City Water International v. Pharmasave & Wiens Date:, 2012 BCPC 337

Citation: City Water International v. Pharmasave & Wiens Date: 20120920 2012 BCPC 0337 File No: 1137645 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: CITY WATER INTERNATIONAL INC. CLAIMANT AND: PHARMASAVE DRUGS (NATIONAL) LTD & ALLEN WIENS DEFENDANTS REASONS FOR JUDGMENT OF HIS WORSHIP D.G. SANDERSON Appearing for the Claimant: Matthew Riddell

Appearing in person: Allen Wiens Appearing for Pharmasave Drugs (National) Ltd. : Did not appear Place of Hearing: Vancouver , B.C. Dates of Hearing: May 23, 2012 & July 11, 2012 Date of Judgment: September 20, 2012 [ 1 ] The Claimant sues the Defendants jointly and severally for damages for an alleged breach of a written contract which provided, in part, that the Claimant would rent to “Pharmasave” a water purification system for a term of 60 months. The issues in this case are: 1. Who were the parties to the agreement; 2. What were the terms mutually agreed to by the parties; 3. Was the agreement breached; 4.

If the agreement was breached, what is the appropriate measure of damages. The Parties [ 2 ] The Claimant is in the business of renting, installing and servicing water purification systems for personal use, in businesses and private residences. The Defendant, Allen Wiens, is a pharmacist. He and his wife own a company called ‘Surrey Drugs

(1975) Ltd.’, which owns and operates a drugstore in Surrey. He believes this company has a franchise agreement with a company named ‘Pharmasave Pacific Limited’, which allows him to operate as a “Pharmasave” franchise at the location in Surrey, BC. [ 3 ] In June 2010, the Claimant agreed to deliver and install a water system to Mr. Wiens’ drug store. It was on a trial basis and there was no charge for it. In August 2010, the Claimant asked Mr. Wiens if he would enter into a contract to rent the water purification system. Mr. Wiens was apparently agreeable and Mr.

Shaw, on behalf of the Claimant, went to the drug store to have a contract signed. [ 4 ] The agreement signed by Mr. Wiens was a standard-form rental contract prepared by the Claimant. It purports to be between City Water International Inc. and an entity known as “Pharmasave” at 10654 King George Highway, Surrey, British Columbia. The word “Pharmasave” was typed in by the Claimant before the agreement was given to Mr. Wiens. Mr. Shaw testified that he did not type in the word Pharmasave but assumed that someone from the office typed it in, on the basis of a prior work order or other such document.

There was no evidence that Pharmasave is a legal entity or that there was any agreement with “Pharmasave”. There was no discussion between Mr. Wiens and Mr. Shaw about who were to be the parties to the contract. The agreement appears to be signed by the Defendant Allen Wiens on behalf of “Pharmasave”. However, when he signed the agreement, Mr. Wiens wrote in “179” after the word Pharmasave. That is the number of his particular franchise. He also wrote in the word “president”, as he was the president of Surrey Drugs

(1975) Ltd., the company that he believes has a franchise agreement with Pharmasave Pacific Limited. He testified that he did not read the document and he didn’t think he was signing a contract. He testified that neither he nor his company had any agreement with the Defendant, Pharmasave Drugs (National) Ltd. [ 5 ] There was no evidence that the Claimant made any inquiries or any attempt to determine the correct name of the company it intended to contract with. [ 6 ] At the commencement of the hearing, I asked the Claimant’s representative, Mr.

Riddell, whether or not the Claimant alleged that the contract was actually with Mr. Allen Wiens as an individual. Mr. Riddell confirmed that it was and that the claim was being pursued against Mr. Wiens individually. [ 7 ] I pointed out to Mr. Riddell that if the contract was with an individual, I perceived there might be some potential problems with the claim based on the provisions of the Business Practices and Consumer Protection Act , Ch 2 S.B.C. 2004. Mr. Riddell asked what those concerns were and I briefly outlined them.

He then said that the Business Practices and Consumer Protection Act did not apply because the contract was not with an individual but rather with a corporation, even though he had just advised the Court that the contract was with Mr. Wiens personally. I asked him to explain the basis on which he was suing Mr. Wiens personally and he then said that it was because Mr. Wiens had entered into a contract on behalf of a company which did not exist and he was therefore personally liable. I asked if he had pled that and he said he had not.

