NORTHWEST WASTE SOLUTIONS INC. CLAIMANT AND: BETTY HUI DBA SUSHI HUT JAPANESE RESTAURANT v. HOUSEWISE CONSTRUCTION LTD., 2013 BCPC 262

Citation: Northwest Waste Solutions Inc. v. Hui, et al. Date: 20130905 2013 BCPC 0262 File No: 12-39961 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: NORTHWEST WASTE SOLUTIONS INC. CLAIMANT AND: BETTY HUI DBA SUSHI HUT JAPANESE RESTAURANT AND HOUSEWISE CONSTRUCTION LTD. DEFENDANTS REASONS FOR JUDGMENT OF HIS WORSHIP DARRELL W. ROBERTS Counsel for the Claimant: Joseph W. Jachimowicz Appearing for the Defendant Betty Hui: No one appearing Appearing for the Defendant Housewise Construction: Samuel Au Place of Hearing: Vancouver , B.C.

Date of Hearing: August 21, 2013 Date of Judgment: September 5, 2013 Introduction [ 1 ] The Claimant (“Northwest Waste”) seeks general damages in the amount of $1,560 against the Defendant Betty Hui doing business as Sushi Hut Japanese Restaurant (“Betty Hui”) for an alleged breach of an agreement for the pick-up and disposal of waste. Counsel for the Claimant, Mr. Jachimowicz, attended the hearing for the Claimant. The Defendant Betty Hui did not attend the hearing nor did anyone in her place, indeed no reply to the claim was filed by this defendant.

This failure of response led the Claimant to seek a default judgment against this defendant, which was refused because, as the Order of April 25, 2013 states: A hearing is required before a judge of the Provincial Court, because the claim is not for a debt. At the hearing, the judge will determine the amount the claimant is entitled to (if any), and other terms of an appropriate order. [ 2 ] The Claimant brought a separate claim against the second defendant, Housewise Construction Ltd., alleging wrongful interference in contractual relations and inducing breach of contract.

However, on a prior application to this court an order was granted allowing the Claimant to withdrawn this claim. Nevertheless, Mr. Samuel Au, president of this defendant, attended the hearing seeking damages against the Claimant pursuant to a previously filed counterclaim. However, a trial statement was not filed as required by the rules of this court setting out the facts and documents, if any, in support of this Defendant’s counterclaim. The claim against Betty Hui The Agreement [ 3 ] The Claimant’s trial statement exhibits a copy of an agreement made between the Claimant and Betty Hui dated March 11, 2008.

It is a two page document. The first page is a form with many spaces and lines for information to be recorded about the parties, information for billing, and information for servicing under the agreement as to the size of the waste container and the frequency of pick- up. In a

section of this page headed SPECIAL INSTRUCTIONS, it is stated in the 3 rd line: “2 year terms, First month free.” At the very bottom of this page, below where it is dated and signed by the parties on March 11, 2008, it is stated: “Service Commencement: April 11, 2008.” (In the Claimant’s Trial Statement it is stated that “The Agreement further contemplated that the service would commence on June 1, 2012.”) [ 4 ] The second page of this agreement document is headed GENERAL CONDITIONS (see Appendix “A” to these Reasons for Judgment), and sets out in densely packed small font type a number of provisions two of which are particularly relevant in this case.

The first is the TERM of the agreement. It states in part: TERM.

This agreement is for a term commencing on the date hereof and continuing until sixty months after the date service begins (the “Renewal Date”) and will be renewed for successive sixty month terms without further action by the parties unless terminated by Northwest upon 30 days notice to the Customer or by the Customer (after satisfying its obligation under the right to re-negotiate clause) providing to Northwest written notice by registered mail not more than 120 days and not less than 90 days prior to any Renewal date). [ 5 ] The Right to Re-Negotiate clause in the General Conditions is not material in the present claim.

