NEWMARKET COURT FILE NO.: CV-17-133507-00A1

DATE: 20200526

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Computron Systems International Inc.

Plaintiff/Moving Party

– and –

Husain Ladhani o/a GTA Wholesale, Amina Ladhani o/a GTA Wholesale, Enayat Abdulhusain Ladhani o/a GTA Wholesale, Techlogics Canada Inc. and Faisal Rashid

Defendants/Respondent

– and –

Amin Rhemtulla, Zebeen Rhemtulla and Prosonic Canada Inc.

Third Parties

B. Sherman and S. Hariri, for Computron Systems International Inc. (Plaintiff/Defendant by Counterclaim) and Amin and Zebeen Rhemtulla (Third Parties)

M.A. Khan, for Techlogics Canada Inc. and Faisal Rashad (Defendants/Plaintiffs by Counterclaim)

J. Spotswood and A-C. Norwood, for Husain Ladhani o/a GTA Wholesale, Amina Ladhani o/a GTA Wholesale, Enayat Abdulhusain Ladhani o/a GTA Wholesale (Defendants/Plaintiffs by Counterclaim)

AND BETWEEN:

Techlogics Canada Inc. and Faisal Rashid

Plaintiffs by Counterclaim

– and –

Computron Systems International Inc.

Defendant by Counterclaim

AND BETWEEN:

Husain Ladhani o/a GTA Wholesale, Amina Ladhani o/a GTA Wholesale, Enayat Abdulhusain Ladhani o/a GTA Wholesale

Plaintiffs by Counterclaim

– and –

Computron Systems International Inc.

Defendant by Counterclaim

HEARD: December 12, 2019

DAWE J.

I. Overview

[1] In August and September 2017, Computron Systems International (“Computron”) made a series of wholesale purchases of bluetooth wireless headphones from Husain Ladhani (“Ladhani”), who operated an electronics wholesale business under the name “GTA Wholesale”. The headphones were all packaged and labelled to appear to be “Beats by Dre” branded headphones, which are a product of Beats Electronics LLC (“Beats”), a subsidiary of Apple Inc. (“Apple”). Ladhani bought some of these headphones from Prosonic Canada Inc. (“Prosonic”), and purchased the remainder directly from Techlogics Canada Inc. (“Techlogics”), which had been Prosonic’s supplier. Computron later cut out Ladhani as the middleman and ordered additional sets of a different model of Beats headphones directly from Techlogics.

[2] Shortly after placing this latter order with Techlogics, Computron came to believe that the first batch of headphones it had bought from Ladhani were not authentic Beats products, after discovering that the headphones all had the same serial number and a listed production date that was a month after they had been delivered to Computron. This led Computron to seek to return all of the headphones it had bought from Ladhani and also to cancel its purchase order of additional headphones from Techlogics. Ladhani and Techlogics both eventually refunded some, but not all, of the money they had each received from Computron.

[3] These events have resulted in the complex series of interlocking claims, counterclaims and third party claims that are now before the court. Specifically:

(a) Computron has sued Ladhani, as well as Ladhani’s parents Amina Enayat Ladhani and Enayat Abdul Husain Ladhani (“Ladhani’s parents”),[^1] in relation to the original headphone purchases;

(b) Computron has also sued Techlogics Canada and its principal, Faisal Rashid (“Rashid”), in relation to the headphones it later ordered directly from Techlogics;

(c) Techlogics and Rashid have counterclaimed against Computron;

(d) The Ladhanis have also counterclaimed against Computron;

(e) The Ladhanis have cross-claimed against Techlogics and Rashid;

(f) The Ladhanis have brought third party claims against Amin and Zebeen Rhemtulla – the principals of Computron – and against Prosonic.

[4] Computron and the Ladhanis have each brought motions for summary judgment, which were heard together before me. Specifically, Computron seeks summary judgment in its favour both in relation to the main action – that is, its claims against the Ladhanis, Techlogics and Rashid – and also in relation to the counterclaims against it. The Ladhanis in turn seek summary judgment in their favour of their cross-claim against Techlogics and Rashid, as well as a declaration that they are entitled to contribution and indemnity from Techlogics and Rashid with respect to any judgment obtained by Computron against them. They also seek leave to amend their pleadings, as discussed below.

[5] Although Computron and the Ladhanis are adversaries in the litigation, they have formed what is effectively a common front against Techlogics and Rashid for the purpose of these motions, and advance what is substantially a common position. In summary, they both maintain that they were both duped by Techlogics and Rashid into believing that the headphones Techlogics had contracted to supply to them were genuine Beats products, and that the evidence supporting their position is so clear that there is no need for a trial.

[6] Computron argues that it is entitled to receive the difference between the profits it expected to make from selling genuine Beats headphones and the amount it was reimbursed by Ladhani and Techlogics once it learned that the headphones it had bought or contracted to buy were not genuine Apple/Beats products. For his part, Ladhani does not dispute his obligation to compensate Computron for its expectation losses in relation to the headphones that Computron purchased from him, but maintains that he also believed these headphones to be genuine Beats products and that he should be reimbursed by Techlogics for any damages he is required to pay to Computron.

[7] Ladhani argues further that his parents played no role in the transaction and therefore should not have to pay anything to anyone. Although Computron does not concede that Ladhani’s parents are blameless, it is willing to let its claim against them be dismissed if it is granted summary judgment against the other defendants and if the counterclaims against it are also summarily dismissed. Likewise, the Ladhanis are prepared to abandon their counterclaim against Computron and their third party claims against the Rhemtullas if they are granted summary judgment in their favour against Techlogics and/or Rashid. (Prosonic did not file a statement of defence to the Ladhanis’ third party claim and in July 2018 Husain Ladhani, who at that point was representing himself, filed a requisition to note Prosonic in default). Computron and the Ladhanis both note that the amounts of money at stake in this case are relatively modest by commercial litigation standards, and submit that the proportionality principle strongly favours a global summary disposition of all of the claims, counterclaims, cross-claims and third party claims. [^2]

[8] Techlogics does not dispute that the headphones it sold to Prosonic, Ladhani and Computron were not authentic Beats products, but maintains that all of the buyers knew or should have known that this was the case. It argues that the dispute between the parties over who knew what about the provenance of the headphones involves significant questions of credibility that require a trial.

II. The evidence

A. Computron’s headphone purchase from Ladhani

1. Computron’s initial purchase of headphones supplied to Ladhani by Prosonic

[9] During late August and the first few weeks of September 2017, Computron placed three purchase orders for a total of 750 Powerbeats Wireless 3 headphones in various colours with Ladhani, who operated as a sole proprietorship under the business name GTA Wholesale. Computron had made a few smaller purchases from Ladhani of different electronic goods earlier that summer, but Computron’s principal Amin Rhemtulla and Ladhani had never met in person. Ladhani has provided printouts of his “WhatsApp” text message exchanges with Rhemtulla between August 22 and 29, 2017 that ultimately led to Computron placing its initial order of 150 pairs of black Powerbeats Wireless 3 headphones for $120/pair, which Ladhani told Rhemtulla he would be obtaining from a supplier in Montreal.

[10] Ladhani’s Montreal supplier was Prosonic, who agreed to sell the headphones to Ladhani for $105/pair, so that Ladhani would make a profit of $15/pair ($2,250 in total) when he re-sold them to Computron for $120/pair. Ladhani maintains that a Prosonic representative specifically told him that the headphones he was buying and re-selling to Computron were authentic Beats products. It is common ground that Prosonic had itself purchased these headphones from Techlogics, although Ladhani did not know this at the time. Ladhani acknowledged in cross-examination that he was “quite confident” that Prosonic provided him with a sample package of the headphones because:

Typically, that’s how we operate. We always request a sample. We ask the customer to approve the sample and then we proceed from there.

However, Ladhani did not give this sample to Rhemtulla, although he did send him photos.

[11] In a text exchange on September 6, Ladhani advised Rhemtulla that his supplier had received the headphones and that they would be delivered to Computron the next day. On September 7, Computron gave Ladhani a cheque for $20,340 (the agreed purchase price plus HST).

2. The second and third purchases of headphones supplied directly to Ladhani by Techlogics

[12] A few days later, Rhemtulla and Ladhani began exchanging texts in which they discussed Computron placing a further order with Ladhani for more pairs of the same model of Beats headphones. On September 11, 2017 Computron sent Ladhani a purchase order requesting 400 pairs of “Powerbeats 3^® in-ear BT sport headphones complete (New/Sealed)” in various colours. The next day Computron sent a further purchase order for 200 more pairs. In both orders Computron agreed to pay $116/pair for the headphones, for a total purchase price of $78,648, including HST.

