Citation: C.Dixon Fuels Ltd. v. S.W.S. Fuels Ltd., 2009 NSSC 73
Date: 20090310
Docket: Yar.No. 305082
Registry: Yarmouth
Between:
C. Dixon Fuels Limited
Charles E. Dixon and Judy M. Dixon
Plaintiffs
v.
S. W. S. Fuels Limited
Defendant
Judge: The Honourable Justice Kevin Coady
Heard: February 10, 2009 in Barrington, Nova Scotia
Decision: March 10, 2009
Counsel: Rubin Dexter, for the Plaintiffs
Clifford Hood, QC, for the Defendant
Sheree Conlon, for the Defendant
By the Court:
[1] This application was heard in chambers at Barrington on February 10, 2009. Charles and Judy Dixon are principals of C. Dixon Fuels Limited (Dixon) which is a retail fuel supplier operating out of Woods Harbour, Nova Scotia. S.W.S. Fuels Limited (S.W.S.) is a retail and wholesale supplier of petroleum based fuels operating out of Pubnico, Nova Scotia.
[2] On or about July, 2003 Dixon entered into an oral fuel distributorship agreement with S.W.S. In their Statement of Claim Dixon alleged the following agreement:
S.W.S. would sell to Dixon Fuels marine grade oil, furnace oil, kerosene and clear diesel for sale and delivery by Dixon Fuels to the customers of Dixon Fuels in Shelburne and Yarmouth counties.
Dixon Fuels would purchase the fuel products to be distributed to its customers exclusively from S.W.S. and from no other suppliers.
S.W.S. would sell the fuel products to Dixon Fuels at a per litre retail price to be set by S.W.S. Dixon Fuels would in turn charge its customers the said per litre retail price for the fuel products.
S.W.S. and Dixon Fuels would share equally in any and all of the gross profits from the fuel products which were sold by Dixon Fuels, which gross profit was the difference between the per litre “rack price,” which is the per litre price for the fuel products charged to S.W.S. by its distributor, Imperial Oil, Products and Chemical Division (“Esso”) and the per litre retail price of the fuel products, as set by S.W.S. and charged by Dixon Fuels to its customers.
The retail prices charged by S.W.S. to its customers would be the same as those set by S.W.S. and charged by Dixon Fuels to its customers.
[3] S.W.S. filed its defence and specifically denied that the agreement included a profit sharing arrangement of any kind. S.W.S. states that the only compensation payable to Dixon under the agreement was commission. The following paragraphs appear in S.W.S.’ defence:
As to paragraph 4 of the Statement of Claim, S.W.S. states that it entered into an agreement with Dixon Fuels on May 29, 2003, whereby S.W.S. agreed to sell marine grade oil, furnace oil, kerosene and clear diesel. The price charged by S.W.S. to Dixon Fuels was to be the same price as charged to its own customers. Dixon Fuels was to pay forthwith after receipt of funds of payment from its customers in the same amount charged by S.W.S. upon receipt of payment by the Dixon Fuels’ customers.
As part of the agreement, S.W.S. agreed to pay a commission to Dixon Fuels of three cents a litre on marine grade oil, and six cents per litre on the remaining fuel products.
S.W.S. denies the allegation in paragraph 4.4 of the Statement of Claim. At no point did S.W.S. agree to share equally in the gross profits for the fuel products sold by Dixon Fuels. S.W.S. only agreed to pay Dixon Fuels a commission of three cents and six cents per litre, respectively, on the fuel products, as set out in paragraph 5 above.
[4] S.W.S. takes the position that at all times it honoured the agreement. Unfortunately this agreement was not reduced to writing.
[5] The affidavit evidence indicates that in mid 2003 S.W.S. started providing Dixon with product. Invoices establish that Dixon was paid commissions as the product was sold. S.W.S. alleges that in 2005 it noted that Dixon’s account receivable to S.W.S. was considerably higher than in the previous year. S.W.S. demanded to see Dixons’ account receivable list. S.W.S. allege that according to that list there was a shortfall of $225,000.00 between what Dixon owed S.W.S. and their receivables and that it was apparent that Dixon had not been paying S.W.S. for the product when it was paid by its customers.
[6] This situation prompted S.W.S. to seek security from Dixon. S.W.S. agreed to provide Dixon with a $750,000.00 line of credit which was secured by:
· A general security agreement
· A credit agreement
· Personal guarantees of Charles Dixon and Judy Dixon
[10] S.W.S. allege that throughout 2007 and 2008 Dixon repeatedly exceeded its $750,000.00 credit limit. On October 3, 2008 S.W.S. made a formal demand for payment in the amount of $745,662.23
[11] Counsel for Dixon responded by alleging that S.W.S. was in breach of the agreement by “failing to pass on to Dixon Fuels the ‘rack’ prices at which your client purchased the fuel supplies which were in turn sold to Dixon Fuels. This has resulted not only in your client earning very substantial income which should properly have been received by Dixon Fuels but has also improperly inflated the amount owing, if any, by Dixon Fuels under the credit agreement.” Dixon sought a full accounting.
