Castle Building Centres Group Ltd. v. The Rehill Company Limited, 2022 ONSC 3428

Court File No.: CV-20-76 Date: 2022-07-06 Superior Court of Justice – Ontario

Between: Castle Building Centres Group Ltd. Plaintiff/Defendant to the Counterclaim

– and –

The Rehill Company Limited, Steven D. Parkes & Jeff A. Parkes Defendants/Plaintiff by Counterclaim

Counsel: Mark Freake & Robert Kennedy, Counsel for the Plaintiff Chris Besant, Counsel for the Defendants

Heard: May 18, 2022

RULING ON MOTION FOR SUMMARY JUDGMENT

VALLEE J.

[1] This matter concerns a family business. The Rehill Company Ltd. (“Rehill”) operated as a building supply retailer for many years in Peterborough. In 2015, it had financial difficulties and was unable to pay a creditor, the plaintiff, Castle Building Centres Group Limited (“Castle”). Castle states that Rehill owes it $2,327,538.66 and brings this motion for summary judgment. It seeks to enforce the personal guarantees given to it by the defendants, Jeff Parkes and Steven Parkes, for Rehill’s debt. I will refer to them as Jeff, Steven or the defendants. Shawn Winters is one of Castle’s credit risk and assessment managers. He was the defendants’ contact at Castle and swore the affidavits in support of this motion. No relief is sought from the corporate defendant, Rehill. It is in receivership and bankruptcy proceedings so the plaintiff’s action against it is stayed.

The Test for Summary Judgment

[2] There is no issue regarding the legal test for summary judgment. The court must determine whether, based on the record before it, there is a genuine issue that requires a trial (see Hyrniak v. Mauldin, 2014 SCC 7).

Issues

[3] This summary judgment motion raises two issues:

1. Do the issues raised by the defendants regarding enforceability of the guarantees require a trial?

2. Can the defendants’ counterclaim succeed?

Background

[4] An understanding of the chronology of this dispute is important to the issues in this case.

[5] Castle operates a not-for-profit, membership based Buying Group. It makes arrangements with vendors who provide discounts for high volume purchases. Castle provides a buyers’ guide to its members with a list of its vendors. The members then may choose to buy from those vendors at discounted prices.

[6] Jeff operated Rehill for many years. Rehill was a member of Castle’s Buying Group. Rehill’s membership agreement with Castle is dated May 23, 1984. During the 1990’s recession, on November 23, 1994, Jeff executed a personal guarantee in favour of Castle, at its request, for Rehill’s account. The guarantee contains 15 terms. Term 2 states:

This Guarantee is an original direct, absolute, unconditional, unlimited, continuing and irrevocable obligation of Guarantor to Castle. This Guarantee shall remain in full force and effect without respect to future changes and conditions, including changes of law or any invalidity or irregularity with respect to Liabilities of the Member to Castle or with respect to the execution, delivery and performance of any present or future agreement between the Member and Castle. This Guarantee shall not be revoked or terminated and Guarantor shall not be released from Liability to Castle under this Guarantee until all Liabilities are paid in full.

[7] Term 11 states that “No alteration or waiver of this Guarantee or any of its provisions shall be binding on Castle unless made in writing and signed by Castle.”

[8] To order materials through the Buying Group, Rehill sent purchase orders to the listed vendors. Castle paid the vendors’ accounts, the goods were shipped to Rehill, and Castle invoiced Rehill. Once Castle received information from the vendors about the discounts, it credited them to Rehill’s account. The discounts are referred to as “rebates”.

[9] Jeff retired from Rehill in 2010. His son Steven, who had worked in the family business for many years, took over. According to his evidence, all of Rehill’s common shares were transferred to his holding company. Jeff was issued $3,500,000 of preferred shares which provided a small dividend. Of those shares, $500,000 was converted to a shareholder loan. Jeff was repaid $120,000 before the Castle debt arose. There is no evidence that when Steven took over, he offered to provide a personal guarantee to Castle for the Rehill account. Nor did Castle request one.

[10] In 2015, Rehill was having financial difficulties. Its outstanding account with Castle had grown considerably. Its bank put it into a “special loans” category. Rehill sought further financing through a lender called Waygar Capital Inc.

[11] On July 6, 2017, Steven sent an email to Shawn stating, among other things, that he anticipated the “restructure to be in place sometime in July…Once that is formalized, I will be in a strong position to propose a plan to settle the outstanding portion of the account in a timely manner.” Shawn responded on August 12, 2017, stating, “On my last board report I had included that new financing should be in place by July and now things are looking at the end of August. I have not taken any action against the account, but the account is up another 400K and I will be forced to do something.” He requested a call and an update from Steven. Steven called Shawn on August 15, 2017 and left a message.