[13] Ladhani filled Computron’s two new orders by purchasing the headphones from Techlogics, with whom he had never done business before. He paid Techlogics $90/pair for the headphones, thereby making a profit of $26/pair, or $15,600 altogether, when he re-sold them to Computron for $116/pair. Techlogics’s invoice to Ladhani for the first 400 pairs of headphones, dated September 11, 2017, describes the purchased product as: “POWERBEATS 3 WIRELESS (100 % Original) BRAND NEW SEALED PACK”. Techlogics’s invoice for the second order of 200 pairs, dated September 12, 2017, describes the product as “Powerbeats Wireless 3 headphones”.

[14] Ladhani maintains that when he discussed these purchases with Techlogics’s principal Rashid he learned for the first time that the Powerbeats Wireless 3 headphones he had earlier bought from Prosonic and resold to Computron had also been supplied by Techlogics. Ladhani testified that Rashid invited him to tour Techlogics’s warehouse, and that during this tour told Ladhani he could supply authentic Beats headphones and other Apple products.

[15] Rashid disputes this. His evidence is that he specifically told Ladhani that the headphones Ladhani was purchasing were not authentic Apple/Beats products, and that he had previously told Prosonic the same thing. Rashid states in his affidavit that the headphones were actually “OEM” (“original equipment manufacturer”) products that were made by a Hong Kong company called Mac Factories Holding Ltd. (“Mac Factories”) who “provide[d] [Techlogics] with both OEM and Apple products, when our customers order them”. However, Rashid acknowledged in cross-examination that Techlogics had never actually purchased any ostensibly genuine Apple products from Mac Factories. He explained that his contact at Mac Factories had told him that the company could supply authentic Apple products for a higher price than OEM products.

[16] Rashid states in his affidavit that he:

… specifically disclosed to both the buyers, Husain [Ladhani] and Roger [Calder, the principal of Prosonics] that Powerbeat is an OEM product …, not from Apple, and that there was no warranty. I informed them that to buy the Apple products, they have to pay around $45 more per item.

Rashid defined an OEM product to be one that is manufactured by a company that also makes genuine branded products for the brand-holder. He explained in his affidavit:

A branded company, such as Apple, may order a factory in China/Hong Kong to manufacture an item for them. However, these factories also produce OEM products. This means, they will manufacture the exact same product and sell it directly to the public/whole sellers, cutting off the middle man Apple. OEM products may also have the same serial number on all products.

He acknowledged in cross-examination that this understanding of OEM products was based on what he had been told by representatives of Mac Factories, and that he “didn’t ask too many questions, to be very honest”. He explained further that he had started his business in 2016 and only began selling OEM products in February 2017, some six or seven months before the headphone sales at issue in this case. As will be discussed further later, there is no independent evidence that Mac Factories actually makes authentic Beats headphones on behalf of Apple.

[17] Ladhani testified that he understood from Techlogics’s invoices describing the headphones he was buying and re-selling to Computron as “Powerbeats 3” headphones that they were authentic Apple/Beats products. Rashid testified in cross-examination that these invoices should have identified the headphones as OEM products and blamed the mistake on his staff, testifying: “My staff can write anything it wants”.

[18] Rashid also acknowledged in cross-examination that Techlogics had a website that advertised “Powerbeats 3 wireless headphones” and other “Beats” headphones for sale without identifying them as “OEM” rather than genuine Apple products. However, he also disclaimed any responsibility for these misstatements, testifying that he had “no control on the website” because:

[T]he guy who made that website three years ago has disappeared. These website guys is very difficult to find and they just make their money and disappear. I don’t have any access to that.

B. Computron’s purchase of headphones directly from Techlogics

[19] Later in September, on around September 19, 2017, Computron contacted Techlogics directly and arranged to make a further purchase of 2,800 pairs of two different models of Beats headphones, “Solo 2 Wireless Beats” and “Solo 3 Wireless Beats”. Computron agreed to purchase 1,400 pairs of each type at a price of $130/pair for the Solo 2s and $170/pair for the Solo 3s, for a total of $474,600 including HST. Computron gave Techlogics a $200,000 deposit with the balance of the purchase price payable on delivery.

[20] Rashid maintains that he expressly told Computron’s principal Rhemtulla that the headphones Techlogics would be supplying were an “OEM (non-Apple) product, without warranty”. However, Rhemtulla denies that Rashid ever told him that the headphones were anything other than genuine Beats/Apple products, and in cross-examination went further and testified that when he met with Rashid at Techlogics’s warehouse Rashid expressly represented that the headphones Techlogics was selling were “genuine authentic Apple product”. Rhemtulla also noted that Techlogics’s invoice “refers to the brand”, describing the headphones as “Solo 2 Wireless Beats” and “Solo 3 Wireless Beats”, and maintains that he expected to receive genuine branded products. Rhemtulla states further that Computron only dealt in genuine branded electronics and that he would never have bought the headphones if he had known they were either “OEM” or counterfeit products.

C. Computron’s efforts to return the headphones to Ladhani and Techlogics

1. The Powerbeats 3 headphones

[21] Computron sold to a buyer in the US the first 150 pairs of Powerbeats 3 headphones it had purchased from Ladhani (which had been supplied to Ladhani by Prosonic, who had in turn bought them from Techlogics). Rhemtulla’s evidence is that at some point he discovered that these headphones all had the same serial number, and that their packaging also indicated that they had been manufactured in October 2017, which was clearly impossible since they had been delivered to him in early September. He provided two different versions of how he made this discovery, initially testifying in cross-examination that his own staff had identified the problem with the serial numbers when they scanned the headphones before shipping them to the US customer. He explained that this led him to call Apple and confirm that genuine Apple products would all have unique serial numbers. He then told his US customer that “the product was not what we expected and we will not ship” and refunded the purchase price.

[22] However, later in cross-examination Rhemtulla changed his evidence on these points, explaining that he now remembered that the 150 pairs of Powerbeats 3 headphones had been shipped to Computron’s US customer, and that the customer had sold 52 pairs before discovering that the serial numbers on the remaining 98 pairs were all the same.[^3] The customer had then alerted Computron, at which point Rhemtulla had made inquiries with Apple and had allowed his customer to return the 98 unsold pairs for a prorated refund.

[23] After Rhemtulla learned about the problem with the serial numbers he contacted Ladhani and sought to return the unsold Powerbeats 3 headphones he had purchased and obtain a full refund. Ladhani maintains that the discussions between them became acrimonious and that Rhemtulla threatened that he would have Ladhani arrested for selling counterfeit goods, would make his life “a living hell” and would put his family “out on the streets”.

[24] Ladhani maintains that he responded to Rhemtulla’s demand by contacting both Prosonic and Techlogic. His evidence is that Prosonic refused to take back any of the headphones it had sold to Ladhani, asserting that they were “authentic Apple” products and that they “have paperwork from Techlogics to show it”. Prosonic did not provide this paperwork to Ladhani.

[25] According to Ladhani, Rashid also insisted that the headphones Techlogics had supplied were all original and authentic Apple products, and blamed the problem with the matching serial numbers as a labelling error by the factory. He offered to obtain new labels with different serial numbers but told Ladhani this would cost extra. Ladhani found it “significantly hard to believe that Apple would make such a mistake” and began to question whether the headphones were really authentic Apple/Beats products.

[26] Rashid also gave Ladhani a letter, ostensibly from Mac Factories, that stated:

This is to state that our products are 100% genuine. We will take full responsibility if products are found fake or out of shape.

All of the purchase orders issued from Techlogics Canada Inc are based on purchase orders an approved samples that are provided by Mac Factories Holding Limited. If the goods shipped are of the same quality and the same genuine authenticity, Techlogics Canada Inc. should accept the shipments and cannot request to return the goods on behalf of the customers without any extenuating reason. The 100% authenticity of the products are OEM products is the sole key to the acceptance of the shipments.

Mac Factories Holding Limited also assures that they assume responsibility by replacing the stock in the event the products are held or quarantined by any entity for a prolonged period, including Customs.

[27] Ladhani eventually refunded Computron $17,400 and took back 450 of the 600 pairs of headphones he had sold to Computron in the second and third sales, which he had bought directly from Techlogics. Rashid agreed to try to sell these headphones for Ladhani on consignment, and on October 6, 2017 gave Ladhani a cheque for $10,000 that he characterized as an advance against the consignment sales. Rashid later offered to refund the amount Ladhani had paid for the headphones, less a 35% “restocking fee”, and prepared a cheque for $19,662.50 but Ladhani refused to accept this payment.

[28] Rashid gives a somewhat different account. On his evidence, Ladhani knew from the outset that the headphones he was buying were not genuine Beats products, and also knew that each pair would have the same serial number. However, when Ladhani told him that his customer was trying to return the headphones Rashid agreed to try to help him out by attempting to sell the headphones on consignment, and later agreed to try to make arrangements to return them to the factory. Mac Factories agreed to take the headphones back but insisted on charging a 35% restocking fee, which Rashid proposed to deduct from Ladhani’s refund. According to Rashid, Ladhani initially agreed to these terms but then refused to take Rashid’s cheque after getting advice from a friend that he should see a lawyer.

