COURT FILE NO.: CV-12-470161/CV-12-470161-A1 DATE: 20230530 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

THE NORTH WEST COMPANY LP Plaintiff/Defendant by Counterclaim – and – CLASSIC FURS COMPANY LTD. Defendant/Plaintiff by Counterclaim

• and- JASON WHITE, J. DOE #1, J. DOE #2 and J. DOE #3 Third Parties

Counsel: N. Businger and J. Brodski, for the Plaintiff/Defendant by Counterclaim and Third Party Jason White I. MacLeod, for the Defendant/Plaintiff by Counterclaim and Third-Party Claim

Heard: September 12-26, 2022

P.T. Sugunasiri J.

Reasons for Decision

[1] This dispute arises from a business arrangement made in late 2010 between North West Company LP (“NWC”) and Classic Furs Company Ltd. (“CF”) for the supply of coyote furs ultimately used by Canada Goose for its apparel. NWC acquired its business from The Hudson’s Bay Company in or about 1978 and carried it on in Canada for over 200 years until it was wound down in 2019. CF is a private Ontario company that buys, manufactures and sells fur and leather goods to Canadian and international customers.

[2] NWC obtained raw furs from trappers directly and at auction, sent them to the United States be “dressed”, and sold the dressed furs to CF who would then cut them into strips of various sizes to sell to Canada Goose. In 2010, NWC began to supply some dressed furs to CF and they had a good start to a business relationship. At the end of 2010, CF’s President, Cezar Gajos, and NWC’s Director of Inuit Art and Fur Marketing, Jason White, met to expand the business relationship. On a handshake, Gajos and White decided to continue the business relationship into 2011. In 2011, CF had an open purchase order from Canada Goose.

[3] The relationship began to sour in late February/early March of 2011 when Gajos became concerned about both the quantity and quality of skins that NWC was providing. Gajos claims that the meeting in December of 2011 culminated in NWC agreeing to provide 15,000 furs good quality furs at a fixed cost of $64.00 with no payment due until January of 2012 and no interest accruing. As time went on the price of the furs increased from $64 and Gajos began to reject lower quality furs he felt he could not use. Despite his concerns, CF continued to pay the invoiced amounts. In or around May of 2011 Gajos also became suspicious of the accuracy of certain NWC invoices. Ultimately CF stopped paying NWC and the relationship ended in December of 2011.

[4] NWC sues CF to recover $337,424.61 in outstanding invoice payments. CF counterclaims for damages in the amount of $700,000 for breach of contract, conspiracy, deceit, and fraudulent or negligent misrepresentation. The parties agree that NWC did not in fact supply 15,000 coyote furs in 2011. NWC otherwise disputes CF’s allegations including the existence of a verbal contract. CF has also sued Mr. White for fraud and deceit in a third-party claim that was heard together with the main action.

Brief Conclusions

[5] In December of 2011 NWC and CF entered a contract where NWC agreed to supply CF with 15,000 coyote furs at a fixed price of $64/unit and at a quality appropriate to make trims for Canada Goose apparel (“2011 Supply Agreement”).

[6] NWC breached the 2011 Supply Agreement when it failed to deliver 15,000 furs.

[7] NWC breached the 2011 Supply Agreement when it increased the unit price above $64.

[8] NWC and CF agreed that CF could reject poor quality furs from March/April 2011 onwards. Aside from Disputed Invoice #2491 where the I find NWC provided lower quality furs, NWC did not breach its agreement to provide furs of the quality agreed to and required by the Sale of Goods Act.

[9] Of the Disputed Invoices, CF is relieved from paying Invoice numbers 2654 and 2587 because I am not persuaded on the evidence that it is more likely than not that NWC delivered those furs.

[10] NWC does not owe CF payment for the 1000 earmuffs because CF bundled them with other items and sold them to another buyer. CF has not provided a method to calculate any loss suffered from the bundled sale.

[11] I dismiss CF’s claim of negligent misrepresentation because White did not represent anything that was untrue, misleading or inaccurate at the time he entered into the 2011 Supply Agreement and CF did not rely on the representations to its detriment that then caused a loss.

[12] I dismiss CF’s claim of fraud and deceit against NWC and the third-party claim against White. While the record does reveal some unusual accounting practices by White and his team, I do not find on a balance of probabilities that White intentionally misrepresented anything to Gajos that caused him to act in a way that caused a loss. I find White held an honest belief that NWC could supply the furs CF needed.

[13] I dismiss the conspiracy claim because I do not find that White conspired with Gray, Scott or NWC to defraud or harm CF.

[14] Beyond adjusting the quantum of some of NWC’s invoices, I award limited damages to CF for its lost opportunity from the breach of the 2011 Supply Agreement because it has not provided a reliable foundation to fix damages, and it tendered little evidence of mitigation.

