COURT FILE NO.: CV-13-0356 (Barrie) and CV-13-472309 (Toronto)
DATE: 20220920
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1758704 ONTARIO INC. and 1191305 ONTARIO INC.
Plaintiffs
– and –
CARL PRIEST
Defendant
K.J. McKenzie, for the Plaintiffs
M. Zemel, for the Defendant
AND BETWEEN:
CARL PRIEST AND 1737161 ONTARIO LIMITED
Plaintiffs by Counterclaim
– and –
1758704 ONTARIO INC., 1191305 ONTARIO INC. and MARTIN DONKERS
Defendants to the Counterclaim
M. Zemel, for the Plaintiffs by Counterclaim
K.J. McKenzie, for the Defendants by Counterclaim
HEARD: November 18–21 and November 26, 2019
ASSESSMENT OF DAMAGES
CASULLO J.
OVERVIEW
[1] Following the trial of this matter in November, 2019, I granted judgment against Carl Priest and 1737161 Ontario Limited ("173 Ltd.") (collectively, the "Priest Parties"), finding the Priest Parties were liable to 1758704 Ontario Inc. ("175 Inc.") and 1191305 Ontario Inc. ("119 Inc."), whose principal was Martin Donkers (collectively, the "Donkers Parties").
[2] I awarded damages to the Donkers Parties in the amount of $200,865.48, jointly and severally as against the Priest Parties, broken down as follows:
- $161,943.64 on the Promissory Note, including interest to February 28, 2017, plus interest at the rate of seven percent per annum, from February 28, 2017 to May 25, 2020, and ongoing, until satisfied;
- $189,804.49 on the Excavator cost, including interest to February 28, 2017, plus interest at the rate of seven percent per annum, from February 28, 2017 to May 25, 2020, and ongoing, until satisfied; and
- ($150,882.65) minus recovery credit.
[3] I dismissed the Priest Parties' counterclaim for, inter alia, breach of contract and the tort of conversion.
[4] The Court of Appeal set aside my order dismissing the counterclaim, remitting the matter back to the Superior Court for an assessment of damages: 1758704 Ontario Inc. v. Priest, 2021 ONCA 588.
[5] The Court of Appeal also held that Carl Priest was not personally liable for breach of the Excavator Lease. Accordingly, the damages I awarded in respect of the Excavator Lease ($189,804.49 plus interest) should be ordered against 173 Ltd. only, and not as against 173 Ltd. and Carl Priest jointly and severally.
[6] I heard submissions on damages on March 7, 2022 and April 27, 2022, following which I reserved judgment. What follows are my reasons.
BACKGROUND
[7] The facts giving rise to the action and counterclaim are set out in my trial decision. Briefly, certain of the parties entered into an Asset Purchase Agreement ("APA") in which 175 Inc. and 119 Inc. sold all of the assets of their business to 173 Ltd. The APA had two key transactions. First, 173 Ltd. agreed to purchase all of the assets contained in Schedule "A" of the APA, which included heavy equipment and goodwill. Second, 173 Ltd. agreed to assume a number of leases from third-parties for several pieces of equipment.
[8] Accordingly, and pursuant to the APA:
- 173 Ltd. assumed the lease for a loader ("Loader") and made all required payments to the lessor (John Deere) until it was paid off in December 2011.
- 173 Ltd. assumed the lease for a truck and trailer ("Truck and Trailer") and made all required payments to the lessor of 175 Inc.
- 173 Ltd. was to have assumed an excavator lease ("Excavator Lease"), but failed to do so.
[9] In December 2012, the Donkers Parties seized the Loader, the Truck and Trailer, and all of 173 Ltd.'s assets, including those assets purchased in the APA.
[10] The Donkers Parties failed to give the Priest Parties notice of the seizure.
[11] Shortly after the seizure, the Donkers Parties began operating a competing business, using some of the seized equipment. As a consequence of the seizure, the Priest Parties were unable to operate their business.