[29] In their original Statement of Defence, Counterclaim and Crossclaim, the Ladhanis pleaded that:

Techlogics … was the primary supplier to GTA Wholesale. At all material times they were the final suppliers of all goods sold herein and represented the trade name “Powerbeats Wireless 3 Headphones”. Defendant Husain and GTA Wholesale only acted as a middle person in the sale and represented in documents or orally that the products were not those of Apple.

However, they also pleaded that Computron “has made false representations of counterfeit goods”, and pleaded further that Husain Ladhani:

…. relied on the representations or misrepresentations made by Techlogics Canada Inc. and letter dated September 22, 2017 of Mac Factories Holding Limited proving the OEM authenticity of products, to its detriment, with respect to the OEM authenticity of products.

In their Statement of Third Party Claim against the Rhemtullas and Prosonic, the Ladhanis also pleaded that Computron “was aware of the details of the products, colors and OEM status” of the headphones that Ladhani sold to Computron.

[30] However, in his affidavit and in cross-examination Ladhani maintained that Prosonic and Techlogics had actually both represented to him that the Powerbeats Wireless 3 headphones he was buying to resell to Computron were genuine Apple products, and that he had never suggested anything different to Computron. This conflicts with what was stated in the Ladhanis’ pleadings, which were prepared by their previous counsel. They now seek leave to amend their pleadings to conform with Husain Ladhani’s evidence on this point.

[31] Ladhani also explained in cross-examination that he understood the term OEM to mean “Original Electronics Manufacturer”, and that describing the Powerbeats Wireless 3 headphones as “OEM” would have meant to him that they were “[o]riginal Apple headphones”.

2. The Beats Solo 2 and 3 Wireless headphones

[32] By the time the issue with the serial numbers of the Powerbeats 3 headphones arose, Rhemtulla knew that these headphones had originally been supplied by Techlogics. As a result, he sought to cancel Computron’s outstanding purchase order with Techlogics for the 2,800 pairs of Beats Solo 2 and 3 headphones, explaining in cross-examination that he “didn’t want to deal with the same problem with those with the Solo” and “didn’t want to deal with the same product or any other product from that supplier”. According to Rhemtulla, when Computron sought to cancel this order Rashid’s first response was to offer to provide headphones with different serial numbers, or stickers with unique serial numbers. Rhemtulla refused these offers because he no longer wanted to buy anything from Techlogics.

[33] For his part, Rashid testified that Rhemtulla came to see him at his store on September 26, 2017. Rhemtulla was “screaming, shouting and being a bully”, so in order to mollify him and get him to leave the store Rashid gave him two letters. The first, which Rashid adapted from the letter he had received from Mac Factories which he also gave to Ladhani, stated:

This is to state that our products are 100% genuine. We will take full responsibility if products are found fake or out of shape.

All of the purchase orders issued from COMPUTRON SYSTEMS INTERATIONAL are based on purchase orders an approved samples that are provided by Techlogics Canada Inc. If the goods shipped are of the same quality and the same genuine authenticity, Computron systems international should accept the shipment and cannot request to return the goods on behalf of the customers for refund without any extenuating reason. The 100% authenticity of the products are OEM products are the sole key to accept the shipment.

Techlogics Canada Inc. Also assures that they assume responsibility by replacing the stock in the event the products are held or quarantined by any entity for a prolonged period, including customs.

In the second letter, Rashid stated:

As discussed in our meeting today, i will bring in your concern to the authorized foxconn factory that serial numbers on powerbeats 3 for all are the same as well as model number of the powerbeats 3 which suppose to be for black colour only mentioned on all different colour models, Also manufacturing date mentioned 10-2017 which is out of your understanding.

Hence please give me time till Friday 29/09/2017 to get an answer else I will refund your money as soon as I receive my money back in full from supplier. and for 60500 will be paid on Friday. And the balance if I received before will transfer all else you can take back from your credit cards.

In cross-examination, Rashid testified that he had been told “by Mac Factories themselves” that they were an authorized subcontractor of Foxconn, who he understood was Apple’s primary Chinese manufacturer.

[34] Rashid’s evidence is that Techlogics eventually agreed to refund most of Computron’s $200,000 purchase price but that Rhemtulla agreed to absorb any restocking fee charged by Mac Factories, as well as any costs relating to bank charges and currency exchange fluctuations. These charges came to $5,397.75. Techlogics had previously refunded a $140,000 charge on Computron’s credit card, and on September 29, 2017 Rashid refunded the balance of $60,000, less the $5,397.75 in charges, after Rhemtulla signed a document stating:

I, Amin Rhemtulla, hereby affirm that I have been refunded a balance of $194602.25 from Techlogics Canada. This balance is a reversal of the amount generated on the invoice $73 [sic] dated September 19, 2017.

The balance of $194602.25 is after tax deductions and I acknowledge these lawful deductions.

I also hereby affirm that all the paper work involved in this litigation hereby stand null and void, waiving rights to litigation. This transaction is terminated and there is no further balance owed by Techlogics toward me.

[35] Rhemtulla agreed that he signed this document on behalf of Computron, but maintains that he did so “under duress” because Rashid refused to give him a refund if he did not sign it. He also disputes that he ever agreed to pay $5,397.75 in what he describes as “all made-up charges”. However, Rhemtulla acknowledged in cross-examination that when he signed the document Rashid had already refunded $140,000 to Computron’s credit card, leaving only $60,000 of Computron’s original $200,000 deposit still outstanding.

III. Analysis

A. The Ladhanis’ motion to amend their pleadings

[36] As discussed above, in their Statement of Defence, Counterclaim and Crossclaim, which was prepared in December 2017 by their previous counsel, the Ladhanis asserted that Husain Ladhani had “represented in documents or orally [to Computron] that the products [i.e., the Powerbeats Wireless 3 headphones] were not those of Apple”.

[37] In the summer of 2018 the Ladhanis changed counsel, and in his September 2018 affidavit, prepared by his new counsel, Husain Ladhani maintained that he had been specifically told both by a representative of Prosonic and by Rashid that the headphones he was buying from Prosonic and later from Techlogics were authentic Apple products. He maintained this position when he was cross-examined on his affidavit in April 2019, at which time his counsel advised opposing counsel that the Ladhanis would seek to amend their pleadings to conform with Husain Ladhani’s evidence.

[38] The Ladhanis now seek leave to amend their pleadings. The main proposed amendment would delete the statement that Husain Ladhani had “represented in documents or orally that the products [he sold to Computron] were not those of Apple” and replace it with the following assertion:

Techlogics Canada Inc.’s principal, Faisal Rashid, informed Husain Ladhani that the products were authentic and original Apple products. Mr. Ladhani relied on these representations to his detriment. Based on these misrepresentations, GTA Wholesale contracted with Techlogics to purchase the product.

Techlogics and Rashid oppose granting the Ladhanis leave to make this amendment, while Computron takes no position.

[39] Rule 26.01 of the Rules of Civil Procedure provides:

26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

In this case, granting leave to amend would not in my view cause Techlogics any discernible prejudice. Techlogics has known since September 2018 that Husain Ladhani was denying knowing that the headphones were not genuine Apple products when he bought them, and was maintaining further that he had been expressly told both by Prosonic and by Rashid that the headphones were genuine, and that he never represented otherwise to Computron. Techlogics has also known since April 2019 that the Ladhanis would be seeking to amend their pleadings to accord with Husain Ladhani’s evidence on these points. To the extent that Techlogics wants to rely on this change of position as a factor undermining the credibility of Husain Ladhani’s present evidence that he believed the headphones were authentic Apple/Beats products Techlogics can still make this argument, since it will remain a matter of record that the Ladhanis took a contrary position on this point in their original pleadings even if their pleadings have been amended.

[40] Counsel for Techlogics also argues that it was unfair for the Ladhanis to bring their motion to amend their pleadings as a last-minute add-on to the previously scheduled summary judgment motions, and to only serve their amendment motion materials the day before the hearing. While I agree that it would have been better for the amendment motion to have been brought with proper notice, in the circumstances I do not think that the late service of the materials has caused any actual prejudice to Techlogics. The proposed amendments are not complicated, and simply reflect Husain Ladhani’s evidence as set out in his September 2018 affidavit, which Techlogics had had for well over a year when this motion was argued in December 2019. Moreover, Techlogics’ counsel had also known since April 2019 that the Ladhanis would be seeking leave to amend their pleadings to conform with Husain Ladhani’s evidence. Accordingly, Techlogics and Rashid have not been taken by surprise in any real sense. They have had ample opportunity to respond to the Ladhanis’ changed position by adducing additional evidence, and ought to have done so if they had any such additional evidence to present.

[41] It is also of some significance that it was only in the mid-afternoon of the full-day motion hearing that Techlogics and Rashid’s counsel objected to the short service of the Ladhanis’ amendment motion materials and asked for an adjournment. As I indicated at the time, I was not prepared to grant an adjournment at that late hour, since I was not satisfied that Techlogics and Rashid had suffered any concrete prejudice that would justify derailing the hearing of the summary judgment motions, which had been scheduled for a full day of argument months earlier.