A. Classic Furs and North West Company entered a verbal contract at the end of 2010

[15] NWC offers three tests to apply in determining whether the discussion in December of 2010 lead to a binding contract:

1. Was there an offer by Mr. Gajos on behalf of Classic Furs, an acceptance of the offer by Mr. White on behalf of North West, consideration and an objective intention to enter into legal relations? [1]
2. Had the parties reached agreement on all of the essential terms of the contract? [2] and
3. Can the contract, if it exists, be interpreted in accordance with sound commercial principles and good business sense, or does any possible interpretation give rise to commercial absurdities, in which case, the contract ought not to be upheld? [3]

[16] CF offers the test particular to oral contracts as held by the Court of Appeal in S & J Gareri Trucking Ltd. v. Onyx Corporation:

[7] The trial judge applied the correct principles applicable to the interpretation of contracts in general and to oral contracts in particular. He held that when dealing with contracts which are substantially or wholly oral: (i) it is necessary to distill from the words and actions of the parties what they intended: see G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011) at 16; (ii) evidence of the parties’ subjective intentions has no independent place in determining the terms of their bargain: Eli Lilly & Co. v. Novopharm Ltd., 1998 SCC 791, [1998] 2 S.C.R. 129 at para. 54; (iii) the test of what the parties agreed to requires an objective determination; and (iv) the contract must include the requisite elements of offer, acceptance and consideration. [4]

[17] The Sale of Goods Act also applies to the supply of coyote furs from NWC to CF. Section 4 contemplates a contract of sale to be by word of mouth wholly or partly, or entirely implied from the conduct of the parties. Section 6 provides that the “goods” may be goods to be acquired by the seller after making the contract. Where a seller is effecting a present sale of future goods, as in this case, the contract operates as an agreement to sell the goods. Finally, the SGA imposes implied conditions on the sale of goods – namely that they are fit for purpose and merchantability (section 15) and correspond with sample goods.

[18] By virtue of the SGA and on either party’s legal principles, I conclude that Gajos and White formed a contract between NWC and CF, at their December 2011 meeting. The contract was for NWC to supply 15,000 skins of the quality needed to make strips for Canada Goose, at a price of $64/unit. It was a volume sale with a bulk discount that White gambled on in the hope of growing the division’s business. NWC urged the court to consider commercial reasonableness. It is within the spectrum of commercial reasonableness for a salesman to secure a large order in exchange for a fixed price. On the evidence, White accounted for potential fluctuations in the fur market and believed he could secure the furs before any major fluctuations occurred. It is also commercially reasonable that a large sale at a fixed price could net a high return than a smaller order at market prices.

[19] The parties agree that White and Gajos met to discuss expanding their business relationship for 2011. They discussed significantly increasing the volume of business that would be transacted between the two companies. Despite his initial testimony on the issue, White agreed in cross-examination that he received an order from CF for $10,000 dressed coyote skins and that he accepted it. This is somewhat corroborated by an email that he sent McMullen on May 28, 2011, White stated “Last fall, Canadian manufacture, Classic Furs, ordered approximately 10,000 coyote skins for a trimming order for Canada Goose…” I say somewhat because of the use of the word “approximate”. I find White’s approach to business in general, was to be less precise and that he did what he could to keep all the balls in the air. I will touch on this theme as I continue.

[20] Gajos’ wife, Beata Gajos, supported his evidence that NWC and CF had come to an agreement for 2011. She is a 20% shareholder of CF and focused primarily on the invoicing side of the business. Mrs. Gajos recalls Gajos telling her that he had obtained a $1million dollar contract to obtain coyote furs for a locked-in price. A week before Christmas the Gajos family celebrated the contract in Mexico where they discussed the deal.

[21] As in all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred based on the evidence. [6] In this case the exercise is more difficult with events occurring eleven to 12 years ago and little corroborating documentary evidence. What can be memorable however are family trips and family milestones. It is reasonable that Gajos and Beata Gajos who run a family fur business would recall the triumph of securing a source for a large order that went a long way towards CF being able to make good on an undertaking to Canada Goose to produce 12,000 strips per month in 2011. Gajos testified that a good quality coyote pelt from NWC would normally yield 8-10 strips. Doing simple math, this means that CF needed approximately 1200 skins per month amounting to 14,400 for 2011. I accept Gajos’ evidence as to how many strips a good quality fur from NWC would yield because he himself cut the strips. The math based on that evidence bolsters his evidence that he ordered 15,000 strips. I accept his figure.

[22] Counsel raised an objection as to the manner of the direct examination. I agree that that Court of Appeal has made it clear that leading questions on contentious issues can undermine the probative value of the evidence. [7] While there were some leading questions on material issues, there is a fine line between controlling a witness to maintain an efficient and effective direct examination and leading the witness. With respect to the meeting in December of 2010, the questioning remained on the right side of that line, and I prefer Gajos’ evidence.