[12] The Donkers Parties subsequently sold all of the seized assets at auction.
[13] As referenced above, the Court of Appeal held the seizure was unlawful because the Donkers Parties failed to give the Priest Parties reasonable notice prior to the seizure.
DAMAGES
[14] Although ultimately dismissed, comprehensive submissions in respect of the counterclaim were made during the course of the trial. Accordingly, the evidence necessary to assess damages was contained in the record.
[15] I pause to note that an assessment of damages is all that is required. I give no consideration to the submissions by counsel for the Donkers Parties that there was never a properly issued counterclaim. This was addressed at the outset of trial when, upon the request of counsel for the Priest Parties, I issued the statement of defence and counterclaim. The trial then went ahead on the understanding there was an issued counterclaim. The Court of Appeal heard the appeal on the understanding there was an issued counterclaim. It defies logic that this argument is being raised at this stage.
[16] It has been held that every reasonable presumption should be made in favour of a plaintiff when assessing damages: see Royal Bank v. W. Got & Associates Electric Ltd., 1994 CanLII 8922 (AB QB) at para. 44, and Murano v. Bank of Montreal, 1995 CanLII 7410 (ON SC) at para. 167, aff'd in part (1998), 1998 CanLII 5633 (ON CA), 41 O.R. (3d) 222 (C.A.)
[17] Where a defendant is found liable for breach of contract for failing to provide reasonable notice prior to a seizure of secured assets, courts have consistently awarded damages for the value of the seized assets, as well as business losses, including loss of profit, loss of goodwill, and loss of a business as an operational entity. see, for example, Ronald Elwyn Lister Ltd. v. Dunlop Canada Ltd., 1982 CanLII 19 (SCC), [1982] 1 S.C.R. 726 at paras. 60 & 61, and Royal Bank v. W. Got & Associates Electric Ltd., 1994 CanLII 8922 (AB QB), aff'd in 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408.
Value of the Seized Assets
[18] Dealing first with the value of the seized assets, the Priest Parties called Trevor Downing to provide evidence at trial. Mr. Downing is an insurance appraiser of heavy equipment, and was a certified MTO appraiser. Mr. Downing was qualified as an expert on the appraisal of heaving equipment.
[19] Mr. Downing prepared an expert report, in which he appraised the fair market value of the seized assets to reflect the "agreement between a seller and a buyer, without a forced sale." in Mr. Downing's view, the fair market value of the seized assets was between $512,296 and $559,193.60.
[20] The Donkers Parties called James Snider, an auctioneer and appraiser with over 40 years experience, to provide evidence at trial. Mr. Snider did not prepare a report that met the strictures of r. 53.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and was not qualified as an expert. Mr. Snider valued the assets for debt recovery purposes, akin to a "forced liquidation sale." As Mr. Downing testified, this value is considerably lower than fair market value – conservatively 15% - 25% lower.
[21] The value of the seized assets Mr. Snider did appraise was $310,750. He did not appraise items that were not at the storage yard where he conducted his inspection, although they formed part of the APA: a 40 ft weigh scale, a 40 cubic yard compactor, four of the fifteen 10-cubic yard bins, four of the twenty-five 20-cubic yard bins, and thirteen of the twenty-five 40-cubic yard bins. I have put the value of the items not appraised at $97,725[^1]. When the value of the items not appraised is added to the value of the items Mr. Snider did appraise, the total value of the seized assets is $408,475.
[22] Mr. Downing's was the only expert report adduced at trial. However, Mr. Downing did not physically inspect the assets he valued, while Mr. Snider did. Further, when Mr. Snider appraised the equipment in 2013, the Canadian dollar was at par with the U.S. dollar. In 2019, when Mr. Downing prepared his report, the Canadian dollar was worth about $1.30. According to Mr. Snider, the U.S. economy drives the value of construction and industrial equipment.
[23] Considering these competing factors, I find the seized assets to have had a total value of $450,000, which is the mid-point between Mr. Snider's value and Mr. Downing's lower value.
[24] The $450,000 should be further reduced to account for the missing bins. There is no question that 65 bins were sold under the APA, yet only 44 were seized. Neither party could say where the missing bins went. Mr. Priest said Mr. Donkers took them during the seizure. Mr. Donkers said he did not take them. I did not prefer the testimony of either Mr. Priest or Mr. Donkers at trial, I find the most reasonable approach would be to split their appraised value. Using Mr. Downing's values, the missing bins are worth $69,800; using Mr. Snider's values, the missing bins are worth $71,050. The midpoint between the two numbers is approximately $70,000. When $450,000 is reduced by half of $75,000, or $35,000, the value of the seized assets for the purposes of this damages assessment is $415,000.
[25] However, to avoid double recovery, the Donkers Parties are entitled to be credited the amount that was credited to the Priest Parties as against the Promissory Note (for their recovery from the disposition of the seized assets), being $150,882.65.
[26] Thus, the quantum of damages for breach of contract payable by 119 Inc. and 175 Inc. for the value of the seized assets totals $264,117.35 ($415,000 - $150,882.65).
Loss of Business Income/Profit/Goodwill
[27] At trial, the Priest Parties adduced the evidence of Gary Edgecombe, a Chartered Professional Accountant, who had prepared the financial statements for 173 Ltd. since 2009. Mr. Edgecombe provided 173 Ltd.'s financial statements for 2010, 2011 and 2013.
[28] The Priest Parties also adduced the evidence of Neil Maisel, a Chartered Accountant and Chartered Business Valuator, who was qualified as an expert to render opinion evidence on 173 Ltd.'s business losses as a result of the seizure. I accepted Mr. Maisel's expert report into evidence (the "Maisel Report").
[29] The Donkers Parties did not adduce any evidence in respect of 173 Ltd.'s business losses. They submit that the Court should disregard the financial statements because they were unaudited. However, there was no evidence to suggest the numbers were an inaccurate reflection of income earned. Given that the financial statements were initially created for income tax purposes, and not litigation, I accept the figures as accurate.
[30] Mr. Maisel calculated the present value of the potential loss of future cash flows by 173 Ltd. for the four-year period following the unlawful seizure by the Donkers Parties on December 8, 2012. Mr. Maisel explained to the court that when valuing a business, the payback of goodwill is generally somewhere between three and five years in terms of profitability. Mr. Maisel chose the middle ground, four years.
[31] The reductions in income posited by Mr. Maisel range from a 20% reduction in income over the four year period for a total loss of $490,000, to a 50% reduction in income over the four year period for a total loss of $210,000. As Schedule 1-1 to the Maisel Report highlights, only those losses attributable to the seizure were included in Mr. Maisel's calculations (2012 revenue of $524,249 versus $586,400). From this amount, expenses were deducted, and this figure was further reduced by a discount rate of 15.17% to reflect the present value factor.
[32] It was reasonably foreseeable that the seizure of 173 Ltd.'s assets, including all of its equipment, goodwill and customers, would destroy the business. As Mr. Priest testified, "I really didn't have a business left anymore."
[33] As I held at trial, both Mr. Donkers and Mr. Priest acted dishonourably. Mr. Priest's failure to assume the Excavator Lease caused Mr. Donkers to be out-of-pocket for over $100,000. In turn, Mr. Donkers treated one missed payment on the Promissory Note as grounds to seize the assets.
[34] The principle that every presumption be made in favour of a plaintiff is not absolute, and is to be "reasonably applied in the circumstances" (Royal Bank (ABQB) at para 44). The Priest Parties did not come to court with clean hands. In fact, their actions were the geneses of the unlawful seizure. In these particular circumstances, I award damages for loss of business at $210,000, the lowest end of the spectrum.
