KMJ AGENCY INC. CLAIMANT v. PREFERRED OFFICE ENVIRONMENTS INC., 2017 NSSM 89

IN THE SMALL CLAIMS COURT OF NOVA SCOTIA Citation: KMJ Agency Inc. v. Preferred Office Environments Inc ., 2017 NSSM 89 SCC SN No. 463459 BETWEEN: KMJ AGENCY INC. CLAIMANT and PREFERRED OFFICE ENVIRONMENTS INC. DEFENDANT Editorial Note: The electronic version of this judgment has been edited for grammar, punctuation and like errors, and addresses and phone numbers have been removed. REASONS FOR DECISION BEFORE : A.

Robert Sampson, Q.C., Adjudicator DATE OF HEARING : Hearing held at Sydney, Nova Scotia on July 12, 2017 DECISION RENDERED : August 9, 2017 APPEARANCES: For the Claimant : Neil Funnell For the Defendant : Donald LeBlanc BY THE COURT: 1 . This matter was initiated by way of Notice of Claim dated the 8 th day of May 2017 and filed with the court on May 15, 2017. The representative for the Claimant is Neil Funnell, identified as Authorized Manufacturers Agent for KMJ Agency Inc.

I note in Exhibit A, Tab 1, there is a letter from the owner of the Claimant, KMJ Agency Inc., John Mounsteven, dated September 28, 2016 confirming Mr. Funnell’s authorization to act on their behalf. Mr. Funnell is himself a principal owner of a business known as Workstyles Manufacturers Agency and principally operates from Halifax, Nova Scotia. 2 . An Affidavit of Service sworn by Brad Mugridge confirmed that the Defendant, and specifically John Ferguson on their behalf, was served with the Notice of Claim on the 15 th day of May 2017. 3 . A Defence/Counterclaim was filed with the court on June 6, 2017.

It is worthy to note that there was no corresponding invoice for the cost of the original service of the Notice of Claim nor an invoice and/or Affidavit of Service confirming that the Defence/Counterclaim had been properly served on the Claimant. However, there is no objection from the Claimant to having been

provided notice of the counterclaim and therefore the matter proceeded. 4 . There was a significant number of documents tendered in connection with this claim. The representatives for both the Claimant and the Defendant were sworn in at the outset as there were no other witnesses and therefore the submissions of each party, together with the documents tendered, represented the basis for their position. 5 . The Claimant tendered a binder marked “Exhibit A” which contained 13 tabs of information relevant to the claim. 6 .

The Defendant, in filing their Defence/Counterclaim tendered more than 100 pieces of paper, organized principally in smaller packages sorted into correspondence and documents for the relevant years, namely 2013, 2014, 2015, 2016 and 2017. In addition, there were some miscellaneous handwritten notes, emails, etc., provided relating to matters which arose subsequent to the filing of the Claim, Defence and Counterclaim. 7 . Mr. Funnell described his position as principal of an agency firm known as Workstyles Manufacturers Agency.

He confirmed he had been in business for a number of years and was familiar with and had done business with the Defendant on previous occasions. He further confirmed that this matter arises out of a contract dating back to October 2013 when he facilitated the entering of a contract between the Defendant and the Claimant for the supply and installation of a variety of furnishings. The end user and the intended use of the furnishings appears to have been known to all as the Sydney Airport Authority.

The Defendant would have been the direct contracting agent with the Sydney Airport Authority for the supply and installation of the furnishings purchased. The value of the contract was $74,364.67. 8 . The position of the Claimant was straightforward: that the original contract was fulfilled, that the subsequent warranty issues had been appropriately dealt (pursuant to Sydney Airport Authority’s warranty claim) and that the balance outstanding should be paid in full together with any resulting out-of-pocket costs. 9 .