[23] Even if I were to accept White’s figure on the basis that his email to McMullen is the best contemporaneous evidence of the number of furs ordered, I conclude that White and Gajos entered a binding oral contract at the December meeting. White agreed that CF placed an order and her accepted it. He agreed that many dealing in the fur business were concluded on a handshake. NWC argues that the difference in the numbers is material because it demonstrates that there was no meeting of the minds on an essential term. I disagree. There is a difference between the parties not agreeing to an essential term and the parties having a different recollection of it. Given the passage of time, both White and Gajos are relying on documents, their review of discovery transcripts and a formed narrative in their mind as to what happened at the 2010 meeting. Even accepting White’s number is a distinction without a difference to the analysis of whether there was a contract. At minimum, White agreed to supply CF with 10,000 furs, an amount that NWC agreed it did not come close to supplying.

[24] This takes me to the quality of furs. I accept CF’s position that part of the 2011 Supply Agreement was that NWC would provide furs of the quality needed for the Canada Goose strips. White was an experienced furrier, having been with NWC since 2008 and working for his family fur business prior to that. By the time of the December meeting White knew that Gajos was looking for high quality furs to fill a large Canada Goose order. I accept that they discussed the furs that CF received in 2010, their quality and suitability for Canada Goose trim. As Director of Inuit Art and Fur Marketing at NWC, White dealt with fur marketing branches in Wetaskiwin, Alberta, Prince Albert, Saskatchewan, and Ontario. He dealt with approximately 130 stores, of which roughly 95 bought directly from trappers. I accept that White expected, and in fact did obtain furs intended for CF, “in country” – meaning from Canadian trappers that NWC worked with. These furs were largely from western Canada and typically thicker and bushier than skins sourced from Montana and other US states. I find that White knew and appreciated that the “in country” skins were the type that NWC had provided CF in 2010 and that CF was expecting under the 2011 Supply Agreement.

[25] I also find that CF locked in a unit price of $64/unit. Gajos testified that at the December meeting, he told White he was going to use 20,000 to 25,000 coyote skins in 2011 to service Canada Goose. He was happy with the quality of the skins that NWC provided in 2010. White told him he had a $3 million budget for the fur department that “he was the boss of”. According to Gajos, White said if Gajos committed to buying furs on that day, NWC would be able to buy the furs CF needed from trappers “in the country” and that would not affect the future price of coyote furs. White suggested that NWC be the sole supplier for 2011 but Gajos did not want to risk having only one supplier for 2011 given the size of the Canada Goose order. At the end of the negotiation, White, on behalf of NWC, agreed to supply 15,000 furs in 2011 of the same quality as provided in 2010, at a fixed unit price of $64.00.

[26] While White testified that he offered the price that was the rate in December of 2010 but that he would not have “put his neck on the line” to guarantee a price in a fluctuating market, I find that White did put his neck on the line to hustle a supply deal that was on its face, a golden opportunity to tap into the Canada Goose supply chain. He was excited about the partnership with CF and later with a potential direct partnership with Canada Goose. He wrote to McMullen that finally Gordon Gray’s group was being recognized as the premier supplier of quality coyote furs. White also stated that he would not have agreed to a fixed unit price because the cost of furs fluctuate depending on “Mother Nature”. I find that he did agree to a unit price because at the time he was negotiating with Gajos, he thought the average unit price of a coyote fur was $30. In an email he sent to McMullen dated May 28, 2011, White explained that he always based his budget figures on closing fur market levels the year before. The fur buying season is November to March of a given year. As such, White’s projections and budget for 2011 were based on 2010 fur buying prices. White stated in his email to McMullen that the cost of a fur in 2010 was on average $30/unit. In other words, at the time of the December 2010 discussion, White would have based his profit calculations for 2011 on this unit price. It is commercially reasonable that White would agree to a unit price of $64, especially for such a large order, which he testified, was the largest order ever made. And indeed, White confirms in the May 28, 2011 email that he had secured at least 10,000 furs for the CF order before prices went up. Both White and Gajos considered price fluctuations when striking the deal. White thought NWC would be making a sizeable profit and Gajos was able to lock in at a price that suited CF. At the end of the buying season (March of 2011), White realized that prices had doubled to an average of $60/unit, which he agreed in cross-examination gave rise to an opportunity to make more money by selling to someone other than CF, or unilaterally increasing the price to CF. White chose the latter. At the beginning of April 2011, he increased the price of the furs that he had already bought for CF, from $64 to $73.

[27] I accept Gajos’ evidence that he and White also discussed payment terms. Gajos recalled that they did discuss payment at the December 2010 meeting when White said “you’re okay” if CF paid by January 2012. He further testified that White said he would appreciate it if Gajos sent him a cheque from time to time. White acknowledges in a draft email to Gajos in January of 2012 that “10 months ago” he had agreed to defer payment until January of 2012. This would put such an agreement to March of 2011. Following the theme of White’s testimony, I found him to be imprecise throughout the trial. I prefer Gajos’ version of events. Nothing much turns on the issue because NWC does not claim interest on the unpaid invoices.