Mitigation
[35] The Donkers Parties submit that the Priest Parties failed to mitigate their damages when they chose not to repurchase the seized items. This is a circular argument. I was provided with no caselaw requiring one to repurchase items that were illegally seized in a bid to mitigate one's losses. In any event, at trial no one could say what the number used in the bailiff's notice, $132,634, represented.
Set-Off
[36] The Priest Parties claimed legal and equitable set-off in their statement of defence, and I see no reason to deviate from this principle. Pursuant to s. 111(3) of the Courts of Justice Act, R.S.O. 1990, c. C.43, if, as is the case here, a larger sum is found to be due from the plaintiff to the defendant than that owing from the defendant to the plaintiff, the defendant is entitled to judgment for the balance.
CONCLUSION
[37] Counsel for the Priest Parties prepared a chart summarizing what amounts should be awarded in the action and counterclaim. I have replicated the chart below, substituting the figures I have arrived at.
| Main Action Damages | Payable by | Amount |
|---|---|---|
| Damages on Promissory Note | Priest & 173 Ltd. | $11,060.35 |
| Damages on the Excavator lease | 173 Ltd. | $189,804.49 |
| Total Damages in Main Action Payable to 191 Inc. & 175 Inc. | $200,865.48 |
| Counterclaim Damages | Payable by | Amount |
|---|---|---|
| Value of Seized Assets | 191 Inc. & 175 Inc. | $264,117.35 |
| Loss of Business Income / Profits / Goodwill | 191 Inc. & 175 Inc. | $210,000.00 |
| Total damages in counterclaim | $474,117.35 | |
| Set-off amount | ($200,865.48) | |
| Total payable by 191 Inc. & 175 Inc. | $273,251.87 |
[38] Accordingly, damages are awarded against 119 Inc. and 175 Inc. in the total amount of $273,251.87, plus pre-judgement interest commencing on December 9, 2012.
COSTS
[39] I awarded the Donkers Parties $137,812.65 in trial costs. The Court of Appeal held, at para.82, as follows in respect of this award:
As for the costs awarded at trial, the parties are content that they be addressed in the Superior Court in conjunction with the assessment of damages on the counterclaim.
[40] I have reviewed the record, and while counsel for both parties indicated that the trial costs might be revisited pending the determination of this damages assessment, no substantive submissions were made.
[41] Accordingly, counsel are encouraged to agree upon the trial costs, as well as the costs associated with this damages assessment. If they are unable to do so, they may make brief written submissions to me (maximum five pages double-spaced, plus a bill of costs) by email to my judicial assistant at nicole.anderson@ontario.ca. The Priest Parties may have 10 days from the release of this decision to provide its submissions; the Donkers Parties a further 10 days to respond; and the Priest Parties a further 5 days for a reply, if any.
[42] If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.
[43] Finally, I note that as of April 27 2022, the Donkers Parties had not yet satisfied two outstanding costs awards made by the Court of Appeal: $28,000 for the appeal itself, and a further $6,000 following the Donkers Parties' two failed motions to re-argue the appeal. Contrary to the submission of counsel for the Donkers Parties, costs awards are independent of damages awards. The Donkers Parties shall pay the outstanding costs awards, plus applicable interest, within 30 days of the release of this decision.
JUDGMENT
[44] Based on the foregoing, I make the following Orders:
a. 119 Inc. and 175 Inc. are jointly and severally liable to pay damages to the Priest Parties in the amount of $273,251.87;
b. interest on $273,251.87 is payable at the CJA rate of 1.3% commencing December 9, 2012;
c. post-judgement interest is payable at the CJA rate;
d. with thirty days of the release of this decision the Donkers Parties shall pay to the Priest Parties the outstanding costs awards plus applicable interest.
CASULLO J.
Released: September 20, 2022
[^1]: The Priest Parties posited the value of the missing assets at $108,000. However, this was calculated using Mr. Downing's values for the bins, which he did not actually inspect. Thus, I have used Mr. Snider's value for the bins, and Mr. Downing's values for the weigh scale and yard compactor (Mr. Snider did not inspect or appraise these) to value the missing items.