2016 ONSC 2640
DIVISIONAL COURT FILE NO.: 459/15
DATE: 20160422
ONTARIO
SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
J. WILSON, THORBURN and CONLAN JJ.
B E T W E E N :
PINNACLE MILLWORK INCORPORATED Plaintiff (Appellant)
– and –
KOHLER CANADA CO., carrying on business as CANAC KITCHENS Defendant (Respondent)
Mark Wiffen for the Plaintiff (Appellant)
Nahla Khouri for the Defendant (Respondent)
HEARD at Toronto: March 8, 2016
CONLAN J.:
Nature of the Proceeding
[1] The Plaintiff/Appellant, Pinnacle Millwork Incorporated (“Pinnacle”), appeals the Judgment of Lederer J. of October 22, 2014 (2014 ONSC 5782), awarding nominal damages for unpaid inventory Pinnacle claims had been manufactured at the request of the Defendant/Respondent, Kohler Canada Co., carrying on business as Canac Kitchens (“Canac”); and no costs to either party.
[2] Pinnacle seeks leave to appeal the costs ruling and submits that it should be awarded partial indemnity costs of the proceeding below. Canac seeks leave to cross-appeal seeking the costs of the trial on a partial indemnity basis.
Jurisdiction
[3] Under ss. 19(1) and 19(1.2) of the Courts of Justice Act, R.S.O. 1990, c. C.43, the Divisional Court has the jurisdiction to hear appeals from final orders for payments under $50,000, exclusive of costs.
[4] The Appellant was awarded $3065.37 plus nominal damages of $500.00. Therefore this Court has jurisdiction to hear the appeal from the Judgment and, if leave is granted, to hear the appeal and the cross-appeal of the Costs Order.
Standard of Review
[5] The parties agree that the standard of review on questions of law is correctness. The standard of review on factual findings is whether there was a palpable and overriding error.
[6] In Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36, the Supreme Court of Canada provided the following direction on the spectrum for issues of mixed fact and law:
Matters of mixed fact and law lie along a spectrum. Where, for instance, an error with respect to a finding of negligence can be attributed to the application of an incorrect standard, a failure to consider a required element of a legal test, or similar error in principle, such an error can be characterized as an error of law, subject to a standard of correctness. Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal question from the factual. It is for this reason that these matters are referred to as questions of “mixed law and fact”. Where the legal principle is not readily extricable, then the matter is one of “mixed law and fact” and is subject to a more stringent standard. The general rule, as stated in Jaegli Enterprises, supra, is that, where the issue on appeal involved the trial judge’s interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error.
[7] The parties claim that this appeal involves questions of law, fact, and mixed fact and law.
The Issues
[8] There are three issues before this Court. First, did the trial judge err in law by applying the wrong test for the burden of proof for damages? Second, did the trial judge err in misapprehending or failing to consider the evidence at trial regarding damages? Thirdly, did the trial judge err in awarding no costs to either party?
Background
[9] Pinnacle manufactures hardwood products. It supplied finished hardwood to Canac for cabinets. The parties did business together for many years, until Canac closed its cabinet facility in 2008. Litigation followed.
[10] Pinnacle sued Canac for breach of contract. Specifically, Pinnacle alleged that Canac failed to pay for inventory that it had agreed to pay for. In its Statement of Claim, Pinnacle sought damages in the total amount of just under $100,000.00, which was reduced at trial to a Claim for $76,709.77.
[11] In its Amended Statement of Defence, Canac raised several defences to the claims of liability. First, Canac denied it had any contractual obligation to Pinnacle unless there was a specific agreement evidenced by a written purchase order. Second, it denied that it ordered the inventory in question from Pinnacle. Third, it alleged that the inventory remaining at Pinnacle’s warehouse was the sole property and responsibility of Pinnacle. Therefore, it denied that Pinnacle suffered any damages.
Trial Judgment and Costs Order
[12] After a three-day trial, the learned trial judge rejected all of Canac’s arguments on liability and granted judgment in favour of Pinnacle for breach of contract.
[13] However, the trial judge ordered only nominal damages of $500.00 for breach of the contract, as he concluded that the evidence did not allow him to assess damages. In addition, he awarded $3065.37, based on partially paid invoices rendered by Pinnacle. This latter sum is not challenged in this appeal.
[14] On May 27, 2015, after considering the written submissions of the parties regarding costs, the trial judge ordered that each party bear its own costs.
[15] Pinnacle alleges that the trial judge erred in awarding nominal damages for breach of contract and in refusing to award Pinnacle its costs of this action. Pinnacle argues that it ought to have been awarded $76,709.77 (two invoices in the amount of $60,155.63 and $13,488.77 and the $3065.37 referred to above) and partial indemnity costs. Canac disagrees.
Analysis of the Issues on Appeal
Issue 1: Did the Trial Judge err in law in determining how to assess damages to Pinnacle?
[16] The Appellant argues that the trial judge misapplied the burden of proof to prove damages.