[42] I am accordingly granting leave to the Ladhanis to amend their pleadings in the manner they propose. In my view, it would best serve the interests of justice for their claims and the claims against them to be determined on the basis of the evidence that has been presented, including Husain Ladhani’s testimony. His change of position from his original pleadings can in my view be properly considered when assessing the credibility and reliability of his evidence.

B. The summary judgment motions

1. General principles

[43] Rule 20.04(1) of the Rules of Civil Procedure directs courts to grant summary judgment “if satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence”. In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87 the Supreme Court of Canada called for a “shift in culture” that recognizes that in some cases the summary judgment process offers a better way of doing justice than a full-blown trial. As Karakatsanis J. explained (at paras. 28-29):

The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible — proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.

There is, of course, always some tension between accessibility and the truth-seeking function but, much as one would not expect a jury trial over a contested parking ticket, the procedures used to adjudicate civil disputes must fit the nature of the claim. If the process is disproportionate to the nature of the dispute and the interests involved, then it will not achieve a fair and just result.

Since the case at bar involves a factually complicated dispute over what is by commercial litigation standards a relatively small amount of money, it is in this sense particularly well-suited to summary disposition.

[44] It is also well-established that all parties on a summary judgment motion are obliged to “put [their] best foot forward”. As Thorburn J.A. recently noted in Aga v. Ethiopian Orthodox Tewahedo Church of Canada, 2020 ONCA 10 at para 61:

In a summary judgment motion, the moving party bears the evidentiary burden of demonstrating that there is no genuine issue requiring a trial; it must put its best foot forward by adducing evidence on the merits.

If the moving party meets this threshold onus, “the burden shift[s] to the responding party to prove that its claim has a real chance of success”: Sanzone v. Schechter, 2016 ONCA 566 at para. 30. As Browne J. noted in Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 28, aff’d 2014 ONCA 878, “[t]he responding party to a summary judgment motion must ‘lead trump or risk losing’”.

[45] In 2313103 Ontario Inc. v. JM Food Services Ltd., 2015 ONSC 4029 at para. 40, Dunphy J. explained:

In bringing a motion for summary judgment, the court is entitled to assume that both parties have put before the court all of the evidence they would intend to adduce at trial (even if not in the same form) that relates to the issues for decision on the motion. Ambush and surprise have no legitimate place in modern litigation, but this is particularly so in motions for summary judgment where the entire action or a substantial part of it may be disposed of in favour of one or the other party. Summary judgment is no place for a party to look to keep powder dry for another day and it is rather late in the process to sit down and ensure the issues are thoroughly understood.

[46] Rule 20.04(2.1) expressly permits judges who hear summary judgment motions to weigh evidence, to evaluate credibility of the witnesses who have provided affidavit evidence, and to draw reasonable inferences from the evidence. As Copeland J. noted in Adatia v. Cassar, 2018 ONSC 4321 at para. 12, “ the crucial question is whether the record allows me to fairly make the necessary findings of fact, in particular, findings of credibility.”

2. The provenance of the headphones

[47] The central dispute between the parties is over whether Ladhani and/or Computron knew that the headphones being supplied by Techlogics were not authentic Apple/Beats products. Ladhani and Computron’s principal Rhemtulla both maintain that they always intended to buy genuine branded Apple/Beats products, and believed that this was what they were contracting to buy and would receive. As discussed above, both go further and testify that Rashid orally affirmed that this was indeed so, whereas Rashid maintains that he actually told Ladhani and Rhemtulla that the headphones they were buying were not authentic Apple products but were actually “OEM” goods.

[48] The parties also disagree about what the term “OEM” actually means in this context. In the automotive industry, where the expression seems to have originated as an acronym for “original equipment manufacturer”, it is used to describe replacement vehicle parts that are identical to those that were used when the vehicle was manufactured: see, e.g., Venturin v. Zurich Insurance Company, 2007 CanLII 65703 (Ont. S.C.J.). However, Rashid testified that the term means something different to him. On his definition, when a company such as Apple subcontracts the manufacture of its products to another company, an “OEM” version of its product is one made by the subcontracting manufacturer to the same specifications as the genuine branded product, but which is then sold directly by the subcontractor, thereby “cutting off the middle man” (e.g., Apple).

[49] No evidence was adduced as to whether this definition of an “OEM product” is commonplace in the consumer electronics trade. Ladhani testified that he had a different understanding of what OEM meant, explaining that he thought it meant “original electronics manufacturer” and that if the headphones he bought had been described as OEM goods he would have understood this to mean that they were genuine Apple/Beats products.

[50] On Rashid’s definition of the term, an OEM version of a branded product is not “authentic” in the sense that it has not been authorized for sale or warrantied by the brand-holder, but is nevertheless physically “the exact same” as the genuine article since it comes off the same assembly line and is made with same component parts in the same conditions. In contrast, counterfeit copies of branded electronic goods that are made by a manufacturer who does not produce authentic goods for the brand-holder may be made using inferior components and/or workmanship, even if the finished items are manufactured and packaged to physically resemble the authentic branded product.

[51] For the purpose of these reasons I will use the term “OEM” as Rashid defined it, and will refer to other types of inauthentic products as “counterfeits”, without intending to suggest that this terminological distinction between “OEM” and counterfeit products is well understood or generally accepted in the industry.

[52] It is undisputed that the headphones Techlogics sold or contracted to sell in this case were all being supplied by Mac Factories, and that none were authentic Apple/Beats products. However, Rashid maintains that a Mac Factories representative with whom he had exchanged messages on WeChat told him that the company also produced authentic Apple goods on behalf of Apple’s principal subcontractor Foxconn. Rashid therefore believed that the non-authentic Beats headphones Mac Factories supplied were “OEM” goods as he defined the term, in that they were made by a company that he believed also made genuine branded Apple products.

[53] However, no evidence was adduced establishing that Mac Factories actually does manufacture authentic Apple/Beats products. Rashid’s testimony about what he says a Mac Factories representative told him is admissible only as evidence of what Rashid believed, but not to establish that what he was told was actually true. Moreover, Rashid’s account of what he was told by the Mac Factories representative is not confirmed by any other evidence. Rashid undertook in cross-examination to “produce any written record in Techlogics’ possession of WeChat messages where Mac Factories claims that they manufacture for Apple or Foxconn” and to request the same from Mac Factories, but no such documentation was provided or put into the evidentiary record.

[54] Photos of some of the Powerbeats Wireless 3 headphones and their packaging were put in evidence, and one box was presented at the motion hearing for my inspection. To my untrained eyes the headphones and their packaging appear indistinguishable from those of an authentic Apple/Beats product. Among other things, the packaging identifies Apple Inc. as the manufacturer and includes notices of Apple and Beats Electronics LLC’s trademarks and copyright. In my view, it is beyond any real dispute that the headphones were designed and packaged to facilitate them being passed off as genuine Apple/Beats goods at some point in the distribution chain.

[55] If this case went to trial, one of the main disputed issues would be whether this passing off occurred at the point that Techlogics sold them to Ladhani and/or Computron, or whether either or both purchaser knew that they were not contracting to acquire genuine Apple/Beats products. However, the parties also dispute several other points, which I will address first.

3. Were Techlogics’s headphone sales “sales by description” for the purpose of the Sale of Goods Act?

[56] None of the headphone sales at issue in this case were the subject of any formal written contracts between the parties. Rather, the various purchase and sale agreements all seem to have arisen through different combinations of oral conversations, text messages and purchase orders, and to have been confirmed in some instance by subsequent invoices.

[57] The text messages, purchase orders and invoices that have been adduced as evidence consistently refer to the headphones being bought and sold by their trademarked brand and model names. For example, when Computron ordered the second batch of Powerbeats Wireless 3 headphones from Ladhani on September 11, 2017, its purchase order stated that it was ordering 400 “Powerbeats 3^® in-ear BT sport headphones complete (New/sealed)”. Likewise, when Techlogics invoiced Computron for its subsequent purchase of headphones directly from Techlogics, the invoice identified the goods by brand and model as “Solo 2 Wireless Beats” and “Solo 3 Wireless Beats”.

[58] Section 14 of the Sale of Goods Act provides:

14. Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description, and, if the sale by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

As Boswell J. noted in Parkhill Excavating Limited v. Robert E. Young Construction Limited, 2017 ONSC 6903 at para. 71, this provision: “implies a condition into contracts for the sale of goods by description, that the goods will, in fact, correspond with the description.” In my view, at least in the context of sales of consumer electronics, when goods are “described” simply by referring to a brand name and particular model, this will generally imply that the seller is agreeing to provide authentic branded products rather than inauthentic copies, whether these copies are “OEM” as Rashid defines the term or simply counterfeit.

