it could not operate its business at all.

[48] Second, Sellors produced records that demonstrated that remBrand’s access to the services under the license and to the community portal were not terminated, nor was administrative access terminated.

[49] Third, the uncontested evidence was that there were 2,336 unique “hits” on the remBrand website between September 5, 2014 and February 25, 2016, further establishing that the system was not “cut off”.

[50] For the above reasons, I find that Infinite continued to provide services to Infinite (except for the minor issue of the help desk) after the Notice of Material Breach Letter dated September 5, 2014.

(j) remBrand funding

[51] As I discuss above, remBrand was a start-up company with no revenue from 2012 to 2016. Consequently, remBrand relied on funding to support its operations.

[52] Steele confirmed in his examination for discovery that remBrand received the following funding: (i) $400,000 CDN in November 2012 as “seed money”, (ii) $1.2 million USD in September 2013 through a convertible note, and (iii) $2.5 million USD in September 2014 through a convertible note, for a total of approximately $5.5 million CDN as of March 3, 2017.

[53] Steele’s uncontested evidence was that the funding took longer than expected and delayed remBrand’s ability to operate. He further stated that remBrand was trying to raise capital to meet the multiple ongoing obligations of the company, and that the management team took no compensation so that they could fund the operations of the business.

[54] Read-in evidence from Mr. Gupta, who was responsible for financial matters at remBrand, was that “[w]e were undertaking contracts and committing budgets based on our forecast, projection of what we were thinking we would be able to raise”.

(k) Legal and administrative expenses incurred in the litigation

[55] Infinite led evidence of the fees it incurred from counsel in relation to the litigation. While Infinite filed no invoices from its current counsel, Sellors gave evidence that such fees were incurred and he was not cross-examined on the issue.

[56] Consequently, I accept Infinite’s evidence that it incurred a total of $66,694.60 in legal fees.

[57] Infinite also sought payment of $49,566.52 for “internal administration” fees, given the provisions (i) in the MSA that remBrand would pay “all of Infinite’s reasonable legal and administrative expenses incurred in connection with such proceedings” and (ii) in the Note and Guarantee that remBrand (and Steele) would pay “[a]ll costs, expenses and expenditures including without limitation, all legal costs incurred by the Lender in enforcing this Letter of Guaranty or the Note as a result of any default by the Borrower or Guarantor”.

[58] The only evidence as to “administrative” fees actually incurred by remBrand is a series of invoices from Brown to Infinite for his “in-house legal services” in relation to the remBrand proceedings. Those amounts totaled $2,856.02.

[59] The balance of the “internal administration” costs claimed by Infinite are for the time allegedly spent by Sellors in dealing with the matter (except for an amount of $960.50 for “mediator costs”, of which the evidence establishes an invoice to Infinite’s counsel for $621.50 and an invoice to remBrand’s counsel for $339).

[60] Infinite filed no evidence that it incurred any charges for amounts claimed by Sellors, nor would such evidence be expected. As the principal of Infinite, Sellors would have been engaged in this matter.

[61] Consequently, on the evidence, I do not accept that Sellors’ “internal administration” costs (except Infinite’s share of the mediation costs) were incurred by Infinite.

(l) Access to the Infinite system by outside parties

[62] At the hearing, Infinite led uncontested evidence from Sellors that two individuals at a company called “tracky.com” were given access by remBrand to the Infinite platform. The evidence can be summarized as follows:

(i) Both individuals logged in on July 21, 2014 and one of them may also have had access on August 12, 2014;

(ii) Infinite could not determine what the individuals reviewed nor the total time spent on the system. Sellors only knew that remBrand had permitted the individuals to log in to the system;

(iii) Sellors had no direct knowledge of tracky.com or its operations;

(iv) One of the persons with access later became the Chief Technical Officer at remBrand (then operating as VIKTRE);

(v) Sellors made the bald assertion that companies supported by venture capitalists would often go to “great lengths” to obtain a competitive advantage, increase revenues, and deliver returns;

(vi) Infinite led no evidence that venture capital had been invested in tracky.com; and

(vii) Infinite filed no evidence as to damages caused by the access.

