COURT FILE NO.: C-3967-15
DATE: 2020-11-13
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
City Welding (Sudbury) Limited
Plaintiff
– and –
Barbara Joan Lipic, Estate Trustee with a Will of the Estate of Robert Lipic, also known as Robert Stanley Lipic, deceased
Defendant
Jan D. Weir, for the plaintiff
Hugh N. MacDonald, for the defendant
HEARD at Sudbury: October 20-22, 2020
REASONS FOR JUDGMENT
A.D. Kurke, J.
Overview
[1] The plaintiff (“City”) claims against the defendant (“Lipic Sr.”) for breach of a personal promise to pay a $330,432 business debt owing to City by Cast Resources Equipment Limited (“Cast”). It is alleged that the promise was made orally at a meeting on May 14, 2013 by the defendant to the principals of City. At trial, the plaintiff further and in the alternative alleged that at the same meeting Lipic Sr. first contracted with City to put money into Cast from the sale of another business, Mining Technologies Inc. (“MTI”), from which Cast would pay its outstanding debt to City. The consideration given by City is claimed to have been a forbearance from pursuing litigation against Cast and a promise of fulfilling future business orders from Cast on a COD basis.
[2] The defendant estate agrees that Lipic Sr., who had some interest in Cast, met with City management on a few occasions in 2013, including on May 14, at which point Cast was in financial difficulties, and had millions of dollars in secured and unsecured debt. As he did with other Cast creditors, Lipic Sr. explained a plan to refinance Cast with monies from the sale of MTI, from which Cast would be made solvent and pay its debts. The defendant argues that this explanation did not constitute a contract with City. Nor did Lipic Sr. ever make any personal promise to repay Cast’s debt, and if he did, such an oral promise is unenforceable under s. 4 of the Statute of Frauds. Further, there was no consideration asked for by Lipic Sr. or given by City.
[3] City issued a Statement of Claim against Cast for the debt on May 9, 2013 and served the Claim on Cast on November 1, 2013. On January 2, 2014 Cast filed a Statement of Defence. On or about May 30, 2014 Lipic Sr. sold MTI but did not put any of the money from the sale into Cast, which declared bankruptcy on July 7, 2014. City issued a Statement of Claim against Lipic Sr. on May 7, 2015. Lipic Sr. passed away shortly after, and this action has continued against his estate.
[4] Given the pandemic, this matter was conducted virtually, with Robert Brouillette acting as party representative for the plaintiff, and Robert Lipic Jr. (“Lipic Jr.”) acting as party representative for the defendant.
The plaintiff’s case
[5] Robert Brouillette (“Rob”) was the General Manager of City from September 2006 until November 2015. His father Georges Brouillette (“Georges”) is City’s President and founder. City makes mining equipment. Rob’s evidence went in by affidavit (Exhibit 1), supplemented by his oral testimony. In addition, instead of being examined at discoveries Rob provided a statement (“willsay”) on March 28, 2016, in which he set out his recollection of events relating to this case.
[6] In 2010 and 2011 Rob had dealings with Lipic Sr. over arrears owed to City by MTI, which was controlled and run by Lipic Sr. On that occasion, Lipic Sr. gave his word that MTI would pay City and City was paid by MTI. In his evidence, Rob agreed that Lipic Sr. had told him “I’ll pay you” and that MTI had paid. In that case, “I’ll pay you” meant MTI would pay. Rob had known that Lipic was speaking for MTI, and Georges was aware of this situation as well.
[7] Cast’s business involved remanufacturing equipment for the underground mining industry, and it secured some material for this from City. City had begun doing business with Cast in 1994, long before Lipic Sr.’s involvement with Cast. In early 2010 Cast began to fall into arrears with City. Although many large payments in 2011 and 2012 brought Cast’s indebtedness to City down or kept it somewhat under control, by February 5, 2013 Cast owed City a principal balance of $228,192. Interest on overdue accounts was set at 2% per month. Lipic Sr. in 2013 and 2014 had a measure of control over Cast, although the nature and extent of that control remains unclear on the evidence.
[8] Rob agreed that there was a long-term relationship between City and Cast that City wanted to continue. Sometimes it was necessary to “carry” overdue customers in a competitive marketplace. In 2010-2011 Cast’s debt ranged from $250,000 to more than $300,000 but they were not cut off from further credit by City until March 2013. Cast was then put on Cash on Delivery (“COD”) terms. Legal action was a tool of last resort, to be employed once a business relationship had broken down, or when there was a need to preserve limitation periods.
[9] Rob knew that Cast was experiencing financial difficulties. This was only made clearer when Guy Mahaffy (“Mahaffy”), an accounting consultant, was installed at Cast. The evidence at trial focused on meetings allegedly held between Rob and Lipic Sr in 2013, in the presence of Mahaffy, at which Cast’s indebtedness to City was discussed, among other things.
The meeting of March 27, 2013
[10] Rob became concerned about Cast’s indebtedness by 2012. He had been dealing with Blair Dickson at Cast, and Dickson assured Rob that Cast was trying to put something together. But by February 2013 Dickson was no longer working there. On March 21, 2013, by e-mail, Rob requested a meeting with Lipic Sr. to discuss Cast’s indebtedness, as he understood Lipic Sr. now to be Cast’s owner. They met March 27, 2013 at City’s premises. Lipic Sr. brought Mahaffy along as an accountant consultant.
