Ontario Superior Court of Justice (Toronto Region)
Civil Endorsement Form (Rule 59.02(2)(c)(i))
Court File Number: CV-22-00675041-0000
Before: Merritt J.
Title of Proceeding: QUALICARE CANADA INC., Plaintiff(s) -v- TEJAL BHUPENDRA PATEL, KRUNAL PATEL and 2606911 ONTARIO LIMITED, Defendants(s)
Case Management: No
Participants and Non-Participants: (Rule 59.02(2)((vii))
| Party | Counsel | E-mail Address | Phone # | Participant (Y/N) |
|---|---|---|---|---|
| Plaintiff, Qualicare Canada Inc. | Idan Erez | ierez@hofferadler.com | (416) 977-2553 | Y |
Date Heard: (Rule 59.02(2)(c)(iii)) February 23, 2024
Nature of Hearing (mark with an “X”): (Rule 59.02(2)(c)(iv)) X Motion
Format of Hearing (mark with an “X”): (Rule 59.02(2)(c)(iv)) X In Writing
Relief Requested: (Rule. 59.02(2)(c)(v)) The plaintiff seeks default judgment.
Disposition made at hearing or conference (operative terms ordered): (Rule 59.02(2)(c)(vi)) The plaintiff is granted default judgment in the amount of $372,487.24 plus costs.
Costs: On a partial indemnity basis, fixed at $11,483.29 are payable by the defendants to the plaintiff.
Brief Reasons
The plaintiff and the corporate defendant, 2606911 Ontario Limited (the "Franchisee") were parties to a franchise agreement on November 29, 2017 for a term of 10 years whereby the plaintiff granted the Franchisee a license to provide in-home care services using the plaintiff’s proprietary system (the “Agreement”). The three individual defendants executed personal guarantees of the Franchisee’s obligations under the Agreement. The Franchisee breached the Agreement, and the plaintiff terminated the Agreement and commenced this action. The defendants did not defend this action, and were noted in default.
On January 15, 2024, Justice Chalmers ordered that the plaintiff serve its motion record on the defendant, together with a copy of his endorsement. The plaintiff did serve the motion record by e-mail. The affidavit of Idan Erez filed on behalf of the plaintiffs says that the defendants responded to a previous email sent, pursuant to a similar order of Centa J., and made an offer to settle. The materials filed do not indicate whether the plaintiff accepted the offer or not, but the affidavit provided says the defendants failed to make any payment. In any event, the defendants did not respond when served with the endorsement of Chalmers J. on January 13, 2024. I am satisfied that the defendant are aware of this motion in writing and therefore, service by email on the defendants is validated.
Pursuant to Rule 19.02 of the Rules of Civil Procedure, having not defended the proceeding, a defendant is deemed to admit the truth of all allegations of fact made in the statement of claim. However, pursuant to Rule 19.06, a plaintiff is not entitled to judgment on a motion for judgment or at a trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment. In particular, Rule 19.05 provides that a motion for judgment which involves unliquidated damages shall be supported by evidence given by affidavit.
The test on a motion for default judgment was set out in Elekta Ltd. v. Rodkin, 2012 CarswellOnt 2928 (ONSC) as follows: A. What deemed admissions of fact flow from the facts pleaded in the statement of claim? B. Do those deemed admissions of fact entitle the plaintiff, as a matter of law, to judgement on the claim? C. If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitle it to judgement on the pleaded claim?
I am satisfied that the plaintiff has established liability based upon the following deemed admissions in the statement of claim, together with the evidence from the affidavit of Felipe Gonzales (“Mr. Gonzales”). On or around November 28, 2019, the plaintiff conducted an audit of the Franchisee's records, based on concerns about the Franchisee's non-compliance with the terms of the agreement. The audit disclosed a number of significant defaults by the Franchisee under the Franchise Agreement. Accordingly, on or around December 20, 2019, the plaintiff issued to the Franchisee a "Notice of Default" under the Agreement, notifying the Franchisee and the individual defendants of their numerous breaches of the Franchise Agreement and providing them with an opportunity to cure those breaches. The plaintiff sent a second "Notice of Default" on or around June 14, 2021, again notifying the defendants of their numerous breaches of the Agreement and providing them with a further opportunity to cure same. The plaintiff was concerned that there were indications that the defendants were diverting the plaintiffs customers away from the plaintiff and serving those customers through the defendants’ competing business. The defendants did not cure the defaults and the plaintiff delivered a “Notice of Termination” on July 30, 2021 taking the position that they had repudiated the Agreement or alternatively that the plaintiff was terminating it.
The plaintiff is entitled to be compensated for the loss of bargain which means it is entitled to be placed in the same position it would have been in if the breaches had not occurred, or in other words as though the Agreement had been performed without any breaches. The plaintiff’s damages consist of unpaid royalty and branding fees plus legal fees payable pursuant to the Agreement. In order to calculate damages, the plaintiff has calculated the average fees paid by the Franchisee during the initial period of the relationship between the parties when the defendants appeared to be focused exclusively on the franchise business and not the competing business which it appears they were later pursuing. The plaintiff then multiplied the average over the remainder of the term to calculate what the plaintiff could reasonably have expected to collect from the defendants in fees had they not pursued their competitive business and had the plaintiff not terminated the Agreement. The plaintiff then deducted the fees it actually collected from the defendants. The plaintiff says this estimate is conservative. It does not take into consideration the contingency that the Franchisee’s business might increase over time. The plaintiff has an obligation to mitigate its damages and has attempted unsuccessfully to do so. However, the plaintiff is claiming damages lost of revenue from the Agreement only until July 30, 2023 (the last full month before Mr. Gonzales’ affidavit was sworn) in the amount of $235,520.30. Pursuant to the Agreement, the plaintiff is entitled to recover legal fees of $10,690.93 which it incurred in connection with the audit, Notices of Default and Notice of Termination. Therefore, the plaintiff’s total damages are $246,211.23.
The plaintiff also claims prejudgment interest at the contractual rate of 36%. Generally, courts should give effect to interest rates contained in an agreement unless the terms are vague, unclear or infringe a statutory provision such as the Interest Act, R.S.C., 1985, c. I-15: Capital One Bank v. Matovin the ska; Capital One Bank Blackwell; Capital One Bank v. Semple, at para. 13 and Gyimah v. Bank of Nova Scotia, 2013 ONCA 252, at para. 10. Absent exceptional circumstances, it is appropriate and fair to use a contractual interest rate to which the parties have agreed: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, at paras. 49-50, Professional Court Reporters Inc. v. Pistachio Financier Corp., 2022 ONCA 669. The plaintiff is entitled to pre-judgement interest in the amount of $126,276.00. The post judgment interest rate is 36%.
The plaintiff requests costs on a partial indemnity basis in the amount of $11,483.29, inclusive of HST and disbursements. I have reviewed the rates and time charged which I find fair and reasonable.
Additional pages attached: No
Date of Endorsement (Rule 59.02(2)(c)(ii)): February 23, 2024
Signature of Judge/Associate Judge (Rule 59.02(2)(c)(i)) Merritt J.