It may be described as providing Northwest with a right of first refusal for the continuation of waste disposal services at the end of the contract term in language that is difficult to understand or for the customer to comply with. [ 6 ] I turn to the second most relevant provision under which the claim for damages against the Defendant Hui is advanced for an alleged breach of contract, i.e., purporting to cancel the agreement without complying with the strict notice and other requirements in the TERM provision, as above. I have set out below the title of this provision and the relevant part: FAILURE TO PERFORM.

If Customer purports to terminate this Agreement prior to the expiration of its term…Northwest will have the option to…(

b) accept the purported termination by Customer and terminate this Agreement in which instance Customer agrees to pay Northwest as liquidated damages, an amount equal to the greater of (1) sum of Customer’s monthly billing for the most recent twelve months, or, if Customer has not been serviced for twelve months, Customers average monthly billings for the months serviced, or if none, the billing projected by Northwest for the first month, in each case multiplied by twelve, or (2) the sum of amounts due to Northwest for the balance of the term remaining on this Agreement.

Customer acknowledges that the foregoing liquidated damages are reasonable in light of the anticipated loss to Northwest caused by the termination and are not imposed as a penalty….. [ 7 ] I note here that the claim for damages against the Defendant Betty Hui is advanced under alternative (2) in the above provision, i.e., for 24 months being the full 2 year term of the agreement times the monthly service fee of $65.

This was confirmed by counsel for the Claimant at the hearing. [ 8 ] However, it emerged at the hearing that service under the written agreement stipulated to commence on April 11, 2008 never commenced and that it had been agreed between the parties that service would commence at the much later date of June 1, 2012. Thus,

this later date for the commencement of service was the result of an oral agreement between the parties. [ 9 ] Evidence of this agreed amendment to the terms of the written agreement is found in the trial statement of the Claimant which sets out the following facts, confirmed by counsel for the Claimant at the hearing to be accurate: 2. The Agreement contemplated two (2) terms and automatically renewed for subsequent two (2) year terms unless cancelled by either party in the matter (sic) set out in the Agreement. The Agreement further contemplated that service would commence on June 1, 2012. (Italics Added) 3.

On or about January 30, 2012 the Claimant sent a letter to the Defendant informing it that the services to be provided pursuant to the Agreement would be commencing on June 1, 2012. 4. On or about January 31, 2012 the Claimant was contacted by the Defendant and informed that they wished to cancel the Agreement. [ 10 ] Accepting these stated facts as I must, it appears that the agreement between the parties comprises the two page written agreement reviewed above and an oral agreement that changed the date for commencement of the service to be provided by Northwest Waste under the agreement to June 1, 2012.

Perhaps this agreed change of the agreement came about because the Defendant’s business was already being serviced by a waste disposal company under a contract that did not terminate until June 1, 2012. However, this is not a matter that is necessary for me to determine. [ 11 ] What is clear is that the final agreement between the Claimant and the Defendant Betty Hui contemplated that service would commence on June 1, 2012 , borrowing from paragraph 2 of the Claimant’s statement of facts.

Non-Performance of Service under the Agreement [ 12 ] It is clear as well from the evidence adduced by the Claimant and as stated by counsel that no waste disposal service was ever provided by Northwest Waste to the Defendant Betty Hui. [ 13 ] Thus, the Defendant’s letter of January 31, 2012, sent immediately after receipt of the Claimant’s letter of January 30, 2012 informing the Defendant that service would commence on June 1, 2012, was a notice of cancellation of the agreement well in advance of the agreed date for the commencement of service.

The Claimant therefore had four full months notice that the Defendant did not want the Claimant’s waste disposal service.

Thus, when June 1, 2012 arrived the Claimant accepted the Defendants notice of cancellation and did not place a waste bin on the property of the Sushi Hut Restaurant to begin a waste disposal service. [ 14 ] Parenthetically, it can be noted that in the Reply of the Defendant Housewise Construction Ltd. it is stated that “Betty Hui dba Sushi Japanese Restaurant has shut down.” [ 15 ] Notwithstanding the fact that no service was commenced under the agreement the Claimant has treated the Defendant’s notice of cancellation in the letter of January 31, 2012 as a breach of the written agreement on the ground that it does not comply with the requirements for a customer’s termination of the agreement as specified in the agreement’s TERM clause. [ 16 ] The Claimant then relies upon the FAILURE TO PERFORM clause for its claim for damages, as noted above.

