COURT OF APPEAL FOR ONTARIO
CITATION: Maple Leaf Foods Inc. v. Ryanview Farms, 2015 ONCA 566
DATE: 20150731
DOCKET: C58682
Simmons, Tulloch and Pardu JJ.A.
BETWEEN
Maple Leaf Foods Inc.
Plaintiff (Respondent)
and
Ryanview Farms, James Theodore Smith and Velma Jean Smith
Defendants (Appellants)
Martha Cook, for the appellants
Joan Mouland, for the respondent
Heard: March 16, 2015
On appeal from the judgment of Justice Roland L. Haines of the Superior Court of Justice, dated March 18, 2014.
By the Court:
[1] The appellants appeal from a judgment requiring that they pay $16,503.71 to the respondent and dismissing their counterclaim. The main issue on appeal is whether the trial judge erred in assessing damages on the appellants’ counterclaim.
A. Background
[2] The appellants are pig farmers. In 2004 and 2005, they decided to depopulate their existing barns; clean and disinfect them; and repopulate their herds with healthy maiden breeding pigs (gilts) and boars to be purchased from the respondent.[^1]
[3] In making the decision to purchase from the respondent, the appellants had spoken to a party interested in purchasing high health segregated early weaners (“SEWs”) (piglets 17 to 21 days old that have been weaned from their mother) for sale to the United States.
[4] The appellants eventually entered into a contract with the interested party (the “Werden contract”) for the sale of approximately 550 SEWs per week at a price based on a percentage of the prevailing Hog Forward Contract Price, with a floor price of $36 and a ceiling price of $46.
[5] The appellants chose to purchase from the respondent because the respondent represented their gilts would produce healthy SEWs.
[6] In February 2006, the respondent delivered 1,130 gilts and 10 boars to the appellants. One truckload (245 gilts) was delayed 20 hours in transit, with the result that these gilts were stressed on arrival and became ill with a respiratory virus. Over time, the sick gilts infected the entire herd (a total of 910 gilts) at the barn where they were housed.
[7] The appellants and the respondent had continuing negotiations about how to resolve the issue of the sick gilts. In October 2006, the respondent agreed to provide 300 replacement gilts – 100 free, 100 at slaughter price and 100 at standard price. One hundred and fifty eight[^2] replacement gilts were delivered in November 2006. They, too, were sick on arrival because of transport issues.
[8] The appellants and the respondent continued discussions into 2007. The appellants claim the respondent agreed to provide 450 replacement gilts. The appellants also wanted purebred animals for breeding purposes, so they could begin breeding their own stock.
[9] Between April and July 2007, the respondent delivered a further 350 replacement gilts and 87 purebred animals. The trial judge found that, of these animals, the appellants rejected 22 gilts and 11 purebred animals as unsatisfactory.
[10] The appellants and the respondent disagreed over the terms on which the replacement animals were delivered. The respondent delivered invoices, which the appellants did not pay. In 2008, the respondent sued the appellants for the balance owing on the sale of animals; the appellants counterclaimed for damages arising from loss of production due to the unsatisfactory quality of the gilts delivered.
[11] Subsequently, in 2009, the appellants enrolled in the Hog Farm Transition Program, a federal government program created in response to low prices in the hog industry, under which payments were made to hog farmers who agreed to cease production for three years. Eventually the appellants lost their farm through foreclosure.
[12] The calculation of damages on the appellants’ counterclaim was complicated by the depressed swine market. It was also complicated by the fact that, during the relevant period, through no fault of the respondent, the appellants’ animals became sick with porcine reproductive and respiratory syndrome (“PRRS”) – one barn in November 2006, and two barns in December 2007 – with the result that the affected animals were unsaleable under the Werden contract and the parties to that contract treated it as terminated.
B. The trial judge’s decison
[13] Multiple issues were litigated at trial. The trial judge’s findings included the following:
• the parties did not have a written contract;
• the appellants never agreed to any terms or conditions that limited the liability of the respondent;
• the sale of animals from the respondent to the appellants was subject to an implied warranty of fitness under the Sale of Goods Act, R.S.O. 1990., c. S.1, that the respondent would supply healthy, properly conformed gilts capable of producing healthy SEWs;
• given the number of diseased animals supplied, and the conformation issues encountered, the appellants had demonstrated that the respondent breached the implied warranty of fitness;
• the appellants failed to prove that they suffered any damages as a result of the respondent’s breach of warranty;
• in 2007, the respondent agreed to supply replacement animals free of charge;
• although Mr. Smith acknowledged during cross-examination that he believed the respondent’s agreement to provide replacement animals free of charge resolved all issues between the parties and that he would have honoured that agreement had he not been sued, the respondent was not entitled to hold the appellants to a bargain the respondent had failed to honour;
• the balance owing to the respondent for pigs delivered is $16,503.71.[^3]
[14] Concerning the appellants’ claim for damages for breach of warranty, the trial judge noted that Mr. Kertzman provided expert evidence for the appellants, and Mr. Hoare provided expert evidence for the respondent. Each party also called expert veterinarian evidence.
[15] Mr. Kertzman calculated the appellants’ lost profits at $1,005,092 if the appellants continued to operate through to 2012 – and at $635,679 if they participated in the Hog Farm Transition program. He calculated these figures by assessing the difference between anticipated revenue net of anticipated costs of production and actual revenue[^4] net of actual costs of production. He made a 7% adjustment for contingencies.
[16] In arriving at his conclusions, Mr. Kertzman accepted that, but for the delivery of the sick pigs, the appellants would have produced 25 SEWs per sow per year, 550 SEWs per week and that the piglets would have been sold within the price range provided in the Werden contract. He used Ontario Ministry of Agriculture Food and Rural Affairs (“OMAFRA”) data for costs – as opposed to the appellants’ 2005 cost data – because he concluded the appellants’ current farrow to early wean operation was different than their 2005 operation. He also used OMAFRA data as a reasonable proxy for the price the appellants would realize for the sale of non-productive sows into the market.
[17] Mr. Hoare used the same methodology to calculate damages as Mr. Kertzman, but he relied on different assumptions. For example, his opinion was premised on an assumption, supported by the respondent’s veterinarian evidence, that the PRRS outbreaks precluded attributing any losses suffered subsequent to the outbreaks to the respondent. He therefore calculated losses for each barn up to the point where the PRRS outbreak for that barn had occurred. Using this methodology, he calculated lost profits to November 30, 2007 as $164,883.
[18] Further, unlike Mr. Kertzman, Mr. Hoare concluded that the appellants’ pre-2006 operation was sufficiently similar to their current operation to justify using their pre-2006 cost figures when calculating lost profits. In calculating projected revenues, he assumed the appellants would have produced between 21.2 and 22 weaners per sow per year, based on actual production in one barn that had healthy animals through to November 2006 – and based on OMAFRA data for 2007. However, he too assumed the Werden contract price range would be available.
[19] The trial judge reviewed the conflicting veterinarian evidence concerning the impact of the PRRS outbreaks. Although he observed that the evidence of both veterinarian experts “appears to support the conclusion that the initial disease process and conformation issues [attributable to the respondent] had some continuing impact on the [appellants’] operations subsequent to the outbreaks of PRRS”, he concluded that he was unable “to find any loss subsequent to November 2006 and … to determine the extent of any loss prior to that date.”
[20] The trial judge relied on several factors for these conclusions, including: he found the production records were contradictory, as a result, despite the obvious problems with the animals delivered, he was not satisfied the appellants had proven a loss in production; he concluded that the evidence relating to actual sales was incomplete; and he was not convinced the Werden contract price range would have been available as a result of the PRRS outbreak.
C. the issues on appeal
[21] The appellants raise multiple issues on appeal. However, their arguments come down to two main points. First, the trial judge erred in assessing damages on the appellants’ counterclaim. Second, after finding that the respondent agreed to supply replacement animals free of charge, the trial judge erred in failing to find how many free replacement animals the respondent agreed to provide and in failing to factor the shortfall into his calculation of the balance owing by the appellants to the respondent.
[22] The respondent asserts that there is no merit in the appellants’ grounds of appeal. However, in the event this court decides to order a new trial, the respondent says that the trial judge erred in finding that the sale was subject to an implied warranty under the Sale of Goods Act and asks that that issue be addressed at any new trial.
D. discussion
[23] In our view, the trial judge erred in his approach to the assessment of damages. Although satisfied that the respondent’s breach of warranty had an impact on the appellants’ operation, both before and after the PRRS outbreaks, he concluded he was unable “to find any loss subsequent to November 2006 and … to determine the extent of any loss prior to that date.”
[24] The trial judge reached his conclusion, at least in part, because he relied on production evidence set out in Canadian Agricultural Income Stabilization (“CAIS”)[^5] records to draw conclusions about production as opposed to production evidence set out in PigCHAMP[^6] records, which he found to be incomplete.
[25] In our opinion, the trial judge erred in so doing. All the experts who testified at trial concerning lost profit calculations relied on the PigCHAMP records in making their calculations and only one – the respondent’s veterinarian – was in anyway challenged about the decision to do so. In chief, she noted that she was unable to correlate 2008 PigCHAMP records with 2008 CAIS records. In cross-examination, she was asked why she did not use the CAIS records. She explained that she did not have any concerns about the quality of the PigCHAMP records, and that when she was unable to reconcile certain aspects of the records, she chose to use the PigCHAMP records.
[26] Further, Dr. Charbonneau, an expert in collection, presentation and interpretation of pig production data, gave evidence about the PigCHAMP record system and pig production generally. He explained that PigCHAMP is a computerized record keeping system developed through the University of Minnesota. It allows pig producers to submit data that is then analyzed by PigCHAMP. He viewed Canadian PigCHAMP statistics as a reliable source of information. Despite his expertise, he was not asked to comment on the appellants’ production records or the discrepancy between their PigCHAMP records or their CAIS records.
[27] Equally significant is the fact that, on appeal, respondent's counsel was unable to explain on what basis the trial judge arrived at certain conclusions using the CAIS records. Nor have we been able to determine that basis. The problem inherent in the trial judge’s decision to use the CAIS records, when none of the experts at trial used them, is the absence of evidence to explain how the records should be applied.
[28] Further, the trial judge did not resolve some of the differences in the assumptions made by Mr. Kertzman and Mr. Hoare.
[29] We also accept the appellants’ submission that the trial judge erred by failing to make a finding concerning the number of free replacement animals the respondent agreed to provide and by failing to consider how, if all, any shortfall should factor into his calculation of the balance owing by the appellants to the respondent (and potentially into his damages calculation).
[30] In the circumstances, we see no alternative but to order a new trial to address the following:
• The assessment of damages for the respondent’s breach of implied warranty;
• The number of replacement animals that were promised to the appellants, and the impact, if any of that determination on the calculation of the balance owing to the respondent (and potentially on the calculation of damages).
[31] We see no error in the factual findings or legal conclusions drawn by the trial judge establishing the respondent's liability for breach of implied warranty.
[32] In the result, a new trial is ordered on the issue of damages, the issue of the number of replacement animals that were promised to the appellants and the impact of the determination of that issue on the calculation of the balance owing to the respondent (and potentially damages). The costs award below is set aside and costs of the trial reserved to the judge hearing the new trial.
[33] Costs of the appeal are to the appellants on a partial indemnity scale fixed in the amount of $15,000, inclusive of disbursements and applicable taxes.
Released:
“KMvR” “Janet Simmons J.A.”
“JUL 31 2015” “M. Tulloch J.A.”
“G. Pardu J.A.”
[^1]: The appellants’ dealings were actually with a predecessor of the respondent. For simplicity, we will refer simply to the respondent throughout.
[^2]: One, out of the 159 animals transported, was dead on delivery.
[^3]: In his reasons, the trial judge states that the appellants claimed that the amount owing to the respondent after all appropriate credits was $16,503.71. However, the invoice summary filed by the appellants during closing submission indicates the appellants claimed that was the amount owing “subject to set off”.
[^4]: Mr. Kertzman relied on Ryanview’s general ledgers to calculate actual revenue.
[^5]: The CAIS records were prepared by the appellants’ accountant, Mr. McNeil. He explained that the CAIS program was designed to stabilize farm income and used a calculation to which he was not privy to do so. He confirmed that the appellants provided opening and closing inventory and births and deaths so he could complete the CAIS application. Although the appellants disputed it, he claimed the appellants also provided him with information concerning the SEWs sold. He would then estimate the number of pigs transferred in and out of various categories. He testified that the ending numbers in the CAIS records correspond to the Ryanview financial statements. He was not asked to reconcile any discrepancy between CAIS records and PigCHAMP records.
[^6]: As explained by the trial judge, PigCHAMP is a recording service that pig producers use as a management tool to record and track the various production aspects of their operations.