Housewise Construction Ltd. v. Golden Sichuan Date:, 2012 BCPC 43

Citation: Housewise Construction Ltd. v. Golden Sichuan Date: 20120209 2012 BCPC 0043 File No: 24169 Registry: Richmond IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: HOUSEWISE CONSTRUCTION LTD. dba SEGAL DISPOSAL CLAIMANT AND: GOLDEN SICHUAN ENTERPRISE LTD. DEFENDANT REASONS FOR JUDGMENT OF HIS WORSHIP L.A. KAHN Appearing for the Claimant: Samuel Au Appearing for the Defendant: Min Guo Place of Hearing: Richmond, B.C.

Date of Hearing: January 20, 2012 Date of Judgment: February 9, 2012 Introduction [ 1 ] This matter came before me on January 20, 2012 pursuant to the Simplified Trial Rules under the Small Claims Act . [ 2 ] Mr. Samuel Au (“Mr. Au”) gave evidence on behalf of the Claimant, Housewise Construction Ltd., doing business as Segal Disposal (“Segal”). [ 3 ] Ms. Min Guo (“Ms. Guo”) gave evidence on behalf of the Defendant, Golden Sichuan Enterprise Ltd. (“Golden”). As English was not her first language, Ms. Beth Yau (“Ms. Yau”), certified translator, translated between Mandarin to English and English to Mandarin.

I was impressed with the manner in which Ms. Yau assisted the Court, which was greatly appreciated. [ 4 ] Mr. Au and Ms. Guo were affirmed to tell the truth. Each identified their Trial Statements and advised the Court that the facts set out therein were true and accurate to the best of their knowledge. Accordingly, the Trial Statements formed part of the record in this manner. [ 5 ] The issue in this case is credibility. For the reasons below, wherever the evidence differs between Mr. Au and Ms. Guo, I prefer the evidence of Mr. Au. [ 6 ] Although they are not exclusive list of reasons, Mr.

Au gave his evidence in a forthright manner. He answered the questions at cross-examination directly. His memory and recall were clear, and the exhibits in the Trial Statement filed by the Claimant supported the facts that Mr. Au asserted were correct. [ 7 ] Ms. Guo’s answers were difficult to follow and, for the most part, her evidence did not address the timing of the events that

occurred as described by Mr. Au. Background [8] The facts alleged in the Claimant’s Trial Statement are as follows: 1. Golden Sichuan Enterprise Ltd. (Golden) signed a three-year term service agreement with Housewise Construction Ltd. DBASegal Disposal (Segal) in May, 2010 for waste collection and cardboard recycling from their business location at 3631 No. 3 Road,Richmond, BC. 2. Segal delivered two bins and started providing services in the same month. 3. In June 2010, Golden told Segal that they discovered their existing contract would not be expired until September 2011.

Goldenthen requested Segal to take back the bins temporary (sic) and promised Segal could resume the services upon the expiry of their currenthauler’s contract. Therefore, Segal agreed and took back the bins. 4. In June 2011, Golden informed Segal that they had already renewed the contract with their existing service provider and did notrequire services from Segal anymore. 5. Segal replied by requesting Golden to provide their current service provider’s contract copy for review. Otherwise, Segal wouldexercise the rights to commence services as per the service agreement. 6. However, Golden did not reply to Segal.

Therefore, Segal scheduled to commence the service as agreed. 7. In September 2011, Segal delivered two containers to Golden. Golden refused to accept the containers. Meanwhile, Golden didnot want to discuss this issue anymore and never makes a payment. For this reason, Segal has to put this to the court because Golden hadbreached the legal binding service agreement signed with Segal. [9] Ms. Guo denied that these events occurred and said that the agreement which was purportedly signed by Su Chen, if in fact itwas signed by him, was without the authority of the management of the Defendant.

At the time of the contract, Ms. Guo was a managerand not a shareholder of the Defendant. Ms. Guo said that she was at the restaurant everyday, and could not recall being approached byMr. Au and that no such person as Su Chen worked at the restaurant. No one in management at the time of the contract testified. It isnot sufficient for Ms.

Guo to assert that because she became the owner of the Defendant after the contract was made between the parties,and had no knowledge of the disputed contract, that these circumstances could be a defence. [10] An important difference in the evidence of the parties was with respect to delivery of the bins. As contrasted to what was statedby Mr. Au in paragraph [8] above. Ms. Guo suggested that:

a) Mr. Au was untruthful.

b) The bins were never delivered.

c) Although they were delivered to the area where the disposal bins were located, Ms. Guo said it was unlocked, and that Mr. Au, onbehalf of Segal, fraudulently prepared the contract, and specifically delivered the bins to make this claim. [11] I reject the evidence of Ms. Guo. [12] I accept Mr. Au’s evidence in preference to that of Ms. Guo’s. Therefore, I find that the facts as alleged in the Claimant’s TrialStatement were, in fact, what occurred. [13] Accordingly, I find that the Defendant breached the contract with Segal.

