COURT FILE NO.: CV-18-00609420
DATE: 20191118
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MERCIER WOOD FLOORING INC.
Plaintiff
– and –
AMAZON HARDWOOD CENTRE INC.
Defendant
Stephen Wolpert, for the Plaintiff
David Seed, for the Defendant
HEARD: September 26, 2019
Koehnen J.
OVERVIEW
[1] Mercier Wood flooring Inc. is a leading manufacturer and distributor of hardwood flooring products in Canada. Amazon Hardwood Centre Inc. owns and operates six retail flooring stores in the Greater Toronto Area and was one of Mercier’s authorized dealers. Amazon purchased Mercier branded product as well as Mercier’s generic, unbranded product for re-sale to consumers, principally at its Markham, Ontario store.
[2] In early September 2018, Mercier told Amazon that effective in 30 days, Mercier would no longer sell branded products to Amazon although it would continue to sell Amazon it’s generic, unbranded product. The relationship between the parties collapsed in the days and weeks following this meeting.
[3] As of September 2018, Amazon owed Mercier approximately $222,339.57 in respect of unpaid product. Mercier brings a summary judgment motion for payment of that amount. Amazon acknowledges that it ordered the product but brings a cross-motion for an order compelling Mercier to accept the return of goods delivered to Amazon in the six months preceding the September meeting.
[4] I have resolved both motions as follows:
(i) Amazon shall pay Mercier the amount owing on the outstanding invoices; and
(ii) Amazon may reduce from the amount is owes Mercier the value of any product it purchased from Mercier since May 1, 2018 and which product Amazon is prepared to return to Mercier.
Mercier Changes Its Relationship with Amazon
[5] The core issue between the parties is whether Mercier actually terminated its relationship with Amazon and if so, what form of notice or other relief is Amazon entitled to for such termination.
[6] Amazon had the exclusive right to sell Mercier product in Markham, Ontario pursuant to an oral arrangement. There was no written distributorship agreement between the parties. Mercier submits that its relationship with Amazon was not a distributorship arrangement of the sort that would entitle Amazon to notice, but was a transactional relationship in which Amazon could purchase or stop purchasing from Mercier at will. At the same time, Mercier could sell or stop selling to Amazon at will. Mercier points out that it had in fact stopped selling certain products to Amazon in the past without consequence. The circumstances before me differ, however, from those on past occasions.
[7] Mercier had apparently become unhappy with the fact that Amazon’s purchases of Mercier products had decreased over the years. In May 2018, Jean-Phillipe Dumas, the Mercier representative assigned to Amazon, told Amazon that it was not purchasing enough product from Mercier and pushed Amazon to order more. In response, Amazon increased its purchases to levels above what it ordinarily would have purchased.
[8] In early September 2018, Mr. Dumas met with Amazon and advised that, beginning 30 days after the meeting, Amazon would no longer be able to purchase Mercier branded product but could continue to purchase unbranded product. There is a dispute about whether Mercier told Amazon that it would stop being an authorized Mercier dealer.
[9] Being an authorized dealer was significant to Amazon because it helped Amazon sell Mercier’s unbranded flooring. According to Amazon, one of the principal ways it sold the non-branded product was to point out that it was a Mercier product. The goodwill associated with the Mercier brand encouraged consumers to buy the non-branded product. Consumers, were, however suspicious of such claims and would want evidence that Amazon was associated with Mercier. An authorized Mercier dealer could demonstrate that association by pointing to Mercier display boards in their stores and by pointing out that they were listed as an authorized dealer on Mercier’s website.
[10] I find that Mercier told Amazon in September 2018 that it would no longer be an authorized Mercier dealer, that Mercier withdrew Amazon’s ability to exhibit Mercier display boards and that Mercier removed Amazon as an authorized dealer on Mercier’s website.
[11] During his examination for discovery, Mr. Dumas defined an authorized dealer as one “that can place [an] order and can get Mercier branded material.” Within 30 days of the September 2018 meeting, Amazon was clearly not an authorized dealer on Mr. Dumas’ own definition of the term because it could no longer order and get Mercier branded flooring.
[12] Mercier’s counsel tried to diminish the effect of this evidence by pointing to two other portions of Mr. Dumas’ transcript where he stated, “we didn’t stop Amazon to be an authorized dealer” and “we never said that Amazon was not an authorized dealer.” I accept that Mercier never expressly told Amazon that it would stop being an authorized dealer. However, Mr. Dumas’s own definition of authorized dealer took Amazon out of that category. In argument before me, Mercier’s counsel made no effort to explain or reconcile Mr. Dumas’ definition of an authorized dealer with his statement that Mercier never told Amazon that it was no longer an authorized dealer.