[17] At paragraphs 15 and 16 of his Reasons for Judgment, the trial judge states that Pinnacle, as the Plaintiff, was required to prove its damages on a balance of probabilities. While acknowledging that sometimes it is impossible to estimate with mathematical precision the quantum of damages, His Honour noted that this, alone, does not disentitle the plaintiff from an award of damages.
[18] This articulation of the law is correct, and therefore this ground of appeal fails.
Issue 2: Did the Trial Judge misapprehend or fail to consider relevant evidence regarding Damages?
[19] In his Reasons for Judgment, the trial judge found that:
(i) Both parties agreed that Pinnacle would keep inventory that was not immediately required by Canac, but would be available for Canac to pick up when Canac needed it (paragraph 3 of the Reasons for Judgment);
(ii) Although Canac sent Pinnacle a letter in 2004 advising that it had developed a policy that Pinnacle not manufacture any pieces for Canac without a specific written purchase order, for years afterwards and up to 2008, the parties did not adhere to this policy. Inventory continued to be made for Canac and kept at the Pinnacle premises with an acknowledgement that it would have to be paid for by Canac (paragraphs 7 and 8 of the Reasons for Judgment);
(iii) In 2007 (not long before the business relationship ended), Pinnacle sent two inventory lists to Canac. Canac did not object to any of the items on those lists (paragraph 8 of the Reasons for Judgment); and
(iv) Some of the inventory accumulated on site at the time of the breakdown of the relationship, that Canac was obliged to pay for, was the result of verbal orders by Canac that had not been reduced to writing in the form of specific purchase orders (paragraph 9 of the Reasons for Judgment).
[20] Having made those findings, the trial judge concluded at paragraph 19 of the Reasons for Judgment as follows: “Canac has failed to pay for goods it undertook to purchase. There was a breach of contract”.
[21] A critical concession was made by Mr. Paul Halas, Senior Purchasing Specialist, on behalf of Canac. He confirmed that the inventory on the floor would be paid for by Canac [emphasis added]:
Q. All right. Was there ever any discussion that you had yourself with anybody at Pinnacle about not necessarily the pieces at the end but any pieces that they’re holding in inventory prior to that whether they would be paid for that or not by Canac?
A. We’ve had discussions with them where we’ve asked them to put material on the floor for us or, you know, if they were shipping us something and they had fall down we’ve always told them that Canac would be good for material, they wouldn’t get stuck with it.
Q. All right. And what did you mean they won’t get stuck with it?
A. I mean we would use it or consume it over time.
[22] The inventory in dispute included two components: outstanding orders that had been placed by telephone or on a rush basis with no written purchase orders that had been produced, those orders not yet delivered, and extra remainder pieces resulting from production that Canac agreed would be purchased by Canac in future orders, i.e., that Canac acknowledged “Pinnacle would not be stuck with”.
[23] After outlining his reasons and conclusions on liability, the trial judge then proceeded to place a value on that inventory.
[24] At paragraph 11 of the Reasons for Judgment, the trial judge identified what he called a “problem”:
On the one hand, it is clear that some portion of the remaining inventory was produced without having been the subject of a specific or written Purchase Order. This occurred when there were rush orders and when there were remainders that were not required as part of a Purchase Order that had been prepared…On the other hand, the former employee of Canac would not accept that all of the inventory for which Pinnacle now seeks to be paid could reasonably have been the result of orders or requests made by Canac.
[25] Based upon the absence of records kept by either party, the trial judge found that he could not distinguish inventory on hand at the time of the Canac closing that was for outstanding rush or telephone orders, and what was remainder inventory that the parties understood Canac would purchase in future orders.
[26] There was no need to do a breakdown of the composition of the inventory, relating to current orders or future orders, as it was understood – based on the evidence of Mr. Halas – that Pinnacle and Canac had a longstanding practice whereby Canac was responsible to purchase all of the inventory produced for Canac, i.e., Pinnacle would not be “stuck” with this extra inventory as a result of the abrupt and unexpected closure of the Canac facility (whether or not there was written documentation).
[27] The trial judge then summarized the evidence of the former employee of Canac, who was acknowledged by Canac as the only person from Canac who could speak to the inventory issue, at paragraph 12 of the Reasons for Judgment.
… the former employee of Canac would not accept that all of the inventory for which Pinnacle now seeks to be paid could reasonably have been the result of orders or requests made by Canac. As he sees it, the amount of at least some of the product for which Pinnacle wishes to be paid is simply too high. He pointed out that the inventory that collected represented a backlog of 6 months to a year. In particular, he pointed to the claim for 5,715 units and 8,360 units, both of "shorts" made of cherry and both on the invoice in the amount of $13,489.77, as being beyond what was reasonable. The invoice for $60,155.63 also contained claims for unusually high numbers of units; this time, 16,596 units and 8,950 units of "longs" made of maple. While not directly relevant to the claim now being made, it is worth noting that this is not the first time Pinnacle and Canac disagreed as to how much inventory should have been on hand. In a letter, dated July 29, 2004, Pinnacle said the inventory on hand was valued at $90,146.61 when Canac believed, based on the purchases it had made, only $48,772.46 of product should have remained. Canac said it would not commit to purchase the difference.