[28] I conclude that in December of 2010, NWC and CF entered the 2011 Supply Agreement for the supply of 15,000 high quality coyote furs at a fixed price of $64/skin. An implied term of the contract was that the skins would be of sufficient quality to make strips appropriate for Canada Goose apparel. Payment was due by January of 2012.

B. North West Company breached the 2011 Supply Agreement

Quantity breach

[29] In its counterclaim, CF alleges three breaches of the 2011 Supply Agreement. First, NWC failed to deliver even close to 10,000 furs, let alone the 15,000 ordered. I agree this is a proved breach. NWC agrees that it did not deliver this amount.

Unit Price breach

[30] Second, NWC increased its price in April of 2011, contrary to the 2011 Supply Agreement. The fact of the increase is not disputed in NWC’s pleading nor in the evidence. From April 5, 2011, to December 5, 2011, NWC charged between $71 and $73 per fur except for deliveries made on May 12th and June 16th. Gajos agreed in cross-examination that he reluctantly agreed to the increase in price because he was hungry for skins in order to fulfill Canada Goose’s open order. I accept Gajos’ testimony that he did what he had to do to secure the furs he needed. NWC did not argue nor plead, in any event, that Gajos’ agreement to accept skins and pay for them at a higher price amounted to an amendment to the 2011 Supply Agreement, acquiescence, or waiver. I find that NWC breached the 2011 Supply Agreement by increasing its price.

C. CF has not proved that the furs it accepted from NWC were below standard

[31] Third, CF alleges that some of the furs delivered were below the quality necessary for the Canada Goose trims. CF has not proved this allegation because Gajos cannot possibly have a reliable recollection of the deliveries and CF has not produced any records to support his evidence. NWC and CF executed the 2011 Supply Agreement through delivery and invoicing. White’s co-workers, Gordon Gray and Robert Scott, would together or individually deliver furs to CF’s factory in Mississauga. Scott and Gray testified, and I accept, that whoever delivered the furs would attend at CF with two invoices in hand, one to be signed by Gajos and returned to Scott or Gray to file with NWC, and one left with Gajos. Gajos had a small office at CF and kept the NWC invoices in a folder on his desk once he received them. Mrs. Gajos was the bookkeeper and had a coloured dotting system to keep track of invoices that CF processed and paid.

[32] The deliveries began on January 25, 2011. In March of 2011, Gajos testified that he received a two-box delivery with poor quality furs and rejected them all. At that time, he and White agreed that he was at liberty to reject any furs that he was not satisfied with and would only be charged for those that he kept. From April to December of 2011 Gajos kept skins he could work with and rejected others. The only reliable evidence is the invoices themselves that show the furs that Gajos accepted, subject to the five disputed invoices that will be discussed below. The documents speak for themselves and show the items delivered, the date of delivery and the amount owing. White confirmed that none have been paid to date. CF agrees that it stopped paying after it suspected fraudulent activity with respect to invoicing. Absent further evidence from CF, it is more likely than not the NWC continued to deliver furs of the quality required by CF, or at least ones that CF found to be good enough. I do not accept Mr. Gajos’ evidence on the overall quality of the furs that NWC delivered. I do not find he had an independent recollection of the quality and that his answers to counsel were rehearsed and mechanical.

[33] Even if I am incorrect in my reliability assessment, I do not accept CF’s proposed discount methodology. Gajos testified that when he received poor quality furs, they would only yield four units of trim. Mrs. Gajos testified that it would also take longer to process the skins to prepare them for Gajos to cut the trim. Gajos estimates that the lesser output and longer time amounts to a 60% discount. There is no documentary evidence or books and records from CF that records the condition of furs received, no delivery slips to Canada Goose showing a shipment of fewer trimming pieces in months where furs were alleged to have been poor quality, and no other corroborating evidence. One would think that CF would have kept track of what they shipped to Canada Goose and how much trim they produced in a given month. That would have bolstered the reliability of the assertions. I am not persuaded by the oral evidence of CF’s witnesses, which in my view is nothing more than estimates of what might have happened.

[34] In sum, NWC breached the 2011 Supply Agreement by failing to deliver 15,000 furs and by charging more than $64/fur in 2011. On the main action, NWC is entitled to payment on the unpaid undisputed invoices at a unit rate of $64. On CF’s counterclaim, it is entitled to set off its debt to NWC with the amounts it overpaid on the invoices. I summarize the undisputed invoices in the following chart which shows which ones remain unpaid:

Invoice No.	Invoice Date	Listed Amount ($)	Stated Quantity	Quantity Received by Classic Furs	Amount Paid by Classic Furs to North West ($)
111307	25-Jan-11	3,955.00	1	1	0.00
D111308	25-Jan-11	3,955.00	57	0	0.00
2458	25-Jan-11	19,456.00	304	304	19,456.00
2467	25-Jan-11	4,542.60	201	201	4,542.60
2530	5-Apr-11	11,017.50	130	130	11,017.50
2531	5-Apr-11	49,494.00	600	600	49,494.00
2547	28-Apr-11	34,645.80	420	420	0.00
2559	12-May-11	19,467.64	236	236	0.00
2560	12-May-11	1,689.35	23	23	0.00
2561	12-May-11	17,332.90	210	210	0.00
2582	13-Jun-11	22,272.30	270	270	0.00
2586	16-Jun-11	3,616.00	80	80	3,616.00
2585	17-Jun-11	15,755.59	191	191	0.00
2598	11-Jul-11	17,652.86	214	214	0.00
2600	13-Jul-11	15,838.08	192	192	0.00
2606	20-Jul-11	15,920.57	193	193	0.00
2611	4-Aug-11	10,723.70	130	130	0.00
2619	12-Aug-11	16,827.96	204	204	0.00
2621	16-Aug-11	16,003.06	194	194	0.00
2625	17-Aug-11	15,260.65	185	185	0.00
2653	9-Sep-11	18,773.82	234	234	0.00
2673	10-Oct-11	15,644.85	195	195	0.00
2700	3-Nov-11	8,985.76	112	112	0.00
2742	5-Dec-11	1,925.52	24	24	0.00
Total		356,801.51 [8]	4,543 [9]		194,581.14

[35] This chart reflects paragraph 6 of the Amended Statement of Claim, as well as the other invoices that CF asserts that it paid (paragraph 19 of the Defence). There is a dispute with respect to D111307, but it relates only to invoicing practices rather than any denial that the invoice relates to a sculpture that Gajos purchased for $3500 plus HST and has not yet paid. From my review of Appendix “B” to CF’s written closing submissions, the only invoice of this batch that CF is due a refund to offset what is owing is Invoice 2531 dated April 5, 2011. CF was charged $73/unit instead of $64 and paid the invoice at the $73 rate to secure the furs needed to fulfill the demand from Canada Goose. I leave it to the parties however to verify my chart and calculations. The underlying finding is that all invoices should be adjusted to have a unit price of $64.

[36] This takes me to the disputed invoices and the question of whether any amounts are owing on those. CF claims that it did not receive the quantity of furs reflected in those invoices due to a fraudulent conspiracy involving White, Gray and Scott.

D. The Disputed Invoices

[37] I summarize the issues over the disputed invoices in the following chart taken from the parties’ materials:

Invoice No.	Invoice Date	Listed Amount ($)	Quantity Received (per North West)	Quantity Received (per Classic Furs)	Amount Paid by Classic Furs to North West ($)
2491	25-Feb-11	106,455.04	1,472	265	106,455.04
2551	4-May-11	30,933.75	375	75	0.00
2587	16-Jun-11	18,560.25	225	0	0.00
2654	9-Sep-11	19,255.20	240	0	0.00
Total		175,204.24	2,312	340	106,455.04

[38] Having found there to be an overarching contract between NWC and CF for the delivery of coyote furs, I agree with CF that each invoice was simply a record of delivery. Gajos, Scott and Gray testified that Gajos would sign the invoices to confirm receipt of goods. Payment was a term of his arrangement with White and Gray and Scott agreed that it was White’s account. The issue for each invoice is whether CF received the furs reflected in the invoice.

CF is entitled to a refund on invoice #2491 to reflect a per unit price reduction due to receipt of lower quality skins

[39] The evidence of White, Gray, Gajos and Scott was that deliveries of furs were made to CF’s factory in Mississauga. Either Scott or Gray would bring two copies of an invoice for each delivery. One was signed by Gajos to acknowledge receipt and the other was left with CF. Gajos and Mrs. Gajos testified that their copy of the invoice was left in a folder on Gajos’ desk. Mrs. Gajos had a dot system. Fully paid invoices would have both a yellow and blue dot. The invoices with a yellow dot meant that the cheque was cashed – something Mrs. Gajos paid close attention to because sometimes cheques were cashed later. She would double check all the payments with CF’s bank statements.

[40] The parties tendered three versions of invoice #2491 – the one retained by CF reflecting a sale of 1472 furs with only 265 furs delivered on February 25, 2011, but fully processed with a payment for the 1472 furs, one retained by NWC with notations from Gray indicating two subsequent deliveries in March, and a scan of one that was marked up by White, reflecting two subsequent deliveries in March. CF alleges that it never received the March deliveries.

[41] Gajos testified that Gray and Scott arrived with a fur delivery in March. He opened two boxes and was shocked at their poor quality. Gajos maintained on cross-examination that he did not accept any furs in March. When counsel suggested to him that he does not have an independent recollection of that delivery, Gajos maintained that he did. Gajos also testified that at this time he was under pressure from CG to deliver trim under the open order. He called White to complain of the quality. White agreed that after Gajos called him about the poor quality of the March furs, they decided that CF could reject furs that Gajos believed to be sub-standard. Gray identified his writing and signature confirming is March deliveries made in March and completing of the order. Aside from Gray’s signature and Gajos’ signature at the bottom of the page, no one knew for sure whose made the marking above the words “order complete”. The handwriting expert, Mr. Ospreay, opined that the marking was likely not that of Gajos’. Ospreay’s opinion is of little assistance because there is no evidence beyond inference and conjecture that the marking is Gajos’ signature. In any event NWC is not relying on that marking as proof that CF received and accepted the full delivery.