As noted previously, there was a significant volume of information presented by both parties, much of which surrounded issues relating to the warranty claim which appeared to have surfaced in late 2014, approximately one year after the furnishings, particularly in the airport lounge area, were put into use. Although my review of the information shows there may have been some pull and tug between the Claimant and the Defendant insofar as having the manufacturer address the warranty claim issues in a timely manner, clearly at the end of the day the manufacturer did honor the claim.

In fact, the verbal evidence provided indicates that the manufacturer, likely because of the passage of time, provided replacement parts over and above the original chair arms that were the source of the claim. 10 . At the outset of the presentation of the Defendant’s Defence/Counterclaim, it was noted that there appeared to be an addition error in the original Statement of Claim.

This was brought to the attention of both the court and the Claimant and it appeared, based on the facts set out in the Notice of Claim itself, that the amount outstanding ought to have read $15,986.23 as opposed to the amount stated/claimed of $21,509.36. This would be exclusive of any award of costs, prejudgment interest, etc. 11 . The Claimant was asked to review the particulars of the claim and clarify this and, upon taking the required time in court to review the calculations, the Claimant confirmed that the principal amount owing was in fact $15,986.23.

By agreement, the court accepted this revised amount of the claim as an amended claim. 12 . The Defendant, in presenting his Defence and Counterclaim, was noticeably upset with having been brought to court over this matter and particularly the manner in which the Claimant had chosen to deal with the resolution of the warranty claim with the Airport Authority. 13 . It appears from the volume of information filed with the Defence which was re-confirmed at the time of hearing, significant efforts had been advanced over a lengthy period (2014-2017) to have this warranty claim dealt with.

Consequently, as evidenced by correspondence directly between the Defendant and the Claimant (Mr. John Mounsteven), it was made known that the Sydney Airport Authority was holding back a percentage of the payment to the Defendant on this contract until the warranty claim was dealt with. Consequently, this inhibited the Defendant from both rendering an additional invoice for other furnishings supplied to the Airport Authority (office furnishings) and further affected their cash flow and in turn their ability to pay the Claimant’s invoices which, by evidence, were rendered in June 2014 and October 2014.

The information shows that the original invoice in the amount of $49,707.00 (dated August 31, 2012) was paid upon placement of the order. There appears to have been other miscellaneous invoices rendered

throughout the project but nothing significant turns on that relative to the claim. For the purposes of the Claimant, the matter at issue is the payment of the balance owing in the amount of $15,986.23. 14 . As noted, clearly the Defendant, in particular Mr. LeBlanc, was very upset over this matter.

Consequently, while the following may not be directly relevant to the adjudication of the Claimant’s claim for the balance owing, based on my review of the exchange of correspondence, principally by email, and the length of time in which the balance of these invoices remained outstanding, I will review the evidence in some detail below. 15 . By letter exhibited and dated May 30, 2014, Mr.

LeBlanc received a letter from the CEO (Helen MacInnis) of the Sydney Airport Authority which set forth the invoices they had originally paid dating back to 2012 and the fact that the furnishings provided were clearly beginning to show premature wear. 16 . The nature of this contractual arrangement can best be described as typical. A local company seeks to secure the purchase of goods from local suppliers who are in that type of business, as in this case the Defendant.

The Defendant in turn are not manufacturers but normally rely on agents to assist them in identifying and sourcing the required goods so that they can complete a response to a tender. In this case, it seems to be again a typical situation where Mr. Funnell’s role on behalf of his company, noted to be an agency, is to assist in identifying manufacturers and those agencies that represent such manufacturers who could supply the goods needed. In this instance, a further agency relationship appears to have existed between Mr.

Funnell’s company and the Claimant which in turn indirectly represent a number of manufacturers. In this case, the goods identified to be supplied and in turn tendered were to be manufactured by “Kimball Delano” who was a long-standing reputable commercial furniture manufacturer/supplier. 17 . Therefore, the typical contract relationship exists between the Airport Authority and the Defendant and in turn the Defendant and the Claimant, who was represented by Neil Funnell. Everyone has a role to play and as a result everyone is entitled to a piece of the pie so to speak. 18 .