[11] In his affidavit, Rob states that Lipic Sr. gave him assurances at this meeting that the Cast arrears would be paid on the sale of MTI. According to the affidavit, Rob mentioned that the arrears were so old that “there could be possible litigation.” In cross-examination, Rob conceded that he could not say “for sure” that he used the word “litigation” to Lipic Sr. and may have spoken of collecting “by other means,” although he had no doubt that Lipic Sr. understood that he meant litigation. Rob claimed that Lipic Sr. asked Rob not to proceed with litigation.
[12] Rob further testified that Lipic Sr. told him that he intended to put proceeds from the sale of MTI into Cast “to make it a going concern.” According to Rob’s testimony Lipic Sr. said: “Rob, don’t worry. I’ll pay. I’ll sell MTI and put money into Cast. We have a longstanding relationship with you. Don’t worry; I’ll pay you.” Rob also testified that he told Lipic Sr. that he needed some assurance that payment would be made because City could not absorb the loss. Rob testified that Lipic Sr. was adamant about saving Cast and its and MTI’s reputation. Lipic Sr. asked that City complete its orders to Cast so that Cast could get paid, which would preserve Cast’s good name. Rob also testified that Lipic Sr. told him that Cast equipment was MTI-branded, so it was also important to MTI that City complete Cast’s orders.
[13] In his willsay, Rob has Lipic Sr. speaking of using his share of sale proceeds from MTI to help re-finance Cast and ensure that City was paid. The statement also mentions discussion of City releasing some components by re-invoicing them to MTI for payment. However, the willsay mentions nothing about litigation, Lipic Sr. asking Rob to hold off on litigation, or talking about the harm that litigation could do to Cast’s reputation or MTI. To explain the omissions Rob blamed counsel for Lipic Sr. for not examining him for discovery, instead choosing to examine Georges.
[14] In re-examination, counsel to City showed that in Rob’s willsay Rob’s threat to litigate was raised at the subsequent May 14 meeting. Rob acknowledged that “there may be gaps in my [willsay].” Rob acknowledged having a discussion with Mahaffy in which Mahaffy said something along the lines that litigation would be a waste of time for everybody.
[15] Also at this meeting, Lipic Sr. asked for City to release certain completed items from a Cast order, as Cast needed them. These were parts relating to a lube truck that had been manufactured by City to Cast specifications and were being held in City’s yard as security to Cast’s debt. Ben Levac, Operations Manager for City, had told a staff member at Cast in a February 27, 2013 e-mail that the parts were worthless to City, and would likely be scrapped if not paid for. Lipic Sr. proposed that MTI would pay cash for these items. This was confirmed by Mahaffy in e-mails from April 2 and 3, 2013.
[16] Rob testified that Lipic Sr. also asked that City continue with work for Cast, which would be paid COD plus 10% of the value of the order towards Cast arrears. Rob stated in his trial evidence that he agreed, based on Lipic Sr.’s assurances that the Cast account would be paid on the sale of MTI. In cross-examination, Rob conceded that he agreed so that City would be paid. Ultimately, MTI paid the $65,000 owing on the prepared items, which were released. The invoices were changed to reflect MTI as the purchaser instead of Cast.
The May 14, 2013 meeting and events leading up to it
[17] On April 30, 2013, Rob was made aware of rumours that Cast was heading for bankruptcy. In cross-examination Rob agreed that he knew that Cast’s debt to City would be unsecured in a bankruptcy and likely uncollectable. Rob also agreed that in early May he spoke with his lawyer; he understood that some kind of security would put City in a better position. Also in late April, when the sale of MTI did not occur, Rob sent e-mails to Mahaffy requesting further payments, and indicating that City might resort to “other means to collect” if payment was not made by the end of June. In his affidavit Rob stated that this meant that City would proceed with litigation.
[18] On May 6, 2013, in an e-mail to his counsel, Rob mused:
“Do you think the fact that it has been going on for 2 years (non payment expect [sic] bread crumbs here and there) and that they keep telling us we are going to get paid along with the fact that the only possibility of getting paid in the near future is…if they are able to re-mortgage a property owned by another corporation of one of the owners qualifies???”
[19] Rob also spoke with his counsel about getting a written acknowledgement of Cast’s actual indebtedness in order to ground a lien. An e-mail request by Rob to Mahaffy on May 8, 2013 for a written acknowledgement of the debt went unanswered. Rob had a Statement of Claim issued on May 13, 2013 “to preserve the limitation period,” given the age of the outstanding accounts, but directed his lawyer not to serve the Claim yet. The Claim was against Cast alone; there was no Claim against Lipic Sr. on any guarantee or personal contract.
[20] In his affidavit, Rob claimed that Lipic Sr. asked for another meeting “in response to my e-mails mentioning possible litigation.” But in his trial evidence, Rob testified that in fact he asked Mahaffy for another meeting as a result of the rumours about the possibility of a Cast bankruptcy. However, Rob “inferred” that Lipic wanted a meeting to ask for components. He ultimately conceded that he did not remember specifically who asked for the meeting. I do not accept that Lipic Sr. was the prime mover behind these meetings.
[21] A meeting was held at City premises on May 14, 2013. Once again Lipic Sr. came with Mahaffy, and Rob understood that Lipic Sr. was present representing Cast. Rob and, at various points, City’s controller Tammy Rancourt, its Operations Manager Ben Levac, and Georges were present for City.
[22] In his testimony at trial, Rob testified that at the start of the meeting he asked about the sale of MTI. Rob expressed concern about Cast’s indebtedness representing a potentially big loss for City, to which Lipic Sr. responded, “I’ll pay you. Me and your dad go back a long way.” Lipic Sr. told him that a first deal to sell MTI had fallen through, but they were working on a second one. He had a good prospect, but negotiations were taking longer than people wanted. Lipic Sr. said that he would put monies from the sale of MTI into Cast and get it going again and “he would pay us.” Rob understood that Cast would get an injection of money and City would be paid.