[12] Waygar required a priority position over Castle in order to lend money to Rehill. It asked Castle to sign a document entitled “Postponement, Subordination and Standstill Agreement”, which I will refer to as the Subordination Agreement. The effect of it is in dispute. I will address that below.

[13] On November 7, 2017, Steven sent a letter to Shawn setting out a proposed payment plan contingent on Waygar’s financing being in place in the next 15-20 days.

[14] Castle signed the Subordination Agreement in favour of Wagar and returned it by email dated November 8, 2017. Shawn states that Steven promised to pay Rehill’s outstanding account from the Wagar financing. This is why Castle signed the Subordination Agreement.

[15] Castle considered Steven’s proposed payment plan and added some terms after Steven’s last term. Castle added a heading “Additional Requirements”. Castle’s term #1, which is in dispute, states, “Updated security will be required, including, and not limited to a General Security Agreement and a Guarantee, Assignment and Postponement of Claim from Steve Parks” [emphasis added]. On November 17, 2017, Castle sent a letter to Steven incorporating the additional requirements. Steven signed at the bottom of the page under the statement “I agree with the terms and conditions.”

[16] On December 6, 2017, Shawn sent an email to Steven stating, “We are expecting an additional payment of $100,000…An additional immediate payment of $50,000 is due for the main account for the old balances…An additional $80,000 is also needed for November; The security documents are attached, please sign these and return them to me by Friday.”

[17] On February 2, 2018, Shawn sent Steven an email stating, “I have not been able to connect with you as I would have preferred to speak directly with you about this. A credit hold notice is going out on the accounts today to the vendors. Please call me anytime to discuss.”

[18] On February 9, 2018, Steven sent an email to Shawn providing an update on certain payments being made by Rehill. Among other things, he stated that the General Security Agreement (GSA) requested by Castle had been sent to Rehill’s lawyer for review. He stated, “Funds advance on our LoC of $160,000…is pending. We hope to be able to make this payment on the Rehill account as early as the evening of February 9th (TBA).”

[19] On February 13, 2018, Shawn sent Steven an email asking for an update on the “Security Paperwork Signatures, Payment of $160,000 to get back on track for the payment plan with another $80,000 due at the end of the month…”

[20] On March 28, 2018, Steven signed the GSA. Subsequently, Rehill defaulted on the payment agreement terms.

[21] In an April 2018 letter, Steven made a revised payment proposal to Castle. By letter dated April 20, 2018, Castle responded stating that it agreed with most of the terms but added some “stipulations”. The first one was the same as in the first payment plan: “Updated security will be required, including, and not limited to a General Security Agreement and a Guarantee, Assignment and Postponement of Claim from Steve Parks.” The letter stated, “If you agree with these conditions, please sign below and we will begin the payment plan on April 23, 2018. All terms of this agreement will not take effect until such time that all required security has been received and registered.” As before, Steven signed at the bottom of the page under the statement, “I agree with the terms and conditions.” I will refer to this agreement as the “Amended Payment Agreement.”

[22] The defendants state that there is a dispute between the parties as to what happened before Steven sent the signed Amended Payment Agreement back to Shawn. Steven states that he spoke to Shawn and said that he would not return it unless Shawn agreed that Castle would waive Jeff’s guarantee. He states that Shawn agreed.

[23] There is also a dispute regarding the date when Steven sent the signed Amended Payment Agreement to Castle. Castle states that Steven signed it on April 20, 2018 and returned it. Steven states that he returned it a week later and that this supports his position that he held off on returning it until Castle agreed to waive Jeff’s guarantee.

[24] Shawn states that he told Steven that Jeff’s guarantee would be waived once the Rehill account was current. Neither Steven nor Shawn made a contemporaneous memo about this conversation.

[25] Shawn states that he and Steven met in early April 2019. At that meeting, Steven asked Castle to discharge Jeff’s guarantee. Shawn denies agreeing to do so. He states he told Steven that this would be done only after Rehill’s account was current.

[26] On April 11, 2019, Shawn sent an email to Castle’s VP of finance, Sarina Kaluzny, summarizing the meeting. It states,

I told Steve that he as [sic] in jeopardy of Castle pursuing his security including the GSA and GAP’s [sic] on him and his Dad. He argued that we had agreed to discharge his Dad if he gave his guarantee and I corrected him. His Dad would be discharged once his account was current. His tone changed a little…

[27] On September 20, 2018, Steven sent an email to Shawn describing Rehill’s struggles, and requesting that some of the interest charges on the account be reversed.

