Canada Forgings Inc. v. Clark Machine Inc., 2006 CanLII 32988 (ON SCDC)

COURT FILE NO.: 43,415/01

DIVISIONAL COURT: #DC-06-326

DATE: 20060927

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Canada Forgings Inc. v. Clark Machine Inc.

BEFORE: The Honourable Madam Justice H. Pierce The Honourable Mr. Justice G. Killeen The Honourable Mr. Justice J. Kent

COUNSEL: H. Korosis and M. Labenski for the Appellant Plaintiff P. Mahoney for the Respondent Defendant

Heard at: Hamilton September 26, 2006

E N D O R S E M E N T

1This case involves an appeal and cross-appeal of the trial judgment of the Honourable Madam Justice J.W. Scott dealing with an alleged breach of contract in the machining of certain pieces of steel.

2The appellants make two arguments:

1. that the trial judge erred in not awarding damages for a scrapped forging that was rejected by the appellant’s customer as not meeting its specifications; and
2. that the trial judge erred in apportioning liability for the costs of extra honing to bring the steel up to the standard specified in the contract, and further that she should have based any apportioned liability on the negotiated reduction in price between the appellant and its customer, rather than basing it on the contractual price between the appellant and respondent.

3It is settled law that a court sitting in appeal may only substitute its decision on errors of fact or errors of mixed fact and law where there has been a palpable and overriding error by the trial judge. See: Housen v. Nikolaisen (2002) 2002 SCC 33, 211 D.L.R. (4^th) 577 (S.C.C.). Where errors of law have been made, the standard is correctness.

4In this appeal, we are not satisfied there is a palpable and overriding error by the trial judge in failing to award damages for a machined barrel that did not meet the contractual specifications.

5At paragraph 45 of the judgment, the judge criticizes the quality of the evidence adduced to prove the damages of reproducing this piece. She found that by the time of trial, the plaintiffs should have been able to prove the actual cost of re-doing this piece definitively, rather than estimating the cost.

6The appellant conceded that no evidence was called as to the scrap value of this piece which would reduce the damages claimed. The trial judge concluded the evidence was insufficient and would not speculate on what the damages should be. Given the burden on the plaintiff to prove its damages, this conclusion is within the purview of the trial judge who considered all the evidence, such as it was.

7In our view, a determination that evidence is not sufficient does not represent a palpable and overriding error. The first branch of the appeal is dismissed.

8The second branch of the appeal involves a finding that apportioned liability for machining errors between the parties. In our view, this finding can be supported by the evidence. First, the appellant supplied steel for forging that was oval rather than round, leading to predictable problems in barrelling the interior of the steel. Second, the trial judge concluded that the respondent acknowledged some responsibility for the pieces not being machined to specification when it accepted the return of the pieces for correction, making no claim for additional extra work.

9In an attempt to mitigate its damages, the appellant negotiated a reduced price with its customer, Bay City, in order to have the customer take delivery of the finished steel.

10We are of the view that the trial judge misapplied the law in assessing the damages to this extent: she determined the apportionment against the value of the contract between the appellant and the respondent, rather than between the appellant and its customer.

11The applicable principle of law is this: where a breach of contract causes a wronged party to pass along the breach to a third party, the wronged party is entitled to claim a loss of its profits from the third party arising from the original breach. These losses extend to efforts to mitigate. See Horning v. Dan Keller Construction Equipment [1944] O.W.N. 479 (Ont. C.A.).

12The evidence at trial concerning the negotiated price reduction as given enables a calculation to be made that addresses both the loss of profits and the apportionment of responsibility. The reduction of $5,600 USD per unit should be divided equally, multiplied by 3 units and increased by the exchange rate at the time, which the parties have apparently agreed was 1.602.

13The appeal is allowed to the extent that the apportionment of damages owed to the appellant is calculated based on the reduced profit from its customer, Bay City. The judgment is varied accordingly.

14The respondent (appellant on the cross appeal) contends:

1. the trial judge erred in finding the defendant partially responsible for machining errors in honing the steel to improve the surface finish;
2. the trial judge erred in concluding that the scrapped steel was the responsibility of the defendant;
3. the trial judge was also in error in accepting damages of $5,600 for each unit shipped to its customer, Bay City; and
4. It should have been entitled to its costs at trial, having delivered an offer more favourable than the judgment at trial.

15The trial judge made factual findings on the evidence as to the first three issues on the cross appeal. In some instances, the findings are based on inference; in others, they are based on findings of credibility. In our view, there is no palpable or overriding error in the making of these findings. We would not, therefore, interfere with the judgment.

16As to costs, these are within the discretion of the trial judge. There is no evidence that she exercised her discretion improperly. The cross-appeal is dismissed in its entirety.

17If the parties cannot agree on the correct calculation of the apportionment of damages set out above, we may be spoken to.

18Submissions as to costs of the appeal may be made in writing within 10 days of the release of these reasons.

G. Killeen, J.

J. Kent, J.

H. Pierce, J.

DATE: September 27, 2006

COURT FILE NO.: 43,415/01

DIVISIONAL COURT: #DC-06-326

DATE: 20060927

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Canada Forgings Inc.

v. Clark Machine Inc.