Analysis

[63] As I discuss above, there is no dispute that (i) remBrand is liable under the Note for the outstanding principal balance of $55,130 and (ii) Steele is personally liable under the Guarantee for the same amount.

[64] There were no issues of service deficiencies or any other defences raised by the defendants. To the contrary, the defendants acknowledged these debts.

Issue 1: Interest owed on amounts under the Note and Guarantee

[65] The issue is whether interest on the outstanding amounts owed under the Note and Guarantee is $72,771.60, calculated at 2% per month (the interest rate on the outstanding invoices), or $3,583.45, calculated at the CJA rate, which is agreed to be 1.3% per annum. [6] For the reasons that follow, I adopt the latter position.

[66] The appropriate interest rate is a matter of contractual interpretation. Consequently, the Note and Guarantee must be read as a whole, giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of formation of the contract. The meaning of words can be derived from the purpose of the agreement and the relationship created by the agreement, considered in light of the factual matrix (*Sattva Capital v. Creston Moly*, 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 48-50 (“Sattva”)).

[67] The goal is to ascertain the objective intent of the parties through the application of legal principles of interpretation (*Sattva*, at para. 49).

[68] In the present case, the parties were sophisticated businessmen. Sellors had negotiated numerous contracts with significant major international companies for Infinite’s services. Steele had a lengthy and varied corporate background. Both parties would have been aware of the importance of specifying a particular contractual interest rate for the amounts owed under the Note and Guarantee if they had intended it to apply, yet did not state such a rate.

[69] The failure to specify a 2% rate is important given that the “principal” amount owed under the Note and secured by the Guarantee incorporated the outstanding invoice interest rate of 2% per month as of that date. As set out in the email exchange prior to the Note and Guarantee, these contractual documents were a mechanism to “convert outstanding amounts due to a promissory note”, “secured by [Steele]”. Only future payments were to be made by remBrand under the MSA (at the invoice interest rate), as confirmed by the Brown email.

[70] Further, the Note provided only for payment of the principal amount over six consecutive monthly instalments with no specific interest provisions, nor any further invoicing for such amounts since they had been converted.

[71] The Note specifically excluded any interest on the unpaid principal as that interest had already been incorporated into that amount. While default on a converted payment obligation will attract interest under the CJA, it will not attract interest at an earlier charged rate unless specified.

[72] If the parties had intended the “invoice” interest rate to apply, they could have done so, or provided that payments under the Note would be pursuant to invoices to be delivered that set out a rate of interest for late payment. They did not do so. There is no basis to read that interest rate into the Note or Guarantee.

[73] For the above reasons, I find that the appropriate pre-judgment interest rate on the amounts owing under the Note and Guarantee is 1.3% per year under the CJA, with the $3,583.45 amount to be adjusted to reflect the amount owing from the date of the first missed payment until the date of this judgment.

Issue 2: Liability of remBrand for Future Payments after the Note

[74] Other than the August and September 2014 payments due of $1,000 (and a small pro-rated $166.67 payment due for the short period in September until the Notice of Material Breach Letter), remBrand disputes payment of the outstanding Future Payments on the basis that Infinite terminated service.

[75] The evidence does not support that position.

[76] As I note above, there is no evidence of any complaint by remBrand that Infinite terminated service, except for its help desk service which was not significant. It would have been expected that if remBrand’s internet-based business had been effectively shut down, someone at remBrand would have raised the issue.

[77] Further, Infinite led uncontested evidence that the remBrand website continued to operate after the Notice of Material Breach Letter. There continued to be thousands of “hits” on the website after the letter, and there was evidence that individuals who previously had access to the system at remBrand continued to have such access.

[78] For those reasons, I do not find that Infinite terminated service. Consequently, the amount of $63,000 for outstanding invoices for Future Payments between August 1, 2014 and October 1, 2015 is owed by remBrand. Interest is owed on those outstanding invoices at 2% per month. The total interest owing is to be calculated from the date of the missed payments until the date of judgment. [7]

Issue 3: Personal liability of Steele for Future Payments

[79] Infinite acknowledges that Steele’s liability under the Note and Guarantee extend only to the principal amount and the applicable interest.