[42] This takes me back to the problem I first flagged in this case of the reliability of the parties’ recollection of events from 2011. None of the parties have a truly independent recollection of the events despite Gajos maintaining that he did. I agree with NWC counsel that in this area of questioning they were lead through the evidence or at the very least, the evidence was rehearsed and told a story that Gajos and Ms. Gajos had come to believe over the years. This diminishes the value of their testimony. The best evidence is the contemporaneous documentary evidence which most likely gives an accurate picture of what happened in March of 2011. Focusing on the documentary evidence, I find it more likely than not that Gray completed the delivery reflected on Invoice #2491. As Mr. Businger suggested to Gajos in cross-examination, it is more likely than not that Gajos, desperate for furs, accepted the order and worked with what was delivered. Of note is Mrs. Gajos’ blue and yellow dot system. The copy of the invoice retained by CF found at exhibit 2 show both the blue and yellow dot. CF’s accounting records show a payment of invoice 2491 by cheque # 4284, not cheque 4176 that Gajos said he initially gave to White to show McMullen but then ripped up. Mrs. Gajos was careful in her processing and payment. I find that she paid invoice #2491 in full because they received the full shipment, regardless of quality. Gray’s email to White on March 21, 2011, also supports NWC’s submission that it completed the delivery for invoice #2491. I do not find that Gray’s email is fraudulent or part of a scheme to defraud CF. I will discuss the alleged fraud further in the decision.

[43] The next question is whether CF should receive a discount for the remaining 1207 of the 1472 furs received due to poor quality? NWC seems to accept that CF was likely able to produce less trim from those furs when Mr. Businger asked Mrs. Gajos: “I suggest to you that Cezar did accept a large number of skins in March and that the skins were damaged and that it took longer to work with the skins he accepted, producing fewer strips?” Counsel’s question is not evidence, but it is telling of NWC’s position. I rely on and accept from the evidence that Gajos found the March shipment to be of lower quality because White agrees that they discussed the quality of the furs in and around this time and agreed that Gajos could reject future furs that were not suitable. I conclude that CF would have accepted the March shipments as is but is entitled to a reduction. CF is entitled to a price reduction for the 1207 delivered in March from $64/unit to $40/unit – an amount that Gajos stated might have been the value of the lower quality furs delivered by NWC.

[44] I discount the shipment in March of 2011 and not the subsequent shipments that CF received through the rest of 2011 because March was a turning point. In March CF and NWC had not yet agreed that CF would be able to reject poor quality furs. After March CF was able to do so and it is on this basis, and absent probative evidence to the contrary, that I rejected a similar discount for furs received in the subsequent months.

CF owes NWC payment for 375 furs delivered under Invoice No. 2551 at a price of $64/unit

[45] On May 4, 2011, NWC delivered furs to CF. The printed invoice that Gajos signed only reflects 75 dressed coyotes were delivered. NWC’s version reflects 375 furs delivered, with the number “3” added in White’s handwriting to the printed 75. Gajos agrees that no one has an independent recollection of how many furs were delivered that day. White testified that Gray informed him that 375 were delivered. NWC’s fur marketing division created invoices through a computerized system that was populated by either White, Gray or Scott. In this case, NWC argues that 75 was mistakenly populated. The best corroborating documentary evidence is a concurrent email from Gray to White confirming that he delivered 375 furs to CF that day. In the circumstances, it is more likely than not that Gray delivered 375 furs that day. CF owes NWC the contract price of $64/unit for 375 furs.

CF does not owe payment for invoice #2587

[46] On June 17, 2011, NWC Invoice #2585 reveals that it delivered 191 furs to CF. The initial delivery was for 225 furs, but Gajos rejected 34 of them. Gajos signed the invoice to acknowledge receipt as was normal practice. CF later received a statement of account dated June 27, 2011, that revealed Invoice #2587 purporting to deliver another 225 coyote furs on June 16, 2011. Scott testified that he delivered these goods.

[47] Scott suggested in his testimony that he made two deliveries and confirmed as much in an email sent after litigation had commenced. I do not accept that he has an independent recollection of what happened. His testimony was inconsistent on the issue, as was White’s. Gajos marked one copy with the word “fake”. No version of Invoice #2587 is signed. The only evidence of delivery is a note dated June 16, 2011, signed by Gajos that suggest 225 coyotes were delivered under Invoice #2587. The note is in Scott’s handwriting. Gajos claims that the invoice number was entered afterwards. Scott denies the allegation.