However, that outcome does not necessarily mean thatthe Claimant may recover the damages as alleged. [14] In a recent decision of this Court at Super Save Disposal Inc. v. Northwest Waste Solutions Inc. and Craftsman Millwork &Design Ltd. (PCBC File no. 23846, Richmond Registry), I summarized the law with respect to liquidated damages and penalties asfollows: [37] Additionally, I reviewed the decision of my colleague, His Worship Roberts, in BFI Canada Inc. v. Persia Food Products Inc., 2010 BCPC 308 .

At paragraph 9, His Worship Roberts referred to Fridman, The Law of Contract, 5th Edition at p. 770 asfollows: (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 bedifferentiated from one which settles upon an amount of money (which might even cover the damages suffered by the injured party but isnot based thereon) and is intended to ensure the performance of the contract.

In other words, it is not meant to be a genuine pre-estimateof loss suffered, but is a threat, something held over the other party in terrorem. It is a question of construction whether the clause inquestion 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 ofliquidated damages, and it is decided on a consideration of the whole agreement.

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… [38] Continuing at paragraphs 10 and 11, His Worship Roberts said: [10] Relying on the

summary of the law on this subject in Fridman’s Law of Contract, it is my view the language in paragraph 7 of the agreement providing for liquidated damages is not meant to be a genuine pre-estimate of loss suffered, but is indeed, borrowing from Fridman, “a threat, something held over the other party in terrorem” . The three months notice, i.e. 90 days before the end of the specified current term, identifies the greatest loss that could possibly follow from a breach. In other words, the Claimant operating a waste disposal business needs no more than three months notice in order to try and replace the customer.

A claim for damages based upon the multiple of the number of months remaining in a 4 or 5 year contract where the right to terminate is confined to the end of such lengthy term is, again to borrow from Fridman, “extravagant and unconscionable in amount in comparison with the greatest loss that could possibly follow from the breach.” [11] Therefore, it is my conclusion that the claim of the Claimant based as it is on the liquidated damages provision of paragraph 7 of the customer service agreement is unconscionable, is in fact a penalty, and as such is against the public policy of the law of contract and should not be allowed. [39] Also, I have reviewed the decision of the Honourable Mr.

Justice Fitch in Super Save Disposal Inc. v. Blazin Auto Ltd. and Daily Sun Investment Co. Ltd. 2011 BCSC 1784 (“Blazin”) . A

summary of the law concerning liquidated damages and a penalty is summarized by Mr. Justice Fitch in paragraphs 26 to 39, as follows: [26] The enforceability of a liquidated damages provision in an agreement engages two competing objectives: freedom of contract versus the right of the courts to intervene in a given case to relieve against an oppressive or unconscionable result flowing from enforcement of the liquidated damages term.

It is well settled that the enforceability of such a term turns on whether it is a genuine pre-estimate of the expected loss that a party will sustain in the event of a breach of contract or a penalty clause so oppressive or unreasonable that equitable intervention is justified to prevent an injustice. [27] On the authorities drawn to my attention in these appeals, the following non-exhaustive list of guiding principles can be identified. [28] The characterization of the provision in issue is either a genuine pre-estimate of expected loss or a penalty requires a case-specific assessment: 32262 B.C. v.

See-Rite Optical , 1998 ABCA 89 , at para. 15 . [29] The issue is to be decided upon the terms of the contract and “inherent circumstances” of each particular contract, Dunlop Pneumatic Tire Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] A.C. 79 , per Lord Dunedin at pages 86 and 87. [30] Though the parties may use the words “liquidated damages” or “penalty” in the agreement itself, the parties’ characterization of the clause in the contract as one or the other is not conclusive: Dunlop Pneumatic Tire Co. Ltd. v. New Garage and Motor Co. Ltd., supra .

Similarly, the absence of such characterizing phrases is neither fatal to the plaintiff’s claim for liquidated damages or to the defendant’s challenge that the clause at issue amounts to a penalty: Bayliss Sign Ltd. v. Advantage Holdings Ltd. (1986), 9 B.C.L.R. (2d) 230 (Co.Ct.) , at p. 241 .

In each case, the court must make an assessment as to whether the clause is in truth a genuine pre-estimate of anticipated loss in the event of a breach, or an in terrorem clause inserted to compel performance of a contractual obligation. [31] Judicial interference with a liquidated damages provision will be justified if enforcement of the term results in payment of a sum which is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach: 32262 B.C. v.

See-Rite Optical , supra , at para. 13 . [32] Conversely, a liquidated damages provision is more likely to be enforced where the claim approximates the amount to which the claimant would otherwise have been entitled according to principles of general contract law: 32262 B.C. v. See-Rite Optical , supra , at para. 16 to 18 . [33] The onus of establishing that a stipulated sum is a penalty rather than a genuine pre-estimate of damages that the parties have agreed in advance will be sustained in the event of a breach of the contract, rests on the party against whom the stipulated sum is claimed.