[23] According to Rob’s affidavit, Lipic Sr. asked him not to proceed with litigation. Rob stated, “so I did not,” although he had already issued a Statement of Claim. Unfortunately for this claim by Rob, his 2016 willsay does not have Lipic Sr. asking Rob not to initiate litigation. In an e-mail to counsel on May 15, 2013, in which he discusses aspects of the meeting with Lipic Sr., Rob also makes no mention of any request by Lipic Sr. not to litigate, or of any other request of City made by him.
[24] Rob told Lipic Sr. to convince his father that he would get paid and Georges was invited up to the meeting from the shop. Georges and Ben Levac came into the office. Tammy Rancourt was asked to take part in the meeting to indicate the amount that Cast owed. Rob testified that when Rancourt said how much was owing from Cast, Lipic Sr. and Mahaffy did not dispute the principal amount or the interest. Those numbers were never disputed until Cast issued a Statement of Defence.
[25] Rob testified that when Georges attended, Lipic Sr. told him, “I’ll pay you Georges. I promise, Georges. You know me a long time. I’ll pay you.” In his own testimony, Georges remembered similar words from Lipic Sr.: “Georges, we go back a long way. I’m going to pay you as soon as I sell MTI. I’ve got a good prospect.” Tammy Rancourt, City’s Financial Controller remembers Lipic Sr. simply assuring Georges that “we have a longstanding relationship. Don’t worry, you’ll be paid as soon as MTI is sold.” Rancourt remembered because as Financial Controller she had an interest in seeing the high balance on Cast’s account paid.
[26] Ben Levac, Operations Manager for Cast at the time, remembers what happened slightly differently. He has Lipic grabbing Georges’ hands and telling him that he would make it good even if it had to be from his own account. Levac was surprised at how intimate the moment seemed. However, in his own statement of April 26, 2016, Levac had instead written that Lipic Sr. told Georges that “the money that we owe I will pay you personally once we complete the sale transaction of MTI.” I strongly suspect that the “intimacy” of the moment has affected Levac’s memory of the words uttered.
[27] Neither Georges nor Levac nor Rancourt testified about any requests made by Lipic Sr. to hold off on litigation, to keep doing work for Cast, or for anything else. That claim rests on Rob’s evidence alone.
[28] Rob testified that at the May 14 meeting, Lipic Sr. never said that he was promising on behalf of Cast. Although he agreed that Lipic Sr. had used the same words “I’ll pay you” about payment from MTI, and MTI had paid, Rob felt that the context was different with respect to Cast. However, he agreed that all payments made to City on Cast’s account came from Cast.
[29] Prior to the May 14 meeting, Rob had also spoken with City’s lawyer about getting some written evidence of Lipic Sr.’s promise to pay Cast’s existing debt. And indeed, written guarantees were City’s usual requirement. In his evidence, Georges also explained that when City would get guarantees for a business, a written letter would be requested from the principal owner. Accordingly, at the May 14 meeting, Rob asked if he could have Lipic Sr.’s personal promise in writing and Lipic Sr. refused. In his e-mail of May 15, 2013 to his lawyer Gerard McAndrew, Rob wrote that at the May 14 meeting:
“[Lipic Sr.] made a personal promise but would not [added by agreement of counsel] give a personal guarantee or sign for a Judgment. He said financial arrangements being made to pay it all off by end of July but also they will be buying some of the components we have in our yard which they will try and sell. This will help reduce the account.”
[30] In his testimony, Rob explained that by “personal guarantee” he meant “written guarantee”. According to Rob, Lipic Sr. explained that he did not want to give a written guarantee so as not to scare anyone off from the MTI sale and alarm other creditors of Cast. Rob did not mention these explanations by Lipic Sr. in his 2016 willsay.
[31] It is important to note that there is nothing in the May 15 e-mail suggesting that Rob agreed to release components from City’s yard only because of representations made by Lipic Sr. about payment after the sale of MTI. Rather, in the e-mail, Rob appears to have seen the release of parts for cash payment as a means of “helping to reduce the account.” Nor is there any mention of Lipic Sr. asking Rob not to proceed with litigation.
The meeting of September 18, 2013
[32] According to Rob in his affidavit, a third meeting was held September 18, 2013, at the request of Lipic Sr. Rob agreed that the meeting was occasioned because Rob wanted to know more about when City would be paid. In cross-examination, Rob agreed that his suggestion that Lipic Sr. requested the meeting was inaccurate. At the meeting only he, Lipic Sr., and Mahaffy were present. Lipic Sr. repeated his assurance that on the sale of MTI the Cast debt would be paid in full. In his trial evidence, Rob asserted that Lipic Sr. again provided a personal guarantee, but refused one in writing, as possibly affecting the sale of MTI. Lipic Sr. again asked Rob not to proceed with litigation.
[33] In his trial evidence, Rob testified that at this meeting Lipic Sr. explained that he and the potential MTI buyer were still negotiating. Lipic Sr. asked Rob to keep supplying Cast, to keep it afloat until the MTI sale. According to Rob, City filled subsequent orders on a cash + 10% basis. Lipic Sr. said that that amount allowed him to pay and keep filling orders. He needed parts that City had in its yard. Lipic Sr. stated that once he sold MTI, he would pay City. In fact, he kept repeating, “I’ll pay you. I’ll pay you.”