[48] Gajos’ explanation is more plausible. He testified that Scott delivered 225 furs on June 16, 2011. CF rejected 34 of them, as was his agreement with White. Scott collected the rejected furs the next day and Gajos signed Invoice #2585 dated June 17, 2011, noting 191 furs. This aligns with the overall delivery practice on the accepted invoices. I do not accept that either Scott or Gray waited while Gajos inspected the furs. It does not make commercial sense. Even at 1 minute per fur, a shipment of 225 would take 225 minutes. That Scott or Gray waited in CF’s small factory during the inspection is not reasonable. On this point, I err on the side of Ms. Gajos, another CF worker, Ms. Wozniak, and Gajos himself who were adamant that neither Scott nor Gray were generally present when Gajos went through the furs unless like in March of 2011, the poor quality of the furs was immediately obvious.

[49] NWC has not persuaded me that it is more likely than not that they delivered a second batch of furs on June 17, 2011. There are multiple versions of invoice #2585. There are multiple versions of Invoice #2587. At that time White was juggling to meet the demands of the order and satisfy McMullen and NWC’s controller to justify increases to his budget. These accounting anomalies may relate to those stresses, or they may show actual deliveries made. On the current record, NWC has not persuaded me that it delivered two identical orders of 225 furs on two consecutive days. On this basis it is not entitled to collect on the invoice.

CF does not owe payment on invoice #2654

[50] On September 9, 2011, Scott delivered furs to CF’s facilities. Invoice #2653 reflects the delivery of 240 furs which Gajos signed for. Gajos testified that after inspection, he rejected six and advised Scott of it. Scott came back the same day to take back the six rejected furs and brought with him a new invoice #2653 to reflect 234 furs. Gajos signed the second invoice. Scott had not brought the original Invoice #2653 with him and Gajos made a note to himself on the back of invoice #2653 that Scott would destroy the version reflecting the 240 furs.

[51] Later that day, White faxed Gajos a note attaching the statement of account that included an invoice #2654 for 240 furs. It first appeared as Invoice #2653 but with that number crossed out and #2654 written in by Scott. NWC later generated a printed invoice from its Excel program. The version of the invoice with Scott’s numbering contains Gajos’s signature. Scott and White testified that due to the capacity of the delivery van, Scott made a second delivery of 240 furs on the same day. He forgot to bring an invoice and so he did a handwritten change and NWC generated a printed invoice later to reflect the delivery. Gajos did not receive a copy of the actual invoice until December of 2011 when he wrote the word “fake” in the copy he received.

[52] I accept Gajos’ version as the more harmonious one based largely on the documentary evidence. The fact that the first Invoice #2653 showed a delivery of 240 coyotes followed by a second invoice showing a reduction in furs to 234 aligns with Gajos’ testimony, as does his note that he wrote on the back of his copy. It is possible that when Scott went to pick up the 6 damaged furs he delivered an additional 240 additional furs, having split the load. However, on the existing record I cannot conclude on a balance of probabilities that he did so. NWC is not entitled to collect on Invoice #2654.

CF owes $3500 for purchase of Inuit Art

[53] There is no dispute that Gajos purchased an Inuit art sculpture from White for $3500. It was initially reflected in Invoice #D11137 and later reflected as a fur sale in Invoice #D11138. CF speculates that the change in the invoice reflects White’s scheme to create fake invoices for his own benefit or to appease McMullen to justify his increased budget. I agree with NWC that regardless of how the invoice is labelled, CF still owes NWC for payment of this art that it agrees it bought.

NWC ordered earmuffs from CF but damages are unquantifiable

[54] In or around April of 2011, CF claims that NWC ordered “roughly” 1000 pairs of earmuffs at $12/unit. White testified that he agreed to buy earmuffs from CF, but at $10/unit. Gajos testified that this was the only time that CF made earmuffs. Gajos stated that he informed Gray that the earmuffs were ready, and Gray referred him to White for such accounting issues. White apparently kept delaying pick up of the earmuffs. CF never attempted to deliver them, nor did it invoice NWC for them. Ultimately, they were bundled with other items and sold to a company in Greece. I accept that CF only made earmuffs due to White’s order and that CF did manufacture them as requested. The fact that they have different recollections of price does not indicate a lack of meeting of the minds but as in the 2011 Supply Agreement, differing memory about the conversation.

[55] The problem is in quantification. CF bundled the earmuffs with other goods and sold them to mitigate damages. I have no information on the price differential between selling to NWC and the bulk sale. Taking NWC’s unit figure, it would in theory owe $10,000 plus HST less whatever CF recovered from the bulk sale. Without further information, damages are unquantifiable for the failed earmuffs order. It was incumbent on CF to provide sufficient foundational information to fix damages.