When asked why, he said it was because he didn’t plead every conceivable possibility. I note that the pleadings are extensive, thorough, sometimes inflammatory and occasionally inaccurate in their allegations. [ 8 ] At the conclusion of the first day of trial, Mr. Riddell advised he wanted to amend the pleadings to advance a claim for rectification of the contract, presumably to change the terms of the contract to allege an agreement with Surrey Drugs

(1975) Ltd. At the commencement of the second day of trial he sought an order deleting Mr. Wiens as a Defendant and adding Surrey Drugs

(1975) Ltd. as a party. He did not serve Mr. Wiens or Surrey Drugs

(1975) Ltd. with notice of that application. He claims to have mailed it to him. Mr. Wiens says he did not receive any notice of this application and I accept his evidence.

[ 9 ] I also asked Mr. Riddell at the commencement of the trial, the basis upon which Pharmasave Drugs (National) Ltd. was sued and to show me where in the contract it was named as a party to the contract. He was unable to show me where it was named as a party to the contract but said that would be a matter of oral evidence. I asked him whether or not Pharmasave Drugs (National) Ltd. had been served and he indicated it had. The records, however, do not reveal any service on Pharmasave Drugs (National) Ltd. and he was unable to provide any evidence.

I am unable to find that it was served with these proceedings. [ 10 ] Mr. Shaw testified on behalf of the Claimant. He was an independent contractor and not an employee of the Claimant. He testified that he believed he was dealing with a franchise operator (which in this case was Surrey Drugs

(1975) Ltd.) and that he was not dealing with Pharmasave Drugs (National) Ltd. He said that the name Pharmasave was put on the contract by somebody else who probably obtained the information from an initial work order. He was clear, however, that he understood that he was not contracting with Pharmasave Drugs (National) Ltd., but most likely was contracting with a franchisee. He testified that he did not believe Mr. Wiens had any authority to enter into a contact on behalf of Pharmasave Drugs (National) Ltd.

There was no evidence that he checked the correct name of the corporation or the individual that he was contracting with and no explanation was offered as to why the name of the franchisee was not on the contract other than the fact it had been prepared by somebody else. [ 11 ] Notwithstanding the state of the evidence, the pleadings in the Notice of Claim allege in part: “

(5) All further reference to the term “Defendant” hereinafter refer jointly and severally to both Pharmasave Drugs (National) Ltd. and Allen Wiens or in the alternative, just to Allen Wiens.

(7) The Claimant states, and the fact is, Allen Wiens readily identified himself to the Claimant’s sales representative that he had signing authority on behalf of Pharmasave Drugs (National) Ltd. The Claimant further pleads that it palpably appeared evident to their sales associate that Allen Wiens was the owner and operator of the store and in any event, a manager in charge of the store in which there was signage palpably indicating Pharmasave Drugs.

(8) The Claimant further pleads that Allen Wiens reasonably appeared on an objective assessment to have actual, implied and ostensible authority to enter into the Rental Contract given the circumstances and the nature of this particular transaction on behalf of Pharmasave Drugs (National) Inc., just as he purported to have to the Claimant’s sales representative. The Claimant further states that this was not a company acquisition, merger or amalgamation; it was a transaction for the rental of nominal office of retail store equipment in which it is known to people in the outside world that people in Allen Wiens position routinely sign for.

(9) The Claimant pleads that the representation, when acted upon by the contractor (Allen Wiens) by entering into a contract with the agent (City Water), operates as an estoppel , preventing the principal (Pharmasave Drugs (National) Ltd.) from asserting that they are not bound by the terms, provisions and clauses of the Rental Contract. It is irrelevant whether the agent (Allen Wiens) had actual authority to enter into the contract.” [ 12 ] I find there was no legitimate basis for making these allegations.

These pleadings were prepared by the Claimant who is experienced with litigation in this Court as well as other Courts as is evidenced by both the written decisions in other cases in which it was a Claimant, and the Court’s knowledge of other claims heard in this Court. A modest amount of effort by the Claimant would have revealed that the facts alleged in the pleadings were incorrect. [ 13 ] I conclude that both at the time the contract was prepared, and these proceedings commenced, there was little or no care given to determine who the contract was with or to properly identify them in the agreement.

This is evidenced by the unjustified claim against Pharmasave Drugs (National) Ltd. and the claim against Allen Wiens personally. I conclude that there was no contract between Pharmasave Drugs (National) Ltd. and City Water and the claim against Pharmasave Drugs (National) Ltd. is therefore dismissed. I also conclude there was no contract with Mr. Wiens personally and the claim against him should also be dismissed on that basis. I will deal later with the Claimant’s applications to plead rectification of the agreement and then to amend the pleadings by adding Mr. Wiens’ company as a Defendant.

What were the terms of the Agreement [ 14 ] The document was signed in Mr. Wiens’ pharmacy on August 9, 2011. He testified that he had a discussion with Mr. Shaw for about 30 seconds. He said that he was told that the rental of the water purification system would be $25 per month, or $75 per quarter, plus applicable HST. This was agreeable to him. The words, “twenty consecutive quarterly payments” of $83.83 were handwritten into the contract as the payment schedule. This was presumably intended to equal $75 per quarter plus HST. After he signed the document, Mr. Shaw told Mr.