[28] Rehill obtained financing from Waygar but did not use any of it to pay its account with Castle.

[29] On May 14, 2019, Castle sent a demand letter to Jeff and Steven. By then, Rehill’s account was $2,102,991.91. It states,

Since last Fall, we have tried to work with you, Steve, on a repayment plan but that has been carried out unsuccessfully. Castle wants this debt repaid without further delays. Rehill’s debt to Castle has been guaranteed by each of you. Before Castle proceeds further regarding your guarantees, we want to give you an opportunity to arrange for the repayment of this debt. We look forward to hearing from you by 5:00 pm on May 22, 2019, after which time Castle will initiate steps to collect its debt [emphasis added].

[30] Steven’s response dated May 16, 2019, states that the situation needed to be addressed and that he had retained a restructuring specialist.

[31] On November 26, 2019, Castle’s lawyer sent a demand letter to Rehill. By then, the account was $2,232,729.42. He requested full payment by December 9, 2019, failing which Castle would take steps to seek repayment. He enclosed a Notice of Intention to Enforce Security in accordance with s. 244 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.

[32] On March 17, 2020, Castle terminated Rehill’s membership in the Buying Group.

[33] On April 24, 2020, Castle issued its claim against Rehill and the defendants for $2,327,538.66 together with interest at 19.5% per annum.

Jeff and Steven’s Position

[34] Jeff and Steven stated that Castle cannot succeed on the enforcement of their personal guarantees for 10 reasons. I will address them in (a) to (j) below.

a) The Rehill receivership order stays this action against Rehill. Castle failed to seek an order lifting the stay so the action cannot proceed. The court should exercise its jurisdiction pursuant to s. 106 of the Courts of Justice Act, R.S.O. 1990 c. C43 to stay this proceeding against Jeff and Steven.

[35] This argument has no merit. The receivership order applies only to Rehill. As noted above, Castle is not proceeding against Rehill. It is proceeding against Jeff and Steven pursuant to their personal guarantees. The defendants have not provided any jurisprudence in which the court has exercised its authority to grant a stay in circumstances like these.

b) Castle’s maintaining a guarantee from Jeff does not make sense because he was retired. He understood that his guarantee would be waived when he retired.

[36] The defendants state that this matter is not about the terms of the guarantees. Rather, it is about the relationships around them. Jeff understood that his guarantee would terminate when he retired in 2010, that this was “how it worked”, and that this was “how Castle did business”. Castle had a “policy” regarding releasing former owners’ guarantees. For example, after 2010, Rehill bought another company located in Cobourg, referred to as “Cobourg”, which merged into Rehill. Before the purchase, Cobourg was a member in its own right of the Buying Group. Castle waived Cobourg’s former owners’ guarantees after Rehill bought it.

[37] Rehill’s account was not in arrears for several years after Jeff retired. Having a guarantee from someone who sells a business and has no control over it is unusual and makes no sense. The defendants refer to several occasions in which Castle never said Jeff’s guarantee was continuing.

Analysis

[38] The defendants misconstrue “how Castle did business”. Rehill’s purchase of the Cobourg company illustrates this. There is no dispute that this transaction was an arm’s length, third party sale to Rehill. When Castle received formal notice of the sale, and after the guarantees of the new owners were in place, it waived the third party sellers’ guarantees. Steven’s taking over Rehill was not a third party sale. Castle did not receive formal notice of a sale. Steven’s evidence is that he and Jeff met with Castle at Rehill’s office to explain that “the reins were being handed over to Steve”. On the defendants’ theory of how Castle did business, Castle would have required a guarantee from Steven and then waived Jeff’s guarantee at that time. But that is not what happened. There is no evidence that Steven offered to sign a guarantee when he took the reins nor that one was requested. Steven did not sign his guarantee until April 2018, eight years later, when Rehill was in financial trouble and Castle requested it.

[39] Steven alleges that Castle never said that Jeff’s guarantee was continuing; however this misses the point. By its terms, Jeff’s guarantee continued until Castle waived it in writing.

[40] After the reins were handed over, Jeff continued to hold Rehill shares and maintained his shareholder loan. He was still involved in Rehill. He did not sell to a third party and walk away, as the Cobourg company sellers did. From a creditor’s perspective, having two guarantees for Rehill’s significant increasing debt makes more sense than having only one.

c) A request for “updated” security means “replacement” security.