However, what typically frustrates commercial chains such as that described above, is when the end purchaser, in this case the Airport Authority, receives defective goods and this in turn triggers a holdback. Clearly, the fine print of these commercial relationships often defaults to the manufacturer’s warranty which is supported by the manufacturer only. Consequently, the end user is left to deal directly with the manufacturer when in fact their only relationship from the outset is with the local supplier, in this case the Defendant. 19 .

Therefore, again typically in order to bring pressure to bear on the situation and get matters remedied, it is not uncommon (whether lawful or not) for the original purchaser to simply hold back funds in an effort to prompt the involvement of the representative they directly contracted with, in this case the Defendant. 20 .

Depending on the timing of when these events arise and what, if any, accounts receivable may remain outstanding, the rippling effect extends up the economic chain, as in this case where it appears the Airport Authority held back from the Defendant and in turn the Defendant was therefore unable to pay the Claimant or may well have chosen not to pay the Claimant in an effort to keep the pressure on the Claimant who had the direct relationship with the original manufacturer.

I note, whether any of this is contractually lawful is not the issue before me but highlights the fact that this is a very normal “cause and effect” in situations such as the one presented before me. 21 . In Mr. LeBlanc’s letter dated April 20, 2016, which appears to be in response to correspondence he had initially received from Bianchi Paralegal Services dated April 6, 2016 demanding payment of the outstanding balance (which included an erroneous amount) and threatening court action, Mr. LeBlanc explained his position thoroughly to Mr. John Mounsteven, the owner of the Claimant. 22 .

As best I can determine from the various correspondence, as at April 2016 the warranty issue remained unresolved with the Sydney Airport Authority. In fact, handwritten notes tendered by Mr. LeBlanc confirmed that on January 18, 2016, he met with Helen MacInnis, then CEO of the Airport Authority as well as Guy LaFosse, their legal counsel, to review this situation and determine its status and how it was to be resolved. 23 . Under Tab 11 of Exhibit “A” of the Claimant’s documents there is an email from Donnie LeBlanc at 3:58 p.m. and a response from Neil Funnell at 8:41 pm that evening. Mr.

LeBlanc’s email was related to the Sydney Airport Authority’s warranty claim

and was an attempt to move matters along. Mr. Funnell’s response can best be described as “blowing Mr. Leblanc off”, principally because of the outstanding invoice remaining to the Claimant and the fact that he was not prepared to spend any more time dealing with the Defendant on this issue until the receivables were cleaned up. To that end, he directed Mr. LeBlanc to not attempt to contact him by phone but rather deal with him by email. I am mindful that Mr.

Funnell in his submissions indicated when this letter was brought to his attention that he suffered from a voice impediment and as such the purpose of this response was simply to ask if further communication could be in writing as opposed to verbal. However, I am not satisfied that is what the words in his response email to Mr. LeBlanc reflect. 24 . Sent several months later, after the paralegal agency contacted the Defendant and Mr. LeBlanc wrote directly to John Mounsteven, Mr. LeBlanc tendered an email dated May 5, 2016 from John Mounsteven to Mr.

LeBlanc in response to his April 20 th , 2016 correspondence referred to above. 25 . At the time of the hearing when this information was submitted, Mr. Funnell stated he had not previously seen this email and was not aware it had been sent. 26 . The email is self-explanatory and related principally to the outstanding warranty issue with the Sydney Airport Authority and the fact that no resolution had been reached. It appears that Mr. Mounsteven recognized this continued issue and he noted “I also want to work through this matter to get a final resolution”.

With that said, he proposed the balance of the outstanding monies should appropriately be dealt with. In the body of his email, he confirms that the balance should be paid within 60 days of shipment of the replacement arms and provides an alternative whereby the balance could be paid over a period of six months together with interest at a rate of 24% per annum. The six-month period was to commence on the date of the email (May 5, 2016); therefore, one can only assume that he was confident that the replacement parts, etc., were to be shipped straight away. Mr.