Wiens that the rate of $75 per quarter would be available only if Mr. Wiens gave a void cheque and pre-authorized automatic bank withdrawals for the quarterly payments. Mr. Wiens told Mr. Shaw this was not agreeable. [ 15 ] Mr. Shaw then advised Mr. Wiens that if pre-authorized withdrawals were not provided the rate would be $100 per quarter (including tax). Mr. Wiens said this was also not agreeable. The contract itself has written in handwriting the following words at the end of the opening paragraph: “If no pre-authorized cheque is received by 09/01/10 the price will be $100 quarterly.” [ 16 ] Mr.

Wiens said that he was not given a copy of this contract until several weeks after it was signed and that the handwritten portion referring to a price of $100 quarterly, was not on the document he signed. Mr. Shaw was unsure whether or not he added those words in handwriting after he left the premises. After several requests, the Claimant mailed the Defendant a copy of the agreement several weeks later. [ 17 ] Three days after the document was signed in Mr. Wiens’ pharmacy, he notified the Claimant in writing that the terms were not acceptable and cancelled the order.

The Claimant subsequently picked up the water filter unit.

[ 18 ] The Claimant sues for the full amount owing under the contract. It relies on paragraph 8 which provides in part: 8. Default. You are in default under this Rental Contract if:

(1) You fail to pay any Payment or any other amount due under this Rental Contract when due; or

(2) You fail to comply with any other provision of this Rental Contract; or

(3) You default under any other Rental Contract or other contract between You and Us or under the terms of any other indebtedness; or

(4) Any Representation or warranty which You make to Us is or becomes untrue; or

(5) Any of the Equipment is lost, stolen, damaged, or destroyed and such loss, etc. is not covered by adequate insurance or loss payments are not paid to Us as loss payee; or

(6) You make any assignment for the benefit of Your creditors, become insolvent, commit

an act of bankruptcy, cease or threaten to cease to do business as a going concern or seek any arrangement or composition with Your creditors; or

(7) Any proceeding in bankruptcy, receivership, liquidation, or insolvency is commenced against Your or Your property; or

(8) We in good faith believe that the prospect of payment to Us under this Rental Contract is impaired. 9. Remedies. If You are in default under this Rental Contract, all Payments and other amounts due to the end of the Term shall immediately and without notice become due and payable. You will immediately return all Equipment to Us in good working order at Your cost in a manner and to a location we designate…. [ 19 ] It is not clear from the Claimant’s pleadings whether it is suing on the basis of a rental agreement of 60 months at a rate of $83.80 or $100 per quarter. The pleadings do not specify.

Rather, they simply claim for the full amount owing on the document. It appears from the total amount claimed that it is based upon quarterly payments of $83.80. [ 20 ] Mr. Wiens testified that Mr. Shaw told him that the contract would be $75 per quarter plus taxes. He said nothing else was explained to him and the documents were simply presented to him for signature. He signed the documents without fully reading them and he says he was not left with a copy of the contract. The fact that he did not fully read the documents or have them explained does necessarily not mean that he is not bound by its terms.

I do not believe that failure to fully read the document in this case would alone, be sufficient grounds to avoid potential liability. [ 21 ] Mr. Wiens testified that he was agreeable to paying $25 per month or $75 plus tax per quarter as represented. After he signed the document he was told by Mr. Shaw that in order to get that rate, he would have to provide a void cheque and agree to pre-authorized quarterly withdrawals out of his account. He advised Mr. Shaw that this was not agreeable. Mr. Shaw then advised Mr.

Wiens that if he did not agree to pre-authorized withdrawals then the rate would be $100 per quarter. Mr. Wiens told Mr. Shaw that was also not agreeable. [ 22 ] Mr. Shaw’s recollection of the discussion with Mr. Wiens is uncertain. He relied generally on what his usual practice was and cannot recall with detail what was said or agreed to. He was unable to contradict what Mr. Wiens has said. [ 23 ] Accordingly, I accept the evidence of Mr. Wiens as outlined above.

I find that the handwritten notes at the top of the agreement which provided that the price would be $100 per quarter if no pre-authorized cheques were given, were not contained in the document signed by Mr. Wiens and were not in any document that was given to him at the time. I find that those words were added to the document by Mr. Shaw after it was signed by Mr. Wiens. The evidence of Mr. Wiens was clear, certain and generally not contradicted by Mr. Shaw. I conclude that Mr. Shaw’s memory of the events is not as good as Mr.