[34] In his affidavit Rob states that “based on [Lipic Sr’s] assurances and to assist him with the sale of Cast, Rob agreed to process further orders for Cast and not to proceed with “the litigation.” As an example of continuing work for Cast, Rob referred to an e-mail from October 1, 2013 from Melissa Coulombe at Cast requesting a new order, “which was fulfilled” according to Rob.
[35] However, Mr. R. Pharand, a prior counsel for City, admitted that City did no work for Cast after May 2, 2013. However, Rob included a claim of further work in his affidavit and testified that he believed that City did do some work on a COD + 10% basis, which did not show up on the City accounts. However, he could point to no specific work, and he ultimately admitted that his affidavit was “inaccurate” when he stated that the new quote request from Cast in October 2013 had been “fulfilled”. Financial Controller Tammy Rancourt verified that the fact that there was no work order generated by the October 1 request meant that the order was not completed. I am not satisfied that City did any further work for Cast subsequent to the May 14, 2013 meeting.
[36] This September 18 meeting would appear to have been centrally important to City’s claim. At this meeting, Rob has Lipic Sr. in some detail seeking to have City hold off on litigation and supply parts to Cast. City relies on those requests by Lipic Sr., and Rob’s alleged granting of Lipic Sr.’s requests, as creating consideration to ground City’s claims in contract and personal guarantee. It is noteworthy that no other City employee than Rob testified to any request by Lipic Sr. to hold off on litigation, and that Rancourt specifically explodes Rob’s claim about further work for Cast done by City. Only Lipic Sr., Mahaffy and Rob were present for this meeting.
[37] Unfortunately, the evidence of this meeting and the details of what was said at it must call into question the accuracy of much that was stated by Rob to ground this suit. For at trial an e-mail from Rob to Mahaffy was produced by counsel to Lipic Sr. and identified by Rob. In that e-mail, Rob asked to cancel the September 18 meeting, as he was feeling “under the weather.” The request was passed along to Lipic Sr. by Mahaffy with information about arranging to reschedule. In his testimony, Rob ultimately agreed that the September 18 meeting had been cancelled, and that he did not speak with Lipic Sr. at all that day. There was no meeting.
Meeting of October 3, 2013
[38] According to Rob’s affidavit, he again met with Lipic Sr. and Mahaffy on October 3, 2013, and Lipic Sr. again assured Rob that the MTI deal was close to completion. Rob described Lipic Sr. speaking with Georges in the shop area at City, telling him, “I’ll pay you. I have a good prospect. Things are moving forward.” According to Rob, Lipic Sr. once again asked Rob “to hold off on proceeding with litigation.” This was before City’s Statement of Claim against Cast was served on Mahaffy, and before there was any reason for Lipic Sr. to know that a Statement of Claim had even been issued. At no time in any of their meetings had Rob mentioned to Lipic Sr. that he had issued a Statement of Claim. In his 2016 willsay, Rob did not refer to this request by Lipic Sr. to hold off from litigation.
[39] In an e-mail of October 31, 2013, Rob had his Statement of Claim served on Guy Mahaffy by e-mail, shortly after speaking with him. In the e-mail, Rob indicated that “[w]e are hopeful as per our discussions with you and Mr Lipic that his other deal will proceed which will allow for our account to be paid.”
[40] Rob agreed that after the Statement of Claim against Cast was served on Mahaffy on October 31, 2013, he asked Mahaffy for a consent judgment or a personal guarantee from Lipic Sr., which Mahaffy indicated was not possible. Rob also agreed that he had asked at least three times for a personal guaranty from Lipic Sr. to pay Cast’s indebtedness, and that it was refused every time.
Cast’s bankruptcy
[41] Cast did not consent to a default judgment and instead delivered a Statement of Defence. According to Rob’s trial testimony, Lipic Sr. stated that Sudbury was a small city, and that rumours of a judgment would be harmful, so he would not agree to a default judgment. It is difficult to know when Rob and Lipic Sr. could have had such a discussion, since the Statement of Claim was not served until after Rob and Lipic Sr. had their final meeting, and Rob conceded that he had never told Lipic Sr. about the existence of a lawsuit at their meetings.
[42] The MTI deal did not close until April 2014, and Lipic Sr. did not inject funds from the sale into Cast sufficient for Cast to pay its debt to City, nor did he pay it personally.
[43] On July 14, 2014, Lipic Sr. assigned Cast into bankruptcy. City sued Lipic Sr. on May 7, 2015. Lipic Sr. died July 4, 2015.
The defendant’s case
Lipic Sr., Cast and its debt to City
[44] Guy Mahaffy is a Chartered Accountant and was a consultant for Cast beginning October 2012. Mahaffy was placed at Cast to gather financial information for the purpose of preparing year-end financial statements and taxes. Mahaffy described Cast at that time as being “in distress” and needing financial oversight. Cast was unable to meet its obligations to creditors, and its $2 million line of credit was “maxed out.” Cash flow was a problem, and numerous vendors had overdue accounts.
[45] Mahaffy was paid by Cast and initially reported to Cast’s managing director, Blair Dickson, until Dickson left. Mahaffy met Lipic Sr. at Cast after a few months working there, when Lipic Sr. became involved in laying off some Cast employees. Lipic Sr. did not have an office at Cast, although he performed strategic management functions at Cast. Mahaffy knew of Lipic Sr. as a funding source for Cast and concluded that Lipic Sr. was somehow in charge of Cast. Lipic Sr. worked out of MTI offices in Sudbury, and at that time was preoccupied with MTI business and sales, and the potential sale of MTI.