[12] Dixon’s position on this action is that they are owed substantial profits which would more than cover anything they might owe to S.W.S. for product. S.W.S.’ position is that there never was a profit sharing arrangement and that Dixon presently owes them $393,610.84 from the resale of product. On December 10, 2008 Dixon terminated the agreement and has since found another distributorship. S.W.S.’ demand has not resulted in payment and they have decided to realize on their security. S.W.S. have held off seizing property until this application is heard.
[13] On December 11, 2008 Dixon filed an Interlocutory Notice seeking the following relief:
For an interim and/or interlocutory injunction restraining the Defendant, S.W.S. Fuels Limited, it servants, employees, agents or any other persons acting on its behalf or under its direction, from seizing or in any other manner enforcing its security against C. Dixon Fuels Limited pursuant to the Credit Agreement and General Security Agreement entered into between S.W.S. Fuels Limited and C. Dixon Fuels Limited and dated December 14, 2005.
[14] Dixon has made the following commitments to S.W.S. in advance on this application:
It is prepared to remit to S.W.S. all of the accounts receivable ... that it collects despite the fact that it is the position of Dixon Fuels that the amount shown in Exhibit “E” is not in fact owing to S.W.S. and that S.W.S. owes Dixon Fuels $66,835.53.
Dixon Fuels, and its principals, collectively undertake to the Court to be responsible for any damages occasional to S.W.S. that the court may award arising from the granting of the interim injunction sought in the event that it is found that such injunction ought not to have been granted.
[15] Dixons’ reason for bringing this application is well stated at paragraph 32 of Mr. Dixon’s affidavit which states:
32. In the event that S.W.S. is permitted to enforce its security under the terms of the Credit Agreement and/or General Security Agreement by the seizure of the assets of Dixon Fuels, Dixon Fuels will be out of business. This will also effectively render Dixon Fuels unable to continue with the herein action.,
[16] Dixon possesses two delivery trucks and these are the assets that would be seized at the present time. There is no issue as to S.W.S.’ right to seize Dixon’s assets pursuant to the security documentation. Further process would be required before action could be taken on the personal guarantees.
[17] The foundation for an Interlocutory Injunction is found in s.43(a) of the Judicature Act R.S.N.S. 1989, c.240 and Civil Procedure Rule 43.01 (1972).
[18] The test to be applied in an application for an Interim Injunction is well settled in R.J.R. MacDonald Inc. v Canada (Attorney General), [1994] 1 S.C.R. 311. In this case the Supreme Court of Canada adopted the tripartite test articulated by Lord Diplock in American Cyanamid Co. v. Ethicon Ltd.,[1975] All E.R. 504. A court can offer this extraordinary remedy if the following are present:
· There is a serious issue to be tried, a prima facie case.
· There will be irreparable harm if the injunction is not granted.
· The balance of convenience weighs in favour of the applicant.
[22] In this case S.W.S. argues that Dixon cannot get past the first step and, therefore, steps two and three do not come into play.
SERIOUS ISSUE TO BE TRIED:
[23] Notwithstanding the authority cited, the parties differ on what this phrase means. Dixon argues that the threshold test is low. They state that an applicant need only satisfy the court that their claim is not frivolous or vexatious, or that there is a serious issue to be tried and that they have a reasonable prospect of succeeding. Dixon argues that on such an analysis, the court should not attempt to resolve factual conflicts or difficult questions of law. Dixon further argues that this standard is less onerous than a prima facie test. S.W.S. argues that the threshold test is higher when the injunction would restrain enforcement of security. They assert that in such cases the threshold test is a prima facie case and that an applicant must “clearly be in the right” before an interim injunction is granted.
[24] Dixon argues for a less rigid interpretation. They are of the view that the prima facie/serious issue debate was considered in Gateway Realty Ltd. v Arton Holdings and LaHave Developments Ltd., [1990] N.S.J. No. 78 as follows:
“Generally speaking, the court in those three cases stated that there is no firm or fixed rule, but rather the tendency is for the court to apply a test which is likely to produce a just result.”