[41] The defendants state that what happened in between the payment agreements is a central issue. Both required updated security. They say “updated” means “replacement” security. Steven states in his affidavit that Shawn told him in the fall of 2017 that,

…the GSA on file for Rehill was out of date and that he would like to update the security. Specifically, he said that the GSA was an old one executed by [Jeff]. He reassured me that the file would be updated to reflect only myself [sic] as guarantor once I had Rehill execute a GSA and that any residual rights of Castle against Jeff would be deemed waived.

[42] The defendants state that Castle’s “Additional Requirements” which requested “Updated security…including and not limited to a [GSA] and a Guarantee, Assignment and Postponement of Claim from Steve Parkes” is evidence of this. Steven also refers to three emails that he sent to Shawn regarding the payments that Rehill would make to Castle. Steven’s guarantee was given to Castle to replace Jeff’s.

[43] Steven also states that he would not return the executed amended payment agreement unless Castle waived Jeff’s guarantee. Castle “had the pen” and created the requirement for updated security. If the term has any ambiguity, it should be construed against Castle.

Analysis

[44] The three emails to which Steven refers address proposed payment arrangements. They do not mention security. Castle added a heading “Additional Security” in both payment agreements. The requirement for updated security is set out under that heading. The Collins Dictionary^1 says this about the verb update: “If you update something, you make it more modern, usually by adding new parts to it or giving new information.” I do not accept the defendants’ position that the word “update” means to “replace.”

d) Castle is breaching the Subordination Agreement with Waygar by making this claim against Jeff and Steve. It was supposed to standstill.

[45] The defendants state that the Subordination Agreement has broad provisions. Its purpose was to create a stable basis for rebuilding. Steven states, “It was never intended that Castle could take any steps against any guarantor of the Castle debt while the Subordination Agreement was in effect. In the Subordination Agreement, Castle agreed with Rehill and Waygar to defer collection of its debt until Waygar was paid.” The Subordination Agreement states that Castle cannot take any steps to enforce the debt owed by Rehill. By trying to enforce the guarantees, Castle is trying to collect the debt. Steven states, “Jeff and I assert status as third party beneficiaries of the Subordination Agreement.”

Analysis

[46] The Subordination Agreement is between Castle and Waygar. It relates only to Waygar’s security in Rehill’s assets. Jeff and Steven are not privy to the agreement. In his cross-examination, Steven agreed that neither he nor Jeff were signatories to it.[^2] The Subordination Agreement does not relate to Jeff and Steven’s personal assets. The defendants’ argument misses the point that Rehill is a separate entity from Jeff and Steven. Castle is not taking steps against Rehill. It is taking steps to enforce personal guarantees for Rehill’s debt. The defendants provided no authority for their argument that they can be “third party beneficiaries of the Subordination Agreement”. In contrast, Castle’s counsel inquired of Waygar’s counsel whether Waygar considered Castle’s taking steps to enforce the personal guarantees to be a breach of the Subordination Agreement. Waygar replied that it did not. Steven signed his guarantee after Castle signed the Subordination Agreement. I find that Castle has not breached the Subordination Agreement.

e) Neither Jeff nor Steven had independent legal advice when they signed the guarantees; therefore, they are not enforceable.

[47] The defendants state that they ought to have had independent legal advice (ILA). They may not have appreciated what they were signing. The absence of ILA renders the guarantees unenforceable.

Analysis

[48] If there is fraud or if an agreement is unconscionable, the absence of ILA might be a consideration. Neither is pleaded. Furthermore, in his cross-examination, Steven agreed that he understood that his guarantee was a personal guarantee of payment of any indebtedness owing by Rehill to Castle.[^3] The fact that Steven did not have ILA before he signed the guarantee does not render it unenforceable.

f) Castle failed to pay rebates to which Rehill was entitled.

[49] The defendants state that Castle failed to credit some of the rebates to which Rehill was entitled for its various purchases. Steven states that in 2015, Rehill discovered that it was being overcharged by Castle. Rehill conducted,

…an exhaustive study of Vendor Rebates Earned vs. Vendor Rebates Received for the years ended 2013 & 2014 in order to answer an inquiry [of our chartered accountant]…The analysis… revealed that rebates totalling $359,367.32 had not been passed through Rehill just in those periods, suggesting that the total of unremitted savings and rebates over the course of the relationship since 1984 could total in the millions…The issue was raised with Castle but no satisfactory explanation or solution was reached.