[46] During the course of his employment at Cast, Mahaffy attended with Lipic Sr. at RBC, Cast’s lender. Cast’s file had been moved to special loans, which indicated financial distress. The meeting was held to determine whether Cast’s loan should continue. Similarly, Mahaffy attended meetings with some half dozen unsecured creditors of Cast with “six-figure accounts.” To all of these creditors Lipic Sr. explained that it was his intention to sell MTI and capitalize Cast to bring it into a good financial position. Mahaffy never heard Lipic Sr. offer security or a personal guarantee to anyone.
[47] Cast had large cash-flow problems. Cast showed a net loss of $2.2 million for 2012, and of $2.5 million for 2013. Cast apparently owed a further $1.8 million to the Sudbury Credit Union at the time of Cast’s bankruptcy.
[48] Mahaffy began his dealings with City when Lipic Sr.’s assistant passed on an e-mail from Rob. Mahaffy saw that Cast owed City a significant amount, and Rob wanted the account paid. Mahaffy called Rob and explained that Lipic Sr. intended to divest himself of MTI and put money into Cast and that the City account would be made current. Mahaffy remembers that at some point Cast was put on a COD + 10% paydown of debt basis, which made sense to him. Rob requested a meeting with Lipic Sr.
[49] Concerning the March 27, 2013 meeting, Mahaffy recalled that it involved the release of parts manufactured by City for a “lube truck”, although he was unsure if that discussion occurred in March or at the May meeting. Cast could not afford a COD payment for the parts, which it needed to complete a contract. Lipic Sr. wanted to transfer the contract to MTI and MTI would pay the $65,000 required for the parts. This was accomplished and the item was delivered to the customer. Lipic Sr.’s purpose was to allow Cast to satisfy a customer; Cast’s general good name in the marketplace was not discussed.
[50] Also at the March 27 meeting Lipic Sr. explained to Rob that he and his partner were working towards the sale of MTI, but it was taking longer than anticipated. Lipic gave assurances that he intended to put money into Cast from the sale of MTI. This was in line with what Lipic Sr. had expressed to other creditors. Mahaffy recalled Rob asking for a personal guarantee, but Lipic Sr. refused. Rob was disappointed, but he accepted Lipic Sr.’s word about the intended capitalization of Cast and the incremental payments towards the debt represented by COD + 10% payments.
[51] Mahaffy’s recollection about individual meetings was somewhat indistinct. He spoke of the March 27, 2013 meeting, and then indicated that details that he gave about that meeting may actually relate to the second meeting in May. However, Rob’s requests for personal guarantees was talked about at multiple meetings. Mahaffy agreed that neither he nor Lipic Sr. ever disputed the debt Rob said that Cast owed. In my view, Mahaffy’s recollection about when something was said is far less important than his ability to state what things were never said, or how things were said, or the context for utterances made by Lipic Sr. Mahaffy was present at every meeting that Lipic Sr. had with Rob.
[52] Mahaffy heard Rob’s requests of Lipic Sr. for a personal guarantee and a consent judgment. Mahaffy heard Rob twice ask Lipic Sr. for a personal guarantee, and Rob asked Mahaffy once by telephone. Rob sought “personal” guarantees, not “written” guarantees. The only thing he sought in writing was an acknowledgement of the debt owing. Mahaffy and Lipic Sr. refused the requests, with no explanation given for the refusals. Lipic Sr. did not offer to pay Cast’s debts personally. As a financial counsellor to Lipic Sr., Mahaffy was alert to what was said, and would have noticed such a promise to pay personally because it would involve an offer that would be “detrimental” to Lipic Sr. himself. Lipic Sr. merely explained that upon completion of the sale of MTI he would put money from the sale into Cast so that Cast could pay its creditors from that.
[53] Concerning the issue of litigation, Mahaffy was taken to an e-mail from Rob of April 24, 2013, in which Rob spoke of the possibility of litigation if City’s account was not paid. Mahaffy testified that he spoke with Rob about this. He told Rob that City was not Cast’s only unsecured creditor, and that there were secured creditors with superior claims on Cast’s assets. Mahaffy explained to Rob that a judgment in City’s favour would still leave City behind the secured creditors. Litigation would be futile for all parties. Rob disagreed and told Mahaffy that he “did not want to be at the back of the bus”. Mahaffy told him that a judgment would “solidify” the amount of debt owing to City by Cast, but City would still be at the back of the bus.
[54] The requests for personal guarantee and consent judgment came up again at the October 3, 2013 meeting, but were again refused. Rob wanted an update about the MTI sale. Lipic Sr. did not ask for anything from City. In cross-examination, Mahaffy disagreed that a judgment against Cast would interfere with Lipic Sr.’s ability to raise funds to save Cast. Indeed, he and Lipic were almost able to secure a line of credit from TD Bank to use to pay down Cast’s indebtedness, but “it fell through.” Nor would a judgment against Cast have affected MTI’s sale, as MTI was an unrelated company.
[55] Mahaffy received service of City’s Statement of Claim by e-mail on October 31, 2013. On January 3, 2014 Cast received a demand letter from RBC for repayment of its $2 million line of credit, with a due date of February 28, 2014, at which time RBC would realize on Cast’s assets. Mahaffy testified that at that point Cast’s “days were numbered.” Its financial position had not improved, and the funds necessary to save Cast would have to come from the MTI sale, as no lender would have given enough money.
Lipic Sr., MTI’s business with Cast and the end of Cast
[56] Robert Lipic Jr. (“Lipic Jr.”), the son of Lipic Sr., testified. He worked at MTI for 33 years, ultimately serving as General Manager of its capital division for eight years until MTI was sold. Lipic Sr. was MTI’s President. The company produced mobile mining equipment for underground mining.