Analysis [ 17 ] The Claimant’s claim therefore depends upon a determination that the FAILURE TO PERFORM provision of the written agreement applies to the agreement made between the parties including the oral agreement fixing June 1, 2012 as the date for commencement of service under the agreement.

This provision in the General Conditions begins with the language: “If the Customer purports to terminate this Agreement prior to the expiration of its term.” [ 18 ] In the same General Conditions the “TERM” is defined as: “This agreement is for a term commencing on the date hereof and continuing until sixty months after the date service begins” (See paragraph 4 above) [ 19 ] In my view, the meaning of the word “term” in the FAILURE TO PERFORM provision must bear the same meaning as defined in the “TERM” provision itself, i.e., a term that commences on the date of the agreement and continues until sixty months after the date service begins . (Italics added) [ 20 ] But, this identifies at least two problems with the Claimant’s claim for damages.

First, the Claimant seeks to apply the damages entitlement in the Failure to Perform provision to an agreement that is for only two years or 24 months. Second, it appears that service by Northwest under the agreement must actually begin -“until sixty months after the date service begins”- in order for there to be an identifiable term to the agreement.

In this case, it is a fact that service never began. [ 21 ] Taking up the first problem, nowhere on either of the two pages of the written agreement is there any indication of the intention by the parties to have the printed general conditions on the second page apply to an agreement of two years or 24 months. Nor was I

referred to any oral evidence during the making of the agreement that would indicate the parties put their minds to this question. Had the representative of the Claimant written up the first page to state that the general conditions including the term applied to a two year agreement or amended the term provision to 24 months from sixty months the matter would have been expressly addressed? [ 22 ] Counsel for the Claimant argued that such an amendment to the agreement should be implied.

However, having regard to the dense, small print of the general conditions and the serious consequences that flow from amending the term to apply to a 24 month agreement, i.e., exposure to liability for large liquidated damages in the FAILURE TO PERFORM provision, I am not prepared to accept that such an amendment should be implied. [ 23 ] Turning to the second problem, i.e., that no waste service was commenced under the agreement, this fact appears to be fatal to any attempt to apply the FAILURE TO PERFORM clause in the general conditions to this agreement.

Even if the term in the general conditions is amended to 24 months from the printed sixty months, under the defined language of the TERM, there is no identifiable term until service begins.

To illustrate the point I set out below the opening language of the TERM clause, accepting for the moment the argument as to an implied amendment by substituting 24 months for sixty months: This agreement is for a term commencing on the date hereof and continuing until 24 months after the date service begins (the “Renewal Date”). (Italics added) [ 24 ] This language requires a date that service begins for the running of the 24 months to fix the end date of the term, which is the Renewal Date.

The determination of such end date or Renewal Date, as it is called in the general conditions, is essential to the operation of the rest of the TERM provision in order for the customer to be able to provide the required contractual notice to terminate the agreement.

Without it, the customer has no contractual opportunity to terminate the agreement at all. [ 25 ] Thus the FAILURE TO PERFORM provision providing Northwest with damages for the customer’s breach of the agreement is keyed to the customer’s failure to terminate the agreement according to the requirement in the TERM clause of giving notice of termination at stipulated dates in advance of the Renewal Date.

Thus, if there is no Renewal Date (and I have found as a fact that there was not because service did not begin), then the agreement provisions for giving notice to terminate the agreement do not apply. [ 26 ] In turn, the FAILURE TO PERFORM provision as to the right of Northwest to claim damages for breach of such inapplicable contract requirements also does not apply. In short, no damages can be claimed under a provision that does not apply to the contract the parties made because a condition precedent to the operation of the provision, the commencement of service, did not occur.