Mounsteven goes on to direct in his letter that in the absence of any written objection of the above-noted terms he has proposed, they are to be considered “legally binding on all parties”…and will be viewed as such in any future litigation should it be required. 27 . There was no evidence presented of any subsequent response from the Defendant to Mr. Mounsteven’s proposal and therefore, at least as at May 2016, the parties proceeded on the basis presented by Mr. Mounsteven. 28 .

The exhibits show subsequent correspondence from the Defendant, on June 10 th , 2016 and again in August 2016, which continue to relate to the warranty issues, the timing of resolving the problem and the amount of monies which remained outstanding. I note in June 2016 a further payment of $3,000.00 was forwarded to the Claimant. The Defendant confirmed by correspondence on several occasions that the balance would be paid once the warranty issue was resolved noting, in his June 2016 correspondence, that the Airport Authority was continuing to hold back on their end because of the warranty issues. 29 .

Following the summer of 2016, it appears that the Claimant and in particular Mr. Mounsteven began dealing directly with the Sydney Airport Authority. There are many emails through the fall and into the early spring of 2017 where he dealt directly with the CEO, Helen MacInnis, attempting to move the warranty claim situation along. 30 . The document evidence confirms that on Wednesday, March 8, 2017 Mr. LeBlanc met with Brett Parlee, the Facilities Manager with the Sydney Airport Authority.

It was then that it became known that a shipment of boxes of furniture had been sent to the Airport under the warranty claim and it became known that the replacement parts provided extended well beyond the replacement of the arms of the chairs. The evidence of Mr. LeBlanc was that he was not copied on nor did he receive any notice from the Claimant that the replacement parts under warranty had been shipped. COUNTERCLAIM 31 . The counterclaim of the Defendant as set forth in the documents filed with their Defence amounts to $5,601.00 plus $840.15 (HST) for a total of $6,441.15.

Their documents and verbal evidence state that this is the amount they had quoted to Sydney Airport Authority in their work order to handle the required work to switch out the original furnishings with the replacements supplied under warranty. The basis for their counterclaim, they state, is that the Airport Authority, after initially indicating the Defendant would be awarded the work, decided to release a tender for this work. The Defendant alleges that this work was taken away from them because of the handling of this situation by the Claimant and the delay in processing the warranty claim. 32 .

The evidence confirmed that, given that the replacement parts which were delivered were much more extensive than originally anticipated, the Airport Authority had asked the Defendant to provide a quote for doing the changeover of these furnishings. It is not completely clear as to whether there was any “formal award” but clearly after the Airport Authority received the Defendant’s quote, under the direction of the CEO, Helen MacInnis, she requested that this work engagement be informally tendered to others. Under

Tab 8 of Exhibit “A” is a letter dated July 11, 2017 to John Mounsteven from Angela Zorzi-Gouthro, Manager of Finance & Administration with the Sydney Airport Authority, where Ms. Zorzi-Gouthro confirmed they had not engaged the Defendant to install the replacement furniture because they were not the lowest quote. She goes on to note that the Airport Authority is a non-profit organization and that it is their practice to obtain multiple quotes and award the job to the lowest bidder. The evidence of Mr.

LeBlanc was that the contract was awarded to a local competitor, Connors Office Supply, and therefore one can only presume that their bid for the work was lower. I find nothing unusual in this regard. 33 . Therefore, I find there are no grounds for advancing a counterclaim against the Claimant for what is essentially a loss of contract. There is absolutely no evidence to suggest that the contract was awarded to a third party for any reason other than that the Defendant’s quote was not the lowest.

It is equally reasonable to assume that had the warranty claim matter been resolved on the same basis, but one or two years earlier, and the parties had been faced with more substantial work in replacing the warrantied items, the Airport Authority would have conducted themselves on the same basis, seeking the lowest quote. 34 . In conclusion, at the end of the day this matter is relatively straightforward and based on the evidence provided there is little in dispute. The Claimant has adjusted their claim confirming they are owed $15,986.23.