[50] Steven acknowledges that, “The unresolved question of the past overcharges was not addressed in the 2017 and [sic] payment plan agreement or its revised version in April 2018. While I would have preferred that to be addressed, enough was being achieved to assist Rehill in its rebuilding that was worth doing the deal without resolving that.”

[51] The defendants state that when interest is added in favour of Rehill, and the amount is set off against Castle’s claim, it could negate anything that Rehill owes Castle. A spreadsheet done in 2015 shows unpaid rebates. It is still a live issue. A trial is necessary to resolve this.

Analysis

[52] Any claim for rebates belongs to Rehill and therefore the receiver/trustee. In an email dated January 28, 2022, the receiver/trustee confirmed that it will not be proceeding with a claim for them. The defendants state that they are entitled to pursue the rebates. Even if they could, there are several problems.

[53] Rehill’s spreadsheet is seven years old. The defendants did not provide any current document to support the rebate allegation. Many of Castle’s invoices are more than two years old. In his cross-examination, Steven stated that Rehill’s last purchase was in April 2019.[^4] The defendants did not address how they would overcome a limitations period issue in challenging those invoices.

[54] Most importantly, Steven did not raise the rebate issue with Castle during the payment plan discussions. There is no evidence that Rehill disputed the amount owing on the basis that it was entitled to rebates or that it said it owed Castle nothing because of unpaid rebates. That would have been an important issue to raise in 2017 and 2018 if it was legitimate because Castle’s position was that Rehill owed it over $2,000,000. Rather, Steven on behalf of Rehill acknowledged that it had to make payments on the total amount of Castle’s statement and proposed two payment plans. In the payment agreements, Rehill acknowledged its indebtedness to Castle.

[55] On cross-examination, Castle gave an undertaking to “advise whether Castle ever received any back up from Steve Parkes or Rehill regarding rebates.” The answer was, “Mr. Winters and Ms. Kaluzny are not aware of any such backup. Mr. Winters also asked Castle’s rebate manger, Kevon Smoke, and he is not aware of any such backup.” At its highest and best, Steven’s evidence that “the total of unremitted savings and rebates over the course of the relationship since 1984 could total in the millions” is only speculative.

[56] The plaintiff’s claim was served on August 20, 2020. Castle’s motion for summary judgment was served on February 4, 2022. The defendants had ample opportunity to present evidence regarding the alleged rebates owing. The defendants mentioned difficulties in obtaining Rehill’s documents because it is in receivership and bankruptcy proceedings. If that were the case, the defendants could have requested an adjournment of this motion to obtain the documents.

[57] Castle states that it has always passed on rebates to Rehill even though it was not obliged to do so when Rehill’s account was not current. Section 7(a) of the membership agreement states that, “Castle may, in its discretion, during the term of this Agreement apply any amounts owing or which may become owing by Castle to the Member including without limitation…rebates..against indebtness of the Member to Castle” [Emphasis added].

[58] Steven stated in his cross-examination that Rehill had not commenced an action against Castle for rebates.

[59] I find that the allegation of rebates owing is not supported by the evidence.

g) By its misconduct, Castle forced Rehill into receivership. Jeff’s preferred shares and the balance of his shareholder loan is worthless. Castle has caused Rehill, Jeff and Steven huge losses. The equitable set-off and counterclaim flow from these losses. The amount claimed exceeds the debt to Castle.

[60] The defendants state that Castle wrongfully issued demands against Jeff and Steven’s guarantees. Steven states that Castle issued enforcement notices to Rehill on November 26, 2019, that,

…undermined Waygar’s confidence in Rehill and its future by demonstrating that Rehill had an unstable major creditor who could not be trusted despite its written commitments and who Rehill was not able to keep in line. As a result, Waygar began to edge towards exiting the loan via receivership instead of funding a workout to achieve growth. Rehill’s access to credit was curtailed, and its future liquidator was soon appointed as an on site monitor…Had Castle not done this, Rehill would have recovered…Castle’s outrageous and continuing breaches of the subordination agreement from 2019 to 2021 deprived Rehill and the Parkes family of the opportunity to save its family heritage and rebuild its equity and caused substantial damage to me, Jeff and Rehill.

[61] Steven states that because of Castle’s conduct, $500,000 that he had advanced to the company is now unrecoverable. He states that,

Jeff’s residual preferred share investment of $3 million and his residual loan of $380,000 has also been rendered unrecoverable by Rehill’s receivership and subsequent bankruptcy. Jeff also had made an additional old loan of $256,000 to the company which will not be repaid. In other words, our direct losses apart from the upside in the company equity exceed $4 million.