[28] The trial judge concluded that “it is impossible to know how much of the inventory that had been collected is subject to the claim now being made”. For that reason, he awarded nominal damages in the amount of $500.00 in favour of Pinnacle.
[29] I am of the view that the trial judge erred in this finding as he either misapprehended or failed to consider the uncontested evidence that was before him to appropriately assess the value of the inventory.
[30] The evidence of the value of the inventory included:
- The former Canac employee (and the only witness who had been employed by Canac who was able to give evidence about the inventory), Mr. Halas, confirmed that the understanding was that Pinnacle would not get “stuck” with the inventory on the floor.
- Mr. Halas attended at the Pinnacle premises and had an opportunity to view and inspect the seven to ten skids of remaining inventory that were clearly segregated and marked “Canac”. He had the opportunity to count the inventory, but chose not to do so. Upon inspecting the items, he did not suggest that the amount was inflated or that Pinnacle would not be reimbursed.
- Shortly after the announcement of the closure, Pinnacle sent the two invoices detailing the inventory requesting payment. No objection was made to the invoices.
- The two Pinnacle representatives, whose evidence was accepted on liability, testified that the value of the unpaid inventory attributed to Canac was $73,645.40.
- Having accepted the evidence of the Pinnacle representatives on liability, the trial judge appears to have rejected their evidence on damages (and the two invoices that support their testimony) without giving reasons.
- There was an acknowledged past practice between the parties that, from time to time, Pinnacle would advise Canac of the inventory on hand, which included the two components: production from current outstanding orders and the remainder from prior orders that Canac had agreed to purchase in the future. Two examples of inventory on hand were sent by Pinnacle to Canac in the ordinary course of business in May and August 2007.
- The inventory list prepared by Pinnacle, underpinning the invoices that are the subject of this lawsuit after the Canac facility closed, was similar in quantity to these two prior examples of inventory on hand yet to be billed (although the exact composition of shorts and longs and type of wood was not static).
- Contrary to the suggestion of the trial judge at paragraph 12 of the Reasons for Judgment, Mr. Halas did not challenge the inventory figures in general. In submissions before this Court, we were taken to his evidence. The only items in the inventory that he questioned as being surprisingly high were the third and fourth entries ($5086.35 and $5852.00) on invoice number 702262. He took no issue with any of the other items of inventory claimed in his evidence.
[31] I therefore disagree with the conclusion of the trial judge that valuation of the inventory was “impossible”.
[32] The damages ought to have been assessed at $62,707.05, as no evidence was lead at trial by Canac to dispute this sum. Fixing the damages in this amount is consistent with Pinnacle’s uncontradicted evidence at trial.
[33] The only evidence lead by Canac was to dispute two of the figures in one of the invoices for cherry shorts (totaling $10,938.35), which Mr. Halas believed to be “very high”. Assuming the trial judge accepted this one area of disagreement as to the monies owing, the damages are reduced from the $73,645.40 claimed by Pinnacle to the $62,707.05 figure set out above.
Conclusions
[34] I conclude that the trial judge’s misapprehension of, or failure to consider, the uncontested evidence on damages amounts to a palpable and overriding error.
[35] I am of the view that the only reasonable conclusion on the totality of the evidence is to fix the damages for the inventory at $62,707.05.
[36] There is no need to remit the matter back to the trial judge to assess the quantum of damages, as the uncontradicted evidence at trial supports this figure. Sending the matter back would only serve to escalate costs and delay the final disposition.
[37] For these reasons, the appeal is allowed. The Judgment is varied to the extent that Pinnacle is awarded damages in the amount of $62,707.05, instead of the $500.00 in nominal damages awarded by the trial judge. The additional award of $3065.37 is maintained as this is not at issue on this Appeal, for a total award of damages as $65,772.42.
The Costs Appeal
[38] Given the decision on the award of damages, leave must be granted for the costs order, and the costs order set aside.
[39] At trial, Pinnacle sought costs, on a partial indemnity basis, of $34,829.27. Counsel for Canac submits that $30,000.00 would be appropriate. I agree with this latter submission. Canac shall pay costs of the trial to Pinnacle in the amount of $30,000.00, all-inclusive.
Costs of the Appeal
[40] For this appeal, counsel agree that the successful party shall be awarded costs in the amount of $9000.00. Canac shall pay this amount to Pinnacle.
[41] I thank both counsel for their helpful materials and for their competent submissions.
CONLAN J.
___________________________ J. WILSON J.
THORBURN J.
RELEASED: April 22, 2016
2016 ONSC 2640
DIVISIONAL COURT FILE NO.: 459/15
DATE: 20160422
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
J. WILSON, THORBURN and CONLAN JJ.
B E T W E E N :
PINNACLE MILLWORK INCORPORATED Plaintiff (Appellant)
– and –
KOHLER CANADA CO., carrying on business as CANAC KITCHENS Defendant (Respondent)
REASONS FOR JUDGMENT
CONLAN J.
RELEASED: April 22, 2016