Liquidated damages or a penalty [ 27 ] In the course of argument at the hearing a question arose as to whether the damages stipulated in the Failure to Perform clause was a penalty and not genuine liquidated damages, as concept well established in the law of equity, despite the language in the clause that says: “Customer acknowledges that the foregoing liquidated damages are reasonable in light of the anticipated loss to Northwest caused by the termination and are not imposed as a penalty.” [ 28 ] No doubt this provision is intended to forestall a claim for relief under

section 24 of the Law And Equity Act R.S.B.C. 1996, c. 253 which provides that “the court may relieve against all penalties and forfeitures…” This statutory provision identifies the merger of the common law courts with the courts of equity many years ago.

Ever since, as reflected by this Province’s Law and Equity Act , equitable principles are to be applied equally with principles developed at common law. [ 29 ] With respect to the matter at hand, the law is well stated in Fridman, The Law of Contract , 5 th Edition at 770: (ii) Liquidated damages As long ago as 1829, Tindal C.J. said that the courts saw “nothing illegal or unreasonable in the parties, by their mutual agreement, settling the amount of damages, uncertain in their nature, at any sum upon which they may agree.” Such an agreement must be differentiated from one which settles upon an amount of money (which might even cover the damages suffered by the injured party but is not based thereon) and is intended to ensure the performance of the contract.

In other words, it is not meant to be a genuine pre-estimate of loss suffered, but is a threat, something held over the other party in terrorem. It is a question of construction whether the clause in question creates a penalty or fixes liquidated damages. It is the language of the contract as a whole, as Estey J. explained in one case, that must determine the intent and purpose of the parties, and while the particular words used are important, the mere use of the words “liquidated damages” or “penalty” is not conclusive.

It is a question of law, in every case, whether the conventional sum is a penalty or liquidated damages, and it is decided on a consideration of the whole agreement. (Italics added) In Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co. , Lord Dunedin laid down some general rules for the guidance of the courts. These were culled from earlier decisions, and have been accepted by courts in Canada, which, indeed operated on those principles before 1915 and still do so.

(1) The sum in question will be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could possibly follow from the breach... [ 30 ] I note the comment in Fridman that the mere use of “liquidated damages” or “penalty” in an agreement is not conclusive. It is a

question of law in every case and is decided on a consideration of the agreement as a whole. [ 31 ] Before examining the FAILURE TO PERFORM clause in this context, it is necessary to refer to the two startlingly different rights of termination of the agreement in the TERM clause.

Northwest may terminate the agreement at any time upon giving 30 days written notice to the customer. [ 32 ] The customer however, Betty Hui in this case, can only terminate the agreement by following the exacting requirements of, first complying with the right to re-negotiate provision, and then by giving notice by registered mail not more than 120 days and not less than 90 days prior to the Renewal date (bolding for emphasis), which is the last day of the term. [ 33 ] Ignoring the registered mail requirement, the customer must therefore wait through the contract term, even if their business failed, for an exact 30 day window to be exercised, not before 120 days before the Renewal date, and not later than 90 days before such date.

One day before 120 days is too soon and one day later than 90 days is too late; both such notices will fail compliance with this exacting requirement. [ 34 ] To set out these requirements is enough to identify how unreasonable and draconian they are. If it is satisfactory for Northwest to terminate on 30 days notice – presumably a reasonable time for each party to be able to make other arrangements - it is difficult to see why 30 days notice is also not appropriate for the customer’s notice of termination.

Even assuming there is a valid reason for the customer being required to give a longer notice (such reason is not readily apparent on the evidence in this case), it is not too strong to say that these requirements for the customer to give contractual notice to terminate the agreement appear designed to ensure that the customer will fail to give the correct notice thus facilitating a large damages claim under the Failure to Perform clause. [ 35 ] In this case, despite having four full months actual notice from the Defendant Betty Hui of the cancellation of the agreement, Northwest has nevertheless sought to apply the most onerous damages provision in the FAILURE TO PERFORM clause.