[80] However, Infinite submits that Steele is personally liable for the principal ($63,000) and interest (approximately $76,540) amounts owed by remBrand for Future Payments. Infinite submits that such personal liability arises because (i) Steele “dissipated” assets to prevent Infinite’s recovery and (ii) Steele’s conduct constitutes “fraud”, “deceit”, “dishonesty”, “misrepresentation”, and inducement of breach of contract.

(i) The “dissipation” submission

[81] As I discuss above, the only basis for personal liability pleaded in the Amended Statement of Claim was that Steele was “seeking to transfer the business assets of Trilogy” as “an attempt to dissipate the assets of Trilogy in order to frustrate Infinite’s ability to collect the amounts owed to it by Trilogy” (at paragraph 33 of the Amended Statement of Claim).

[82] However, at trial, there was no evidence to support the submission. The uncontested evidence was that the only corporate entity from the outset was remBrand, which later operated under the business names of Trilogy and VIKTRE. There was only one corporate profile produced at trial, which was that of remBrand.

[83] Further, there was no evidence that Steele was attempting to dissipate assets from remBrand to any other entity. No evidence was led to establish any asset transfer. To the contrary, the evidence led by Infinite established that remBrand, now using the VIKTRE business name, had raised almost $5.5 million CDN, with no evidence of any dissipation of assets.

[84] As a start-up company, the evidence was that remBrand depended on funding. There was no evidence to support Infinite’s bald assertions in its pleading and closing submission that “Mr. Steele also set up Trilogy as well as VIKTRE … in order to divert funds away from remBrand Sports” and that “any profits earned by rembrand Sports were diverted to Trilogy or VIKTRE ultimately”. Trilogy and VIKTRE are just business names for the single corporate entity.

(ii) Personal liability under other legal constructs

[85] In order to establish personal liability for Steele, Infinite attempts in its lengthy written closing submissions to rely on numerous causes of action never pleaded in the Amended Statement of Claim. In particular, Infinite submits that Steele can be liable personally for engaging in “fraud”, “deceit”, “dishonesty”, “misrepresentation” and since he allegedly “induce[d] breach of contract”.

[86] For the reasons I discuss below, I find that the submissions in the closing argument as to personal liability of Steele under other legal constructs cannot succeed because (a) Infinite’s failure to plead such claims is fatal and (b) in any event, there was no evidence to support any of the causes of action.

a. The failure to plead the other bases of personal liability

[87] In order to establish personal liability for Steele, Infinite attempts in its lengthy written closing submissions to rely on numerous causes of action never pleaded in the Amended Statement of Claim. In particular, Infinite submits that Steele can be liable personally for engaging in “fraud”, “deceit”, “dishonesty”, “misrepresentation” and since he allegedly “induce[d] breach of contract”.

[88] I find that the failure to plead any of these causes of action is fatal to the claim. In the decision of *Density Group Limited v. HK Hotels LLC*, 2014 ONCA 605, relied upon by Infinite, the court found that there were allegations of dishonesty in the claim which enabled the court to make a finding of fraud at trial. However, in the present case, there are no such allegations except for the “dissipation” issue which I address above.

[89] A defendant against whom personal liability is sought for a corporate debt is entitled to know the case against him and address the issues at trial. It is not proper for a plaintiff to go to trial on a pleading which sets out no such claim and then, after closing the evidence, raise substantive legal grounds which are not set out in the claim.

[90] Nothing prevented Infinite from amending its claim at any time, yet it chose not to do so and instead file personal liability submissions in its written closing submissions in an action involving a self-represented party. Such conduct ought not to be tolerated by the court.

b. The lack of evidence to support any of the additional submissions

[91] In any event, there is no evidence to support the causes of action relied upon by Infinite to assert personal liability against Steele.

[92] With respect to the “fraud” assertion, Infinite relies on the same “dissipation” arguments which were not proven. There is no evidence that Steele “did not disclose the full truths of what is the purpose of setting up Trilogy and then VIKTRE or what exactly is the business nature of Rembrand Sports and exactly how much money he been able to raise through the investment round”.

[93] To the contrary, Steele’s evidence was uncontested as to the reasons to use Trilogy and VIKTRE as business names, the nature of remBrand’s business, and the amount of funding received. The serious allegation of fraud by Infinite had no support.