In Sign-O-Lite Plastics Ltd. v. Medallion Management Inc. , [1979] 16 B.C.L.R. 284 (Co.Ct.) , the law in this area was summarized in these terms at p. 288: The fact that a sum may be a penalty is a matter which may be raised by the defendant by invoking the equitable jurisdiction of the court in the same manner as other vitiating elements such as duress and undue influence. This, of course, is done by entering an appearance and filing a statement of defence. See also on this point Super Save Disposal Inc. v. Rat Rod Kustoms Ltd. , (30 March 2010), Surrey C64279 (B.C. Prov.

Ct.) at paras. 5 and 8; and Super Save Disposal Inc. v. Makhija Holdings Inc., 2011 BCPC 249 , at para. 21 ; and finally, Bayliss Sign Ltd. v. Advantage Holdings Ltd. , supra at paras. 236 and 240. [34] If the provision is found to constitute 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: Bayliss Sign Ltd. v.

Advantage Holdings Ltd., supra at page 240. [35] The essence of Super Save’s argument on appeal is that, independent of a liquidated damages claim, the damages payable in a

contract action would be the stream of income lost over the balance of the term of the agreement. In these circumstances, it is argued that the claim for liquidated damages pursuant to the contract in the same amount cannot be construed as anything other than a genuine pre-estimate of damages.

As the appellant’s counsel put it: If the appellant under ordinary contract law would have been entitled to the loss of the stream of income as a result of the breach of contract, then claiming the same amount as liquidated damages should not be construed as anything other than a genuine pre-estimate of damages…As such, there would be nothing oppressive, extravagant or unreasonable in setting liquidated damages in an amount that the appellant would have been entitled to claim under ordinary contract law. ….. [37] A case-specific inquiry that takes into account the “inherent circumstances” of each contract in a case of this kind obliges the court to take cognizance of a variety of factors.

For example, the relationship between the parties may be relevant. In this case, the agreements were entered into by commercial entities who might be presumed to have relatively equal sophistication and bargaining power. [38] The type of contract may be relevant. Many of the cases cited in argument deal with signage contracts, which may well raise different considerations than those that exist in the case at bar. A custom-made sign may be unsalable upon breach of the contract. A waste disposal bin is, on the other hand, generic and may be provided to the next customer.

See, on this point, Super Save Disposal Inc. v. Rat Rod Kustoms Ltd., supra at para. 8; and Super Save Disposal Inc. v.

Makhija Holdings Inc. , supra , at paragraph 14 . [39] The length of the contract, the length of the term remaining on the contract when the breach occurs, whether the breach occurred during a renewal period automatically engaged by the customer’s failure to give the required notice of termination, any notice period provided for in the contract for termination, and the precise terms of the liquidated damages clause are among the factors that a court may determine to take into account in deciding in a particular case whether the clause is a genuine pre-estimate of damages or a penalty. [ 15 ] Golden discovered that their existing service contract did not expire until September 2011.

Therefore, although Segal had delivered the bins, they took back the bins with the intention of returning them to the Defendant in September 2011 to coincide with the expiry of the Defendant’s contract with their existing service provider. [ 16 ] It makes little sense that Segal would deliver bins, pick up those bins, and then deliver them at a later date, if the sequence of events that are described in paragraph [8] above had not occurred. [ 17 ] Nonetheless, I am unable to accept that Mr. Au’s submissions on behalf of the Claimant are correct with respect to damages.

If, for example, the Claimant had not returned the bins to the Defendant’s premises, it is doubtful they would have suffered any damages. Mr. Au explained that the Claimant had over $3,000,000 invested, and some 500 bins in place. In my opinion, any damages suffered by the Claimant were minimal as it related to the period commencing September 2011. [ 18 ] Accordingly, I find that paragraph 11 of the contract between the parties operates as a penalty. In this regard, I adopt the reasoning of Mr. Justice Fitch in paragraph 31 of Super Save Disposal Inc. v. Blazin Auto Ltd. and Daily Sun Investment Co.

Ltd. 2011 BCSC 1784 , which I have set out in paragraph [14] above. [ 19 ] The Claimant is entitled to damages as follows: May 2010 service $195.30 June 2010 service $397.32 Bin removal charge $168.00 Total: $760.62 [ 20 ] No additional damages are recoverable, as any overhead costs were more than amply recovered from the initial charges for May and June 2010. Furthermore, Mr. Au did not explain how those damages could be determined.

Summary [ 21 ] There will be judgment in favour of Segal against Golden as follows: Damages $760.62 Filing Fee $156.00 Service Fee $ 20.00 Total: $936.62 [ 22 ] Segal is entitled to pre-judgment interest from September 1, 2011 to the date of this Judgment and post-judgment interest following the date of this judgment, which sums will be calculated by the Court Registry. _____________________

Lawrence A. Kahn