[62] The defendants assert that determining and quantifying the set-offs are triable issues that cannot be resolved on a summary judgment motion.

Analysis

[63] Castle accommodated Rehill a number of times. Castle’s statement of account shows unpaid invoices beginning in June 2017. It entered into two fruitless payment agreements with Rehill. Castle began sending demand letters in 2019.

[64] David Hammond, senior vice president of Waygar, and Kerry Colantonio, vice president of Waygar, both swore affidavits dated October 28, 2020, and May 5, 2021, respectively, in support of Waygar’s receivership application. The only default that they state is Rehill’s default in payment. Ms. Colantonio’s affidavit refers to seven forebearance agreements between Waygar and Rehill before Waygar brought a motion to appoint a receiver. They both state that neither of the receiver’s reports dated October 15, 2021, nor December 31, 2021, refer to any act or omission of Castle that caused or contributed to Rehill’s failure.

[65] I accept Castle’s position that any losses suffered by Rehill were caused by the business’ failure. Castle had nothing to do with that nor do any of Castle’s actions constitute misconduct. In fact, Castle held off on enforcement proceedings. The defendants’ counterclaim on this issue has no merit.

h) The sale of Rehill’s realty might be enough to pay Castle’s debt. If the proceeds are insufficient to pay Waygar, Castle remains subject to the standstill obligations. Proceeding with this summary judgment motion is premature.

[66] The defendants state that Rehill’s real estate has not yet been sold. There is an offer that has been accepted by the receiver and approved by the court but the price will not be disclosed until the transaction closes. If the proceeds of realization on the realty and other assets are high enough, Castle would not be owed any debt. If the proceeds are insufficient to pay Waygar, Castle is still subject to the Subordination Agreement.

Analysis

[67] As noted above, the Subordination Agreement does not apply to the defendants’ personal guarantees. Rehill owes Waygar money; and it is to be paid in priority to Castle. Even if proceeds from the sale of the realty is enough to pay Wagar, that does not address the amount that Rehill owes Castle. The defendants provided no evidence as to the value of the realty. Their position is speculative. It does not justify deferring this motion.

i) This matter is not appropriate for summary judgment because there is a factual dispute regarding an oral agreement

[68] Steven’s evidence is that Castle agreed orally to waive Jeff’s guarantee when he retired. Steven states that this oral agreement is valid.

[69] To support their argument regarding the validity of this oral agreement, the defendants rely on Kendell v. Kendell, 2006 ABQB 664. That case concerns a mortgage. Parents lent their son and his wife money to build a house. A mortgage was registered. After that, the son and his wife needed more money, which the parents advanced based on an oral agreement. They did not register a further mortgage. The court stated that subsequent oral agreements may create collateral contracts but they “cannot contradict the main written contract and, if they do, they are inadmissible.” (see para. 18)

Analysis

[70] Steven’s evidence that he would not return the amended signed payment agreement unless Jeff’s security was released implies that Steven had some bargaining power and therefore got the concession he wanted; however, Rehill’s account was in significant arrears. Steven was trying to keep the company afloat and satisfy Castle. Steven’s evidence on his cross-examination confirms this. He stated, “I was not in a position to be difficult. I was sort of at Castle’s mercy, and I had a business that was floundering…They certainly had a lot of leverage on me.”[^5]

[71] Shawn states that Castle did not agree to waive Jeff’s guarantee at that time nor in April 2019. His evidence is corroborated by the April 11, 2019, email he sent to Ms. Kaluzny, as noted above. To repeat, it states “I told Steve that he as [sic] in jeopardy of Castle pursuing his security including the GSA and GAP’s [sic] on him and his Dad. His tone changed a little…”

[72] The defendants rely on Kendall and state that an oral agreement to waive a guarantee that can only be waived in writing creates an enforceable collateral contract. But Kendall concerns a mortgage. The facts are quite different.

[73] The defendants state that I should consider what makes sense. Castle’s having two personal guarantees makes more sense in the circumstances because it could look to the assets of both Jeff and Steven, if necessary, to satisfy the large debt. I accept Castle’s evidence that it told Steven that Jeff’s guarantee would be waived once the debt was paid.

j) Rehill has two accounts, one with CBS, a subsidiary of Castle, and another with Castle’s Buying Group. The personal guarantees to not apply to the amount owed by Rehill to CBS.

