Court File and Parties
COURT FILE NO.: CV-18-610386 DATE: 20190410 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: GF MACHINING SOLUTIONS LLC, Applicant/Respondent on Motion AND: TECHNICUT TOOL INC., Respondent/Moving Party on Motion
BEFORE: Kimmel J.
COUNSEL: Ted Brook, for the Applicant Eric A.F. Grigg, for the Respondent
HEARD: March 21, 2019
Endorsement
Procedural Matters
[1] By a notice of application dated December 7, 2018 (the “Application”) GF Machining Solutions LLC (the “GFMS” or the “applicant”) seeks judgment against Technicut Tool Inc. (“Technicut” or the “respondent”) for payment of the unpaid balance of invoices issued between April 12, 2017 and September 16, 2018 (the “Invoices”). The Invoices were rendered under contracts confirmed by accepted quotes and purchase orders in August of 2016 and May of 2017 (the “Service Contracts”) for parts and services to be provided by GFMS to Technicut in respect of a HSM600U milling machine (the “Machine”) manufactured by GFMS that Technicut purchased used in 2010 from an independent distributor.
[2] GFMS is a New York company with its principal office in Illinois that carries on business manufacturing and servicing precision manufacturing equipment. Technicut is an Ontario corporation that provides custom machine services in the manufacture of intricate, precision components. Technicut’s operations involving the Machine are located in Windsor, Ontario.
[3] Technicut was served with the notice of application on December 11, 2018, delivered a notice of appearance on December 19, 2018 and commenced an action claiming that GFMS breached the Service Contracts and for unjust enrichment, negligence and/or negligent misrepresentation. That action was commenced in London, Ontario (where Technicut’s solicitors are located) by way of notice of action issued December 20, 2018 and Statement of Claim filed January 11, 2019 (the “London Action”).
[4] By Notice of Motion dated January 17, 2019, Technicut seeks to convert the Application to an action and require it to proceed to trial as a counterclaim in the London Action, or in the alternative that it be consolidated, or ordered to be heard together, with the London Action (the “Conversion Motion”).
Summary of Outcome
[5] For the reasons that follow, I am directing a trial of the whole Application (pursuant to Rule 38.10(2)) and that it be converted into and treated as an action. I am also directing (pursuant to Rules 6.01(1)(e) and 38.10(2)) that the matters raised by the respondent in the London Action be pleaded as a counterclaim in the newly converted action, on the terms and directions provided later in this endorsement that are intended to streamline and expedite the adjudication of the issues raised in both the Application and the London Action on their merits.
Matters in Dispute
[6] GFMS rendered 11 Invoices. A small payment was received the week before the hearing on account of work done on a discrete component of the Machine that is not disputed by Technicut, which reduced the amount of the judgment sought by GFMS from the $191,364.12 US claimed in the Application to the remaining balance of the Invoices, being $183,728.91 US.
[7] Technicut did not formally dispute the Invoices within 30 days of their receipt and it is not contending that the parts were not provided or that the hours indicated for the time spent by GFMS service technicians were inaccurately recorded, nor is it challenging the disbursement charges.
[8] GFMS maintains that because the Invoices and the delivery of the indicated parts and services are not disputed, there are no material facts in dispute and no issues of credibility to be resolved in connection with its claim for payment of the Invoices, and that the court should render judgment on its Application.
[9] Technicut maintains that there is a dispute, not about whether the parts were supplied or the work was done, but about the scope of the contractual relationship, which Technicut does not agree is limited to the delivery of parts and the service time dedicated to their installation. Technicut contends that it has no obligation under the Service Contracts to pay the Invoices until the Machine has been repaired to its full capacity, relying in part upon oral assurances and representations of GFMS, and relying in part upon implied contractual terms, that GFMS would supply appropriate materials and labour as required to effect the repair of the Machine in a good and workmanlike manner in accordance with accepted industry practices and within a stipulated budget and schedule, and that the parts supplied would be free from defects.
[10] Technicut further maintains that these contractual terms, assurances and representations were not fulfilled by GFMS. Technicut contends that this is evident from the fact that the Machine has not worked properly since in or about the time of the first Service Contract and relies on the fact that, even though the Machine tested within acceptable tolerances for a short time after the early repairs, this was not sustained and GFMS’s internal expert service technician has not been able to determine the cause of the problem or to remedy it. Technicut disputes:
a. the value of the services provided by GFMS as set out in the Invoices [^1]; b. that GFMS provided the necessary parts and/or services to repair the Machine; c. that the Invoices were rendered in accordance with the agreement between Technicut and GFMS in that GFMS failed to provide the services contracted for in a timely way (within a reasonable time), or at all; and d. that any amount is due and owing to GFMS once Technicut’s own damages (for loss of business revenue and profits and out-of-pocket expenses claimed in the London Action) are quantified and set off.