[94] The assertions of “deceit”, “falsehood”, “dishonesty”, and “misrepresentation” are all based on an assertion that Steele advised Sellors that remBrand either had funding at the time of the MSA or expected to get funding. The evidentiary record was unclear as to the scope of the particular alleged statement relied upon by Infinite, but the difference is immaterial as neither statement was shown to be false.

[95] By the evidence led by Infinite, remBrand had $400,000 in funding by November 2012, with additional funding of $1.2 million USD in September 2013 and further funding of $2.5 million USD in September 2015. The read-in evidence of Steele’s discovery transcript was to the same effect. Consequently, even if Steele made either asserted statement prior to the MSA, there is no basis to find that it was false, let alone that he knew or ought to have known that either statement was false. remBrand was a start-up company that depended on funding, and there is no evidence that Steele did not expect or did not receive funding. He was cross-examined on this issue and his evidence was never challenged through documents or otherwise.

[96] Finally, with regard to the assertion that Steele could be personally liable for inducing remBrand’s breach of the MSA, it is settled law that a director is not personally liable for inducing breach of contract simply because the director must make the decision for the corporation. Rather, the plaintiff must establish that there was a separate interest apart from the breach of contract such that the director is acting to obtain a personal gain rather than engaging in the act as a director (*Truckers Garage Inc. v. Krell*, [1993] O.J. No. 3141 (C.A.) (“Truckers Garage”)).

[97] In Truckers Garage, the court allowed the appeal from the trial judge’s decision to impose personal liability on the director for breach of the employment contract. Osborne J.A. held (at paras. 40-41):

Marvin Teperman was Truckers’ directing mind when Krell was both hired and fired. However, that alone is not enough to find him liable for inducing the breach of the Truckers-Krell employment contract. At the very least the evidence must establish, to a degree of probability, that some separate interest from Teperman's standpoint was involved. See *Ontario Store Fixtures Inc. v. Mmmuffins Inc.* (1989), 70 O.R. (2d) 42. If that were not the case the directing mind of any corporate employer would be liable for the tort of inducing a breach of contract in the event an employee was wrongfully terminated. This court's judgment in Kepic v. Tecumseh Road Builders, Division of Countryside Farms Ltd. (1987), 18 C.C.E.L. 218 provides an example of what is required. In that case, the individual defendants acted fraudulently in furtherance of their personal interests. In another case, *McFadden v. 481782 Ont. Ltd.* (1984), 47 O.R. (2d) 134 (H.C.), the individual defendants wrongfully removed money from the company for their personal benefit. Thus, personal liability was found in both cases.

In this case, there is no evidence and no finding by the trial judge of an intentional wrongful or unlawful act by Marvin Teperman. There is no evidence that Marvin Teperman acted as he did for his personal gain. The evidence and the trial judge's findings do not support the trial judge's conclusion that Marvin Teperman was liable to Krell for inducing the breach of the Truckers-Krell contract of employment. [Emphasis added.]

[98] On the evidence, Infinite failed to establish any “separate intent” for Steele to obtain a “personal gain” by remBrand’s breach of the MSA. Infinite submits that Steele “set up both Trilogy and VIKTRE ultimately, as operating ‘shells’ to raise capital and dissipate assets / company revenue that should have rightfully been used to pay contractual obligations owed to Infinite Media”. However, there is no evidence supporting this claim.

[99] Consequently, there is no evidence that “the conduct of the directing mind was not bona fides in the best interest of the corporation”, unlike in *Dumbrell v. The Regional Group of Companies Inc., et al.*, 2007 ONCA 59, 85 O.R. (3d) 616, at para. 87, relied upon by Infinite. remBrand needed Infinite’s internet configuration services to develop remBrand’s athlete-focused internet business. Steele and others at remBrand negotiated a contract with Infinite. Subsequently, remBrand failed to pay under the contract. Such conduct cannot, on its own, suffice to ground a claim for inducement of breach of contract. Otherwise, every breach of contract would engage personal liability of a director for inducing breach of contract.

[100] For the above reasons, I find no basis to impose personal liability on Steele for the amounts owing from remBrand for the Future Payments.

Issue 4: Liability for payment of “administrative expenses”

[101] Under s. 11(c) of the MSA, remBrand was required to pay all “reasonable” “administrative expenses incurred in connection” with legal proceedings.