[74] In addition to operating the Buying Group, Castle had a subsidiary, Commercial Builders Supplies (CBS), through which high volume purchasers could buy products. It was membership based, like the Buying Group.

[75] The defendants’ position is that after 2010, Rehill was switched from the Buying Group to CBS. Castle demanded two different payment amounts. One was $1,951,501.85 from Rehill as a member of CBS, account #1310. The other was $151,490.06 from Rehill regarding Cobourg, account #2106. When Rehill bought the Cobourg company, Cobourg was already a member of Castle’s Buying Group. The defendants state that a number of invoices that comprise Castle’s claim are actually for materials purchased by Rehill through CBS. Jeff and Steven’s guarantees do not apply to CBS; therefore, the amount that Castle seeks to recover is incorrect. The defendants allege that Castle has refused to produce Rehill’s membership agreement with CBS. An adverse inference should be drawn.

Analysis

[76] Rehill criticizes Castle for not providing Rehill’s membership agreement with CBS. If it exists, Rehill would have signed it. Rehill ought to have provided a copy of it. Castle states that Rehill was never a member of CBS. Something that does not exist cannot be provided.

[77] Steven does not provide any evidence in his affidavit regarding Rehill’s alleged relationship with CBS. He does not mention CBS at all. The fact that the defendants sent additional documents to counsel for Castle immediately before cross-examinations after all of the motion documents had been served is very troubling.

[78] In the transcript of Steven’s cross-examination, counsel for Castle, Mr. Freake, begins with a statement to the effect that 30 minutes earlier, counsel for the defendants, Mr. Besant, had emailed him 34 megabytes of additional documents that were not mentioned in Steven’s affidavit nor attached as exhibits. The deadline for filing responding materials was February 4, 2022. Mr. Freake stated that he had not had an opportunity to review the documents nor to seek instructions from Castle. He stated that he would proceed with the examination but reserved his right to resume the cross-examination regarding those additional documents. In addition, he also reserved all rights regarding the admissibility of those documents.

[79] In his cross-examination of Shawn, Mr. Besant asked him many questions about these documents. Some of the questions related to CBS, over the continuing objections of counsel for Castle. In argument, Mr. Besant stated that the documents were properly before the court because they were made an exhibit to Shawn’s cross-examination. I note that they were described as “Exhibit 1 for identification.” In the transcript, Mr. Besant states that the defendants found these documents (which are their own) after Steven’s affidavit was sworn. He stated that it was “not inappropriate” for them to be used. The defendants’ position appears to be that Rehill became a member of CBS after 2010, and Steven and Jeff’s guarantees apply only to Rehill’s pre-2010 indebtedness to Castle for purchases made through the Buying Group. Therefore, the amount that Castle seeks to recover pursuant to the guarantees is more than it should be.

[80] Castle states that CBS was also membership based. Its prices were better because its members purchased high volumes. Rehill was never a member of CBS. Castle did allow Rehill to purchase some CBS products because it was trying to assist Rehill; however, all of the invoices were rendered by Castle. Both Cobourg and Rehill were members of the Buying Group.[^6]

[81] Castle’s statement of account for the debt that it seeks to collect is 16 pages long, comprised of two different accounts. At the top of the first account, the text states, “Account No. 2160, Rehill Company Limited (The)” and then Rehill’s Peterborough address. At the top of the second account, the text states, “Account No. 1310 Cobourg Building Centre Ltd” and then the Cobourg address. On Shawn’s cross-examination, he stated that after Rehill bought Cobourg, at Rehill’s request, the Buying Group accounts for the two locations were kept separate.[^7]

[82] The documents show that Castle continued to use the two different Buying Group account numbers for Rehill and Cobourg after Rehill bought Cobourg. It does not show that either account was a CBS account. Castle’s letter to Jeff and Steve dated May 14, 2019, supports this. It states,

As we have discussed with you, Steve, Rehill is indebted to Castle for $2,102,991.91 made up of:

Castle Member #2160 – location High Street, Peterborough - $1,951,501.85

Castle Member # 1310 – location 4 Elgin Street East, Cobourg - $151,490.06

[83] Despite the fact that Mr. Besant asked Shawn questions on cross-examination about CBS to which Mr. Freake objected, Castle did provide an answer to an undertaking regarding Rehill’s status as a buyer. Number 3 in Castle’s answer to undertakings chart in the section “Questions Taken Under Advisement” states:

Q: To advise whether members on the “CBS system” purchase supplies through CBS instead of Castle.