[57] Lipic Jr. knew of Cast after his father purchased it through a trust. Cast refurbished and reconditioned used mining machines for resale. Cast bought chassis from MTI to manufacture their own sprayer machine. Cast added cab and equipment to the MTI chassis and sold the machine as their own unit. MTI had no other work with Cast and was unrelated to it. These explanations cast further doubt on Rob’s claims that Lipic Sr. expressed to him concern for MTI and its reputation if City took steps against Cast.
[58] In 2012 and 2013 Lipic Sr. was busy working on the sale of MTI and in its day-to-day operations. Lipic Sr.’s plan was to sell MTI and then continue on with Cast. Lipic Sr. felt that he could continue on with Cast once MTI sold, because it was a very different business from MTI, and his work there would not be barred by any non-competition clause in any sale agreement for MTI.
[59] Ultimately MTI sold in May 2014 as an asset sale, which was hard on Lipic Sr. Shortly after the sale of MTI, Lipic Jr. attended a meeting that Lipic Sr. had with his lawyer to discuss options for Cast going forward. Lipic Sr.’s lawyer advised that Cast was “beyond saving”, for financial reasons. Although Lipic Sr. argued against it, the lawyer advised that the only option was receivership for Cast. No money was put into Cast by Lipic Sr. from the sale of MTI.
Objectivity in contract law
[60] The plaintiff asserts that Lipic Sr. made a promise to pay City Welding, either through Cast, or personally, and that the promise either grounded a contract or a personal guarantee or indemnity.
[61] In determining whether a promise made by one person to another should be given binding effect, the law looks to protect the expectations of the person receiving the promise. The inquiry will look to assessing the conduct of the person making the promise rather than to his or her state of mind: UBS Securities Canada Inc. v. Sands Brothers Canada Ltd., 2007 ONCA 405, [2007] O.J. No. 2076 (C.A.), at para. 2. The focus however, is on the reasonable expectations of the person receiving the promise. If that person actually knows the promisor’s intention to be something other than the apparent meaning of the promisor’s words, then the promisee’s expectation must be based on that understanding of the promisor’s subjective intent: see Waddams, The Law of Contracts (7th ed.), at para. 143, and the cases there cited.
Issues
Issue 1: Breach of contract
[62] The plaintiff asserted in its submissions at trial that Rob’s evidence, as confirmed by Mahaffy’s evidence – that Lipic Sr. promised to put money from the sale of MTI into Cast, and that Cast would thereby pay its debt to City – must objectively be understood to constitute a binding contract between Lipic Sr. and City that Lipic Sr. subsequently breached.
Discussion
[63] As a preliminary matter, I find that this claim must be dismissed, as not pleaded. The 13-paragraph Statement of Claim sets out only an allegation of Lipic Sr.’s promise of personal payment as the plaintiff’s basis for relief. The alleged contract to pay through Cast was not pleaded by the plaintiff, and no amendment was sought at trial: Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada, 1998 CanLII 6879 (ON CA), [1998] O.J. No. 4466 (C.A.), at paras. 10-17; leave ref’d 135 O.A.C. 197. This new claim is highly prejudicial to the defendant, who called the evidence of Mahaffy to rebut the claim pleaded – Lipic Sr.’s personal promise – only now to find Mahaffy’s evidence advanced as supportive of the plaintiff’s unpleaded claim in contract.
[64] In any event, for the following reasons I do not accept that Lipic Sr. intended to get involved in any such contract, and I am unable to find that Rob’s reasonable expectation was that Lipic Sr. intended to do so. I also do not find that there was any consideration given by City, but I will return to that below.
[65] I find that Lipic Sr. probably never intended to enter into a contract with City that would bind him into putting money from the sale of MTI into Cast. He attended at City and at other creditors in attempts to reassure them about his plans to recapitalize Cast from the sale of MTI and to indicate the anticipated timing of payment. The bona fides of the sale of MTI for that purpose has been called into question but it is verified by the evidence of Lipic Jr. about Lipic Sr.’s disappointment when his counsel advised him that Cast could not be saved. I have no reason to doubt Lipic Jr.’s evidence on this point.
[66] Mahaffy’s evidence was very clear about his attendance with Lipic Sr. at meetings with Cast’s various creditors, including at City, and Lipic Sr.’s discussion of his intention with respect to the sale of MTI and the recapitalization of Cast. As early as the March 27, 2013 meeting with Lipic Sr., Rob has Lipic Sr. offering just such an explanation, an explanation that Lipic Sr. would repeat often.
[67] The May 6, 2013 e-mail by Rob to his counsel is particularly telling of Rob’s views at the time. Rob clearly expressed annoyance at having been put off by Cast for two years, and he mused about whether Lipic’s claim that money would be raised from another corporation to pay the debt could be used to create some kind of security. I find that Rob saw Lipic’s MTI sale explanation as just one more in a long line of evasions of Cast’s longstanding debt by someone acting on behalf of Cast. I find that this e-mail demonstrates that Rob viewed with a jaundiced eye the likelihood of being paid out of money raised from MTI, but reasonably understood that Lipic Sr. was explaining when City could expect payment – after the sale of MTI.
[68] Lipic Sr. stated similar things at the May 14, 2013 meeting with City personnel. The evidence of Tammy Rancourt is in line with the simple explanation that Lipic Sr.’s statements were intended by him to convince City why it should believe that it would get paid: “you’ll be paid as soon as MTI is sold.” Her recollection of his words solidifies an objective understanding that Lipic Sr. was explaining the anticipated timing of payment, and not making a binding offer of payment upon the sale of MTI.