Wiens, which in the circumstances is quite understandable. [ 24 ] I find that there was no consensus ad idem on the key terms of this contract. Mr. Wiens was agreeable to payments of $75 plus HST per quarter. That was only agreeable to the Claimant if those payments were paid by pre-authorized withdrawals from a bank account. Mr. Wiens said that was not agreeable. Mr. Wiens also said, absent pre-authorized bank deductions, that he was not agreeable to paying $100 per quarter and advised Mr.

Shaw of that. [ 25 ] I conclude that there was no contract with the Claimant as one of the key terms namely price, was not agreed to. In fact, there was disagreement on that key term. Mr. Wiens wrote three days later advising that he was cancelling and the equipment was subsequently packed up by the Claimant. [ 26 ] Since there was no contract, I find there was no breach of contract.

Damages [ 27 ] If am incorrect in my conclusions regarding liability, what damages has the Claimant suffered? [ 28 ] Pursuant to clause 9 of the standard-form contract, the Claimant would be entitled to claim as damages, the full amount payable under the contract over its 60 month term. At issue is whether that clause is a penalty clause and if so, should the Court grant relief from the penalty clause pursuant to

section 24 of the Law and Equity Act , RSBC 1996, c 253. Discussion of the Penalty Clauses Generally [ 29 ] It is not necessary for me to make a decision on whether or not the document contains a penalty clause as I have already found that there was no enforceable contract in existence. I do address this issue however because City Water International Inc. has, to the Court’s knowledge, brought several other actions in British Columbia and it is therefore important that the issue of whether or not the contract contains a penalty clause, be addressed. [ 30 ] The leading English case on penalty clauses is Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co. (1914), [1915] AC 79

(UKHL). This case, and specifically the definition and tests it established to distinguish penalty clauses from enforceable liquidateddamages clauses, have been cited with approval and adopted by many Canadian courts. In “Dunlop”, Lord Dunedin defines penaltiesand liquidated damages by saying, “The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; theessence of liquidated damages is a genuine covenanted pre-estimate of damage” (at p 86).

Lord Dunedin finds that the characterizationof an impugned clause depends on “the terms and inherent circumstances of each particular contract” (at p 87), and suggests variousfactors to consider, including: “if the sum stipulated for, is extravagant and unconscionable in amount incomparison with the greatest loss that could conceivably beproved to have followed from the breach”; a rebuttable presumption of penalty where “a single lump sum is made payable by way of compensation, on the occurrence of one ormore or all of several events, some of which may occasion serious and others but trifling damage”; and whether a “precise pre-estimation [is] almost an impossibility” in the circumstances, making it probable that the parties intended the sumto be liquidated damages (at p 87-88). [31] In the majority judgment in, HF Clarke Ltd. v.

Thermidaire Corp., (SCC), [1976] 1 SCR 319 the Supreme Court of Canada adopts the reasoning of Dunlop and states the applicable doctrine as stated in Snell’s Principles of Equity (27th ed. 1973,at page 536) as being the “sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with thegreatest loss that could conceivably be proved to have followed from the breach” (at p 338).

Further, in addressing the issue of freedomof contract, the Court finds that though “it is always open to the parties to make the predetermination” of damages, this predetermination“…must yield to judicial appraisal of its reasonableness in the circumstances” (at p 331). [32] In JG Collins Insurance Agencies Ltd v. Elsley Estates, (SCC), [1978] 2 SCR 916, the Supreme Court of Canadaconsidered whether a Plaintiff could recover damages for the actual loss sustained where a lesser amount was stipulated in the argument.

Dickson J. speaking for the Court said at page 937” “It is now evident that the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for thesole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is nooppression. If the actual loss turns out to exceed the penalty, the normal rules of enforcement of contract should apply to allow recoveryof only the agreed sum.

The party imposing the penalty should not be able to obtain the benefit of whatever intimidating force thepenalty clause may have in inducing performance, and then ignore the clause when it turns out to be to his advantage to do so. A penaltyclause should function as a limitation on the damages recoverable, while still being ineffective to increase damages above the actual losssustained when such loss is less than the stipulated amount. As expressed by Lord Ellenborough in Wilbeam v.

Ashton: “Beyond thepenalty you shall not go; within it, you are to give the party any compensation which he can prove himself entitled to.” Of course, if anagreed sum is a valid liquidated damages clause, the plaintiff is entitled at law to recover this sum regardless of the actual losssustained.”(Emphasis added) [33] I interpret this decision to mean that if the clause is a penalty clause, the Claimant may only recover the actual damages provedbut not more than the stipulated amount.

If the clause is a genuine pre-estimate of damages, or a liquidated damages clause, theClaimant may recover the stipulated amount but not more. [34] These general principles of penalty clauses have recently been summarized by Justice Fitch in Super Save Disposal Inc v.