That amount is not disputed by the Defendant and therefore I hereby order that the Claimant be entitled to judgment for that amount. 35 . Regarding the counterclaim, I find there is no basis for advancing the same against the Claimant. If in fact the Defendant believes that it had entered into a contractual agreement with the Airport Authority which was later awarded to a third party, then their action lies with the Airport Authority. 36 . I have taken the time to review a great deal of the facts that emerged over a period of 3 to 4 years arising from the original contract for the supply of furniture.

I readily acknowledge the Defendant’s concern that at the end of the day, as a local supplier to business entities such as the Airport Authority, their reputation as being able to supply suitable product at suitable prices and honor what they supply is essential to their sustainability in business.

Unfortunately, the nature of their business is such that, while they most often contract directly with customers, almost in every instance, because they are not the manufacturers themselves, they are left to rely on agencies such as the Claimant and in turn ultimately everyone is left to rely on the credibility of the manufacturer and the support of the warranty services they provide for the products which they distribute. 37 .

In this case, while the original manufacturer did ultimately honor their warranty, having regard to the amount of time it took to resolve this situation there were some casualties along the way, notably the otherwise good business relationship the Defendant appears to have had with Mr. Funnell and the Claimant in the past as well as possibly their future relationship with the Airport Authority.

I will note that it may have been helpful if the Claimant could have recognized the fundamental principles normally employed in these relationship chains whereby they ought to have recognized the importance of the relationship between the Airport Authority and the Defendant and therefore should not have undermined them by choosing to deal directly with the Airport Authority at the last minute when relief was in sight. It appears throughout 2015 and most of 2016, neither the Claimant nor Mr.

Funnell seemed to have time to make any direct contact with the Airport Authority and while this is not surprising because clearly the Defendant maintained regular contact over this warranty issue and the Airport Authority was their client, it is troubling to see that at the last hour when a resolution was finally brought forward the Claimant opened up a direct line of communication.

This appeared to have been to allow them to take the credit for resolving the warranty issue when in fact, from all of the documentation, it appears that the Defendant had exhausted a huge amount of time and continued effort on behalf of their client to resolve this situation. While that has no bearing on the fundamental principles of this claim, it is unfortunate that the matter unfolded in this regard. 38 . The Claimant has also asked for prejudgment interest at a rate of 4% up to and including May 8, 2017. Having regard to Mr. Mounsteven’s email to Mr.

LeBlanc dated May 5, 2016 and the terms of repayment which he had set out therein, I am not prepared to order any prejudgment interest. Mr. Mounsteven indicated that the balance would become due on 60 days of shipment of the replacement arms. While the replacement arms and additional product appear to have been supplied to the Airport Authority as far back as March 2016, there is no evidence of any formal notification from the Claimant to the Defendant that all of the goods had been supplied and the warranty claim satisfied. I am mindful that Mr.

LeBlanc had a meeting at the airport in March 2016 where he became aware of the volume of boxes that had been delivered and it was that which gave rise to the request for him to quote the cost of changing out these various parts. However, there is no evidence that what was shipped to the Airport Authority at that point in time represented all of the required replacement parts and this was an obligation which Mr. Mounsteven assumed himself as set forth in his email. 39 . Finally, regarding the Claimant’s claim, an Affidavit of Service of Mr.

Mugridge was presented at the outset which confirmed service as well as the cost of service and therefore I award the same. The Claimant shall also be entitled to their filing costs. Therefore, judgment should be issued to the Claimant as follows: Claim $15,986.23

Filing Costs $199.35 Service of Claim $86.25 TOTAL JUDGMENT $16,271.83 DATED this 16 th day of August 2017. ___________________________________ A. ROBERT SAMPSON, Q.C. Adjudicator