[11] Although Technicut has not yet determined and fully calculated its damages being claimed in the London Action, its representative deposed that its lost revenues exceed $329,297.78 CDN plus interest and taxes. Technicut claims that it has been without the use of the Machine for at least two years, and calculates its lost revenues based on an average of its annual revenues in the preceding years of $212,626.29 CDN. It acknowledges receipt of some insurance monies in 2018, in the amount of $103,799.79 (less a $15,000 deductible), but maintains that those monies were used to purchase a different machine to mitigate other potential losses on an ongoing project it had already committed to and needed to complete when the Machine was not operational.
[12] These matters in dispute are raised in the statement of claim in the London Action and elaborated upon in the evidence filed by the respondent on the Application and Conversion Motion. They are not just allegations or unsupported contentions, although Technicut acknowledges that expert evidence will likely be needed to properly adjudicate these matters, for example regarding the alleged negligence of GFMS in the performance of the repairs of the Machine under the Service Contracts, any defects in the parts supplied and to determine Technicut’s damages. [^2]
Inter-dependency of Disputed Matters
[13] GFMS does not concede the points of dispute that Technicut identifies (reinforcing that they are matters in dispute) but argues that because they are speculative in the absence of expert evidence, and none was tendered in response to the Application, these disputes should be left to be determined in the context of the London Action and should not interfere with the judgment that GFMS seeks in the Application for payment of the outstanding Invoices. GFMS insists that the Application can and should proceed without prejudice to Technicut’s ability to continue with the London Action should it wish to do so.
[14] GFMS also challenges the ability of Technicut to set-off its losses (in law or equity) and questions the timing and credibility of the claim for these alleged damages and allegations of breach of contract and negligence in the London Action, formally made only after receiving notice of GFMS’s Application. Technicut does not agree with the delineations that GFMS seeks to draw.
[15] It is Technicut’s position that, even though it did not commence the London Action until after the Application had been commenced, its complaints about GFMS’s performance under the Service Contracts and its position that this was a reason for not paying the Invoices had been disclosed in emails dating back to early 2018. I do not find (as the applicant urged me to do) that the London Action was tactical and disingenuous. The parties were in communication about these matters for a period of time. Although not legally formulated until the London Action, the concerns of Technicut and its reasons for not paying the Invoices should not have come as any surprise to GFMS. The Application is relatively new – only issued in December of last year. Technicut acted quickly to preserve and advance its claims in the London Action (albeit in a venue to which neither of the parties have any connection) and to bring the Consolidation Motion. This is not a case of undue delay or obvious defence tactics to derail the determination of the issues on their merits.
[16] I agree with Technicut’s position that these disputed matters are material to the fair and proper adjudication not only of the London Action but of the Application as well, and that the allegations in these two proceedings are inter-related and they need to be decided together or at the same time in order to avoid the possibility of inconsistent findings, including on matters of credibility about the terms of the Service Contracts, the assurances and representations Technicut relies upon and whether GFMS fulfilled them. This underscores Technicut’s position that no finding can be made that the outstanding balance of the Invoices is due and payable without implicitly or explicitly concluding that the Service Contracts did not contain the terms that it relies upon and claims were breached in the London Action, and its position that an order for judgment in the Application, even if it purports to preserve Technicut’s ability to pursue the damages in the London Action, cannot be made without compromising its position.
[17] On the matter of set-off, Technicut’s position is that there is a sufficiently close relationship between the dealings that give rise to the respective claims, and that the London Action does go to the root of GFMS’s entitlement to payment under the Service Contracts and is so closely connected to them that it would be manifestly unjust to allow GFMS to enforce payment without taking into account the matters raised in the London Action: see CBS Outdoor Canada v. Clarity Outdoor Media Inc., 2012 ONSC 2547, at paras. 41-43. The applicant’s position that the negligence claim can continue even if the contract claim is determined on the Application presupposes that the negligence claim is not related to the determination of the contract claim, but that is not so in the circumstances of this case.
[18] I also agree with Technicut’s position that there is a sufficient record before me to establish that there is a dispute about the terms of the Service Contract and whether GFMS fulfilled its obligations under them, as well as about whether Technicut has suffered any damages for which GFMS can be held responsible.
[19] GFMS seeks to have its claim for payment of the Invoices decided under Rule 14.05(3)(d) on the basis that it involves the determination of rights that depend on the interpretation of a contract, and/or under Rule 14.05(3)(h) on the basis that it is unlikely that there will be any material facts in dispute. In my view, once the defences raised by Technicut (as pleaded in the London Action and supported in the evidence filed before the court on the Application and the Conversion Motion) are taken into account, as they must be [^3], it is clear that this is not a simple matter of interpreting the terms of the Service Contracts (which, by the applicant’s own admission, were formed through a series of email exchanges of quotes and accepted purchase orders, the terms of which Technicut maintains are not all expressed in those exchanges), and it is also clear that there are facts in dispute requiring a trial.