[13] With respect to the Mercier display boards in Amazon’s store, Mercier says it removed them only because Amazon asked it to do so. Amazon says it was told it could no longer show the display boards. Contemporaneous documentation suggests that Amazon’s evidence on this point is more accurate than Mercier’s.
[14] On September 14, 2018 Amazon wrote Mercier in response to the meeting and described it as follows:
“Amazon Hardwood Centre was simply advised, that effective immediately, it was no longer able to represent Mercier as a distributor and must return its display racks. Nothing more has been communicated to us about the steps forward to finalize matters between our offices.”
[15] In its response of September 17, 2018 Mercier did not take issue with the statement that it had required Amazon to return the display racks.
[16] Amazon wrote back on September 19 and again referred to “Mercier product which we can no longer display for sale.” Once again, Mercier did not correct the statement. If Mercier had believed that Amazon could continue to exhibit its display boards, it would have been very easy for Mercier to send a short email explaining that Amazon was mistaken. Instead of taking the minor effort to send such an email, Mercier instead went through the effort of sending a representative with a sufficiently large vehicle to remove the display boards.
[17] It is also undisputed that Mercier removed Amazon from its list of authorized dealers on the Mercier website. Mercier says it did so only after Amazon told Mercier that it would no longer purchase unbranded product from Mercier. That, however, is inconsistent with Mr. Dumas’ definition of an authorized dealer as someone who is able to purchase and sell Mercier branded product.
[18] From Amazon’s perspective, not being an authorized dealer also had implications for its ability to sell unbranded product because of the Mercier warranty program. Mercier’s website and the form of warranty that it provides on both branded and unbranded product indicate that a consumer should first resolve any warranty disputes with the dealer from whom they purchased the product. The principal of Amazon, Mr. Hussein Jawad, stated in his affidavit of July 23, 2019 that “Amazon cannot act as the manufacturer’s representative or dealer on warranty claims without an account with Mercier or with their support.… Amazon requires continued dealer status and authorized support to address this issue.” Mercier did not respond to this statement in its materials. I must therefore take it as accurate.
[19] In an age where consumers post reviews of businesses on line, Amazon’s inability to address warranty issues if it is not an authorized dealer is a legitimate concern. In such circumstances Amazon would have to direct the customer to Mercier. Customers could easily view this as a retailer shirking its duties which would generate a negative reaction.
[20] Amazon raised the warranty issue in its letter of September 14, 2018 by writing: “we will need to agree upon terms of managing customer issues such as warranty claims.” Mercier did not address that concern in its response of September 17, 2018 either.
Legal Effect of Termination
[21] Mercier submits that it was permitted to act as it did and owes Amazon nothing by way of additional notice or other relief. Mercier describes the relationship as transactional which allows Mercier to cease doing business with Amazon in whole or in part at any time without notice.
[22] Amazon submits that a distribution arrangement can exist without a written contract and that courts will imply terms such as reasonable notice in the absence of written provisions: Paper Sales Corporation Ltd. v. Miller Bros. Co. (1962) Ltd. 1975 CanLII 555 (ONCA); 1193430 Ontario Inc. v. Boa-franc Inc., 2005 CanLII 39862 (ONCA).
[23] I glean a number of relevant legal principles from the authorities the parties referred to argument.
[24] First, when faced with the termination of a distributor type relationship:
When the term of a contract is not fixed and there is no provision for termination on reasonable notice, a court may treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice: 1397868 Ontario Ltd. v. Nordic Gaming Corporation (Fort Erie Race Track), 2010 ONCA 101 at para. 13.
[25] Second, terms may be implied into a contract: (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where the implied term must be necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term which the parties would say, if questioned, that they had obviously assumed": M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, at paras. 27-29.
[26] Third whether relief is given, and the precise form of relief are resolved by focusing on the “particular agreement under consideration and the circumstances surrounding it”: Nordic Track at para. 13.
[27] Finally, contracts should be interpreted in a way that “promotes a sensible commercial result”: Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888 at p. 901.
[28] Applying these principles to the case at hand, I find that the appropriate resolution to the dispute between the parties is to order Amazon to pay the outstanding amount it owes Mercier but to reduce the amount owing by returning to Mercier all inventory that Amazon purchased from May 1, 2018 onward and having Mercier credit the full purchase price of the returned product to decrease the amount Amazon owes Mercier.
[29] That remedy is tailored to the circumstances of the particular case, gives business efficacy to the arrangement, is based on the presumed intentions of the parties and promotes a sensible commercial result.