BlazinAuto Ltd. 2011 BCSC 1784, Justice Fitch writes at para. 26, the following: “The enforceability of a liquidated damages provision in an agreement engages two competing objectives: freedom of contract versus theright of the courts to intervene in a given case to relieve against an oppressive or unconscionable result flowing from enforcement of theliquidated damages term.

It is well settled that the enforceability of such a term turns on whether it is a genuine pre-estimate of theexpected loss that a party will sustain in the event of a breach of contract or a penalty clause so oppressive or unreasonable that equitableintervention is justified to prevent an injustice.” [35] At paragraph 31 he confirmed: “Judicial interference with a liquidated damages provision will be justified if enforcement of the term results in payment of a sum whichis extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from thebreach: 32262 B.C. v.

See-Rite Optical, supra, at para. 13.” [36] Citing the authority of Dunlop, Justice Fitch discuses what factors the court will take into consideration when assessing the“inherent circumstances” of each contract.

He concludes that a fact specific inquiry will take into account, inter alia, “the length of thecontract, the length of the term remaining on the contract when the breach occurs, whether the breach occurred during a renewalperiod…any notice period provided for termination, and the precise terms of the liquidated damages clause” (at para 39). [37] If a liquidated damages clause is found to be enforceable, the party seeking to enforce the clause may “recover that sumirrespective of his actual loss” (JG Collins Insurance Agencies Ltd v. Elsley Estates, supra, at p 938).

However, if the clause is found tobe an unenforceable penalty, “the plaintiff must prove its damages in the ordinary way and the defendant is entitled to advance the

position that the plaintiff ought reasonably to have taken certain mitigating steps” (Super Save Disposal Inc. v. Blazin Auto Ltd., supra atpara. 34). [38] The Court in Super Save Disposal Inc. v. Blazin Auto Ltd., (supra), allowed the Appeal on the basis that the Respondent did notappear at trial and therefore had not discharged the onus on it, to show that the clause in question was a penalty clause. In the case at barthere was evidence that clause was not a genuine pre-estimate of damages, but rather was punitive.

Acceleration Clauses as Penalty Clause [39] The Supreme Court of Canada case Keneric Tractor Sales Ltd v Langille, (SCC), [1987] 2 SCR 440,established that damages from breach of a chattel lease “should be calculated in accordance with general contract principles” (at para 22),and further that “[t]he general rule for the assessment of damages for breach of contract is that the award should put the plaintiff in theposition he would have been in had the defendant performed his contractual obligations”, qualified by “the doctrine of remoteness” and“the injured party’s duty to mitigate damages” (at para 29).

This case did not address the issue of penalty clauses or relief from suchclauses. [40] The reasoning in Keneric was later applied in 32262 BC Ltd v See-Rite Optical Ltd (1998), 1998 ABCA 89 , 216 AR33, 60 Atla LR (3d) 223 (CA), to a contract where the Plaintiff agreed to build and maintain a custom sign for the Defendant. Thecontract also contained an acceleration clause, whereby all rental payments due under the contract would become immediately payableupon breach by the Defendant.

The Alberta Court of Appeal reversed the trial judge’s finding and affirmed the acceleration clause as agenuine pre-estimate of damages. Relying on general contract principles, and the holding of Keneric that damages for chattel leasesshould also aim to put the Plaintiff back in the position they would have been in had the contract been performed, the Court found thePlaintiff “would have been able to claim as damages the balance of the payments owing to the end of the lease”, taking into account adiscount for early payments and a reduction to reflect the loss of the plaintiff’s maintenance expenses (at para 17).

The Court thencompared this amount with the sum stipulated by the liquidated damages clause and concluded that the clause was enforceable and not apenalty because it permitted the plaintiff “to claim as damages an amount that was closely related to the amount to which it would havebeen entitled according to principles of general contract law” (at para 18). However, in coming to this conclusion the Courtacknowledges that the jurisprudence surrounding the characterization of acceleration clauses is divided, which “underscores the pointthat these determinations are extremely fact-specific” (at para 15).

The “Remedy” Clause of the City Water Contract is a Penalty and Not a Genuine Pre-Estimation of Damages [41] When clause 9, the impugned remedy clause, is read in the context of the contract as a whole, it becomes clear that the clause isin fact a threat held in terrorem over the Defendant to ensure compliance with the contract, and not a genuine pre-estimate of damagesflowing from the Defendant’s breach. The acceleration clause in paragraph 9 is triggered by any default under the contract, and “default”is expressly defined in clause 8 to include a wide variety of situations.

For example, where the customer fails to make a payment dueunder the contract, as well as situations where the customer defaults under any other rental agreement, contract or indebtedness with theClaimant, or where any representation made by the customer was untrue or becomes untrue, or where the Claimant believes in “goodfaith” that the prospect of payment from the customer has become “impaired”.