Conversion Motion
[20] The case of Collins Barrow Toronto LLP v. Augusta Industries Inc., unreported, affirmed, 2017 ONCA 883 is relied upon heavily by the applicant for a number of points, including for the proposition (at para. 10) that a respondent on an application (who seeks to demonstrate that a trial is required and convert it into an action) must do more than just contend that a trial is required based on allegations of negligence but must satisfy the court, based on the evidence led by the respondent, that a trial is required.
[21] In the Augusta case, the court was not satisfied that the evidence was sufficient to raise a dispute requiring a trial for the court to be able to interpret the written engagement letters of the auditors (contract) in the absence of any reliable evidence (outside of hearsay and double hearsay) concerning the auditor’s negligence or any actual damages suffered by the applicant as a result. In contrast, in this case I am satisfied that there is sufficient evidence to raise genuine issues of dispute regarding the scope and terms of the Service Contracts and GFMS’s obligations thereunder, whether GFMS fulfilled its obligations within a reasonable time or at all, and, if not, the extent of lost business and profits suffered by Technicut. These matters are also relevant to the determination of the applicant’s claim for payment of the Invoices.
[22] I do not agree that a respondent is required in every case to put in the record in response to an application all evidence that would be available at trial, particularly in a situation such as this where the Conversion Motion is returnable at the same time as the Application. Applications and summary judgment motions have similar features but they are not the same (for example, although Rule 38 has been amended to track the same wording as Rule 20.04 in the test, being whether there is a genuine issue requiring a trial, Rule 38 does not afford the court the same fact-finding powers as are provided for under Rule 20.04(2.1)). I agree with Sachs J. in the case of Lin v. Brookfield Homes (Ontario) Limited, 2018 ONSC 7682, at para. 31, that: “Rule 20 and all that follows from it (including the obligation to put one’s best foot forward) does not apply to applications.”
[23] Firestone J. summarized the principles for the court to consider in determining whether to convert an Application (or an issue in it) into an action under Rule 38.10 in Przysuski v. City Optical Holdings Inc., 2013 ONSC 5709, at paras. 5-10, which I have considered and applied in this case as follows:
a. the issues to be determined go beyond the interpretation of a document; b. I am not able to make a proper determination of the issues on the application record (and do not think that it would be expeditious or efficient to require that the record be supplemented given the nature of the issues that will need to be determined); c. there are some issues of credibility that will have to be resolved in order to determine the nature and extent of any assurances or representations made by GFMS’s representatives to Technicut concerning the timeliness and effect that the parts and services provided would have on the continued operation of the Machine; d. there are facts in dispute that are material to the issues before the court, such as the terms and scope of the Service Contracts and whether or not GFMS was negligent in its performance of the work under those contracts; e. the alleged negligence and damages are complex issues that are expected to require expert evidence and/or the weighing of evidence that would be preferable to hear viva voce; f. pleadings, and certainly discoveries, would benefit the expert input that is expected to be sought.
[24] After reviewing and considering the record and the submissions of counsel, it is my view that this Application should be converted into an action. The applicant urged me to limit the issues to be tried and to order a 1-2 day trial of only those issues (as Rules 38.10(1)(b) and (3) allow for), while deciding the remaining issues. However, I am not satisfied that there are issues that can be decided now which will materially advance the determination of the issues in the case, or that doing so would be efficient, cost effective or proportionate in the circumstances.
[25] The primary position of Technicut on the Conversion Motion was that the Application should be ordered to proceed as a counterclaim in the London Action. I do not agree.
[26] Technicut’s counsel acknowledged that the London Action was only commenced in London as a matter of convenience to him and it is conceded that neither the parties, nor the subject matter of their dispute, have any connection to London. The Application was commenced first and the London Action is clearly a response to it so I am ordering that the entirety of the Application be converted into an action with GFMS as the plaintiff and Technicut as the defendant, and that the matters raised in the London Action be asserted as a counterclaim by Technicut in GFMS’s newly converted action, and that, in light of this, the London Action be stayed.