[102] Similarly, under s. 4 of the Note and s. 3 of the Guarantee, remBrand and Steele were required to pay all “costs, expenses and expenditures … incurred by [Infinite]” in enforcing the Note or Guarantee.

[103] Infinite relies on the above provisions to claim “internal administration” expenses. However, as I discuss above, only those costs charged by Brown as in-house counsel were incurred, as demonstrated by the invoices provided.

[104] Under Infinite’s contractual interpretation, Sellors, as principal, or any other staff member of Infinite asked to work on issues related to remBrand, could choose an hourly rate, set out the hours worked, and add those fees to the amounts owed under the MSA, Note, or Guarantee. I do not agree.

[105] The contractual language of the documents limits the administration costs to those “incurred” by Infinite. If overtime was required and documented, or Infinite paid for other administrative costs related to enforcement of the debt (such as travel, third party investigators, etc.), those costs would be “incurred” and could be collected. However, carving out hours and charging for work done as part of an Infinite director or employee’s job function does not establish that a cost was incurred. These “internal” costs are not administrative costs incurred under the applicable contractual provisions.

[106] In any event, Sellors’ claimed time was not supported by any documents, and simply calculated on a selected $200 per hour rate for the hours spent (with no evidence in any event of the hours spent).

[107] For the above reasons, I do not accept Infinite’s claim for “internal administration” costs of $46,710.50, except for the invoice of $621.50 for mediation services (with the additional invoice for $339 having been charged to remBrand and no evidence that Infinite paid that amount).

[108] Consequently, I limit the claim for administrative fees incurred to the amounts charged by Brown of $2,856.02 plus $621.50 for mediation services charged to Infinite, for a total of $3,477.52. Those amounts are payable jointly and severally by remBrand and Steele, as they were costs incurred after default both under the Note and Guarantee, as well as for Future Payments under the MSA.

Issue 5: Breach of copyright

[109] There was no evidence to support any claim of breach of copyright. Sellors acknowledged that he only knew that two representatives of tracky.com had access to the Infinite site. He could not say for what purpose, for how long, or what aspects of the Infinite system, if any, were accessed.

[110] Such an evidentiary base cannot support a claim for breach of copyright.

[111] The speculative comments in the closing submissions that “Mr. Steele enabled David Longnecker and other staff members at Tracky, to access and view the proprietary InfiniteKM iteration so that Mr. Longnecker could copy or replicate portions of the Infinite KM software for the VIKTRE Tracky Configuration” had no evidentiary support. Similarly, Infinite’s submission that remBrand obtained funding because “they allowed prospective investors to view the proprietary Infinite KM iteration” was also not supported by any evidence.

[112] In any event, there is no evidence of damages.

[113] For the above reasons, I dismiss Infinite’s “to be determined” claim for damages for breach of copyright.

Issue 6: Punitive and aggravated damages

[114] This claim is also described as “to be determined” in the Infinite damage brief. However, as I discuss above, Infinite led no evidence to support its submissions of fraud, deceit, or dishonesty.

[115] Infinite submits in its closing submissions that “any damages award should also be a deterrent not only for Mr. Steele but also to discourage any others as financial pyramid schemes are becoming increasingly common and erodes the foundation of the commercial world, namely that contracts are meant to be honoured”. Such an assertion is again baseless. There is no evidence that this case is anything other than a breach of contract matter. To seek to elevate such a case to the wanton nature of conduct required for punitive damages is vexatious and baseless.

[116] Consequently, I dismiss any claim for punitive and aggravated damages.

Issue 7: Legal fees/costs

[117] Under s. 11(c) of the MSA, remBrand is required to pay “all of Infinite’s reasonable legal and administrative expenses incurred in connection with such proceedings”. Under the Note and Guarantee, “all legal costs incurred by [Infinite] in enforcing” the Note or Guarantee are to be added to the principal and paid by remBrand or Steele.