Upon a proper construction of this clause, the Claimantcould insist on accelerated payments of all amounts due under the agreement regardless of whether or not there had actually been abreach of that agreement and in situations where the Claimant has not suffered any loss. [42] The construction of this clause attracts Lord Dunedin’s rebuttal presumption of a penalty as a situation where payment of anagreed sum is triggered by several different breaches, each resulting in varying degrees of loss to the Plaintiff.

At page 89 of Dunlop hewrites: “…if there are various breaches to which one indiscriminate sum to be paid in breach is applied, then the strength of the chain must betaken at its weakest link. If you can clearly see that the loss on one particular breach could never amount to the stipulated sum, then youmay come to the conclusion that the sum is penalty.” [43] This presumption can be invoked in the case at bar as the impugned provision states that any default, as defined by the contract,is sufficient to trigger the penalty clause.

To substantiate this presumption, the enforceability of the provision as a proper liquidateddamages clause depends on whether, in all circumstances to which it can be applied, the stipulated sum can be characterized as a genuinepre-estimate of the loss following each breach. Taken at its weakest link, the penalty clause applies to a situation where payment underone agreement is required because of a breach of a separate and unrelated contract or the Claimant believes in good faith that theprospect of payment from the customer has become impaired.

In this context the payment can never be characterized as a genuine pre-estimate of damages as there has been no breach to the contract under which the amount is paid, and therefore no loss to the Claimantthat can form the basis of the pre-estimate.

Therefore, based on the construction of the clause in the context of the entire contract, theclause can not be liquidated damages designed to compensate the Claimant, but is instead an obvious penalty provision designed topunish the defendant. [44] At trial, it became clear that the Claimant was capable of establishing a genuine pre-estimate of damages and was aware of theactual potential loss it would suffer following a breach at the time of creation of the contract.

In oral evidence the Claimant stated thatnew equipment was rented at a rate of $25 per month, but that following a breach or termination of a contract, used equipment could berefurbished and subsequently re-rented at a rate of $15 per month. Therefore, the Claimant’s actual admitted loss upon breach of thecontract was $10 per month, representing the difference between the rental price of new equipment and the rental price of usedequipment.

This calculation of the actual loss suffered by the Claimant is not expressed in the penalty clause, providing further supportthat because an accurate estimation of the Claimant’s damages was entirely possible but was not undertaken, the Claimant was aware the

penalty clause was not a genuine pre-estimate of damages. [ 45 ] Further, the equipment in this case was not new equipment at the commencement of the alleged lease, because Mr. Wiens has been using it for two months on a trial basis. If Mr. Wiens did not enter into a contract with the Claimant to rent the equipment then the Claimant would have been left with the used equipment which according to the evidence of Mr. Shaw, would have to be leased out at a lower rate of $15 per month.

In other words, even if there was a contract after 3 days, a breach of that contract has not caused any damage to the Claimant because that equipment was previously used and would have to be rented out at a reduced rate in any event. Its damages would be limited to $15 per month for the period of time required to mitigate its damages.

Summary of Case Law cited by the Claimant [ 46 ] I will now address the case law cited by the Claimant in support of its submission that the acceleration clause is an enforceable liquidated damages clause. As I have concluded that the clause is a penalty and therefore unenforceable, there is no need to discuss the Claimant’s submissions regarding notice requirements in the context of commercial contracts between sophisticated parties. [ 47 ] In paragraph 35 of the Claimant’s written submissions, the Claimant cites the case of Zander Sod Co. v.

Solmar Development Corp. 2011 ONSC 7 , for the proposition that the parties have the right to agree on the damages suffered if there is a breach. However, this decision dealt with a contract where the words “liquidated damages” were specifically in the contract. [ 48 ] At paragraphs 105, 106, 122 and 123 R.C. Boswell J. stated in part: “

(105) While clauses providing for fixed damages have historically been theoretically enforceable at common law, equity has regularly granted relief against clauses found to be penal in nature. Courts have, for instance, refused to enforce fixed sums found to be unconscionable in relation to any damages that might conceivably be proved.

(106) Parties remain free to agree upon genuine pre-estimates of damages (so long as they are not oppressive).