[27] I am also providing the following directions in order to avoid unnecessary costs or delay in the pursuit of the newly constituted action and counterclaim and with the overall objective of streamlining the action so it can proceed expeditiously. These are, for the most part, consistent with the terms suggested by counsel for Technicut at the hearing (which counsel for GFMS did not comment upon):
a. GFMS to issue and serve a statement of claim within 20 days (personal service is dispensed with and it may be served on Technicut’s current lawyer of record on this motion); b. Technicut to deliver its statement of defence and counterclaim within 20 days of service of the statement of claim; c. GFMS to deliver its reply and defence to counterclaim within 20 days of service of the statement of defence and counterclaim; d. the parties are to agree on a discovery plan within 60 days of the close of pleadings (the delivery of the reply and defence to counterclaim as provided for in (c) above, or the deadline having passed without delivery of such) that provides for, inter alia, timely delivery of affidavits of documents and examinations for discovery of the parties to be limited to no more than 5 hours each and to be completed within 180 days of the close of pleadings; e. the affidavits and cross-examinations of the adverse party that formed part of the record on the Application and the Conversion Motion may be used at trial in the same manner as an examination for discovery and will be treated as such, and the further examinations for discovery provided for in the discovery plan shall not be repetitive of the cross-examinations; f. any discovery or other pre-trial motions shall be delivered within 60 days of the last party’s examination for discovery, to be heard on the earliest available date taking into account counsel’s and the court’s availability; g. the requirement for mediation in advance of setting the action down for trial is dispensed with but the parties shall attend a mediation before the pre-trial conference; h. the action shall be set down for trial by no later than 120 days after the court’s decision on the pre-trial motions (or within 120 days after the date specified in (f) above for bringing such motions if none are brought); i. each party will provide a list of intended witnesses and a summary of their anticipated evidence at trial to the others as part of their pre-trial brief; and j. the parties shall comply with the Rules concerning any expert reports that they may seek to rely upon which might be on topics such as, without limitation, the alleged negligence of GFMS and Technicut’s alleged damages.
[28] If the parties have concerns about the timing or sequencing of the steps that are contained in the directions I have provided they may request a case conference with me to raise any such concerns for my further consideration.
Costs
[29] I agreed to allow the parties to make submissions on costs after the release of my decision. My preference would be for the parties to agree on costs, or agree that they be in the cause of the newly constituted action. Based on what I am currently aware of, I am of the preliminary view that this is one of the exceptions where ordering costs in the cause seems to be appropriate. It was not unreasonable for GFMS to have brought the Application before having a full appreciation of the response (even though the response has now led me to conclude that it should be converted to an action). Technicut, while successful in having the Application converted to an action, did not get the full relief it sought and arguably the relief was available as part of the court’s directions under Rule 38.10 and did not require a separate motion. Given that neither party’s position was wholly successful, and that my directions are intended to maximize the utility of the efforts of the parties to date in the continuing action and to expedite the determination of the issues raised in the action and counterclaim, the costs seem to be more appropriately addressed in the cause of the converted action.
[30] However, I appreciate that there may be additional facts about which I am unaware (or do not appreciate the significance of) so I will still allow the parties to make submissions on costs if they are not able to reach an agreement based on the guidance I have provided. If the court has not been advised that the parties have reached an agreement on costs by April 23, 2019 then they shall exchange their respective costs outlines with a brief submission as to costs (of no longer than 3 pages double spaced) on or before May 3, 2019 and they each may respond to the other’s costs outline and submission in a reply (of no longer than 1.5 pages double spaced) to be exchanged on or before May 13, 2019. All costs outlines and submissions should be served on the opposing parties and delivered to my attention at Judges’ Administration, Superior Court of Justice at 361 University Avenue (Room 170), Toronto, Ontario M5G 1T3. If no costs outlines and submissions have been delivered to the court by May 13, 2019, and in the absence of the parties having requested and been granted an extension for making their costs submissions, the costs will be deemed to have been settled.
Kimmel J. Date: April 10, 2019
[^1]: With the exception of the small amount paid in March of 2019. [^2]: At the hearing, Technicut sought, in the alternative to the relief sought on its Conversion Motion, for an adjournment to allow it to file further evidence, specifically expert evidence, on the merits of the Application (if it was going ahead). The essence of Technicut’s position was that it had refrained from seeking out an expert affidavit on the alleged negligence of GFMS in the performance of its contractual duties (in support of its claims for fundamental breach of the Service Contracts and/or breach of their implied terms and/or negligence) or on its damages because it was premature to do so. If the Conversion Motion succeeded, it was anticipated that the claims would proceed in a co-ordinated fashion in an action that would allow for discovery before completion of expert reports. Given my ruling herein, it is not necessary to rule on this request for an adjournment but I note in passing that I would have granted it as I consider this approach by Technicut to have been reasonable in the circumstances, particularly since this Application was only commenced a few months ago and I was not made aware of any particular urgency aside from the applicant’s understandable desire to have it finally determined. [^3]: While the applicant may have been of the view when the Application was commenced and before having a full appreciation of what the respondent’s position would be that this dispute did fall within the prescribed types of cases that might be appropriate to proceed by way of Application under Rule 14.05, in determining whether it is appropriate for the court to decide the matter under this summary procedure the court must consider what the respondent has to say in its pleadings and evidence.