[118] Infinite relies on appellate decisions that consider the factors to assess costs at trial or on a motion (*Metro Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc.* (2005), 253 D.L.R. (4th) 656 (C.A.) (“Skyline”) and *Boucher v. Public Accountants Council for the Province of Ontario* (2004), 71 O.R. (3d) 291 (“Boucher”)). Infinite submits that remBrand’s failure to pay under the MSA should be considered as “improper” conduct under Rule 57.01(1)(e) that unnecessarily lengthened the proceedings since “remBrand Sports and Mr. Steele raised well over 3.7 million dollars; and Mr. Steele or remBrand Sports could or should have rendered payment of all owing contractual monies”.

[119] I do not find that Infinite has relied on the appropriate law.

[120] The issue in this case is not the appropriate scale or quantum of costs after a trial. In any event, the “conduct” of a party in failing to pay a contract when they had the funds to do so would not yield substantial indemnity costs. If Infinite’s submission were accepted, substantial indemnity costs would be the rule for any breach of contract matter in which the defendant had the resources to pay the contract but did not do so. I do not find such a position to be consistent with the settled case law.

[121] In the present case, the issue instead is the effect of the relevant contractual provisions. Section 11(c) of the MSA explicitly provides that the costs incurred must be reasonable. I would also read that requirement into the Note and Guarantee. A party does not obtain carte blanche to spend a limitless amount of legal fees to enforce a guarantee or promissory note only because the contract allows the legal fees to be added to the principal.

[122] Consequently, the role of the court in the present case is not to apply Boucher or Skyline, but rather to determine a reasonable amount of legal fees to be added to the principal, based on the case itself.

[123] In the present case, the action on the Note and Guarantee was straight-forward, albeit necessary for enforcement. Liability of the defendants for the principal amount under those contractual documents was not contested at trial.

[124] However, for the reasons I set out above, I rejected the vast majority of Infinite’s other submissions, i.e. calculation of interest, personal liability against Steele for the Future Payments, claims for administrative expenses, breach of copyright, and punitive damages. The only Infinite argument I accepted outside of the uncontested liability under the Note and Guarantee was that remBrand (but not Steele) also owed amounts for the Future Payments after the Notice of Material Breach Letter.

[125] Consequently, while I am prepared to grant costs on a “full indemnity” basis under the contractual provisions, I am not prepared to find that the full amount sought is reasonable given the significant costs incurred on arguments which were not successful.

[126] For the above reasons, I reduce the “reasonable” costs associated with enforcement of the obligations to $30,000, approximately half of the $66,694.60 claimed. That amount reflects the unsuccessful arguments raised by Infinite at the hearing and which take up the vast majority of the Infinite written submissions. These costs are payable by both remBrand and Steele under the Note and Guarantee.

Order and costs

[127] For the above reasons, I make the following orders:

(i) remBrand and Steele are jointly and severally liable to Infinite under the Note and Guarantee for the amount of $55,130 plus interest at 1.3% under the CJA from July 15, 2014 until the date of judgment;

(ii) remBrand is liable to Infinite for Future Payments under the MSA for the amount of $63,000 plus interest on each outstanding invoice at 2% per month as of the date of each default until the date of judgment;

(iii) remBrand and Steele are jointly and severally liable to Infinite under the MSA, Note, and Guarantee for the amount of $3,477.52 for administrative expenses incurred by Infinite;

(iv) remBrand and Steele are jointly and severally liable to Infinite under the MSA, Note, and Guarantee for the amount of $30,000 for legal fees incurred by Infinite; and

(v) postjudgment interest is fixed in accordance with the CJA. [8]

[128] If the parties cannot agree on the terms of the judgment, they may schedule a case conference no later than 60 days from the date of these reasons.

GLUSTEIN J.

Date: 20190710

REASONS FOR DECISION

Released: July 10, 2019

Footnotes:

[1] All interest amounts calculated in Infinite’s damage brief are “as of June 1, 2019”. The specific amount would have to be calculated as of the date of this judgment and then incorporated into the order as per these reasons.

[2] Interest at the CJA rate would be $4,095 as of June 1, 2019.

[3] (other than the $2,166.67 for the Future Payments which were due prior to the Notice of Material Breach Letter)

[4] (Clinton Brown (“Brown”), in-house legal counsel to Infinite)

[5] (except for the single payment of $2,500 on July 22, 2014)

[6] See footnote 1 above.

[7] (which was calculated at $76,540 as of June 1, 2019)

[8] (as requested by Infinite in its closing submissions)