[59] I do not agree with Techlogics that Computron and Ladhani had to specifically insist that Techlogics supply “authentic Apple products” in order for this to become a term of their purchase contracts. As I see it, it was enough for the buyers to specify that they wanted to purchase “Powerbeats” or “Beats” headphones, and for Techlogics to agree to provide such products. If Techlogics wanted to fill the purchase orders by supplying something other than authentic branded headphones, it was in my view up to Techlogics to propose this to the purchasers and obtain their agreement to the substitution.

[60] Techlogics, of course, maintains that this is precisely what Rashid did when he contracted with Ladhani and Computron. However, Techlogics also argues in the alternative that it does not matter what representations Rashid made to Ladhani because Ladhani “was provided with a sample and … had a sample in [his] possession”. The sample had been given to Ladhani by Prosonic rather than Techlogics, but by the time Ladhani made his purchases from Techlogics he knew that Techlogics had also been Prosonic’s supplier. According to Techlogics, its sales of headphones to Ladhani were accordingly not “sales by description” for the purposes of the Sale of Goods Act. Techlogics argues that Ladhani has no grounds for complaint because “[t]here is no allegation that the products the plaintiff [sic] received were different from those he was shown as a sample”.

[61] I do not agree that a merchant who has expressly or implicitly agreed to supply genuine branded goods to a buyer can sidestep the condition of authenticity simply by providing a sample and hoping that the buyer fails to identify it as a fake. Section 14 of the Sale of Goods Act expressly recognizes that sales can be “by sample as well as by description”, and provides that in this situation it is “not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description”. That is the situation here. The headphones Ladhani purchased from Techlogics very likely did closely resemble the sample he had previously received from Prosonic. However, s. 14 prevents Techlogics from relying on this as a defence if the headphones it contracted to sell to Ladhani had been expressly or implicitly “described” as authentic branded Apple/Beats products.

[62] In Bailey v. Croft, 1931 CanLII 654 (MB CA), [1932] 1 D.L.R. 777 (Man. C.A.) a majority of the Manitoba Court of Appeal held that the handling of goods by the buyer does not automatically convert a sale into a pure sale by sample. The plaintiff in the case had bought a violin that the seller represented had been made by a specific English luthier. It turned out to have probably been made by a different luthier, although this did not affect its quality. Writing for the majority, Robson J.A. observed (at p. 785):

[C]onsidering the relationship of the parties and their respective knowledge and ignorance of the subject, the fact that the instrument was seen and handled by the plaintiff at the time the defendant made his representations does not exclude the condition implied by s. 15 [now s. 14] or reduce the representation to a mere warranty enforceable only in damages.

The Manitoba sale of goods legislation is similar to the legislation in Ontario, and Bailey v. Croft was recently cited approvingly by the Ontario Court of Appeal in Hearn v. McLeod Estate, 2019 ONCA 682 at para. 46, where the Court gave judgment under the Sale of Goods Act to a buyer who had purchased a painting on the strength of false statements of provenance provided by the seller.

[63] In my view, the principles in Bailey and Hearn lead to the same result here. Techlogics knew both that the headphones it was selling were not authentic Apple/Beats products and that they had been carefully designed and packaged to be virtually indistinguishable by sight from the real thing. In these circumstances, in my view, the fact that Ladhani had a chance to handle a sample unit at some point before the sale was completed does not convert the sale into something other than a sale by description for the purpose of the Sale of Goods Act.

[64] In any event, characterizing Techlogics’s sales of headphones to Ladhani as “sales by sample” would not change the result. Section 16(2)(c) of the Sale of Goods Act provides:

16. (2) In the case of a contract for sale by sample, there is an implied condition,

(c) that the goods will be free from any defect rendering them unmerchantable that would not be apparent on reasonable examination of the sample.

In my view, the undisputed fact that the headphones Ladhani purchased were not authentic Apple/Beats products, despite being carefully packaged to appear as such, can properly be considered a “defect rendering them unmerchantable that would not be apparent on reasonable examination of the sample”. In particular, Ladhani would have been unable to tell from looking at a single sample that the headphones he was purchasing all had the same serial number, which was the main clue that they were actually knock-off goods. While the purported October 2017 manufacturing date on the packaging might also have tipped him off, I do not think that it is reasonable to expect him to pick up on such a subtle clue during his examination of the sample box.

4. Was it obvious from the purchase price that the headphones could not be authentic Apple/Beats products?

[65] Techlogics makes the further argument that Ladhani and Computron “should have known” that they would be receiving inauthentic headphones because the sale price was too good for them to reasonably expect to get authentic branded goods. I do not accept this argument, for two main reasons. First, there is no evidence on the record supporting Techlogics’s claim that what Ladhani and Computron were paying – between $90/pair and $105/pair for Powerbeats Wireless 3 headphones, $130/pair for Solo 2 Wireless Beats headphones, and $170/pair for Solo 3 Wireless Beats headphones – were unreasonably low wholesale prices for these products at the relevant time. Techlogics sought to support its argument by appending to its factum several printouts of pages from unidentified websites purporting to compare the retail prices of authentic and “probably knock-off” Beats headphones on unspecified dates. These printouts have not been properly put in evidence and are not something I can properly place any weight on.

[66] However, even if these printouts had been made exhibits to an affidavit they would be of no real utility, since they shed no light on what the wholesale prices of these products was likely to have been in the fall of 2017. The only actual evidence on this point came from Ladhani and Rhemtulla, who maintained that the wholesale prices of authentic branded electronics varied widely, and that there was nothing about the prices they paid for the headphones at issue here that aroused their suspicions. On this evidentiary record it would be sheer speculation for me to conclude that it was unreasonable for either of them to believe that they were buying authentic branded Beats headphones.

[67] Second, as in any contracts case, the focus here is what the parties actually intended, not what they should have thought. While I appreciate that the question of what a reasonable person would have understood in the circumstances will often shed light on what the parties actually subjectively understood and intended, it is the latter that ultimately matters. In this case, the paper record indicates that Ladhani and Rhemtulla both set out to purchase “Beats” headphones from Techlogics. Unless Rashid made it clear at the time that he was not contracting for Techlogics to supply the buyers with authentic branded goods, I do not think it can be inferred on this record that they could not have subjectively expected to get what they were seemingly asking for.

5. Does this case involve credibility issues that require a trial?

[68] On this analysis, Techlogics’s only possible defence to the purchasers’ s. 14 Sale of Goods Act claims hinges on Rashid’s evidence that he expressly told both Ladhani and Computron that Techlogics would be supplying “OEM” headphones that were not authentic Apple/Beats products. The central question in the two motions for summary judgment is accordingly whether the conflicting evidence on this point makes a trial necessary.

[69] In Healey v. Lakeridge Health Corporation, 2010 ONSC 725 at para. 31, Perell J. explained:

[A]n action may turn on credibility and a transcript of evidence along with the documentary evidence may not – in the particular circumstances of the case – be adequate for the court to evaluate credibility. In such a case, there would be a genuine issue requiring a trial or there would be the need to resort to the court’s new powers to order evidence to be called as a part of the summary judgment procedure. But, in another case, the issues may be such that the motions judge could decide the credibility issue on the motion for summary judgment.

[70] If the evidence bearing on this issue consisted solely of the conflicting testimony of Rhemtulla, Ladhani and Rashid. I would agree that I would be unable to accurately resolve the dispute between them on this record. All of their evidence is problematic in different ways. Rhemtulla gave two different accounts of how he came to discover the problem with the serial numbers of the initial batch of Powerbeats Wireless 3 headphones. This undermines at least the reliability of his evidence, if not his testimonial credibility.

[71] For his part, Ladhani’s evidence that Rashid expressly told him that Techlogics was supplying authentic Apple/Beats headphones is inconsistent with what he asserted in his initial pleadings. Rather than attempting to explain this discrepancy, Ladhani has asserted solicitor-client privilege over his instructions to his original counsel. While Ladhani has the right to protect the secrecy of his privileged communications with his former lawyer and I would not draw any adverse inference against him for making this choice, his decision makes it impossible to know whether he may have previously given a version of events that is inconsistent with his present account. This makes it more difficult to affirmatively accept that his current version of events is the truth.

[72] At the same time, there is also a substantial body of independent evidence that in my view weighs strongly against Rashid’s evidence that he specifically told both Ladhani and Rhemtulla that he was selling them OEM headphones that were not authentic Apple/Beats products.

[73] First, during Rhemtulla and Ladhani’s WeChat communications that led to Computron’s purchase of the three batches of Powerbeats Wireless 3 headphones from Ladhani, Rhemtulla never indicated that Computron was looking to buy something other than authentic Apple/Beats products. Ladhani had made it clear that he was a middleman who would acquire anything he sold from third-party suppliers, so if Rhemtulla was indeed in the market for inauthentic knock-off headphones – presumably because they would cost less to purchase than authentic branded goods – it makes little sense that he would not have made it clear to Ladhani that this was what he was looking for. However, throughout their message exchanges in August and September 2017 Ladhani and Rhemtulla simply refer to the headphones and the other electronic goods they discuss by their brand name and model names.