[25] S.W.S. relies on Arnold v. Bronstein, 1970 CarswellOnt 776 (Ont.H.C.) which was a mortgage case. In refusing to grant an injunction, the court stated at paragraph 4:
It appears that Courts have refused to interfere with the proper exercise of a power of sale in all but the most extreme and exceptional cases. In fact, the learned author of Kerr on Injunctions, 5th ed., p.538, in a chapter dealing with injunctions between mortgagor and mortgagee, goes so far as to assert that:
The Court has no jurisdiction to restrain a mortgagee from selling under a power of sale, provided he keep within the terms of the power and no case of fraud be made out.
The proposition is well supported by cases referred to in footnote (e). The general rule developed from numerous cases is that a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his power of sale, except upon tender by the mortgagor of the principal moneys due, interest and costs ...
[26] That court then referenced the Rule in MacLeod v Jones (1883), 24 Ch.D. 289 in which was stated “we ought not to prevent mortgagees from exercising the powers given to them by their security without seeing that they are perfectly safe.” Arnold v Bronstein, supra, is accepted for the proposition that an interlocutory injunction should not be granted to restrain the enforcement of security absence evidence of bad faith or fraud. This principle has been endorsed in Toronto Dominion Bank v. E. Goldberger Holdings Ltd., 1993 CarswellOnt 1060 (Gen.Div.) and in S.J.S. Packaging Inc. v. Optiplas Films Inc., 1993 CarswellOnt 3636 (Gen.Div.).
[27] S.W.S. also relies on the case of Seawater Products (NFLD.) Ltd. v. Royal Bank (1980), 142 A.P.R. 183 (NFLD. T.D.). In that case the bank appointed a receiver to take control of the plaintiff’s assets. The plaintiff sought injunctive relief alleging that the bank’s security was unenforceable. The court held that a debtor seeking to restrain the enforcement of security must establish a prima facie case. Goodridge J concluded as follows:
... in a case such as this I do not think that the test of the existence of a serious question is necessarily the proper one. In modern commercial practices it is essential that institutional lenders be entitled to enforce their security in accordance with the terms of the document creating the same without being unduly hampered by the processes of law which may occupy many years.
I do not by this mean to say that a security holder should be entitled to ride rough-shod over a debtor but only that if the debtor seeks to restrain the security holder in the pursuit of its security, he should be required to establish a prima facie case . ...
I am not sure that there is a great difference between showing a prima facie case on the one hand and showing a serious question that is not frivolous or vexatious on the other hand. The former presumably involves the establishment of a factual basis verifying the statement of claim.
[28] And further:
“As indicated above, I believe the appropriate test to be applied in this case is whether the applicants have established a factual basis for a prima facie case that the security is not enforceable.
[29] While it is clear that American Cyanamid, supra, only requires an applicant to establish that his case is not frivolous or vexatious, it is inescapable that in commercial cases such as this a higher standard has evolved. I include commercial transactions as caught in the concluding language in R.J.R. MacDonald v Canada, supra, that “the American Cyanamid standard is now generally accepted by the Canadian Courts, subject to the occasional reversion to a stricter standard”. Arnold v. Bronstein, supra, is authority for this position.
[30] Websters New International Dictionary (2nd ed) defines prima facie evidence as follows:
“Evidence sufficient in law to raise a presumption of fact or establish the fact in question unless rebutted.”
[31] I must be cautious not to delve too far into the facts as set forth in the affidavits. However, the only way that I can determine if the applicant has established a prima facie case is to review that evidence. I am satisfied that to establish a prima facie case the applicant Dixon must establish that there was a profit sharing formula in the oral agreement. The only evidence of that is found in Mr. Dixon’s affidavits and it is strongly refuted in S.W.S.’ affidavits. There is no written agreement to firm up Dixon’s position. S.W.S.’ notes of the 2003 meetings say nothing about profit sharing. Dixon accepted commissions for five years and mentioned nothing about profit sharing. It is to be noted that Dixon seems to have raised this issue for the first time after S.W.S. demanded payment of accounts receivable in late 2008.
[32] There is no evidence on this application that S.W.S. was engaged in fraud or bad faith. Dixon has not made such an allegation. This case is strictly a commercial dispute.
[33] I find that Dixon has not met the threshold test.
IRREPARABLE HARM:
[34] In light of my ruling on the threshold test, it may be unnecessary to rule on the irreparable harm and balance of convenience step. Notwithstanding, I will briefly address those tests.
[35] The Supreme Court of Canada in R.J.R. MacDonald v. Canada, supra, described irreparable harm as follows:
“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the Court’s decision; or one party will suffer permanent market loss or irrecoverable damage to his business reputation; or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined.”