[30] Amazon was encouraged to increase its purchases in May 2018 in the belief that it had an ongoing relationship with Mercier that was not in imminent jeopardy. In early September, Mercier changed the relationship with Amazon in a in a way that made it substantially more difficult, if not impossible, for Amazon to sell Mercier product. On the record before me it effectively terminated the relationship. Even though Mercier was prepared to continue selling unbranded product, the difficulties that posed for Amazon in the absence of authorized dealer status made it commercially impractical for Amazon to continue selling Mercier’s unbranded flooring.
[31] The increased purchases from May onward had business efficacy only if Amazon continued to be an authorized dealer. There would be no business efficacy for Amazon to increase its purchase volume if Amazon was going to be delisted as an authorized dealer.
[32] Had Mercier and Amazon turned their minds in May 2018 to the possibility that Mercier would fundamentally change or terminate the relationship in September, both parties would have assumed a right of return. The right to return inventory in these circumstances gives business efficacy to the increased purchases and has a degree of obviousness that meets the officious bystander test.
[33] Return of the product also promotes the “sensible route commercial result” the Supreme Court of Canada referred to in Consolidated Bathurst. The inventory is stored in Amazon’s warehouses. It is untouched and unopened. The evidence before me was that Mercier’s product is warranted for 35 years after the consumer’s purchase. The 1 ½ years that the inventory has been in Amazon’s warehouse would therefore have no effect on its value.
[34] The record before me also suggests that there was at least some limited agreement by Mercier to take back at least some inventory. Shortly after the September meeting Amazon texted Mercier saying:
“The display is ready for pickup Friday. We need a credit for the display. Please confirm when you are picking up the rest of your inventory and crediting our account, as agreed on our phone conversation.”
[35] Mercier’s response was simply “It will be Friday.” That exchange of text suggests that Mercier was going to pick up the inventory on Friday as well as the display. In fact, Mercier picked up only the display. At a later point, Mercier also made a with prejudice offer to pick up some of the inventory.
[36] In addition to payment for its unpaid invoices, Mercier claims interest on the outstanding amounts. I disallow the interest claim. Although interest is referred to on the invoices, Mr. Dumas admitted that interest is typically never charged. It would also in my view be unfair to subject Amazon to interest charges when it has not had use of the inventory and when the fair solution would have been for Mercier to accept the return of inventory in September 2018.
[37] My impression on the motion was that the amount Amazon owes Mercier is not in dispute. If I am incorrect in that, I remain available to resolve that issue. Similarly, if the state of the inventory that Amazon is able to return to Mercier is such that it has materially diminished in value then it may be appropriate to reduce the amount of the credit to which Amazon is entitled. I also remain available to the parties to resolve any issues of this nature. The return of the inventory shall not, however, be subject to any restocking charge by Mercier. The return of the inventory is prompted by a business decision that Mercier made. While it is free to make such business decisions, it should not impose the cost on others of decisions that it deems to be for its own commercial benefit. Either party may reach me by email to request a further attendance to resolve any disputes arising out of the implementation of these reasons.
[38] The parties appear to agree that summary judgment is appropriate to resolve both the claim and the counterclaim. As a result, I do not address the law on summary judgment. Had there been disagreement between the parties on the issue I would have determined that this is a matter appropriate for summary judgment. The record before me is such that there is no issue that requires a trial for resolution. The facts can be resolved on a documentary record before me. Contemporaneous documents appear to support Amazon’s view of events more than Mercier’s view. Mercier has not put forward any evidence to contradict the documentation or to explain why the documentation cannot be relied upon as accurate.
[39] I have not yet heard any submissions on costs. To possibly save the parties the time and expense of cost submissions, I thought it might be helpful to provide a preliminary reaction to the issue. Neither side acquitted itself with particular admiration in the unwinding of the relationship. Practical communication appears to have taken a backseat to anger or frustration on both sides. In those circumstances my initial inclination would be to order that each side bears its own costs.
[40] I recognize, however, that my view of the record may be incomplete given that I have not heard submissions on the point. There may well be materials in the record that are relevant to costs that I have either overlooked or the import of which on costs I have not appreciated. There may also be additional materials relevant to costs of which I am not yet aware, such as rule 49 offers. As a result, any party wishing to claim costs may do so within 15 days of these reasons being issued. The opposite party will have 10 days to respond with a further five days permitted for reply.
Koehnen J
Released: November 18, 2019
COURT FILE NO.: CV-18-00609420
DATE: 20191118
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MERCIER WOOD FLOORING INC.
Plaintiff
– and –
AMAZON HARDWOOD CENTRE INC.
Defendant
REASONS FOR JUDGMENT
Koehnen J.
Released: November 18, 2019