[74] Second, the paperwork associated with the various sales – the purchase orders from Computron, and Ladhani and Techlogics’s invoices – consistently refer to the headphones being bought and sold by their brand and model names, with Techlogics on one occasion adding the term “100% original” to its description of the goods.[^4] Rashid testified that Techlogics’s invoices should have identified the headphones it was selling as OEM products, and blamed his staff for the omission. This explanation strains credulity, particularly when it is given to account for multiple invoices for different purchases over the span of several weeks. On the other hand, the descriptions of the goods in the invoices makes perfect sense if the buyers believed they would be receiving authentic Apple/Beats branded headphones.

[75] Third, the printouts from Techlogics website indicate that the company had at some point advertised Beats headphones for sale without any disclaimers indicating that they were not genuine branded products. Rashid acknowledged that these headphones were actually OEM products and should have been identified as such, but again blamed his staff, claiming that his web designer had created the erroneous listings and then “disappeared”, leaving Rashid powerless to correct the misstatements, which did not matter much to him anyway because Techlogics did very little business over the internet. Rashid’s attempt to minimize the significance of this false advertising and to deflect responsibility to his staff is again difficult to credit. At the very least, this evidence is consistent with Computron and Ladhani’s portrayal of Rashid as a merchant who had no scruples about passing off knock-off goods as if they were genuine.

[76] Fourth, the evidence of how Rhemtulla reacted to discovering that the first batch of Powerbeats Wireless 3 headphones Computron had purchased were not authentic is not disputed. Ladhani described Rhemtulla as becoming extremely angry and making threats to have Ladhani arrested for selling counterfeit goods and to put him and his family “out on the streets”. Likewise, Rashid described Rhemtulla as coming to Techlogics’s store and “screaming, shouting and being a bully”. On Rashid’s evidence, Rhemtulla already knew by this time that the Solo 2 and Solo 3 Wireless Beats headphones he had ordered directly from Techlogics would not be “OEM (non-Apple) product”, and also knew that Techlogics had supplied the headphones he had bought from Ladhani. If Rashid’s evidence is true, Rhemtulla’s extreme reaction to learning that latter headphones were not authentic Apple/Beats goods makes little sense. [^5]

[77] For all of these reasons, if this case went to trial I do not think there is any realistic possibility that the trier of fact would accept on a balance of probabilities Rashid’s evidence that he explicitly told both Ladhani and Rhemtulla that the headphones they were buying from Techlogics were “OEM (non-Apple) products”. To the contrary, I think the evidence points away from this conclusion to a sufficiently strong degree that I can make the necessary dispositive findings of fact on this issue, even though it involves questions of credibility. In the circumstances here, I am satisfied that summary judgment will achieve an expeditious, fair and just adjudication of the dispute on the merits, such that a trial is not required.

[78] At the same time, I also do not consider Rhemtulla and Ladhani’s claims that Rashid expressly told them they were buying authentic Apple/Beats products to be particularly credible or reliable. The main difficulty I have with this part of their evidence is that if Rashid had made these explicit representations to them before they each entered into their purchase contracts with Techlogics, it makes little sense that Rashid would have responded to their complaints about the provenance of the headphones by giving them the letter from Mac Factories that stated:

The 100% authenticity of the products are OEM products is the sole key to the acceptance of the shipments.

As Mr. Khan points out, producing a letter that explicitly described the headphones as “OEM products” would be a strange thing for Rashid to do if he had previously told Rhemtulla and Ladhani that Techlogics would be supplying authentic branded Apple/Beats goods. Although Ladhani apparently believed that “OEM” meant “authentic”, I accept that Rashid understood the term to mean something different, and there is no evidence that he knew anything about how Ladhani understood the term.

[79] In my view, the most likely explanation for what happened here is that Rashid never said anything to the purchasers, one way or the other, about whether the headphones he was selling were authentic. Rather, Ladhani and Rhemtulla placed orders with Techlogics for specific models of Beats headphones and assumed that Techlogics would supply authentic branded goods. Rashid, for his part, chose to fill these orders with headphones obtained from Mac Factories. He may well have believed that Mac Factories made Beats headphones for Apple and that the headphones he was selling would be “OEM” products, as he understood the term, such that they would be identical in quality to authentic branded goods. Alternatively, he may simply have thought that they looked so much like the real thing that nobody would notice the difference. However, it is unnecessary for me to decide exactly what Rashid was thinking, because under s. 14 of the Sale of Goods Act his exact state of mind does not matter. Once Rashid agreed that Techlogics would sell goods described only by their brand and model names, it became an implied condition that the goods Techlogics provided under the contract would correspond with this description, which in this context meant, in my view, that they would be authentic Apple/Beats products.

[80] However, even if I were to take the most favourable view of the facts from Techlogics’s perspective and accept that Rashid did tell the purchasers that Techlogics would be providing them with “OEM (non-Apple) products”, this does not in my view substantially change the result, since there is no evidence that the headphones Techlogics contracted to acquire from Mac Factories were “OEM products” within Rashid’s particular understanding of the term, under which an OEM product is physically “the exact same” as an authentic branded product because it comes off the same assembly line. While I am prepared to accept that Rashid may have believed that Mac Factories was an “authorized Foxconn factory” that also produced authentic Apple/Beats goods, there is no evidence before me that this is actually true. Indeed, it strikes me as most unlikely that Apple would permit its subcontractors to copy its products and sell them directly at a lower price in packaging that represents them to be authentic Apple/Beats goods. I consider it more likely that Mac Factories is simply a producer of unauthorized counterfeit electronics.

[81] If the headphones Mac Factories was providing did not come off the same assembly line as authentic branded Apple/Beats products, there is no good reason to assume that they would be identical in quality. Accordingly, even if Rashid did represent to his buyers that Techlogics would be providing them with “OEM goods”, there is no evidence that the headphones Techlogics actually sourced from Mac Factories were OEM products as Rashid understood the term, as opposed to being merely very convincing-looking counterfeits. It follows that even on Rashid’s own evidence Techlogics has not shown that it was in a position to provide goods that “correspond[ed] with the description” that Rashid says he provided to the buyers.

6. Conclusions re liability and damages

a) Damages payable by Ladhani to Computron

[82] While Ladhani maintains that he did not knowingly misrepresent the headphones he sold to Computron as being authentic Apple/Beats products, he acknowledges that this does not affect his liability to Computron for the breach of the implied condition under s. 14 of the Sale of Goods Act that the headphones would be authentic. He also takes no issue with Computron’s entitlement under s. 51 of the Act to reject the goods and claim its expectancy loss as damages, or with Computron’s calculation of these losses on the basis that it expected to re-sell the headphones at a profit of $8/pair. As Cory J.A. (as he then was) noted in Canlin Ltd. v. Thiokol Fibres Canada Ltd., 1983 CanLII 1603, 1983 CarswellOnt 136 at para. 14 (C.A.), “[a]n assessment of future loss of profits must, of necessity, be an estimate.” Since Ladhani himself made profits of $15 and $26/pair when he sold the headphones to Computron in the first place, I accept that Computron’s estimated profit of $8/pair is reasonable in the circumstances.

[83] Computron provided a breakdown of its damages arising from the transactions involving Ladhani, including the expenses it incurred to give a refund to its customer in the US who had bought the first batch of 150 headphones and to pay to have the headphones shipped back to Canada. Computron originally computed its damages on this basis as totalling $90,041.61, a figure that takes into account Ladhani’s previous refund of $17,400 to Computron.

[84] However, a closer inspection of these figures revealed that Computron had failed to take into account that its US customer had actually sold 52 of the 150 pairs of the headphones and had returned only 98 pairs. During the hearing, Ladhani’s counsel provided a revised calculation that took this into consideration. They computed Computron’s total expectancy losses arising from its purchases from Ladhani, less the amount Ladhani has already repaid, as $82,978.73, and I understood Computron’s counsel as taking no issue with this revised figure.

b) Damages payable by Techlogics to Ladhani

[85] Ladhani argues that he should be entitled to recoup from Techlogics any damages he must pay to Computron, less the $10,000 refund Techlogics already gave him.

