COURT OF APPEAL FOR ONTARIO

DATE: 20000211

DOCKET: C31315

FINLAYSON, MOLDAVER and GOUDGE JJ.A.

B E T W E E N :

NOVA TOOL & MOLD INC. Plaintiff
(Appellant)

–and–

LONDON INDUSTRIES INC. Defendant
(Respondent)

Heard: January 26, 2000

Counsel: Arthur M. Barat, Q.C., for the appellant

John S. Contini and Gavin Smyth, for the respondent

On appeal from the judgment of Zalev J. dated December 16, 1998.

FINLAYSON J.A.:

[1] Nova Tool & Mold Inc. appeals from the judgment of the Honourable Mr. Justice Zalev of the Ontario Court (General Division) dated December 16, 1998 which dismissed its action and granted judgment for the defendant London Industries Inc. on its counterclaim in the amount of $124,697.18 U.S., together with interest and costs.

[2] The respondent is a parts supplier in the United States that supplies parts for Honda Motors. The respondent ordered a program of seven molds to be manufactured by the appellant with contractual payment terms in accordance with the industry norms as follows: a) one-third on the signing of the purchase order; b) one-third on the first try-out; and c) one-third on the final shipment.

[3] As found by the trial judge, the appellant was slow in getting started on jobs numbered 619 and 620 and did not advise the respondent that these jobs would be delayed. Job 620 was not ready for its first try-out until December 4, 1996, more than a month behind schedule, at which time certain deficiencies were observed. The appellant was anxious to comply with the timetable called for in the contract but it became obvious to the respondent that it would be unable to do so. Problems persisted through two more try-outs in January 1997, despite the fact that Nova employees were working extra hours on the project. A further try-out originally scheduled for February 5, 1997 was postponed by Nova until February 10, 1997, but, as the respondent was under considerable pressure from its customer, Honda Motors, it began to seek an alternative subcontractor for job 620. Cambridge Tool and Die Corporation (an original bidder for the job) agreed to complete the work, but could only do so on a “time and materials” basis because there was no time to provide a quote in advance of beginning work. The try-out on February 10 revealed that serious deficiencies and problems still existed in 620. London transferred the mold to Cambridge shortly after this try-out. London eventually paid Cambridge $335,220 US for completion of 620.

[4] The issues between the appellant and the respondent crystallised when the final billing was issued by the appellant to the defendant for $367,834 U.S. with respect to the balance of six of the seven molds. Nova chose not to submit an invoice for the final one-third payment on 620, the other two-thirds having already been paid. The respondent asserted a counterclaim as set-off for 620, stating that it expended $335,220 U.S. to complete 620 at Cambridge, and also claiming damages for defects in job 619, ($15,600 U.S.), graining costs for three of the molds, and internal costs for late delivery of 620.

[5] The issue in appeal related to job 620 and, in particular, to the conduct of the respondent when it became apparent that the appellant could not perform its contract for 620 in time for the respondent to meet its commitments to Honda Motors. It is suggested by the appellant that the conduct of the respondent amounted to accord and satisfaction and relieved the appellant of all responsibility to the respondent after it assisted in the transfer of the balance of its contract for 620 to Cambridge. Specifically, the appellants refer to a meeting between the representatives of Nova and London after the February 10 try out. It was at this time that London informed Nova that it was transferring the mold to Cambridge. Nova agreed to this arrangement, including shipping, and undertook to answer any questions and provide any information requested of it during the completion of 620. On February 12, 1997, a letter was written from London to Nova informing Nova officially that 620 was being transferred to Cambridge and that “[a]ll responsibility for the completion of this mold” would transfer to Cambridge. The appellants rely on the meeting and letter taken together to establish their argument.

[6] In order to successfully claim accord and satisfaction, Nova would have to show that there had been an agreement between the parties discharging Nova’s obligations under the original contract, and some consideration to make that agreement enforceable: British Russian Gazette & Trade Outlook Ltd. v. Associated Newspapers Ltd. [1933] 2 K.B. 616 (C.A.). The trial judge found that there had been no discussion, let alone agreement, between the parties as to responsibility for damages arising out of the need to transfer the mold or any arrangement that would absolve Nova of liability for its failure to complete 620. On the evidence, we find no basis to disturb this finding.