[69] On the evidence in this case I find that Lipic Sr. probably intended at his City meetings to do nothing more than he had done in discussions with other creditors of Cast. The meetings between Lipic Sr. and City were along the lines of information or briefing sessions at which Lipic hoped to convince City to continue to wait for payment of its account, but without the making of any binding promise: see, e.g., Hendee v. Telesat Canada, [1997] O.J. No. 869 (O.C.(G.D.)), at para. 46. Rob saw Lipic Sr.’s explanation as further evasion by City, and Rancourt understood Lipic Sr. to be explaining the anticipated timing of payment. Rob’s requests for further meetings in order to get updates about what was happening with the sale of MTI also further this understanding. The reasonable objective views of City personnel were that Lipic Sr. was explaining the timing of payment of Cast’s debt, and Rob was anxious for that sale to take place.
[70] I am unable to find, on the balance of probabilities, that Lipic Sr. objectively can be viewed to have contracted with City to sell MTI and put money into Cast so that Cast could pay its debts. That was not his intention, and I do not find that to have been City’s understanding.
Issue 2: Lipic Sr.’s “personal promise”
[71] The plaintiff’s primary claim in its Statement of Claim is that Lipic Sr. made a binding promise to personally pay off Cast’s account to City. It claims that an obligation was created in that Lipic requested that City hold off on litigation and continue to do work for Cast, and that City did these things.
Discussion
[72] I am unable to find that Lipic Sr. made an enforceable personal promise to pay City, or that anyone on behalf of City reasonably believed that he had done so.
[73] There is no doubt that Lipic Sr. said often to Rob, and at least once to Georges, in the presence of Levac, that he would pay. I conclude that Lipic Sr. used the expression on more than one occasion, “I will pay.” However, I observe the following:
[74] I find that I am unable to rely upon the unconfirmed evidence of Rob Brouillette to any great extent. His evidence simply appears in many respects unreliable. I do not find that he intended to mislead the court. Rather, frustration at the financial losses suffered by City has perhaps supplemented a memory that has become infirm on details of his dealings with Lipic Sr. because of the general absence of contemporaneous note-taking and the press of running a business at the time of these events and subsequently. Among many other things:
a. Rob presents significant details in his trial affidavit that do not appear in his 2016 willsay or in e-mails contemporaneous with events in which such details would be expected to exist;
b. He narrated in his evidence an entire meeting – the meeting of September 8, 2013 – at which he appears to significantly ground the liability of Lipic Sr., but ultimately had to agree that the meeting did not even take place;
c. His assertions about many things stated by Lipic Sr. are not backed up by the evidence of Levac, Georges, and Rancourt, who all attended the crucial May 14, 2013 meeting;
d. He claims that Lipic Sr. asked for meetings with him when it later became clear that the meetings were set up at Rob’s own instigation;
e. Rob asserts that City did further work for Cast after May 2, 2013, on which point he is directly contradicted by an agreement of his former counsel and by Rancourt.
[75] Contrary to the evidence of Levac, I am unable to find that Lipic Sr. told Georges that he would pay from his own account if he had to. The words attributed to Lipic Sr. by Levac are contradicted by the evidence of Rob himself, who generally does not go further than claiming that Lipic Sr. stated “I will pay”; by Georges, who again recalled Lipic Sr. saying “I will pay”; and by Mahaffy, a generally disinterested observer who had every reason to remember if Lipic Sr. ever made a personal promise to pay. Mahaffy’s credibility was not challenged in cross-examination, and he candidly set out the limits of his own reliability. Levac’s willsay offers a different version than his trial account and leads me to conclude that Levac’s evidence must be treated with some caution.
[76] But what did Lipic Sr. even mean by his “I will pay”? Rob testified that Lipic was speaking for himself personally and claims that he understood Lipic Sr. to mean himself personally. But that is not an objectively satisfying interpretation. Everyone knew that Lipic Sr. was present to speak on behalf of Cast; the meetings were arranged through Mahaffy, at that point a fixture at Cast. That Lipic Sr. clearly intended Rob and Georges to understand that he was speaking for Cast when he told them “I will pay” is vouchsafed by earlier dealings between City and Lipic Sr. on behalf of MTI. Even Rob acknowledged that on that occasion, Lipic Sr. meant that MTI would pay.[^1] Rob and Georges, the principals of City and its directing minds, therefore had reason to know that Lipic Sr. was speaking on behalf of Cast, and this personal knowledge of theirs must be taken into account.
[77] On this point, the evidence of Rancourt is also helpful. I found her credible, straightforward, businesslike and disinterested, even though she had every reason to favour City in her evidence. “You’ll be paid as soon as MTI is sold,” were Lipic Sr.’s words as she recalled them. In my view, this utterance, with no shade of any personal promise by Lipic Sr., confirms Mahaffy’s account, that Lipic Sr.’s words to City were simply an indication that there would be repayment, once MTI was sold, with no link to Lipic Sr. personally. I find that the City personnel must have understood that Lipic Sr. was speaking about City being paid by Cast, so the duty of clarity when speaking on behalf of a corporation and not personally, an issue argued by the plaintiff from Bank of Nova Scotia v. Radocsay, 1981 CanLII 1856 (ON CA), 33 O.R. (2d) 785 (C.A.), has been satisfied in these circumstances.