[86] It is a well-settled principle that “[d]amages for breach of contract should, as far as money can do it, place the plaintiff in the same position as if the contract had been performed”: Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3, 2006 SCC 30 at para. 27. However, this principle is subject to the rule in Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145, at p. 151 that:

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

[87] In the case at bar, I am satisfied that Techlogics and Rashid knew that Ladhani probably meant to resell the 600 pairs of headphones he purchased directly from Techlogics, and that this resale would very likely include an implied condition that the headphones were authentic Apple/Beats products, with the result that Ladhani would be liable for his own purchasers’ expectation damages if it was discovered that the headphones were actually knock-offs. In these circumstances I agree that Ladhani can properly claim damages for breach of contract against Techlogics for an amount equal to his own liability to Computron arising from his own sale to Computron of the 600 pairs of headphones he purchased from Techlogics, which I would calculate as $83,488.[^6]

[88] Ladhani argues that he should also be able to collect damages from Techlogics to recoup the damages he must pay to Computron relating to his sale of the headphones he purchased from Prosonic. He relies on a 1979 decision of the Ontario High Court, Murray v. Sperry Rand Corp., 1979 CanLII 2133 (Ont. H.C.J.), where the court found the manufacturer and distributor of a combine harvester, as well as the retail seller, liable for breach of a collateral warranty based on misleading representations they had made to the plaintiff about the rate at which the machine could harvest crops. The manufacturer was held liable on the basis of representations about the machine’s abilities that had been made in a sales brochure it had published, which Reid J. found to be “collateral warranties given by the manufacturer.” Mr. Spotswood argues that in the case at bar the packaging of the headphones can similarly be treated as a collateral warranty that the headphones were authentic Apple/Beats products.

[89] The problem with this analogy is that Techlogics did not manufacture or package the headphones that Ladhani purchased from Prosonic. Rather, Techlogics merely acted as a distributor of goods it had acquired from Mac Factories. In Murray, the distributor of the New Holland combine harvester was held liable on the basis that its representative had gone to the plaintiff’s farm and met with the plaintiff for several hours, during which they discussed the capabilities of the machine and “went through the New Holland product book”. Reid J. concluded:

I think it is a fair inference from this and plaintiff's evidence that the product book was the sales brochure and that [the distributor’s representative] gave plaintiff the same type of assurances given by [the dealer].

In contrast, Ladhani had no direct dealings with Techlogics when he bought the headphones from Prosonic, and only learned some time later that Techlogics had been Prosonic’s supplier. In Greenough v. Maple Ridge Media Inc., 2018 ONSC 660 at para. 46, Gomery J. noted that “most successful actions on collateral warranty involve a written representation, and circumstances in which the warrantor is involved to some extent with the sale”. While Ladhani might well have a legitimate collateral warranty claim against Mac Factories, who actually packaged the headphones, I am not persuaded that he can properly make such a claim against Techlogics in the circumstances here.

c) Damages payable by Techlogics to Computron

[90] Computron calculates its expectation losses arising from its aborted purchase of 2,800 pairs of Solo 2 and Solo 3 headphones directly from Techlogics on the basis that it would have made a profit of $9/unit from their resale, which I am satisfied is also a reasonable estimate. It accordingly calculates its expectation losses as $25,200, to which it adds the $5,397.75 in fees and charges that Techlogics deducted when it refunded Computron’s deposit, for a total of $30,597.75.

[91] Techlogics makes several arguments against Computron’s claim. First, it argues that the Sale of Goods Act does not apply because Computron never actually took delivery of any of the headphones it ordered directly from Techlogics, but instead cancelled the purchases before Mac Factories had provided any goods. I do not agree that the Act applies only when there has been an actual delivery of goods. Indeed, s. 1 of the Act defines a “contract of sale” to include an agreement to sell goods. As discussed previously, the contract between Computron and Techlogics must in my view be construed as an agreement for the purchase and sale of authentic Apple/Beats headphones. Once it emerged that Techlogics was not going to be able to complete its side of the bargain, Computron in my view became entitled to repudiate the contract and seek damages under s. 49 for non-delivery. In any event, the Act simply codifies a number of established common law principles of contract law, which I am satisfied would lead to the same result here even if the Act for some reason does not apply to the contract between Computron and Techlogics.

[92] Techlogics more substantial argument is that Computron is bound by Rhemtulla’s signed agreement that Computron would forego suing Techlogics for damages in exchange for Techlogics’s returning $54,602.25 of the $60,000 that remained outstanding from Computron’s $200,000 deposit. Computron acknowledges that Rhemtulla signed a document in which he “waiv[ed] right to litigation” and stated that “no further balance owed by Techlogics toward me” in exchange for these funds, and does not dispute that Rhemtulla did so on behalf of the company. However, Computron argues that the agreement is not binding because Rhemtulla signed it under “economic duress”.

[93] As the Ontario Court of Appeal noted in Taber v. Paris Boutique & Bridal Inc. (Paris Boutique), 2010 ONCA 157 at paras. 8-9:

There is no doubt that economic duress can serve to make an agreement unenforceable against a party who was compelled by the duress to enter into it. Nor is there any doubt that the party can have the agreement declared void on this basis.

However, not all pressure, economic or otherwise, can constitute duress sufficient to carry these legal consequences. It must have two elements: it must be pressure that the law regards as illegitimate; and it must be applied to such a degree as to amount to “a coercion of the will” of the party relying on the concept. See: Stott v. Merit Investment Corp., 1988 CanLII 192 (ON CA), 63 O.R. (2nd) 545 (Ont. C.A.), at para. 89.

In Van Kruistum v. Dool, (1997) 1997 CanLII 12284, 35 O.R. (3d) 430 (Gen. Div.) at para. 50, Riley J. explained:

In considering whether the will of the party seeking relief was coerced, the court must consider:

1. Did the party protest at the time the contract was entered into?

2. Was there an alternative course available to the party?

3. Did the party receive independent legal advice?

4. After entering the contract, did the party take steps to avoid it?

Each of these factors must be considered, but none may be determinative of the issue, depending upon the circumstances …

[94] In the case at bar, three of these four factors weigh in favour of Computron’s position. Rhemtulla and Rashid both agree that Rhemtulla signed the release only because Rashid was otherwise refusing to return the balance of Computron’s deposit, and I am satisfied that Rashid understood that Rhemtulla was signing the document Rashid drafted and presented to him under protest. There is no evidence that Rhemtulla received any legal advice before he signed the document. Moreover, Computron acted quite quickly to repudiate Rhemtulla’s September 29, 2017 waiver by issuing its statement of claim on November 17, 2017, six weeks after Rhemtulla signed the document.

[95] On the other side of the ledger, however, Computron could have pursued the alternative course of suing Techlogics from the outset, although this might very well have led to Computron not receiving any further refund. While the outstanding $60,000 was not a vast sum in the context of commercial litigation, Computron is a small business operated by Rhemtulla and his wife, and I accept that the amount of money at stake was significant to him.

[96] In my view, the most significant consideration in this case is that Techlogics had no legitimate legal claim to keep the $60,000 of Computron’s money it was still withholding. By September 29, 2017 Techlogics had accepted Computron’s decision to cancel the purchase order and had made the necessary arrangements with Mac Factories. While Techlogics took the position that it should not be left out of pocket and that Computron should agree to absorb $5,397.75 in fees and other charges, Techlogics had no discernible legal entitlement to keep all of the remaining $60,000 deposit. The terms of the waiver drafted by Rashid accordingly did not reflect a compromise in which both parties were giving up some arguable claim or right. This distinguishes the situation here from that in Taber, supra, where a landlord had simply asserted its legal right to lock out a tenant whose rent was in arrears.

[97] In my view, what happened in this case is more closely analogous to the situation in Van Kruistum, supra, where the plaintiff landlord had refused to let a tenant re-enter property to harvest a crop of horseradish unless the tenant agreed to take steps to eradicate any “volunteer” horseradish that might grow naturally in later years. Reilly J. concluded (at para. 54):

It is clear in my view that the pressure exerted on the defendant was not legitimate. The plaintiff had no legal right to insist that the agreement be signed in order for the defendant to harvest his standing crop, to deprive the defendant of his right to emblements. Therefore, the defendant has satisfied the Court that he has a valid claim of economic duress.

Likewise, in the case at bar Techlogics had no arguable legal claim that would have entitled to keep at least $54,602.25 of the $60,000 of Computron’s funds that it was still holding. In my view, by using its de facto possession of this money to induce Computron to enter into a settlement that was favourable to Techlogics, Techlogics was applying “pressure that the law regards as illegitimate”. I am also satisfied that Rhemtulla’s will was coerced by the threat that if he did not sign the waiver Techlogics would otherwise not refund any of the outstanding funds, which would have exposed Rhemtulla and Computron to financial embarrassment.

[98] Accordingly, I am satisfied that the waiver signed by Rhemtulla does not bar Computron from pursuing its claim against Techlogics. For the reasons discussed above, I am satisfied that Computron is entitled to damages from Techlogics in the amount of $30,597.75.

7. Should damages be awarded against Rashid personally?

[99] Computron also argues that it should be awarded damages not only against Techlogics, but against Rashid personally. In Montreal Trust Company of Canada v. ScotiaMcLeod, 1995 CanLII 1301, [1995] 129 D.L.R. (4th) 711 (Ont. C.A.), the Ontario Court of Appeal explained at para. 25:

The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour.