[7] The appellant also argued that London had not acted reasonably in incurring the mitigation costs it paid to Cambridge in order to complete 620. In our view, this argument is without merit. The findings of the trial judge are very clear:

In any event, I find that it would have been extremely difficult to find a mold shop that would quote a fixed price on a transferred mold, particularly where it had no previous knowledge of it. In any event it would take about 4 or 5 weeks to get a quote. In view of Honda’s schedule and the pressure London was in, getting a quote, or several quotes from mold shops which had time available, if any, was not an option. I find that Nova could not have corrected the problems and deficiencies in 619 and 620 on time even if it could work 24 hours per day. Those molds were required to be ready 18 weeks from first try-out. Nova did make efforts to its limits, but was not successful. It was not and would not ultimately be successful because its employees lacked the skill and talent necessary to do so. 620 had not improved significantly from the first try-out. It was scheduled for completion in May 1997. Honda needed a small number of parts at that time to begin with. It first made 5 to 30 cars to acquaint its workers with the new model, for advertising purposes and to do the tests necessary to comply with Government regulations before mass production could start. London worked hand in hand with the Honda engineers to see what adjustments were necessary for mass production. Honda representatives attended each scheduled event and subsequent evaluations. Nova well knew that London was obliged to supply the parts necessary on time for each event according to Honda’s schedule. If London did not have the parts ready to supply Honda, Honda could not pass Government regulations and be certified for mass production for the new model year.

[8] Accordingly, what the respondent did was a necessary operation to mitigate its damages and the appellant’s co-operation was in its own interests because the respondent faced a potential loss to Honda that was significant. Accordingly, we reject the appellant’s arguments with respect to the respondent’s action in contracting out the balance of Job 620 to Cambridge.

[9] The trial judge accepted the respondent’s counterclaim in the amount stated and in the result the counterclaim exceeded the appellant’s claim by $124,697.18 U.S. The only exception we have to the trial judge’s accounting is that we accept, and the respondent in the last analysis concurred, that the trial judge failed to credit the appellant with $62,200 (U.S.), being the cost that the respondent would have incurred to the appellant if the appellant had completed the final one-third of its contract on job 620.

[10] As to the question of graining or texturing, it was dealt with by the trial judge in the following language:

I find that graining by Nova was required under the specifications on which it quoted. Unfortunately for Nova its costs estimator failed to include the cost of graining in his estimate of total cost for the work on jobs 620, 621 and 667. The cost estimate was an internal document of Nova and kept in its files until produced for the purposes of this litigation. When Nova quoted it did not specify that graining was not included in its price, as it ought to have done if it was not included in its price. London was entitled to assume that it was included. London is entitled to recover the sum of U.S. $ 43,740.00 paid to Midwest Mold & Texture, the graining sub-contractor approved by Honda. Midwest had to be used, as it was the shop required by Honda.

[11] The trial judge was entitled to come to this conclusion. The engineering prints provided by the respondent from which the appellant quoted for these jobs clearly identified texturing as the appellant’s responsibility. One of the appellant’s own employees, Thomas Swan, admitted this. The quotations for the jobs in issue did not indicate that texturing was not included in the price quoted.

[12] Accordingly, the appeal is allowed in part. The judgment below is varied to the extent that the appellant is entitled to a credit of $62,200 U.S. from the amount by which the trial judge found that the counterclaim exceeded the claim, which was $124,697.18 U.S. Counsel will have to make whatever adjustments are necessary with respect to interest to give effect to this judgment.

[13] As to costs, there were four issues argued in all and the respondent was successful with respect to three of them. Accordingly, it has been preponderantly successful and it is entitled to three-quarters of its costs of this appeal.

Released: FEB 11 2000 Signed: “G.D. Finlayson J.A.”
GDF “I agree M.J. Moldaver J.A.”
“I agree S.T. Goudge J.A.”