No fraudulent or negligent misrepresentation

[56] CF pleads negligent misrepresentation in its counterclaim as an alternative to breach of contract. Having found that NWC breached the 2011 Supply Agreement, I need not consider negligent misrepresentation. If I were to consider it, I would find that CF has not made out that cause of action. To succeed on a claim for negligent misrepresentation, CF must prove that:

a) White owed a duty of care to CF; b) White made representations that were untrue, inaccurate or misleading; c) White acted negligently in making said representations; d) Gajos and CF relied, in a reasonable manner on the negligent misrepresentation; and e) CF’s reliance was detrimental in that it caused damages. [10]

[57] White’s representations about what NWC could supply to CF were not inaccurate, untrue nor misleading. Further, CF did not rely on his representations to its detriment. CF declined to have an exclusive supply agreement with NWC on the basis that it intended to use multiple sources to supply the furs it needed to fulfill Canada Goose’s open orders. CF did not, in other words, forego pursuing other suppliers because of White’s representations. But for one auction when Gajos testified that he did not bid due to the 2011 Supply Agreement, CF was always free to source furs from other suppliers and was not relying entirely on the 2011 Supply Agreement.

No deceit, fraud or conspiracy

[58] Similarly, CF has not proved these claims. As CF argues, fraud and deceit are based on misrepresentations that cause a person to act and result in a loss. I have found no representations that White made that caused CF to act in a way that caused a loss.

[59] Further I cannot conclude on the record that it is more likely than not that the irregular invoices were designed as a scheme amongst White, Scott and Gray to defraud CF through invoice tampering. It is equally likely that White was trying to juggle his commitments including accountability to NWC for his ballooning budget and was directing Scott and Gray to assist him in that endeavor. I do not find that Gray, White, Scott acted unlawfully in concert to directly harm CF or to act in a way that they knew would harm CF. Even if there was such conduct, I do not find that CF suffered any harm as a result of the alleged invoice tampering.

Damages

[60] CF helpfully summarizes its damage claim at part E of its written submissions. I will address each in turn.

Price above contracted amount

[61] I agree that CF is entitled to pay only $64/unit for all invoices that I have ordered CF to pay.

Quality below contracted specification

[62] I have found that but for the March 2011 deliveries, CF is not entitled to a discount on furs delivered.

Failure to deliver agreed quantity

[63] CF claims loss of opportunity/loss of profits damages of $322,593.75 due to NWC’s failure to supply 15,000 units. The figure is based on the following methodology:

Undelivered units x 5 strips x $25 (revenue per strip) x 25% profit margin

[64] I have made findings on the number of units NWC delivered. It is more than what CF has used for its calculation. Leaving that aside, CF has not tendered the evidentiary foundation needed to accept the proposed 25% profit margin. CF did not tender any books and records to justify these figures. On cross-examination, Gajos testified to these figures based on his analysis of CF’s financial statements. This is not admissible evidence on a material issue. It amounts to opinion evidence on out of court statements that cannot be tested.

[65] NWC argues that I should not award any damages due to the missing evidentiary foundation. In my view the appropriate approach is to fix nominal damages to recognize that NWC’s failure to deliver what it promised would have led to some loss of profit. I am prepared to accept that each undelivered unit might have made 5 strips which would be sold to Canada Goose for $25.

[66] CF has also failed to tender evidence of mitigation beyond a trip to Anaconda to source more furs. CF purchased furs from other suppliers, but it always took the position that it would source furs from other suppliers notwithstanding the 2011 Supply Agreement. Those purchases do not speak to mitigation. In the absence of this evidence, I am not satisfied therefore that the damages calculation should include all undelivered units.

[67] The parties shall use the following formula to calculate damages arising from the undelivered units:

50% of undelivered units x 5 strips x $25 x 10% profit margin

[68] Given my findings, I decline to award any other heads of damages that CF seeks. There are no proven damages for the failed earmuff sale. There is no evidence beyond reference to a plane ticket of out-of-pocket expenses associated with the breach of contract. Finally, there is no basis to award any type of damages for deceit/fraud, nor punitive damages.

Conclusion

[69] I allow NWC’s action in part. NWC is entitled to payment on the unpaid undisputed invoices at a unit rate of $64. CF must also pay Invoice #2551 at a unit rate of $64. CF must pay for the Inuit art sculpture as reflected in Inv #D11307.

[70] I allow CF’s counterclaim in part. It is entitled to set off its debt to NWC with the amounts it overpaid on the invoices that charged more than $64/unit. CF is entitled to a refund on payment of invoice #2491 based on a discount for poor quality furs. CF does not have to pay Invoices #2587 and #2654. NWC shall pay minimal damages for breach of contract to be calculated by the parties using the following formula: 50% of undelivered units x 5 strips x $25 x 10% profit margin.

[71] I dismiss CF’s third-party claim.

[72] I thank all counsel for their helpful written submissions.

Costs

[73] The parties can convene a telephone case conference with me to discuss costs by email Roxanne.Johnson@ontario.ca. They shall not do so without first attempting to resolve costs on their own through meaningful discussions.

P.T. Sugunasiri J.

Released: May 30, 2023