In Singh v. Trump, 2015 ONSC 4461, Perell J. explained (at para. 38):

At common law, the owners and management of a corporation are not liable for what they do within their authority and on behalf of their corporation, but they are liable if there is some conduct on their part that is either tortious in itself or is independent misconduct from that of the corporation. Corporate actors can be separately liable if they have engaged in their own tortious conduct for their own purposes independent of the purposes of the corporation …

[100] In the case at bar, Computron was fully aware from the outset that it was entering into a contract with a corporation, and there is no suggestion that Rashid’s “use of the corporate structure was a sham from the outset”. While Techlogics’ and Rashid’s conduct in seeking to fill Computron’s order by providing non-authentic knock-off headphones can fairly be characterized as “dishonest”, I do not see this as a case where Rashid’s dishonesty can be distinguished from the dishonest actions of the corporation, Techlogics. As discussed previously, while Techlogics’s acceptance of Computron’s purchase orders and its own invoices implied that it was undertaking to provide authentic branded goods, I am not satisfied on a balance of probabilities that Rashid personally told Rhemtulla that Techlogics would be providing authentic Apple/Beats headphones, and even if he did he would seem to have been acting on behalf of the corporation when he did so. In these circumstances I am not satisfied that this is an appropriate case for piercing the corporate veil and awarding damages to Computron against Rashid personally.

8. Should punitive damages be awarded against Techlogics?

[101] Computron also seeks an award of punitive damages against Techlogics. As Sedgwick J. noted in Kinbauri Gold Corp. v. IAMGOLD International African Mining Gold Corp., 2002 CanLII 17849 at para. 88 (Ont. S.C.J.), “[p]unitive damages are not normally awarded for breach of contract especially in commercial cases, although there is no absolute rule against awarding them in such cases.” In Whiten v. Pilot Insurance Co., 2002 SCC 18, the Supreme Court of Canada, per Binnie J., held (at para. 78) that:

[T]he correct approach is to assess the conduct in the context of all the circumstances and determine whether it is deserving of punishment because of its shockingly harsh, vindictive, reprehensible or malicious nature. Undoubtedly some conduct found to be deserving of punishment will constitute an actionable wrong but other conduct might not.

[102] In the case at bar, I am not satisfied that I can properly conclude on the record before me that Techlogics’s conduct in seeking to fill Computron’s order with non-authentic Beats headphones was so outrageous as to warrant punishment. In particular, I am unable to entirely reject the possibility that Rashid honestly believed that Mac Factories produced authentic Beats headphones for Apple and would be providing “OEM” headphones that were identical in quality and function to authentic Apple/Beats products. While Techlogics can still be criticized for its apparent willingness to ignore Apple’s intellectual property rights, I am not persuaded that this is an appropriate case to sanction Techlogics by giving Computron additional damages over and above what are required to make it whole, which from Computron’s perspective would be an entirely undeserved windfall.

9. Can the remaining cross-claims, counterclaims and third party claims be properly disposed of or dismissed?

[103] As noted at the outset, the parties have brought a myriad of cross-claims, counterclaims and third party claims in addition to the main breach of contract claims between Computron, Ladhani and Techlogics. During the hearing, counsel for Computron and Ladhani both indicated that if their clients were successful in obtaining summary judgment in respect of their main claims, they would be content to have their own collateral claims dismissed if the collateral claims against them were also dismissed.

[104] In my view, this would be the appropriate result even if Computron and Ladhani were opposed to such a disposition. Dealing with each of the collateral claims in turn, I am not persuaded that Computron has any legitimate grounds for suing Ladhani’s parents. Computron knew when it bought the headphones that it was entering into business contracts with Ladhani, and had no reason to imagine that Ladhani’s parents were parties to this contract. Their subsequent involvement in trying to broker a resolution of the dispute between their son and Computron does not in my view retroactively make them parties to the contract or give Computron any cause of action against them. I am accordingly satisfied that Ladhani’s parents would be entitled to summary judgment in their favour of the action against them, even if Computron were not content to have this part of its action dismissed.

[105] Likewise, the Ladhanis indicated through their counsel that they do not wish to pursue their counterclaim against Computron or their third party claim against Rhemtulla and his wife. I am satisfied that this concession is well-taken and that these claims are not properly supported by the evidence in this case.

[106] I am also satisfied that Techlogics and Rashid’s counterclaim against Computron is devoid of merit and can properly be dismissed. Their attempt to sue Computron for breaching the waiver agreement signed by Rhemtulla is in my view no longer viable in view of my conclusion that this agreement was extracted by illegitimate economic duress that makes it unenforceable. Likewise, their claim that Computron has abused the judicial process by “bringing a frivolous matter to the Superior Court” is gainsaid by Computron’s substantial success in its action against Techlogics. Techlogics further claims for intimidation and defamation are entirely unsupported by any evidence, and were not pursued by its counsel at the hearing. Accordingly, I am satisfied that Computron is properly entitled to summary judgment in its favour of Techlogics and Rashid’s counterclaim.

[107] The Ladhani’s third party claim against Prosonic stands on a somewhat different footing since, as discussed above, Ladhani appears to have a viable action against Prosonic for breach of implied warranty that would allow him to recoup the damages he must pay Computron in relation to the headphones that were supplied by Prosonic. However, Prosonic has apparently been noted in default, and there is no obvious impediment to Ladhani moving for default judgment against Prosonic if he is so inclined. Accordingly, while granting summary judgment to Computron and the Ladhanis and dismissing the rest of the claims, counterclaims, cross-claims and third party claims will leave this one third party claim notionally outstanding, in the circumstances here I do not see this as raising the concerns about inconsistent outcomes that tend to weigh against granting partial summary judgment.[^7]

IV. Conclusion

[108] In the result, the motions for summary judgment brought by Computron and the Ladhanis are both granted. Judgment is awarded as follows:

(i) Judgment is granted to Computron against Husain Ladhani in the amount of $82,978.73;

(ii) Judgment is granted to Computron against Techlogics in the amount of $30,597.75;

(iii) Judgment is granted to Husain Ladhani against Techlogics in the amount of $83,488;

(iv) All of the other claims, counterclaims, cross-claims and third party claims are dismissed, with the exception of Husain Ladhani’s third party claim against Prosonic;

(v) Pre-and post-judgment interest is awarded to Computron and to Ladhani in accordance with the Courts of Justice Act.

[109] In the event that the parties are unable to agree on costs, they may provide me with written costs submissions, which should be served electronically and delivered by email to my judicial assistant. Computron should provide its submissions within two weeks of the date of release of this decision, as should Ladhani in relation to any costs he seeks against Techlogics. These submissions should be no more than three pages in length.

[110] Techlogics will then have two weeks to serve and file its response, as will Ladhani in relation to any costs sought against him by Computron. These submissions should also be no more than three pages in length.

[111] If they choose, Computron and Ladhani will then have a further week to provide brief replies of no more than a page.

The Honourable Justice Dawe

Released: May 26, 2020

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Computron Systems International Inc.

AND

Husain Ladhani o/a GTA Wholesale, Amina Ladhani o/a GTA Wholesale, Enayat Abdulhusain Ladhani o/a GTA Wholesale, Techlogics Canada Inc. and Faisal Rashid

AND

Amin Rhemtulla, Zebeen Rhemtulla and Prosonic Canada Inc.

AND

Techlogics Canada Inc. and Faisal Rashid

AND

Computron Systems International Inc.

AND

Husain Ladhani o/a GTA Wholesale, Amina Ladhani o/a GTA Wholesale, Enayat Abdulhusain Ladhani o/a GTA Wholesale

AND

Computron Systems International Inc.

REASONS FOR JUDGMENT

The Honourable Justice Dawe

Released: May 26, 2020

[^1]: I will refer collectively to Ladhani and his parents as “the Ladhanis”.

[^2]: See Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87 at paras. 28-33.

[^3]: Rhemtulla actually testified that Computron’s US customer had sold 50 pairs and returned 100 pairs, but it appears to be common ground that he was rounding his figures and that Computron actually took back 98 pairs after its customer sold 52 pairs.

[^4]: This phrase appears on Techlogics’s invoice to Ladhani for the first 400 pairs of Powerbeats Wireless 3 headphones that Ladhani bought directly from Techlogics.

[^5]: Computron’s counsel urged me to also treat Rhemtulla’s conduct in refunding his US customer’s money and contacting Apple to look into the authenticity of the headphones as confirming his evidence that he never suspected that the headphones were not authentic Beats products until the issue with the serial numbers first came to his attention. The problem with this argument is that the only evidence that Rhemtulla actually did any of these things came from Rhemtulla himself. Rhemtulla’s own evidence cannot self-corroborate his own account.

[^6]: Since Computron did not ship any of the headphones it bought from Ladhani that he bought directly from Techlogics, or have to pay for their return, Computron’s total expectation losses in relation to these headphones is simply the amount it paid for them – $78,648 – plus its anticipated profit of $4,800 (600 pairs @ $8/pair).

[^7]: See, e.g., Butera v. Chown, Cairns LLP, 2017 ONCA 783 at para. 28; Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450 at para. 34-35; Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922 at para. 4.