What are the facts and issues presented in this case?

Hammond Transportation Ltd. v. Carey, [2015] O.J. No. 4441

[2015] O.J. No. 4441|257 A.C.W.S. (3d) 339|49 B.L.R. (5th) 64|2015 CarswellOnt 12770|2015 CanLII 52709 Between Hammond Transportation Ltd., Plaintiff, and Gord Carey and Frank Demasi, Defendants (5 paras.) Counsel

V. DeCaire, paralegal for the Plaintiff.

D. Ryan, lawyer for the Defendant, Frank Demasi.

REASONS FOR JUDGMENT

D.J. LANGE DEPUTY J.

1 Hammond Transportation Ltd. ("Hammond") provided bus services to a hockey club known as the Bracebridge Phantoms Junior "A" Hockey Club. On June 12, 2013, the hockey club was sold under an Asset Purchase Agreement ("agreement") to Gord Cary, Daniel Fisher, and Frank Demasi or a company to be incorporated. The purchasers purchased all of the assets of the hockey club and assumed certain debts. The assets purchased were team rights within the Greater Metropolitan Junior "A" Hockey League, all player rights, and all equipment and contents of the team dressing room. The purchasers assumed a number of debts of the hockey club including $25,000.00 in outstanding bus services provided by Hammond (clause d.):

Daniel Fisher filed a consumer proposal in bankruptcy in July 2013 shortly after the agreement was signed. Gord Carey settled with Hammond on December 18, 2014 for a payment of $9,000.00. This was addressed with the representatives of the parties at the opening of the trial to determine the amount of the claim still outstanding. Hammond sues Frank Demasi ("Demasi") under the agreement for the remainder of the assumed debt, namely $16,000.00.

2Demasi was the head coach and general manager of the hockey team. He admits signing the agreement on June 12, 2013 and it is clear that the hockey team used Hammond's bus services on many occasions after the agreement was signed. A statement of account filed as an exhibit discloses bus services from December 7, 2012 to November 6, 2014. Demasi defends the action on the basis of privity of contract. The facts are not in dispute. Most of the requests for bus services after the agreement was signed were made by Gord Carey or Daniel Fisher. When Carey fell ill for several months in later 2013 and early 2014, Demasi hired Hammond for the hockey team. Each of these services were paid by Demasi in advance, presumably because of the outstanding debt to Hammond of $25,000.00 for past services rendered. These bus services occurred after June 12, 2013, the signing date of the agreement, and are not relevant to the outstanding debt of $25,000.00 which Demasi assumed under the agreement. Demasi argues that he is not liable for the assumed debt because he did not contract with Hammond for any of the services before June 12, 2013 and because Hammond was not a party to the agreement when he assumed the Hammond debt. He relies upon the doctrine of privity of contract as set out in the 1936 decision of the Supreme Court of Canada in Margolius v. Diesburg, [1937] S.C.R. 183 at p. 189:

Demasi argues that Hammond has sued the wrong party. He must sue the owner of the hockey team who contracted with Hammond for the bus services prior to June 12, 2013. Demasi also relies upon section 53 (1) of the Conveyancing and Law of Property Act, R.S.O. 1990, C.34, as amended, where only a creditor may assign a debt for collection, such as a charge card debt.

3It is clear that Hammond was not a party to the agreement when its historical unpaid services were assumed by Demasi. The law in this area was recently reviewed by the Ontario Court of Appeal in Brown v. Belleville (City), [2013] O.J. No. 1071 (C.A.). While the Court observed that the doctrine of privity of contract prevents a non-party to a contract from enforcing or relying upon the contract, it also observed that the privity doctrine is "of considerably diminished force in Canada" and subject to certain principled exceptions established in the case law. Cronk J.A., for the court, stated:

The court reviewed the principled exception to the privity doctrine relevant to our case and case law from the Supreme Court of Canada in the 1990's on privity of contract. It held that the "threshold requirement" to invoke the principled exception to the privity doctrine is that there must be evidence that the contracting parties intended to extend the benefit in question to the third party seeking to rely upon the contractual provision. Cronk J.A. stated:

In this case, we have a situation where a hockey team is sold and the new purchasers agree to assume the outstanding accounts of Hammond, and then they continue to use Hammond's bus services. In my view, the purchasers, Carey, Fisher, and Demasi, clearly intended to extend the benefit in question to the third party seeking to rely on the contractual provision. Carey's settlement with Hammond, one of the new owners, confirms this intention. The Supreme Court of Canada has stated that the relaxation of the doctrine of privity of contract is appropriate where its strict enforcement "does not respect allocations and assumptions of risk made by the parties to the contract." See Fraser River Pile & Dredge v. Can-Dive, [1999] S.C.J. no. 48 at par. 26. Hammond has a cause of action against Demasi through the agreement when he assumed Hammond's historical debt. In my view, Demasi has provided no sustainable defence to Hammond's claim. There was some emphasis by both parties placed on the statement of account which chronicled invoices and payments made on account after the signing of the agreement. The statement of account shows an amount outstanding as at November 6, 2014 of $24,592.43. The lawsuit was launched November 28, 2014 claiming that exact amount. I do not think that the amount on this statement of account is relevant to Demasi. He did not assume liability for those services. They occurred after the agreement was signed on June 12, 2013. Any services he contracted for after June 12, 2013 were paid for. I conclude that Demasi is liable for the historical debt he assumed less the payment on account of $9,000.00 by Carey. Hammond will have judgment in the amount of $16,000.00.

4I close by noting that Demasi testified that he never became an owner after the agreement was signed. He stated that, after the agreement was signed, Carey and Fischer decided that he was not to be an owner but was to remain the head coach and general manager of the hockey team. He said that he did not share in the profits of the hockey club. In my view, this does not free Demasi of liability under the agreement he signed which made him an owner and the debt he assumed as owner but this issue could be the subject matter of proceedings at least against Carey if not against Fisher who filed a consumer proposal well before these proceedings were launched. Such proceedings may, however, be subject to the doctrine of res judicata. I add that the fact that Demasi was not an owner of the hockey team after the agreement was signed also exonerates him from liability to Hammond for post-agreement services that were unpaid.

5Hammond will have judgment against Demasi in the amount of $16,000.00. Prejudgment interest pursuant to the Courts of Justice Act will run from November 28, 2014, the date of the issued claim, and post-judgment interest pursuant to the Courts of Justice Act. Hammond may address the issue of costs, in writing, within 21 days of receiving this judgment from the Clerk of the Small Claims Court. Demasi will have 21 days to respond to the costs submissions of Hammond. All costs submissions are to be sent to each party and filed with the Clerk of the Small Claims Court with proof of service.

D.J. LANGE DEPUTY J.

• [99] The principled exception to the privity rule introduced in London Drugs was again considered and applied, this time unanimously, by the Supreme Court in Fraser River. In that case, at paras. 28-29 and 32, the court clarified that satisfaction of the first branch of the London Drugs test is a threshold requirement: to invoke the exception, there must be a showing that the contracting parties intended to extend the benefit in question to the third party seeking to rely on the contractual provision.
• [79] It is important to note at the outset that the doctrine of privity of contract is of considerably diminished force in Canada as a continuing principle of contract law. It has been subject to a wealth of repeated academic and judicial criticism, leading to frequent calls for law reform in Canada and elsewhere. See for example, London Drugs, at pp. 418-26; Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, at para. 26; McCamus, at pp. 296-301. Indeed, several Commonwealth jurisdictions have abrogated the privity doctrine entirely, or in specific contexts, by statute. In other instances, the reach of the doctrine has been "significantly undermined by a growing list of exceptions to the rule": McCamus, at p. 299. See also Angela Swan and Jakub Adamski, Canadian Contract Law, 3rd ed. (Markham: LexisNexis Canada Inc., 2012) at p. 229. Several of the leading cases cited by the parties on this appeal afford abundant evidence of the relaxation of the ambit of the doctrine in particular cases. Thus, while the doctrine survives in Canada, it persists only in weakened form.
• The respondent Diesbourg was not a party to the contract. It has long been settled that no person can sue or be sued in an action at law upon a contract under seal, unless the person is a party to the contract.
  • d.Outstanding Bus Rental in the amount of $25,000.00.
  • c.Outstanding Fitness Passes in the amount of $2,612.22.
  • b.Outstanding Ice Rental in the amount of $8,444.00.
  • a.The remainder of GMHL team registration in the amount of $3,540.00.
• Company [purchasers] agrees to assume the following debts: