Magnussen Furniture Inc., c.o.b. under the name and style Magnussen/Presidential Furniture v. Mylex Ltd. [Indexed as: Magnussen Furniture Inc. v. Mylex Ltd.]

89 O.R. (3d) 401

Court of Appeal for Ontario,

Rosenberg, Cronk and MacFarland JJ.A.

March 14, 2008

Civil procedure -- Costs -- Counsel fee -- Costs grid revoked shortly before trial judge's costs ruling -- Trial judge not erring in considering grid as useful guide in determining appropriate counsel fee at trial.

Contracts -- Damages -- Defendant agreeing to manufacture ready to assemble furniture for marketing by plaintiff -- Defendant missing delivery dates and problems arising with respect to quality of product -- Trial judge finding defendant liable to plaintiff for damages in both contract and tort -- Trial judge erring in finding that there was overall contract between parties beyond series of separate contracts established by plaintiff's purchase orders -- Error having no effect on trial judge's ultimate findings of liability as trial judge finding that defendant breached both overall contract and terms of specific purchase orders and also finding that defendant was liable to plaintiff in negligence -- Error having no impact on trial judge's assessment of damages -- Trial judge not erring in restricting plaintiff's damages for loss of future profits to two-year period.

The plaintiff, an established furniture manufacturer and distributor, decided to convert its "fully assembled" line of furniture to "ready to assemble" ("RTA") units, to outsource the manufacture of the RTA units and to market the new product itself. The defendant agreed to manufacture the RTA furniture. The defendant missed delivery dates and problems arose concerning the quality of its product. Litigation ensued. The trial judge found the defendant liable to the plaintiff in both contract and tort. The defendant appealed. The plaintiff cross- appealed against the trial judge's damages and costs awards.

Held, the appeal and cross-appeal should be dismissed.

The trial judge erred in finding that there was an overall contract between the parties, beyond the series of separate contracts established by the plaintiff's purchase orders. However, that error did not undermine the trial judge's ultimate finding of liability, as the trial judge found that the defendant breached both the overall contract and the terms of the specific purchase orders by missing promised delivery dates. He also found that the defendant was liable to the plaintiff in negligence because much of the furniture delivered to the plaintiff was not of merchantable quality.

The trial judge assessed the plaintiff's damages by focusing on lost profits and lost marketplace opportunity arising from the defendant's breach of contract and negligence. He found that the defendant's failure to meet delivery dates and the quality problems caused the plaintiff to lose revenue from both cancelled and future sales, the latter due to the plaintiff's loss of reputation in the industry. However, he found that significant contingencies existed that might have impacted on the plaintiff's projected profits even if the defendant had delivered acceptable product in a timely way. Accordingly, he held that the plaintiff was entitled to a global damages award reflecting lost profits for a two-year period only. The trial judge did not err in selecting a two-year period for the assessment [page402] of damages. That period, and the damages awarded, were grounded in the evidence of the only expert to testify on damages. The two-year period did not rest on the validity of the trial judge's finding of the existence of an overall contract. That error had no impact on the trial judge's assessment of damages.

The plaintiff claimed counsel fees in the amount of $122,872.50 for the attendance at trial of two senior counsel. The trial judge awarded $84,000 for counsel fees. The trial judge did not erroneously apply the former costs grid set out under the Courts of Justice Act, R.S.O. 1990, c. C.43, which was revoked just prior to his costs ruling. He recognized that the grid was not binding, but found that it could be seen as a reliable parameter for assessing counsel fees at trial. He was entitled to treat the revoked grid as a useful guide. It was also open to him to be guided by the grid principle that the recovery of fees for a second counsel at trial is permissible so long as the aggregate of the counsel fees allowed did not exceed the maximum fees permitted under the costs grid. He took into account other relevant considerations, and his award for counsel fees at trial was not plainly wrong and did not flow from an error in principle.

APPEAL AND CROSS-APPEAL from the judgment of Reilly J., 2006 CanLII 5309 (ON SC), [2006] O.J. No. 715, 16 B.L.R. (4th) 96 (S.C.J.), in action for damages for breach of contract and negligence. [page403]

Cases referred to Authorson (Litigation Administrator of) v. Canada (Attorney General) (2007), 86 O.R. (3d) 321, [2007] O.J. No. 2603, 2007 ONCA 501, 283 D.L.R. (4th) 341, 226 O.A.C. 4, 60 C.C.P.B. 280, 41 C.P.C. (6th) 114, 158 A.C.W.S. (3d) 996; Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, [2004] O.J. No. 2634, 188 O.A.C. 201, 48 C.P.C. (5th) 56, 132 A.C.W.S. (3d) 15 (C.A.); Canlin Ltd. v. Thiokol Fibres Canada Ltd. (1983), 1983 CanLII 1603 (ON CA), 40 O.R. (2d) 687, [1983] O.J. No. 2502, 142 D.L.R. (3d) 450, 22 B.L.R. 193, 17 A.C.W.S. (2d) 433 (C.A.); Celanese Canada Inc. v. Canadian National Railway Co., 2005 CanLII 8663 (ON CA), [2005] O.J. No. 1122, 196 O.A.C. 60, 138 A.C.W.S. (3d) 23 (C.A.) [Leave to appeal to S.C.C. refused [2005] S.C.C.A. No. 245]; Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, 2004 SCC 9, 235 D.L.R. (4th) 193, 316 N.R. 265, J.E. 2004-470, 184 O.A.C. 209, 40 B.L.R. (3d) 1, [2004] C.L.L.C. Â210-025, 128 A.C.W.S. (3d) 1111; Houweling Nurseries Ltd. v. Fisons Western Corp., 1988 CanLII 186 (BC CA), [1988] B.C.J. No. 306, 49 D.L.R. (4th) 205, 37 B.C.L.R. (2d) 2, 29 C.P.C. (2d) 168, 9 A.C.W.S. (3d) 302 (C.A.) [Leave to appeal to S.C.C. refused (1988), 89 N.R. 398n, 37 B.C.L.R. (2d) 2n, 30 C.P.C. (2d) lv]; Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 1998 CanLII 6879 (ON CA), 41 O.R. (3d) 528, [1998] O.J. No. 4466, 117 O.A.C. 193, 83 A.C.W.S. (3d) 480 (C.A.) [Leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 253]; Magnussen Furniture Inc. (c.o.b. Magnussen/Presidential Furniture) v. Mylex Ltd., 2006 CanLII 5309 (ON SC), [2006] O.J. No. 715, [2006] O.T.C. 169, 16 B.L.R. (4th) 96, 146 A.C.W.S. (3d) 257 (S.C.J.); Naylor Group Inc. v. Ellis-Don Construction Ltd., [2001] 2 S.C.R. 943, [2001] S.C.J. No. 56, 2001 SCC 58, 204 D.L.R. (4th) 513, 277 N.R. 1, J.E. 2001-1790, 153 O.A.C. 341, 17 B.L.R. (3d) 161, 10 C.L.R. (3d) 1, 108 A.C.W.S. (3d) 284; Woelk v. Halvorson, 1980 CanLII 17 (SCC), [1980] 2 S.C.R. 430, [1980] S.C.J. No. 82, 114 D.L.R. (3d) 385, 33 N.R. 232, [1981] 1 W.W.R. 289, 24 A.R. 620, 14 C.C.L.T. 181, 5 A.C.W.S. (2d) 255 Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01 [as am.]

Bryan Finlay, Q.C., and R. Ross Wells, for appellant (respondent by cross-appeal). Paul J. Pape and John J. Adair, for respondent (appellant by cross-appeal).

The judgment of the court was delivered by

[1] CRONK J.A.: -- In late 1994, the respondent Magnussen Furniture Inc. ("MFI") entered into a relationship with the appellant Mylex Limited ("Mylex") for the manufacture and supply of custom-designed furniture. The relationship was short-lived. When Mylex missed promised delivery dates and problems arose concerning the quality of the goods provided to MFI, litigation ensued. After 24 days of trial before Reilly J. of the Superior Court of Justice, Mylex was found liable to MFI in both contract and tort for damages in the amount of $1,267,514.95, plus costs. Mylex appeals in respect of both liability and damages. MFI, in turn, cross-appeals against the trial judge's damages and costs awards.

[2] For the reasons that follow, I would dismiss both the appeal and cross-appeal. In my view, no substantial wrong or miscarriage of justice occurred in this case so as to warrant a new trial. Nor am I persuaded that interference by this court with the results at trial is otherwise justified.

Facts

(1) The relationship

[3] In the early 1990s, MFI was an established furniture manufacturer and distributor with offices and a manufacturing plant in Ontario, a national distribution network across Canada, and operations in the United States. It sold its products to customers such as The Bay, Leon's, Sears and Bad Boy for resale to consumers.

[4] In 1994, MFI decided to convert its "fully assembled" line of wooden home entertainment and wall units to "ready-to- assemble" ("RTA") units made from composite materials. Its plan was to close its manufacturing plant, outsource the manufacture of the RTA furniture and market the new product itself. MFI anticipated that its RTA program would initially involve sales of about $5 million per year in Canada. Depending on its success in Canada, MFI intended to expand the RTA program into the American market.

[5] After considering potential suppliers, MFI decided to approach Mylex, a Toronto-based manufacturer with experience [page404] in the production of RTA furniture. In October 1994, Richard Magnussen -- MFI's president -- met with Michael Burger and his brother, David Burger, the owners and operators of Mylex.

[6] Mylex expressed interest in the project and agreed to make samples of the RTA units, which MFI could display to its customers at the Toronto Furniture Show to be held in mid- January 1995. By the time of this trade show, Mylex had manufactured seven samples for MFI and discussions were underway about the detailed design of the furniture.

[7] Mylex informed MFI that once the design of the RTA furniture was finalized, the engineering phase would require four to five weeks for completion. Thereafter, actual production of the RTA units would take only five days from the date of receipt by Mylex of a purchase order.

[8] On December 30, 1994, although the final design of the RTA furniture had not been settled, MFI sent a purchase order to Mylex for 3,250 RTA units, having a value of $322,250. The order provided for a February 15, 1995 delivery date, FOB Toronto, net 30 days. Mylex accepted the purchase order.

[9] MFI's customers reacted favourably to the RTA samples at the Toronto Furniture Show. As a result, MFI placed a total of eight additional purchase orders with Mylex for RTA product, with delivery dates ranging from February 24 to July 4, 1995. Mylex accepted each of these purchase orders.

[10] The delivery dates were crucial to MFI's business. MFI sold RTA units and fixed delivery dates with its customers based on delivery dates arranged with Mylex. In turn, MFI customers advertised the availability of RTA product to consumers at times set in accordance with MFI's delivery commitments.

[11] Throughout December 1994 and January 1995, MFI sought various changes to the design of the RTA product. For this and other reasons, the February 1995 delivery dates proved to be unrealistic. However, on the findings of the trial judge, the design issues were largely resolved by mid-February and Mylex should have been in a position to deliver RTA product to MFI by mid-March "at the latest". Nonetheless, Mylex's first production run was not scheduled to occur until March 27, the March delivery date was missed, and the first delivery of RTA units to MFI did not take place until April 7. Even then, Mylex delivered only 208 of the 3,250 units ordered by MFI on December 30. A further 192 units were received by MFI on April 10.

[12] The trial judge found that Mylex's subsequent deliveries were "sporadic and incomplete". By late April 1995, Mylex had failed to meet any of the scheduled March and April delivery dates. It had also placed MFI's April purchase orders, which [page405] provided for delivery dates in June and July, "on hold" pending further discussions between the parties. In addition, numerous issues regarding the quality of the RTA units arose, only some of which were acknowledged and remedied by Mylex. Not surprisingly, by the spring of 1995, the relationship between the parties had significantly deteriorated.

[13] Other events strained the relations between the parties. In April, without prior consultation with MFI, Mylex announced significant price increases for the RTA product. Then, in May, it unilaterally imposed a $100,000 credit limit on MFI notwithstanding that no such limit previously applied to MFI's credit arrangements with Mylex. Magnussen viewed this change as rendering it "impossible to even flow goods".

[14] In April 1995, MFI began to search for another RTA furniture manufacturer. By early May, it had committed to use Carina Furniture as an alternate supplier. In mid-May, Magnussen wrote to Michael Burger, indicating that all outstanding MFI orders were to be considered cancelled if not received by MFI at its factory by May 25, 1995.

[15] A key meeting between the parties occurred on May 23, 1995. Mylex and MFI hold very different views as to the events that transpired at this meeting. Mylex contends that the parties reached a settlement agreement at the meeting, whereby the parties agreed to delay the delivery dates on four outstanding purchase orders until the end of June 1995, to cancel MFI's remaining purchase orders, and to stop doing business together. In contrast, MFI maintains that it continued to look to Mylex for fulfillment of its pre-existing contractual obligations after the May 23 meeting.

[16] Shortly thereafter, MFI had a tense and embarrassing meeting with one of its largest customers, the Cantrex Group, an association of 1,100 independent retailers. The Cantrex Group was upset because MFI had failed to meet agreed delivery dates for RTA units, leaving Cantrex members unable to satisfy their own consumer delivery commitments.

[17] On May 31, 1995, Magnussen sent a letter to Michael Burger in which he alleged that Mylex had "committed serious breaches of its contractual obligations" to MFI. He also said:

As we have expressed to your company on many occasions, your continued missed delivery dates have resulted in lost sales opportunities for [MFI] and ha[ve] also caused our customers to lose confidence in our ability to meet our commitments. In making commitments to our customers we have, of course, relied upon Mylex's promises of delivery by certain agreed upon dates. As you can appreciate, the missed delivery of advertised product has seriously marred [MFI's] reputation. [page406]

We do not wish to become involved in litigation and are prepared to overlook your breaches of contract if you will agree to meet the following delivery dates with respect to outstanding orders. [Specified delivery dates -- ranging from June 1 to June 15, 1995 -- omitted.]

[18] Mylex responded within days, when Michael Burger telephoned Magnussen and informed him that Mylex would not be filling MFI's existing orders. This prompted Magnussen to write to Michael Burger on June 7, expressing his "shock" and frustration and reiterating: "I can only stress again, we must receive our orders -- your lack of commitment to delivery is causing major damage to [MFI's] 64 years of flawless reputation in the furniture business." The trial judge found that this letter effectively brought the parties' business relationship to an end.

[19] Carina, MFI's alternate supplier, began delivering RTA product to MFI in mid-July 1995. Although no problems with Carina developed, by the end of 1995 Magnussen believed that "the damage was done" and decided to terminate MFI's RTA program.

(2) The litigation

[20] In August 1995, MFI sued Mylex for damages in the amount of $5 million for breach of contract, misrepresentation, negligence and loss of profits. At the end of trial, it amended its pleading to increase its damages claim to the sum of $7.65 million. Mylex defended the action and counterclaimed against MFI for damages concerning outstanding payments for product delivered. [See Note 1 below]

[21] The trial judge concluded that by failing to meet the agreed delivery dates, Mylex breached both an "overall contract" entered into by the parties and the purchase orders. He also held that Mylex was negligent because "some if not much of the product" that it supplied to MFI was not of merchantable quality. By judgment dated February 21, 2006, he held Mylex liable to MFI in damages for breach of contract and negligence. After crediting Mylex with the sum of $82,485.05 admittedly owed to it by MFI for product delivered, he awarded MFI damages in the sum of $1,267,514.95, plus prejudgment interest. He subsequently awarded costs of the proceedings to MFI, in the total amount of $397,404.50.

Issues

[22] There are four issues on the appeal: [page407] (1) Did the trial judge err by finding that there was an "overall contract" between the parties, beyond the series of separate contracts established by MFI's purchase orders? (2) Did the trial judge err by failing to find that the parties reached a settlement agreement at their May 23, 1995 meeting, whereby they varied their contractual rights and obligations and agreed to terminate their relationship? (3) Did the trial judge err by failing to find that MFI repud- iated the settlement agreement between the parties? (4) In the alternative, did the trial judge err by failing to limit MFI's damages to those actually sustained by it during the two years immediately following Mylex's breach of contract?

[23] As ultimately advanced during oral argument before this court, there are three issues on the cross-appeal: (1) Did the trial judge err by misapprehending the nature of MFI's damages claim concerning future lost profits? (2) Did the trial judge err by reducing MFI's damages because it failed to resurrect the RTA program after its relationship with Mylex ended? (3) Did the trial judge err in assessing costs by improperly limiting MFI's counsel fees at trial?

Analysis

(1) The finding of an "overall contract"

[24] The trial judge held that the parties entered into an "overall contract" at the "onset" of their dealings, whereby MFI agreed to purchase and Mylex agreed to supply RTA units to MFI on an ongoing basis in accordance with individual purchase orders placed by MFI from time to time. The trial judge found that the overall contract contained four basic terms: (i) it obliged Mylex to deliver RTA units ordered by MFI within five days from the date of Mylex's receipt of a purchase order and, in any event, by the delivery dates specified by MFI; (ii) it precluded Mylex from "refus[ing] to accept a reasonable purchase order or cancel[ling] one already accepted without bearing the consequences of such refusal or cancellation" [at para. 56]; (iii) it required each party to provide reasonable notice to the other of an intention to terminate their relationship; and (iv) it obliged both parties to act in good faith towards one another in furtherance of their agreement. [page408]

[25] Mylex argues that the trial judge errs in finding that there was an overall contract between the parties. I agree for several reasons.

[26] First, with respect, the trial judge erred in his appreciation of MFI's pleaded case in contract. According to the trial judge, MFI pleaded that: (i) "the parties entered into a binding contract with long term intentions" [at para. 9]; (ii) an overall contract existed between the parties; (iii) Mylex was "under an obligation to deal in good faith with [MFI]"; and (iv) Mylex "could not terminate this obligation without appropriate notice" [at para. 51]. This description of MFI's pleading is inaccurate.

[27] Simply put, MFI did not plead the existence of an "overarching" or overall contract or any terms thereof. Contrary to the trial judge's above-quoted statements, MFI alleged in its pleading that it "first contracted" with Mylex by virtue of the December 1994 purchase order and that it displayed the RTA samples made by Mylex at the Toronto Furniture Show in reliance upon "[this] agreement". Further, MFI's pleading contained no assertion that Mylex was obliged to provide notice of the termination of the parties' relationship or that Mylex was required to deal with MFI in good faith.

[28] Nor did MFI seek an amendment of its pleading at trial to allege an overall contract, despite doing so in respect of its damages claim. The trial transcript reveals that it was the trial judge who first suggested, in exchanges with MFI's trial counsel, the idea of an overall contract and the possibility of an at-trial motion by MFI to amend its pleading to assert such a contract. These suggestions were immediately resisted by Mylex's trial counsel, in part on the ground that they were inconsistent with MFI's pleading.

[29] MFI argues that these omissions in its pleading are irrelevant because Mylex itself pleaded the existence of an overall contract. It points out that Mylex alleged in its amended statement of defence and counterclaim that MFI delivered purchase orders "in accordance with the original agreement" between the parties.

[30] I do not agree that Mylex's pleading overcomes the identified deficiencies in MFI's pleading. Mylex's pleading does not clearly assert an "overall" contract in the sense articulated by the trial judge. For example, Mylex did not plead any terms of an alleged overall or "original" contract beyond those contained in the purchase orders. In any event, the case that MFI was entitled to pursue -- and obliged to prove -- at trial was the case framed by its own pleading, not that of the defendant. See generally [page409] Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 1998 CanLII 6879 (ON CA), 41 O.R. (3d) 528, [1988] O.J. No. 4466 (C.A.), at pp. 533-34 O.R., leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 253; and Authorson (Litigation Administrator of) v. Canada (Attorney General) (2007), 2007 ONCA 501, 86 O.R. (3d) 321, [2007] O.J. No. 2603 (C.A.).

[31] Second, the evidence of the conduct of the parties, objectively viewed, does not support the conclusion that they entered into a binding overall contract, separate and apart from the purchase orders, of the type found by the trial judge. The evidence indicates that MFI's plans for an RTA program were dependent on the outcome of the Toronto Furniture Show. On December 29, 1994 and January 19, 1995, MFI wrote to Mylex indicating that it would be placing additional orders for RTA units after a review of the Toronto trade show "stats" and "results". The effect of these letters was to reserve to MFI the right to control and determine future RTA furniture orders with Mylex, depending on the reactions of MFI customers to the new product.

[32] MFI thus held open the possibility of no future orders if, contrary to its expectations, its customers' reactions to the RTA samples were adverse. This possibility is inconsistent with an existing overall agreement whereby MFI was obliged to purchase and Mylex was required to supply RTA units indefinitely. To the contrary, MFI's letters suggest that the display of the RTA samples at the Toronto Furniture Show was intended by MFI to "test the market" for the new product, following which MFI would determine its future business with Mylex.

[33] I also note that, notwithstanding frequent communications between the parties and the litany of delivery and product quality problems that emerged concerning the RTA furniture, at no time did MFI complain to Mylex nor did Mylex claim against MFI that the other of them was in breach of any obligations beyond those contemplated by the individual purchase orders.

[34] Third, it is difficult to reconcile the trial judge's finding of an overall contract, originating at the onset of the parties' dealings in October 1994, with sound business practice. It would make little commercial sense for MFI to unequivocally commit to the purchase of RTA product from Mylex on an indefinite basis before it gauged customer reaction to the new product at the 1995 furniture show. Viewed from Mylex's perspective, the design and, therefore, the engineering of the RTA furniture were unsettled until mid-February 1995. Why would Mylex, an experienced furniture manufacturer, commit in 1994 to supply on demand and for an indefinite period product that was still undefined, thereby rendering its own manufacturing costs and production [page410] obligations uncertain? As Michael Burger said in his trial testimony: "We've got to walk before we run."

[35] Finally, in my view, there is considerable force to Mylex's argument that the parties failed to agree on terms essential to the creation of a binding overall contract of the type found by the trial judge. For example, the extent and timing of MFI's purchasing obligations after the first purchase order were unresolved. As well, the trial judge's findings with respect to the pricing of the RTA units are inconsistent with the conclusion that a binding overall contract of indefinite duration for the supply of goods at agreed prices was concluded in 1994. Although the trial judge said that pricing was discussed and agreed on by the parties, he also held that Mylex's price list was first furnished to MFI on December 29, 1994 (the day before MFI's first purchase order), that pricing discussions continued throughout the spring of 1995 and were specifically discussed at a meeting in mid-March of that year, and that Mylex unilaterally imposed significant price increases in April 1995. In my view, agreed pricing terms would have been essential to the formation of a binding overall contract in October 1994.

[36] I therefore conclude that the trial judge erred in finding an overall contract between the parties. However, it is also my view that this error does not implicate trial fairness in the circumstances of this case or otherwise undermine the trial judge's liability holding against Mylex. I say this for two reasons.

[37] First, this is not a case where one party to an action was taken by surprise by a position advanced at trial by an opposing litigant or by a theory of liability articulated by the trial judge for the first time in his or her reasons. The transcript reveals that during counsel's exchanges with the trial judge at trial, the prospect was clearly raised that the determination of MFI's contract claim could be based on a finding of a breach by Mylex of an overall contract between the parties. Moreover, there is no dispute that the concept of an overall contract was developed and argued by the parties as the trial unfolded. As Mylex's counsel responsibly acknowledged during oral argument before this court, Mylex was not "blindsided" by the trial judge's finding of an overall contract. On the facts of this case, therefore, it cannot be said that trial fairness was compromised by the trial judge's finding of an overall contract.

[38] Second, the trial judge found that Mylex breached both the overall contract and the terms of the specific purchase orders by missing promised delivery dates. He also held that Mylex was liable to MFI in negligence because much of the furniture delivered to MFI was not of merchantable quality. Mylex does not challenge these critical findings, which amply support the trial judge's ultimate liability holding against Mylex. [page411]

[39] The issue, therefore, is whether the trial judge's error in finding the formation of an overall contract fatally taints his damages assessment. For reasons I will explain in my discussion of the trial judge's damages award, it is my view that this error does not have this effect.

(2) & (3) The alleged settlement agreement and suggested repudiation by MFI

[40] Mylex argues that the parties reached a binding settlement at their May 23, 1995 meeting whereby, in addition to varying the delivery dates on four outstanding purchase orders, they agreed to terminate their relationship. According to Mylex, by virtue of Richard Magnussen's subsequent letter of May 31, 1995 to Michael Burger, which I have described above, MFI wrongfully repudiated this settlement agreement.

[41] The trial judge expressly considered and rejected these claims, holding that while Mylex viewed the relationship at an end by the May 23 meeting, MFI continued thereafter to insist on performance by Mylex of its pre-existing contractual obligations. He found that while Mylex was in breach of both the overall agreement and the individual purchase orders, MFI "chose not to treat their contractual relationship at an end" and "continued to insist upon delivery in fulfillment of Mylex's contractual obligations". Further, the trial judge accepted MFI's position that Magnussen's letter of May 31, 1995 to Mylex was "simply [MFI's] attempt to aeget Mylex's attention' and to confirm specific dates for delivery of product that [MFI] was committed to deliver to its customers". He held that Mylex, rather than MFI, wished to terminate the parties' relationship and that Mylex took advantage of Richard Magnussen's letter of May 31 "to repudiate the contractual relationship between the two companies" [at para. 73].

[42] In my view, these findings were open to the trial judge on the evidence adduced at trial. Accordingly, there is no basis for appellate interference with them. I say this for the following reasons.

[43] Mylex submits that documents contemporaneously prepared by MFI concerning the May 23 meeting indicated an agreement at the meeting that the parties would "go their separate ways". In particular, it argues that the agenda for the meeting contemplated the possibility that there would be no future business between the parties after the meeting and, further, that the "minutes" of the meeting confirmed a "work out" agreement by the parties to end their relationship. I would not accede to this argument.

[44] The contents of the agenda did not reflect a decision or even a preference by MFI to terminate its arrangements with Mylex. [page412] While the agenda listed items for discussion in the event of "no future business" between the parties, it also identified matters that required resolution if the parties engaged in future business. Thus, as Magnussen claimed in his testimony, both options -- a continuation of business relations and a termination of such relations -- were held open as possibilities by the terms of the agenda.

[45] Similarly, the "minutes" of the meeting do not clearly document an agreement by the parties to terminate their business relationship. The "minutes" were prepared by John Schaub, MFI's purchasing manager. In his covering memo to Mylex, which accompanied the "minutes", and in his trial testimony, Schaub indicated that the document was a "summary" of the May 23 meeting. The summary stated in part:

2. Mike and Dave [the Burgers] confirmed Mylex plan to have the balance of the original orders completely shipped by the end of June, barring any problems beyond their control . . . 3. Jack [a Mylex employee] will confirm production schedule and planned ship dates. We would like them in the following order . . . . . . . . 5. Following the production of the above purchase orders, Mylex will not be supplying further product. 6. [MFI] will remit to Mylex, one half of the die costs for carton printing. Mike [Burger] agreed to have Jack [of Mylex] release ownership of these dies to [MFI]. (Emphasis added)

[46] The import of these entries, particularly item five, was a matter of considerable controversy at trial. The contents of the summary, especially item five, could be read as indicating that the termination of the parties' relationship was discussed at the May 23 meeting. In addition, as Mylex points out, at one point during his examination-in-chief at trial, Schaub said that the parties "mutually agreed" at the May 23 meeting that, following completion of the purchase orders mentioned in the summary, MFI would "no longer be buying any more product from Mylex".

[47] But item five and the other entries in the summary make no express reference to any agreement between the parties to terminate their business dealings. In contrast, elsewhere in the summary reference is made to an "agreed" credit limit of $100,000.

[48] Furthermore, on cross-examination, Schaub essentially testified that MFI was presented at the meeting with a unilateral fait d'accompli by Mylex. He said that at the May 23 meeting, Mylex was "giving up on the project" and that it "no longer wanted to supply [MFI]". When it was specifically put to him that [page413] the parties "agreed" at the meeting that Mylex would not be supplying further product, Schaub responded: "We were advised that by both Michael and David [Burger]. That was the last of the orders they would produce for us," and, "[T]here wasn't much more choice. We weren't going to get a supply of product." Schaub went on to say that the summary of the May 23 meeting was not a summary of "what was agreed to" but, rather, a summary of "what was advised". He reiterated: "We were told that that was the end of, at this meeting we were told that was the end of, that was the end of it" (emphasis added).

[49] Schaub also said that MFI had invested "a lot of time and effort" with Mylex and that:

It certainly would be to our benefit to continue with Mylex if they would be professional about it and offer delivery dates in writing, finalize costs so we don't have cost increases unexpectedly. So certainly we would want to do more business if they would comply with those issues.

[50] The following exchange during Schaub's cross-examination is also pertinent:

Q. And that's in fact what the agreement was, that the project would be completed or could I say wrapped up?

A. We had product on order with Mylex. If Mylex wanted to communicate and work with us we could have gone further on this project but at this point we were told, these are the last orders they will produce for us. (Emphasis added)

[51] Magnussen's trial testimony also supports the conclusion that no binding settlement agreement was entered into by the parties at their May 23 meeting. Magnussen was adamant that MFI did not agree with Mylex's plan to stop shipping RTA product beyond the four purchase orders mentioned in the summary of the May 23 meeting. He maintained that MFI was "being told we have no choice" and that it was "not agreeing to it". After extensive cross-examination on the issue, Magnussen explicitly denied that a consensus was reached by the parties at the meeting. He stated unequivocally:

It wasn't a consensus. It was a reality. They're telling us they're not going to supply any more product. We need the product. I think in June, a later letter, we beg them again one more time to get the product there because we need it for our customers. When you say consensus, I do not agree with that word. It was not a consensus.

[52] In contrast, David Burger -- the only witness called by Mylex at trial -- testified that it was mutually agreed between the parties on May 23 that MFI did not want any more product from Mylex and that Mylex's participation in MFI's RTA program was terminated. [page414]

[53] The trial judge considered the documentary evidence, together with Magnussen's, Schaub's and David Burger's testimony about the May 23 meeting, and held that the meeting marked the "beginning of the end" [at para. 29] rather than an agreed termination of the parties' relationship. While not stated explicitly, the trial judge's reasons indicate that he found that no consensus ad idem was achieved by the parties concerning the termination of their business arrangements.

[54] In the face of conflicting evidence about the May 23 meeting, the trial judge was entitled to accept Schaub's and Magnussen's testimony, over David Burger's, in support of MFI's claim that no settlement agreement was concluded. Regardless of Mylex's own views before and after the meeting concerning its future business dealings with MFI, there was evidence before the trial judge that supported his finding that MFI still "preferred to continue dealing with Mylex as long as Mylex would supply a product of appropriate quality in a timely fashion" [at para. 42].

[55] Nor do I accept Mylex's argument that the trial judge erred in law in rejecting the posited settlement agreement by taking into account the intentions of the parties. The assessment of what transpired at the May 23 meeting and the determination of whether a new or revised agreement was concluded at that meeting required an objective analysis. Contrary to Mylex's submission, a full reading of the trial judge's reasons indicates that his evaluation of Mylex's claim of a settlement agreement was not based on his perception of the subjective "inner wishes" of Magnussen and Schaub. Rather, it was anchored in his evaluation of the parties' intentions as manifested by the events which preceded and followed the May 23 meeting, including the parties' written communications about the meeting and the witnesses' evidence that tended to prove or disprove the alleged settlement agreement. As the party propounding the theory of a critical settlement agreement, Mylex bore the onus of establishing its formation. The trial judge essentially held that Mylex failed to discharge this evidentiary burden. [See Note 2 below] [page415]

[56] It follows that I would also reject Mylex's submission that the trial judge erred by failing to find that MFI repudiated the contract between the parties, as varied at the May 23 meeting. As Mylex acknowledges, this submission is predicated on a finding that a binding settlement or "work out" agreement was entered into by the parties on May 23, 1995. But the trial judge rejected this assertion -- as he was entitled to do -- holding instead that apart from the deferred delivery dates on four purchase orders, MFI continued to insist upon compliance by Mylex with its pre-existing contractual obligations and that Mylex, rather than MFI, decided to terminate the parties' relationship. These findings are unimpeachable on this record.

[57] Accordingly, I would not give effect to Mylex's grounds of appeal relating to liability. I turn now to the trial judge's assessment of damages.

(4) The damages award

Background

[58] As was made clear during oral argument before this court, neither party suggests that the measure of MFI's damages would differ if evaluated on the basis of tort, rather than contract, principles. Accordingly, both parties accept the trial judge's conclusion that "it makes little difference" to the assessment of damages in this case "to differentiate damages based on Mylex's failure to deliver [the RTA product] in a timely fashion and Mylex's failure to deliver product of merchantable quality" [at para. 74].

[59] Two methods for the assessment of MFI's damages were identified at trial. The first method involved a calculation of the profits lost by MFI on orders for RTA furniture actually cancelled due to MFI's inability to meet promised delivery dates. This approach favoured Mylex because, as the trial judge observed [at para. 79], "The calculation of lost profit on actual orders cancelled as a result of [MFI's] failure to deliver product in 1995 would amount to a relatively modest amount."

[60] The second method, urged by MFI and accepted by the trial judge, focused on MFI's lost profits and lost marketplace opportunity arising from Mylex's breach of contract and negligence. The trial judge described it this way [at para. 79]:

[T]he plaintiff is asking the court to consider the impact of missed delivery dates and quality issues and the consequent impact on the failed RTA program on potential profits in 1995 and in years then following and to calculate damages based on these lost profits and lost opportunity in making a global award in favour of the plaintiff. [page416]

[61] MFI called Thomas Dyson as an expert business valuator to provide opinion evidence in support of its damages claim. Mylex called no expert witness on damages.

[62] It was Dyson's evidence that MFI's total damages arising from Mylex's breach of contract were $7.657 million, comprised of $3.717 million for past losses and $3.94 million for future losses. He arrived at this conclusion in the following fashion.

[63] Dyson calculated MFI's damages based on his estimates of its lost income in two time periods: January 1, 1995 to December 31, 2001 ("past losses") and January 1, 2002 onwards ("future losses").

[64] With respect to MFI's past losses, Dyson estimated MFI's likely future sales of RTA product, assuming that the RTA program was successful. This estimate was based on MFI's historical sales of its home entertainment product and its internal business projections for the RTA program. Dyson next calculated MFI's lost sales by comparing its estimated likely future sales with its actual reported sales. Finally, he determined the loss of profit arising from the loss of sales. Based on this analysis, he concluded that MFI's past losses as at December 31, 2001 were approximately $3.717 million:

1995 $243,800 [See Note 3 below]

1996 264,000 [See Note 3 below]

1997 503,250

1998 674,400

1999 674,700

2000 674,700

2001 682,400

Total $3,717,250

[65] Dyson estimated that MFI's future losses (i.e., its losses from January 2002 onwards), approximated $675,000 per annum, based on the assumption that MFI's level of annual profits after 2001 would have approximated the levels estimated for the years 1998 to 2001, had Mylex's breach of contract not occurred. Dyson then capitalized this $675,000 figure to arrive at a present value for MFI's future stream of lost profits. By this method, he concluded that MFI's future losses fell within the [page417] range of $3.375 to $4.5 million. In his opinion, the mid-point of this range, $3.94 million, was an appropriate estimate of MFI's future losses.

[66] The trial judge accepted that Mylex's failure to meet committed delivery dates and the quality problems that plagued the RTA units caused MFI to lose revenue from both cancelled and future sales, the latter due to MFI's loss of reputation in the industry. He held that MFI suffered "significant damages" from Mylex's breach of contract and negligence.

[67] However, in the trial judge's view [at para. 108], "significant contingencies" existed that "may well have impacted [on MFI's] projected profits even if Mylex had delivered acceptable product in a timely way". Because of these contingencies, the trial judge concluded [at paras. 110, 113] that MFI had a "reasonable possibility" rather than a "reasonable certainty" of success with its RTA program, warranting "a significant reduction" in the amount of damages claimed by MFI.

[68] Accordingly, the trial judge held that MFI was entitled to a global damages award reflecting lost profits for a two- year period. He set MFI's annual lost profits at $675,000. This resulted in a total damages award to MFI in the amount of $1.35 million, before any deduction on account of Mylex's counterclaim for payments owed for product delivered.

[69] The trial judge expressed his conclusion on damages in these terms [at para. 115]:

In all the circumstances, I conclude that [MFI] is not entitled to damages for lost profits in perpetuity and neither is it entitled to damages for lost profits for a five year period. [See Note 4 below] Instead I conclude that [MFI] is entitled to damages reflecting lost future profits for a two year period. The annual figure for lost profits I set at $675,000 which is based upon Thomas Dyson's opinion as to a reasonable figure for projected annual lost profits following a transition period involving the conversion to the RTA program. Therefore I conclude that [MFI] is entitled to damages in the amount of $1,350,000.

Mylex's damages appeal

[70] Mylex attacks the trial judge's damages award on the narrow basis that the trial judge erred by selecting a two-year period for the assessment of damages following "a transition period" for the establishment of the RTA program. Mylex [page418] submits that the trial judge was obliged to award damages only for the two years immediately following Mylex's breach of contract, that is, for the period mid-March 1995 to mid-March 1997. [See Note 5 below] I disagree.

[71] This court's review of the damages award in this case must proceed on the basis that, absent legal error, a trial judge's assessment of damages attracts great deference from an appellate court. This court is not entitled to substitute its own view of a proper award unless it is demonstrated that the trial judge made an error in principle, misapprehended the evidence, failed to consider relevant factors, considered irrelevant factors, made an award without any evidentiary foundation, or otherwise made a wholly erroneous assessment of the damages: see Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, [2001] S.C.J. No. 56, at para. 80; and Woelk v. Halvorson, 1980 CanLII 17 (SCC), [1980] 2 S.C.R. 430, [1980] S.C.J. No. 82, at p. 435 S.C.R.

[72] In my view, the two-year period chosen by the trial judge and the $675,000 in annual damages awarded by him for that period are grounded in the evidence of Dyson, the only expert to testify on damages. The trial judge confined MFI's damages claim to a two-year period of lost profits to take account of MFI's failure to prove its projected future profits to a standard of "reasonable certainty". In choosing this period and this quantum of damages, the trial judge accepted those of Dyson's calculations of MFI's lost profits that, in his view, best reflected the years when MFI's losses would be manifest, allowing for: (i) sufficient time for MFI to convert its product to the RTA line, for the RTA product to achieve marketplace acceptance, for the cancellation of orders and for damage to MFI's reputation in the industry to occur; and (ii) the uncertainties of the ultimate success of the RTA program.

[73] In his report dated June 28, 2002, Dyson indicated that the first step in his calculation of MFI's past losses was to estimate MFI's likely future sales of RTA furniture "had the relationship with Mylex been successful". Dyson's calculation of [page419] post-2001 losses (future losses) also assumed that Mylex's breach of contract had not occurred. In addition, Dyson relied in his own calculations on MFI's sales projections for RTA product for the years 1996 to 1998. As the trial judge recognized [at para. 106], "These projections were based upon the assumption that after a relatively brief transition period [MFI] would replace the success it had previously enjoyed with its furniture built in the traditional way with the new RTA line."

[74] Necessarily, therefore, Dyson's calculations assumed the passage of sufficient time to permit MFI to convert its product line to the RTA format, for product to be delivered by Mylex, and for the RTA program to achieve success in the marketplace.

[75] The trial judge indicated [at para. 115] that his lost profits figure of $675,000 per annum was based on "Dyson's opinion as to a reasonable figure for projected annual lost profits following a transition period involving the conversion to the RTA program". On Dyson's calculations, MFI's annual past losses for the years 1998 to 2000 approximated $675,000. The two-year period chosen by the trial judge for the quantification of damages and the annual damages fixed by him for those two years -- $675,000 -- correspond with Dyson's calculations of MFI's annual losses for the third and fourth years of the RTA program after its implementation.

[76] The trial judge was not obliged to accept the entirety of Dyson's evidence. This was especially so given the trial judge's finding that Dyson's analysis was predicated on sales projections (and, hence, profit projections) that were not established to a reasonable certainty. Nor was the trial judge required to accept MFI's position that only a short time would be required to successfully transition from its former furniture line to the RTA product and to establish a market niche for the new RTA line. In arriving at an appropriate damages award, the trial judge was entitled to choose a two- year period for the quantification of damages that best reflected MFI's lost profits, taking account of "all the circumstances".

[77] Moreover, in selecting the appropriate two-year period for this purpose, the trial judge was mindful of the applicable legal principles that governed his assessment of damages in this case. Among other authorities, the trial judge relied on the decision of this court in Canlin Ltd. v. Thiokol Fibres Canada Ltd. (1983), 1983 CanLII 1603 (ON CA), 40 O.R. (2d) 687, [1983] O.J. No. 2502 (C.A.), in which the court upheld an assessment of loss of profits that recognized the plaintiff's deprivation of future business, loss of goodwill and loss of reputation resulting from the defendant's breach. In Canlin, Cory J.A. indicated that "An assessment of future loss of profits [page420] must, of necessity, be an estimate" (at p. 691 O.R.). Justice Cory elaborated at p. 695 O.R.:

The amount of future profits and the period for which they should be allowed will depend upon the facts of each individual case. Although such damages may be difficult to assess, it must be remembered that they arise as a result of the breach of the defendant and the court should make all reasonable efforts to assess those damages. (Emphasis added)

[78] The trial judge in this case recognized that the quantification of MFI's damages for potential lost profits in 1995 and for future lost profits thereafter was difficult. He undertook this assessment in a fashion similar to that accepted in Canlin [at para. 92]:

In the case at bar the defendant Mylex when it entered into an agreement with the plaintiff [MFI] to supply product clearly knew that [MFI] relied upon a timely delivery of that product to its customers and that the failure of [MFI] to deliver such product would not only result in cancelled sales but also to loss of future sales and damage to [MFI's] reputation generally. The loss of those future sales and [MFI's] opportunity in the marketplace flow naturally from Mylex's failure to meet its contractual obligations with respect to timely delivery and quality of product and also to Magnussen's loss of reputation generally as a result thereof. (Emphasis added)

[79] The trial judge was also alive to the requirements that MFI establish, on a balance of probabilities, that Mylex's breach of contract resulted in the damages claimed and that the damages claimed were not too remote. In assessing MFI's damages for lost profits against these principles, the trial judge relied especially on Houweling Nurseries Ltd. v. Fisons Western Corp., 1988 CanLII 186 (BC CA), [1988] B.C.J. No. 306, 49 D.L.R. (4th) 205 (C.A.), leave to appeal to S.C.C. refused (1988), 89 N.R. 398n. In that case, McLachlin J.A., then writing for the British Columbia Court of Appeal, stated at p. 210 D.L.R.:

The basic rule is that damages for lost profits, like all damages for breach of contract, must be proven on a balance of probabilities. Where it is shown with some degree of certainty that a specific contract was lost as a result of the breach, with a consequent loss of profit, that sum should be awarded. However, damages may also be awarded for loss of more conjectural profits, where the evidence demonstrates the possibility that contracts have been lost because of the breach, and also establishes that it is probable that some of these possible contracts would have materialized, had the breach not occurred. In such a case, the court should make a moderate award, recognizing that some of the contracts may not have materialized had there been no breach.

[80] In reliance on Houweling, the trial judge discounted the damages claimed by MFI to take into account various risk contingencies, including those that would operate against the success of the RTA program, and rejected Dyson's overall estimate of MFI's [page421] lost profits. He did this in part by the device of limiting MFI's recovery of damages to two years. I see nothing objectionable in this approach, which was directly responsive to the issue whether MFI had established its projected loss of profits to the requisite standard of proof. The trial judge stated [at para. 110]:

I am not persuaded that [MFI's] claim for damages based upon its business projections and Thomas Dyson's report has been established with "reasonable certainty and precision on a balance of probabilities". Therefore the full damages claimed based upon such projections are not recoverable. I am persuaded that [MFI] has established a "reasonable possibility (of such profits) which to some extent would probably have materialized". Thus, in accordance with [Houweling], [MFI] is entitled to a reduced or "moderate" award.

[81] Finally, I would also reject Mylex's submission that the two-year period chosen by the trial judge for the assessment of damages rests on the validity of the trial judge's finding of the existence of an overall contract between the parties. Mylex's breach of MFI's purchase orders led to the same damages said by MFI to arise on the breach of the overall contract. Accordingly, the error that I have concluded was made by the trial judge -- the holding that an overall contract was entered into by the parties -- has no impact on his assessment of damages.

[82] In the end, in making a global award of damages to MFI, the trial judge accepted that MFI's damages could be assessed based on the evidence of MFI's projected profits from the RTA program, discounted for applicable contingencies. He was not satisfied that MFI had discharged its evidentiary burden to establish its claimed lost profits in full.

[83] Accordingly, the trial judge's selection of the appropriate time period for the quantification of damages took account of Dyson's analysis and the following factors: (i) the time required for MFI to transition to a successful RTA program; (ii) the time necessary for MFI to sustain the loss of orders actually cancelled as a result of missed delivery dates and quality-control issues; (iii) the time required for the loss of future business occasioned by damage to MFI's industry reputation; and (iv) the substantial contingencies that underpinned MFI's failure to establish the likely success of the RTA program and, hence, MFI's projected future profits to a standard of reasonable certainty. In my view, the trial judge did not err by proceeding in this fashion. I would therefore dismiss Mylex's appeal from the trial judge's damages award.

MFI's cross-appeal on damages

[84] MFI makes two arguments on its cross-appeal concerning damages. It asserts first, that the trial judge misapprehended its [page422] position on damages for future losses by improperly concluding that it was seeking damages "in perpetuity". Next, it argues that the trial judge's restriction of its damages to two years of lost profits was based on the erroneous conclusion that MFI could have resurrected the RTA program after Mylex's breach of contract and that its failure to do so warranted a reduction in the damages to which it would otherwise have been entitled. I do not accept these submissions.

[85] MFI's own factum on appeal belies its disclaimer of a claim for damages in perpetuity. MFI's factum is replete with references to its claim for damages "in perpetuity" [See Note 6 below] and to the trial judge's rejection of that claim. For example, in its factum, MFI expressly sought an award of what it called "perpetuity damages" of $1.576 million from this court. Nowhere in its factum does MFI contend that the trial judge erred in his appreciation of the nature of MFI's damages claim concerning future lost profits. This assertion was first advanced in oral argument before this court.

[86] Moreover, MFI's attempt to now recharacterize the nature of this part of its damages claim is contrary to the evidence of its own damages expert. On cross-examination, Dyson expressly confirmed that his calculations for MFI's future losses comprised "damages in perpetuity". MFI acknowledged this in its factum on appeal by referring to Dyson's calculations of post-2001 lost profits as "the full amount claimed for damages in perpetuity".

[87] In these circumstances, I agree with Mylex's submission that MFI's effort on appeal to distance itself from a claim for damages in perpetuity cannot be accepted. To ignore MFI's own previous descriptions of its damages claim regarding future losses (treated by Dyson as post-2001 lost profits) would be unfair to Mylex and the trial record. Having elected to put its damages case at trial in part on the basis of a claim for damages in perpetuity, it is far too late for MFI to resile from this position.

[88] Nor do I accept MFI's argument that the trial judge erred by reducing its damages because it failed to resurrect the RTA program after its relationship with Mylex ended.

[89] Relying on the trial judge's observation that [at para. 111] "[n]otwithstanding the absence of any vigorous effort to . . . aeresurrect' the program, in excess of $700,000 of product was sold in the RTA line in 1996", MFI submits that, contrary to the evidence, [page423] the trial judge "must have concluded that there was a sound argument that the [RTA] program could have been resurrected". MFI further asserts that, by so concluding, the trial judge misapplied the principles governing MFI's duty to mitigate its damages by requiring it to act contrary to its own commercial interests, thereby improperly penalizing it for its failure to resurrect the RTA program.

[90] In my opinion, these submissions misconstrue the heart of the trial judge's reasoning in support of his rejection of that part of MFI's damages claim that Dyson referred to as "future losses" and that MFI called "perpetuity" damages ($3.9 million).

[91] The trial judge explicitly stated [at para. 111]: "Whether the [RTA] program could have been resurrected and recovered from the damage it suffered as a result of Mylex's breach of contract and negligence remains uncertain." Thus, contrary to MFI's submission, the trial judge made no finding that the RTA program was capable of "resuscitation". Instead, he expressly found that the prospects for its resurrection were uncertain.

[92] Similarly, the trial judge made no finding that MFI's decision to end the RTA program was unreasonable or that the termination of the program constituted a failure by MFI to mitigate its damages. The trial judge found [at para. 85] that MFI took "reasonable steps to mitigate its damages", including by arranging for an alternate supply of RTA product from Carina, and that the decision to terminate the RTA program "may have been a sound business decision" [at para. 112].

[93] It is true that the trial judge referred [at para. 111] to the failure to resurrect the RTA program as an "arguable failure [by MFI] to fully mitigate its damages" (emphasis added). He also said [at para. 112]: "[T]he plaintiff cannot have it both ways. [MFI] cannot terminate the program without further efforts to resurrect it with a new reliable supplier and then expect the defendant Mylex to compensate it in perpetuity for what might have been a successful plan."

[94] In my opinion, however, on a full reading of the trial judge's reasons, these comments indicate the trial judge's awareness that, in the absence of evidence of any effort to re- establish the RTA program, or other proof that the program would have succeeded but for Mylex's breach of contract, MFI was overreaching by claiming damages on an indefinite basis due to Mylex's wrongful conduct. In other words, MFI's lack of effort to continue or resurrect the RTA program was one of the factors considered by the trial judge in assessing whether the RTA program would have been successful, that is, whether MFI had proven its claimed loss of profits in "perpetuity". [page424]

[95] As I have said, the trial judge found that the success of the RTA program was not a "reasonable certainty" but, rather, only a "reasonable possibility", with the result that MFI was entitled to only a reduced or "moderate" award of damages. In its factum on appeal, MFI confirmed that it "takes no issue with this determination".

[96] Contrast those findings with the fact that MFI's claim for damages for future losses -- its perpetuity damages claim -- was premised on the assumption not only that the RTA program would have been successful, but that its success would have continued indefinitely. In this context, it was open to the trial judge to consider whether the evidence of MFI's treatment of the RTA program supported or detracted from the assumptions on which MFI's projections of lost profits were premised.

[97] This is not tantamount to a conclusion that MFI's failure to resurrect the RTA program amounted in law to a failure to mitigate its damages -- a conclusion not drawn by the trial judge. In his reasons, the trial judge sometimes framed his consideration of this issue in the language of mitigation. However, as I read his reasons, he regarded the evidence of MFI's lack of effort to resurrect the RTA program and its decision to terminate the program as relevant to the sufficiency of the evidence relied on by MFI to support its lost profits claim and to the soundness of the assumptions upon which that claim was based. This evidence, therefore, formed part of "all the circumstances" that the trial judge said that he considered in determining that MFI was not entitled to recover in full the lost profits that it claimed.

[98] Ultimately, having considered Dyson's opinion on damages and the assumptions on which it was based, the trial judge fashioned an award of damages on a global basis in a reduced amount to take account of the serious risk contingencies that he identified, especially the possibility that the RTA program may have failed or that MFI's projected profits from the program may not have been realized. On the facts of this case, this approach to the assessment of damages cannot be faulted.

(5) The costs award

[99] In its costs submissions at trial, MFI claimed counsel fees in the amount of $122,872.50 for the attendance at trial of two senior counsel. The trial judge awarded $84,000 for counsel fees at trial, a reduction of $38,872.50 from the amount sought by MFI. [page425]

[100] MFI argues that, in so doing, the trial judge erred in principle by applying the former costs grid set out under the Courts of Justice Act, R.S.O. 1990, c. C.43 after it had been revoked and, further, by applying the grid in a mechanical fashion, leading to an award that it claims was inconsistent with the trial judge's own view of the fair and reasonable costs of attendance by counsel at trial. I would not give effect to these submissions.

[101] The scope for appellate review of a trial judge's discretionary costs award is especially limited. Unless the costs award is plainly wrong or the trial judge has erred in principle, appellate interference is precluded: see Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, at para. 27.

[102] The trial judge recognized that although the costs grid was in effect at the time of trial, it was revoked prior to his costs ruling. Nonetheless, in his view, the grid could be seen "as a reliable parameter for assessing counsel fees at trial". He therefore reduced the counsel fees sought by MFI by applying a block fee of $17,500 per week for four weeks plus four days of trial.

[103] I see no error in this discretionary decision by the trial judge. On my reading of the trial judge's costs ruling, he did not automatically or rotely apply the grid to his assessment of counsel fees in this case. Rather, he simply regarded the grid's provisions concerning counsel fees at trial as a useful guide to an appropriate award for this item of costs in this case, notwithstanding that the grid itself had been revoked.

[104] Nor did the trial judge err in his consideration of the decision of this court in Celanese Canada Inc. v. Canadian National Railway Co., 2005 CanLII 8663 (ON CA), [2005] O.J. No. 1122, 196 O.A.C. 60 (C.A.), leave to appeal to the S.C.C. refused [2005] S.C.C.A. No. 245. In Celanese, Borins J.A. of this court, writing for himself on this issue, considered the scope for an allowance of counsel fees for more than one counsel at trial where the grid applied. He held that, under the grid, the recovery of fees for a second counsel at trial was permissible so long as the aggregate of the counsel fees allowed did not exceed the maximum fees permitted under the costs grid.

[105] The trial judge's costs ruling in this case reflects his appreciation that Celanese was "a grid case" and that the grid -- having been revoked -- did not bind him. On my reading of his ruling, he did not treat the decision in Celanese as dictating the maximum limits of an award in this case for counsel fees at trial. Rather, his ruling suggests that he regarded Celanese as [page426] determining the issue of appropriate block fees for counsel in cases where the grid applied and that he viewed those block fees as also appropriate in this case.

[106] It was within the trial judge's discretion to determine whether counsel fees in the amount contemplated by the grid were appropriate for application here. In deciding to apply this aspect of the grid provisions, the trial judge specifically adverted to Borins J.A.'s cautionary words in Celanese at paras. 50-51, citing this court's decision in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, [2004] O.J. No. 2634 (C.A.), at para. 37: "[I]n the final analysis the court must step back and consider the total amount of costs applying the aeoverriding principle of reasonableness'."

[107] Elsewhere in his ruling, the trial judge also addressed the length and complexity of the trial, the nature of the services performed before and at trial by the two senior counsel in question, the reasonableness of the hourly rates charged and the factors outlined in rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for consideration by the court when awarding costs. I see no basis on which to conclude that he ignored these considerations when evaluating an appropriate quantum of costs for counsel fees at trial.

[108] In the result, although I might have approached the matter differently, I cannot conclude that the trial judge's costs award for counsel fees at trial was plainly wrong or that it flowed from an error in principle.

Disposition

[109] For these reasons, I would dismiss the appeal. I would also dismiss the cross-appeal on damages, grant leave to appeal costs, and dismiss the cross-appeal on costs. As success in this court was divided, there should be no order as to the costs of the appeal and cross-appeal.

Appeal and cross-appeal dismissed.

Notes

Note 1: A further claim by Mylex for damages for alleged reputational injury was eventually abandoned.

Note 2: It is noteworthy that David Burger was Mylex's only witness at trial. Although Michael Burger, the president of Mylex, was involved from the outset in Mylex's dealing with MFI, was present at the May 23 meeting, and was the principal Mylex representative who dealt with Magnussen, he did not testify. Similarly, Jack Leung of Mylex, who shared responsibility with Michael Burger for maufacturing, was not called by Mylex as a witness at trial. While the trial judge declined to draw an adverse inference against Mylex for its failure to call these potential witnesses, he did emphasize that the only oral evidence offered by Mylex at trial in support of its version of events, including the events at the May 23 meeting, was that of David Burger.

Note 3: There is no dispute that Dyson's estimates of MFI's damages in 1995 and 1996 were lower that in succeeding years because MFI made some profits in those years from the sale of RTA furniture prior to the cancellation of the RTA program in 1996.

Note 4: MFI argues that the trial judge's reference to lost profits for "a five year period" was a mistake. Dyson calculated MFI's past losses over a seven-year period. The trial judge awarded damages for two years on account of what Dyson called "past losses". Thus, in my view, the trial jedge's mention of five years may be read as a reference to teh five years of "past losses" that he decided to disallow.

Note 5: According to Mylex, when Dyson's estimates of MFI's lost profits for the years 1995 to 1997 are adjusted to conform to this two-year period, the maximum amount of damages that could have been awarded to MFI was $590,480.11, less the sum of $82,485.05 admittedly owed to Mylex in repected of its counterclaim, yielding a net damages award of $507,995.06. Although Mylex argued in its factum on appeal that the sum of $590,480.11 should be further reduced on account of various contingencies that is alleged were ignored by the trial judge, it abandoned this position in oral argument.

Note 6: Both the trial judge and MFI (in its factum on appeal) referred to MfI's claim for losses sustained after 2001 as a claim for "perpetuity" damages.