[78] The most telling and conclusive evidence against the existence of any enforceable personal promise to pay is the very clear evidence of both Rob and Mahaffy, that on multiple occasions Rob sought a personal guarantee of payment of Cast’s debt from Lipic Sr., but that Lipic Sr. refused to provide one. This indicates both that Lipic Sr. never intended his oral representations to City to be binding, and that Rob understood them not to be binding. Seeking a written guarantee was a deliberate and understandable effort by an unsecured creditor to ensure payment, which was simply and firmly refused by Lipic Sr. and once by Mahaffy on Lipic Sr.’s behalf. It is Georges’ evidence that in his experience, personal guarantees to City were done in writing, and Rob’s e-mail to counsel makes clear that he understood that distinction as well.
[79] I am unable to find, on the balance of probabilities, that Lipic Sr. made a personal promise to pay Cast’s account to City. Since this is the case, I need not consider arguments under s. 4 of the Statute of Frauds relating to the enforcement of oral guarantees.
Issue 3: Consideration
[80] The plaintiff argues that at Lipic Sr.’s requests, it forbore to prosecute litigation against Cast, allowed lube truck parts that it had manufactured to be released from its yard to MTI on behalf of Cast, and agreed to continue working with Cast on a COD + 10% basis, even if no further work was ever done by City. The plaintiff claimed that its agreement to do these things constituted consideration that rendered binding Lipic Sr.’s personal promise to pay Cast’s indebtedness.
Discussion
[81] Agreement of forbearance to proceed with litigation over another’s debt can constitute contractual consideration: Royal Bank of Canada v. Kiska (1967), 1967 CanLII 154 (ON CA), 63 D.L.R. (2d) 582 (Ont. C.A.). Even an offer of assistance that is “slight and of little real value” can constitute consideration: Bank of Nova Scotia v. MacLellan (1977), 1977 CanLII 1812 (NS CA), 78 D.L.R. (3d) 1 (N.S.S.C. App. Div.), at paras. 3-6. For a creditor’s forbearance to constitute consideration for a personal guarantee, it must be asked for by the guarantor: Niagara Structural Steel v. Bellows (1964), 1964 CanLII 312 (ON SC), 46 D.L.R. (2d) 705 (Ont. H.C.J.).
[82] Concerning consideration the issues in this case are factual more than legal.
[83] The omissions and contradictions in Rob’s various statements make it impossible for me to find that Lipic Sr. ever asked Rob to hold off on litigation. Rather, based on the e-mail to Mahaffy containing a threat of litigation and Mahaffy’s evidence of his discussion with Rob, which was virtually unchallenged, I find that it was likely Mahaffy to whom this threat was directed, and that Mahaffy made it very clear to Rob that litigation would be a waste of City’s resources. This claim about forbearance rises and falls on the evidence of Rob alone, and, as discussed above, that evidence is not reliable enough to satisfy the burden, particularly in the face of Mahaffy’s evidence that Lipic Sr. made no such request of Rob, and that Mahaffy saw the threat of litigation as toothless and conveyed that view to Rob.
[84] I am not able to find on Rob’s evidence that the release to MTI of the lube truck parts manufactured for Cast on COD + 10% terms was only permitted by City because of Lipic Sr.’s assurances to Rob about the input of funds into Cast from the sale of MTI. Rather, I accept Rob’s evidence to the extent that the sale of the lube truck permitted some payment of money owed by Cast to City, in this case by MTI. Rob knew that Cast was insolvent, and City wanted payment in any event. Levac’s February 2013 e-mail is very clear that it was in City’s interest to be paid for those parts, rather than to scrap them at a loss. Moreover, the Claim pleads the May 14, 2013 meeting as the occasion of Lipic Sr.’s alleged personal promise, but the lube truck was discussed at the March 27 meeting and dealt with in early April. It was not up for discussion at the May meeting.
[85] I find that the arrangements that were made for MTI to pay for the lube truck parts were independent of any representations by Lipic Sr. about the sale of MTI and the refinancing of Cast.
[86] I am also unable to find that City’s agreement to continue to provide parts for Cast had anything to do with Lipic Sr.’s promise to recapitalize Cast from the sale of MTI. This connection again is based only on Rob’s evidence, which is very unreliable with respect to requests made of him by Lipic Sr. at their meetings. City extended COD terms to Cast for further work and gained a 10% additional payment against Cast’s arrears. Although it is possible, I am not satisfied on the balance of probabilities that Rob was minded to agree to these terms only because of the promise of a recapitalized Cast paying its entire indebtedness.
[87] In conclusion, I am unable to find that City gave any consideration to Cast in the circumstances of this case. Therefore, even if Lipic Sr. had promised to City that he would put money from the sale of MTI into Cast so that Cast could pay its debts to City, or had made a personal promise to City to pay Cast’s indebtedness, neither of which I have found, there was no consideration to render such promises binding.
Conclusion
[88] For the above reasons, the Claim is dismissed.
[89] If the parties are unable to agree on costs, they may provide to the Court written submissions of no more than five double-spaced pages within thirty days.
Justice A.D. Kurke
Released: November 13, 2020
COURT FILE NO.: C-3967-15
DATE: 2020-11-13
ONTARIO
SUPERIOR COURT OF JUSTICE
City Welding (Sudbury) Limited
Plaintiff
– and –
Barbara Joan Lipic, Estate Trustee with a Will of the Estate of Robert Lipic, also known as Robert Stanley Lipic, deceased
Defendant
REASONS FOR JUDGMENT
A.D. KURKE J.
Released: November 13, 2020
[^1]: The discussion in 301364 Ontario Inc. v. Chetti, [1989] O.J. No. 2380 (H.C.J.) is useful and instructive.