Under option

(1) Northwest may claim the sum of the customer’s monthly billing for the most recent 12 months, or if none, the billing projected by Northwest for the first month multiplied by 12, or under option (2) the sum of the amounts due to Northwest for the balance of the term remaining in this Agreement. [ 36 ] In my view, none of these options can be described as a fair or reasonable estimate of Northwest’s “anticipated loss” when it is sufficient for Northwest to walk away from the agreement on 30 days notice.

But, even more to the point, reserving to themselves the discretion to claim damages for 12 months if they are so inclined in option (1), or for 24 months or longer (if the term is longer) in option (2), underscores the real nature of this damages provision. Borrowing from Professor Fridman, as above, it, “is not a genuine pre-estimate of loss suffered, but is a threat, something held over the other party in terrorem .” [ 37 ] I should in the context of this discussion note that the Defendant Betty Hui did not appear at the hearing.

In this regard counsel for the Claimant referred me to the decision of Judge Hicks in Super Save Disposal v. Rat Rod Kustoms Ltd. et al, Surrey Registry March 30, 2010 wherein the defendant did not appear. In paragraph 8 of that decision, having in mind sec. 24 of The Law and Equity Act , it is stated that “the obligation rests on the defendant to demonstrate that a provision is a penalty.” [ 38 ] In the Super Save Disposal case it appears that service did commence under the terms of the agreement in that case and the defendants failed to pay service invoices.

I therefore distinguish the Super Save Disposal from this case on the facts. However, if the passage quoted above is intended to suggest that equitable principles are only to be applied if a party appears and asks for their application, I disagree.

No doubt in some cases given the nature of the other evidence and the matter in issue evidence from the party may be of assistance and perhaps even required before the equitable principle in question can be applied. [ 39 ] But there may well be cases, and in my view this is one, where the contract provision in question is so unconscionable and inequitable that principles of equity apply even when not sought by a party to the suit.

In this case, it is stated in the order of this court denying the Claimant’s application for a default judgment, “(A)t the hearing, the judge will determine the amount the claimant is entitled to (if any) and other terms of an appropriate order.” In determining that entitlement and appropriate order, the court is required to apply all applicable principles of law, be they from the common law or from the law of equity. [ 40 ] In conclusion, in this case it is my view that the claim for damages in the FAILURE TO PERFORM clause of the general conditions of the agreement is not a genuine pre-estimate of the loss but is a penalty and is truly designed to hold the customer in terrorem .

Applying

section 24 of the Law And Equity Act , supra , I hold that the damages claim, relying as it does on the subject contract provision, is a penalty and is unenforceable. The counterclaim [ 41 ] The second defendant, Housewise Construction Ltd. dba Segal Disposal, bought a counterclaim that denied the allegations of wrongful interference in contractual relations and inducing breach of contract and stated that the defendant Betty Hui dba Sushi Hut Japanese Restaurant has shut down. Following these pleadings this second defendant completed the counterclaim

section of the reply stating: “The Claimant is suing the wrong party which cause us time & effect [sic] to deal with the Reply” and seeks costs of $500. [ 42 ] This Defendant has not filed and served a trial statement supporting this claim Because of this failure of process I did not allow any documentary evidence of cost expenditures to be filed at the hearing. Moreover, the time to address and respond to a claim is not compensable in this court.

Judgment [ 43 ] For all of the reasons expressed in my analysis with respect to the claim against the first Defendant, Betty Hui dba Sushi Hut Japanese Restaurant, including my review of the penalty nature of the Claimant’s claim for damages, I have concluded that the claim is

unenforceable and must therefore be dismissed. [ 44 ] With respect to the counterclaim of the second Defendant, Housewise Construction Ltd. dba Segal Disposal, for the reasons expressed in paragraph 42 herein, it too is dismissed. ______________________________ Darrell W. Roberts, Q.C. Adjudicator