(122) Essentially, where parties specify a sum as liquidated damages, they should be held, on the plain and ordinary

interpretation of their language, to have intended that the specified sum was a genuine pre-estimate of damages, unless a contrary intention was shown . In the case at bar, no contrary intention was made out. No preservation of other rights, for instance, was specified in the agreement… (emphasis added)

(123) Apart from the written language of the contract, no evidence was adduced in this case to demonstrate an intention other than that the stipulated sum operates as a limitation on damages.” [ 49 ] The words liquidated damages are not contained in the document before the court in the present case. The Court in Zander Sod Co. v. Solmar Development Corp. , (supra) , found as a fact that the insertion of the “liquidated damages” clause fixing damages at $500,000 was a genuine attempt to pre-estimate damages (para 128). This was in the context of limiting the amount recoverable to this pre-estimation.

As the language of the impugned provision does not include the term “liquidated damages”, this proposition is not determinative to the case at bar. [ 50 ] The Claimant also referred to JG Collins Insurance Agencies Ltd v. Elsley Estates (supra), to stand for the proposition that any time courts intervene in contracts by finding a penalty clause unenforceable, this compromises freedom of contract and brings the administration of justice into disrepute. In advancing this submission the Claimant, in my view, mischaracterizes the Elsley decision.

The Court in Elsley does emphasize the importance of upholding freedom of contract by limiting judicial intervention to situations where there is oppression (as quoted above), however this decision does not in my view, eliminate the equitable jurisdiction of the court to relieve a party from a penalty clause.

The Claimant’s submission that the administration of justice is brought into disrepute by any judicial intervention into parties’ freedom to contract is not supported by the authorities and is further rebuked by s. 24 of the Law and Equity Act , which provides legislative authority, outside of the common law, for judges to intervene in contracts and provide equitable relief against penalty clauses.

Judicial Consideration of the City Water Rental Contract [ 51 ] The Claimant cited 6 authorities, indicating there were a myriad of Deputy Judges and Adjudicators in Ontario and BC who have enforced provisions, terms and clauses of its rental contract. 1. City Water International Inc v. ABC Recycling, 2011 BCPC 57 : The issue in this case was whether or not the City Water contract between theparties had been automatically renewed pursuant to the automatic renewal clause, or whether notice of termination had been served.

The Court concluded that the contract had not been renewed and therefore the Claimants were not entitled to rental payments for the renewal year. The Court makes no reference to the existence of a penalty clause and therefore this case is not helpful to the current proceedings. 2. City Water International Inc v. Polex Manufacturing (Canada) Ltd , 2011 BCPC 84 : This case also deals with the enforceability of the automatic renewal clause of the City Water contract. It is important to note that the contract as cited in this judgment appears to be different from the contract in the

case at bar, and therefore the interpretive conclusions of the court in that case can not be used as authority to affirm the terms currently before the court. Further, the Court found that the contractual six months notice period for termination was not “so onerous to be unconscionable” and allowed the claim of $206.55 for rental payment for the one year renewal term (at para 18).

However, the Court did not reference any liquidated damages or acceleration clause, it is not clear if it was argued the contractual terms were a penalty, and there was no reference to any evidence indicating whether the clause was penal or a genuine pre-estimate of damage. Therefore this case can not be taken as an endorsement of the impugned clause in the case at bar. 3. City Water International Inc v.

Davend Punch & Die Co , [2010] OJ No 6049 : This is a one paragraph judgment that simply states the defendant did not call any witnesses and therefore did not persuade the Court that there was no contract between the Plaintiff and Defendant. As such the defendant was ordered to pay the outstanding amount owing under the contract for breaching its obligations. The court makes no reference to the terms of the contract or whether the acceleration clause was a penalty and therefore this case has no precedential value or authority in these proceedings. 4.

City Water International Inc v. 1184747 Ontario Ltd (cob Ray Daniel Salon & Spa) , [2010] OJ No 6048 : This case was decided in the Plaintiff’s favour, as the Defendant did not dispute its failure to make payments under contract nor the quantum of damages claimed by the Claimant. The only issue appears to have been whether or not the parties entered into a contract. The issue of relief from a penalty clause was not raised. Again, the merits of the terms of the contract were not tested and therefore this case has no precedential value or authority for these proceedings. 5. City Water International Inc v.

Multi Precision Products Ltd , [2010] OJ No 1858 : This case is an appeal from a decision of the Ontario Small Claims Court, and it appears to assess whether a liquidated damages clause in the case of loss, theft or damage to equipment was a penalty. There does not appear to be any determination whether the acceleration clause was a penalty or a genuine pre-estimate of damages. The majority of the Court’s analysis was limited to finding that “there is nothing oppressive or unconscionable about the Respondent’s penalty clause for lost, stolen or damaged equipment” (at para 30) (emphasis added).

The Court also makes a factual finding in this case that given the submissions of the Claimant, the general penalty clause provides a genuine pre-estimate of damages (at para 28). However, this finding is not binding on any subsequent court as it is entirely dependent on the evidence as it emerged at trial and not the substance of the contract itself. The analysis of this decision should therefore be understood in the context of a liquidated damages clause for replacement equipment, and can thus be distinguished from the issues currently before the Court.