A: There is no separate “CBS system” for finance, accounts receivable or credit purposes. There is a single “Castle system”. Members either sign a membership agreement with Castle or with CBS, not both…Rehill signed its membership agreement with Castle and never signed with CBS. In an effort to help Rehill through its repeated delinquencies, Castle offered Rehill a hybrid model, where Rehill received the benefits of the Castle membership… but was also allowed to purchase through certain CBS buying programs such that it could receive higher rebates.

[84] In Steven’s cross-examination, he acknowledged that he was aware that Rehill’s relationship with Castle was governed by the membership agreement dated May 23, 1984, signed by Jeff, which he had seen.[^8]

[85] The additional documents were provided to the court in a zip file. I reviewed them. There is some mention of transitioning Rehill to CBS; however, the documents do not show that it actually happened. Because there is just one Castle system for accounting purposes, I cannot conclude that either of Rehill’s accounts were CBS accounts.

[86] Rule 37 of the Rules of Civil Procedure sets out filing deadlines for evidence on motions. The additional documents in the zip file, do not comply with Rule 37. They are not exhibits to an affidavit. This court has serious concerns about the defendants’ late breaking position that Rehill was a member of CBS, and their reference to these documents. They are not evidence that is properly before the court. Castle had no sworn evidence from the defendants on this issue so it could not respond. If the defendants believed that the Trustee had important documents which they could not obtain, they could have requested an adjournment of this motion for summary judgment on terms. They could have requested an order requiring the Trustee to provide the documents. They could have requested leave to serve and file a further affidavit setting out their position and attaching the documents as exhibits. They could have agreed to a further cross-examination on the new affidavit. They did none of this. The defendants did not properly advance the alleged CBS membership as a defence to this motion for summary judgment.

Conclusion

[87] None of the issues presented by the defendants are genuine issues that require a trial

[88] Castle’s motion for summary judgment is granted. The defendants’ counterclaim is dismissed.

Costs

[89] At the conclusion of submissions, counsel made oral submissions on costs. They were subsequently requested to provide written submissions.

[90] Rule 57.01 of the Rules of Civil Procedure sets out the factors that the court must consider in assessing costs. The amount involved in this proceeding was large, $2,327,538.66. Obtaining judgment was very important to the plaintiff. Enforcement of personal guarantees should not be complex, particularly when their terms state that they can be waived only in writing. The matter had a detailed history. The defendants raised 10 issues which caused the hearing to be longer than the scheduled time. The defendants’ attempt to rely on documents that were not evidence before the court was improper.

[91] The plaintiff’s bill of costs shows that it incurred acceptable disbursements totaling $1,306.98. Two lawyers, Mr. Kennedy who has 20 years of experience and Mr. Freake who has 9 years of experience, worked on the file. Mr. Kennedy’s actual rate is $760.00 per hour. Mr. Freake’s actual rate is $610 per hour. These rates are high. The description of the work is general. While the total hours spent by each lawyer on categories of work is listed, one cannot determine which lawyer did specific work. The plaintiff’s bill of costs shows that 325 hours were spent on the matter. The parties cross-examined each other. Undertakings were given and answered. The plaintiff served and filed a detailed factum and book of authorities.

[92] The time spent was excessive. When the actual rates are applied, the amount is $238,462. When partial indemnity rates are applied, the amount is $143,077. Even the partial indemnity amount is extremely high. A losing party would not expect to pay this amount for costs on a motion for summary judgment. In acknowledgement of this, at the conclusion of argument, plaintiff’s counsel stated that a costs award of $50,000 would be appropriate.

[93] The amount of costs is determined by balancing all of the factors set out in r.57.01(1) and by taking into account the principles set out in Boucher v. Public Accountants 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291.

[94] Ultimately, in fixing an amount for costs, the overriding principles are fairness and reasonableness. In my view, a fair, reasonable and proportionate costs award for this motion for summary judgment is $50,000, all inclusive, which the defendants shall pay to the plaintiff within 45 days.

Justice M.E. Vallee

Released: July 6, 2022

[^2]: Transcript of cross-examination of Steven Parks March 8, 2022, p. 69 [^3]: Transcript Steven Parks p. 52 [^4]: Transcript Steven Parks p. 98 [^5]: Transcript Steven Parks p. 65-66 [^6]: Transcript cross-examination of Shawn Winters March 10, 2022 p. 110 [^7]: Transcript Shawn Winters p. 32 [^8]: Transcript Steven Parks p. 12