[36] In his book “Injunctions and Specific Performance”, supra, Sharpe discusses the meaning of irreparable harm:
“...In the context of the preliminary injunctive relief, the phrase is given a more specific meaning namely, that the Plaintiff, before the trial, must risk some injury which cannot be compensated or remedied other than through the granting of an interlocutory injunction. The rationale for requiring the plaintiff to show irreparable harm is readily understood. If damages will provide adequate compensation, and the defendant is in a position to pay them, then ordinarily there will be no justification in running the risk of an injunction pending the trial.”
[37] Dixon argues that if their trucks are seized they will be out of business and unable to contest this litigation.
[38] This principle was reviewed in Centre Ice Ltd. v. National Hockey League, 1994 CarswellNat 1332 (Fed. C.A.) starting at paragraph 7:
The Cutter decision was followed by the Imperial Chemical Industries Co. case in 1989 where it was said: “The jurisprudence in this court establishes that the evidence as to irreparable harm must be clear and not speculative.” Coming after the decision in Imperial Chemical was the Syntex decision in 1991. In Syntex, this Court held the finding by the Trial Judge that the applicant would be likely to suffer irreparable harm was insufficient to warrant the granting of an interlocutory injunction. The use of the tentative expression “is likely” was not correct in view of the Court’s earlier jurisprudence supra. It was necessary for the evidence to support a finding that the applicant would suffer irreparable harm.
[39] I find that the irreparable harm to Dixon has not been made out and that the supporting evidence is speculative. An interim injunction is an extraordinary remedy and requires clear evidence that harm suffered is not capable of compensation by damages. Mr. Dixon’s bald assertion is insufficient to meet this second test. Essentially the court is being asked to accept that the removal of the two trucks will put Dixon out of business. Dixon has not provided financial and property documentation to support their argument. I do not know if they own other trucks, have access to other trucks or the resources to replace the two in question.
[40] In the event that Dixon succeeds on the action, I am satisfied that the loss of the trucks, and damage to the business, can be compensated by damages. Consequently Dixon’s application fails on the second test.
BALANCE OF CONVENIENCE:
[41] The third test of balance of convenience was described in R.J.R. MacDonald v. Canada, supra, at paragraph 67:
The third test to be applied in an application for interlocutory relief was described by Beetz J. in Metropolitan Stores at p. 129 as: “A determination of which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction, pending a decision on the merits”. In light of the relatively low threshold of the first test and the difficulties in applying the test of irreparable harm in Charter cases, many interlocutory proceedings will be determined at this stage.
[42] S.W.S. argues that there are public policy issues at play. They assert that there needs to be commercial certainty as between creditors and debtors and that courts should not lightly interfere with their contractual relations absent bad faith or fraud.
[43] This principle was canvassed in Granata Family Trust v. Royal Bank, 2000 CarswellOnt 4312 (S.C.) at paragraph 26:
Moreover, the balance of convenience tips towards the bank. It is a well established principle that a mortgagee, acting in good faith and without fraud, will not be restrained from the exercise of a power of sale (Arnold v. Bronstein (1970),[1971] 1 O.R. 467 (Ont. H.C.), at 468; 6661 Montrose Rd. Property Inc. v. 9843380 Ontario Ltd., (February 10, 1998), Doc.96-CU-108134 (Ont.Gen.Div.). The bank is in a position similar to a mortgagee, as it holds security from the guarantor which it seeks to liquidate in order to satisfy the outstanding loan obligation. Therefore, given that there is no evidence of bad faith or fraud, it should be able to liquidate the mutual funds.
[44] In Cooperators General Insurance Company v. Vern Paul Insurance Agency Ltd., [1994] N.S.J. No. 42 the court addressed this phrase in the context of an interim injunction:
“Beyond the threshold test, the Court must consider the balance of convenience to the parties. Commonly the applicant must establish that it will suffer irreparable harm, not compensated by an award of damages, failing the granting of an injunction. To paraphrase Davison, J. in Uniglobe Travel (Atlantic) Inc. v. Fundy Travel Limited et al. (1991), 113 N.S.R. (2d) 340 (N.S.S.C.T.D.) at p. 341, the key question, on the balance of convenience, is whether the plaintiff has demonstrated that failing the granting of an interlocutory injunction, the remedy of trial would come too late to do justice.”
[45] S.W.S. argues that these trucks will erode in value before this litigation is completed. Dixon argues that they will be out of business if this injunction is not granted. I have already commented on that evidence. It is this Courts role to determine which of the parties would suffer greater harm from the granting or refusal to grant an injunction pending a decision on the merits.
[46] Given that this case involves a general security argument, and that the trucks represent a depreciating asset, the balance of convenience tilts in favour of S.W.S.
[47] This application is dismissed.
[48] I will hear the parties on costs should they be unable to agree.
J.