In the case at bar the contractual terms and the evidence before the Court lead to the conclusion that the subject clauses are penalties and not a genuine pre- estimate of damage. 6. City Water International Inc v. Money Plus , [2012] O.J. No. 3875 : The issue before the Court was whether the Defendant entered into the contract. The Court did not accept the Defendant’s evidence denying the agreement. He concluded the contract was signed and that the Defendant stopped making payments because it was in financial difficulty. He concluded that amount claimed was due.

It does not appear that there was any consideration, argument or analysis relating to whether the contract contained a penalty clause or whether relief should be granted. Again, as this issue was not addressed by the Court, this decision is helpful in the case at bar.

Summary on Relief from Penalty Clause [ 52 ] An enforceable liquidated damages clause must be a genuine pre-estimate of loss flowing from a breach of contract and can not simply be a threat of punishment for breach.

In the case at bar, given that the clause could be triggered absent a breach of the agreement or a loss to the Claimant under the agreement, or that the actual loss the Claimant could suffer following a breach is approximately 60% of the sum demanded pursuant to the acceleration clause, the clause represents a threat held in terrorem over the defendant to force compliance with the contract, and is extravagant and oppressive in comparison with the greatest loss that could be proved to flow from the breach.

The clause is therefore not a genuine pre-estimate of loss and the court in its equitable jurisdiction under s. 24 of the Law and Equity Act is justified in granting relief from this penalty clause. Application to Amend

[ 53 ] The Claimant brought an application to amend the style of cause. This was not served on Mr. Wiens. It says that the Claimant seeks the following order: “To amend the style of cause nunc pro tunc; and, Granting equitable remedy of rectification of the legal name of the Defendant, Allen Wiens and changing it to the numbered company that Allen Wiens operates his pharmacy business under.” [ 54 ] At paragraphs 1 - 21 of his written submissions the Claimant argues in favour of the amendment referred to above. I do not agree with the characterization of some of the evidence as stated by Mr.

Riddell in those paragraphs. It is not necessary however, for me to deal with that evidence or decide the issue because of the other conclusions I have reached regarding the lack of consensus on the key term and my conclusion that the contract contains a penalty clause and to grant relief from it. Status of Mr. Riddell [ 55 ] Finally, I should add some remarks regarding Mr. Riddell. During the course of the trial, I was under the impression that he was a lawyer and counsel for the Claimant. I am not certain that he actually said that, but he gave that very clear impression.

It appears that other judges in this and other Courts may have also been under the impression that he is a member of the bar. This appears from the Reasons for Judgment of B.J. Wallace in City Water International v. Polex Manufacturing (Canada) Ltd ., [2011] B.C.J. No. 681 , D.W. Yule in City Water International v. A.B.C. Recycling Ltd., [2011] B.C.J. No. 385 , J.R.R. Jennings J. in City Water International v. Multi Precision Products Ltd., [2010] O.J. No. 1858 , M.L. Lack J. in City Water International v. Tec-V Hair & Beauty Supply, [2010] O.J. No. 6047 , G.Z. Bobesich Deputy J. in City Water International v.

Money Plus, [2012] O.J. No. 3875 , where Mr. Riddell is described as counsel. [ 56 ] In reviewing the authorities for this case, I came across the case of City Water International v Wellness Beauty Spa , 2011 CarswellOnt 2750 where it was revealed that Mr. Riddell was not a member of the Ontario bar and he was not permitted to argue a case for City Water International Inc. He was described in the materials in that case, variously as an employee, officer or in-house paralegal. Although a company may, pursuant to the Rule 17(20) (

a) of the British Columbia Small Claims Rules , be represented in Court by a director, officer or authorized employee, it is important that those appearing before the Court clearly advise it if they are counsel or a director, officer, or other authorized employee, because lawyers, as officers of the Court, owe certain duties to the Court. [ 57 ] I mention this because Mr. Riddell’s submissions on both the evidence and law, on occasion did not in my opinion represent a fair view of either and the Court was regrettably unable to rely on some of what Mr. Riddell said.

Conclusion [ 58 ] The Claimant’s claims are dismissed. The Claimant shall pay to the Defendant, Mr. Wiens the amount of $172.69 (being 10% of the amount claimed) pursuant to Rule 20(5) of the Small Claims Rules . I find that there was no reasonable basis for success against Mr. Wiens. The Claimant’s representative knew the Claimant was not contracting with him directly, yet he was still named as a Defendant and Mr. Riddell, at the commencement of trial, confirmed that a claim was being made against Mr. Wiens personally. Dale G. Sanderson, Q.C. Magistrate / Adjudicator