COURT OF APPEAL FOR ONTARIO

CITATION: Burr v. Tecumseh Products of Canada Limited, 2023 ONCA 135

DATE: 20230301

DOCKET: C70334

Tulloch, Thorburn and George JJ.A.

BETWEEN

Leroy Burr and Joan Callister

Plaintiffs (Respondents/Appellants by Cross-Appeal)

and

Tecumseh Products of Canada Limited, Tecumseh Products Company and Venmar Ventilation Inc.

Defendants (Appellant/Respondent by Cross-Appeal/ Respondents/Appellants by Cross-Appeal)

Howard Borlack and Gosia Bawolska, for the appellant Venmar Ventilation Inc.

J. Thomas Curry, Dena N. Varah and Sarah Bittman, for the respondents Tecumseh Products of Canada Limited and Tecumseh Products Company

Robert Dowhan and Matthew McMahon, for the respondents Leroy Burr and Joan Callister

Heard: November 17, 2022

On appeal and cross-appeal from the judgment of Justice Gordon D. Lemon of the Superior Court of Justice, dated January 21, 2022, with reasons reported at 2022 ONSC 412, and cross-appeal from his costs order dated May 17, 2022.

Thorburn J.A.:

Overview

[1] In 1994, the respondents Leroy Burr and Joan Callister (“the Burr‑Callisters”), installed a heat recovery ventilator (the “ventilator”) in their home. On November 5, 2012, the motor in the ventilator overheated, exploded and caught fire resulting in serious damage to their home.

[2] At the time of trial, there had been approximately 112 similar house fires. This is a test case for at least 30 other active claims across Canada.

[3] The Burr‑Callister ventilator was designed and manufactured by Venmar Ventilation Inc. (“Venmar”). The motor in the ventilator was designed and manufactured by Fasco Industries Inc (“Fasco”).[^1]

[4] Venmar and Fasco had a customer-supplier relationship in which Fasco built and delivered off-the-shelf motors with custom specifications requested by Venmar.

[5] The Burr-Callisters brought an action against Venmar as manufacturer of the ventilator, and against Fasco as manufacturer of the motor in the ventilator.

[6] The parties agreed that the fire was caused by the end-of-life failure of the motor in the Burr-Callister ventilator. The cycling thermal protector used in the motor to prevent an overheating event failed in a closed position causing the motor to cycle repeatedly, overheat, and eventually ignite.

[7] The main issue at trial was whether one or both of Venmar and/or Fasco was negligent for failing to install the appropriate protective devices. A secondary issue was whether Venmar was contractually obligated to indemnify Fasco for all damages and costs in this proceeding.

[8] The trial judge held that:

i. Venmar was liable for the negligent design of the ventilator;

ii. Venmar was not liable for failure to warn the Burr-Callisters of the design deficiencies or risk of fire;

iii. Fasco was not liable for either the negligent manufacture or design of the motor, or for failing to warn the Burr-Callisters as Fasco owed them no duty of care; and

iv. Even if Fasco were liable, the contract between Venmar and Fasco provided that Venmar “shall” indemnify Fasco for “any and all claims” relating to the motors sold regardless of Fasco’s negligence.

[9] The trial judge ordered that Venmar pay damages to the Burr-Callisters in the amount of $1,073,739 for subrogated loss and special damages, and a further $60,000 in general damages for non-pecuniary losses. He also ordered Venmar to pay Fasco’s reduced partial indemnity costs in the amount of $800,000.

[10] Venmar appeals the trial judge’s determination that: (i) Venmar was liable to the Burr-Callisters for the negligent design of the ventilator; (ii) Fasco was not liable to the Burr-Callisters for the negligent design of the motor or for its failure to warn; and (iii) Venmar was contractually liable to indemnify Fasco even if Fasco were liable for the negligent design and manufacture of the motors used in Venmar ventilators.

[11] The Burr-Callisters cross-appeal the trial judge’s finding that Venmar did not breach its duty to warn the public of the alleged dangerous and defective design. They claim Venmar had a duty to notify the public as soon as it became aware of the problem and failed to make ongoing efforts to do so.

[12] Fasco cross-appeals the costs awarded, claiming the quantum of costs awarded was too low and the trial judge erred by failing to consider Fasco’s contractual entitlement to full indemnity costs in accordance with the terms of its contract with Venmar.

[13] For the reasons that follow, leave to appeal the costs order is granted, Venmar’s appeal and the Burr-Callisters’ cross-appeal are dismissed, and Fasco’s costs cross-appeal is remanded back to the trial judge for his re-determination consistent with the principles set out below.

Issues on the appeal

[14] The central issues before this court are whether the trial judge erred in holding that:

i. Venmar was liable for the negligent design of the ventilator but not the duty to warn the Burr-Callisters;

ii. Fasco was not liable for either the negligent design of the ventilator motor or the failure to warn Venmar or the Burr-Callisters of the risk of its motors catching fire;

iii. Even if Fasco had been found liable in negligence, Venmar was obliged to indemnify Fasco for any liability arising from Fasco motors used in Venmar ventilators; and

iv. Fasco was only entitled to reduced partial indemnity costs rather than the full indemnity costs it sought.

Evidence about the ventilator motors

[15] Before reviewing the trial judge’s decision and addressing the issues, I will set out the evidence regarding (i) the problems associated with the type of ventilator and ventilator motor used in this Venmar ventilator, (ii) the industry standards, (iii) damage to the Burr-Callister ventilator motor, (iv) Venmar and Fasco’s knowledge of the problems and actions they took following the discovery of the problems, and (v) Venmar’s resulting safety program

I. Problems with End-of-Life Ventilator Motor Failures and Available Solutions

[16] Ventilators are installed to replace stale indoor air with fresh outdoor air. The exchange of air requires a fan or blower, driven by an electric motor. Ventilators are usually located near the furnace and use the same ductwork, are out of plain sight, and their operation (and malfunction) may go unnoticed by users because ventilator units are not readily accessible. They are known in the appliance industry as “unattended devices”.

[17] The motor used in the Burr-Callister ventilator contains a cycling thermal protector to prevent it from overheating. When the motor overheats (at over 130 degrees Celsius), the thermal protector automatically opens and cuts off the flow of electricity to it. When the motor cools, the thermal protector automatically closes and the flow of electricity resumes.

[18] When a motor reaches the end of its natural product life, it may enter a “locked rotor” position where the rotor stops turning. If power continues to be supplied to a motor with a locked rotor, resultant overheating may cause the thermal protector to open and close continuously, thereby damaging the thermal protector and putting it at risk of failure.

[19] If the thermal protector fails in an “open” position, the thermal protector interrupts the electric current flowing to the motor causing the motor to stop running. If the thermal protector fails in a “closed” position, the current may continuously flow to the motor causing it to cycle repeatedly, overheat and possibly start a fire.

[20] In 2012, when the motor in the Burr-Callister ventilator failed, the following solutions were available to address the end-of-life problems: (i) warning lights or alarms could prompt the user to intervene when the rotor was in a locked position; (ii) a fuse could be installed to cut the power to the motor in the event of a short circuit, which otherwise could cause overheating; and (iii) a “one-shot thermal protector” a.k.a. “thermal cut-out” could be installed to permanently cut the flow of electric current to the motor when it overheats. Because a one-shot thermal protector is a permanent solution, once it is installed and the motor overheats prematurely, the motor must be replaced.

[21] The one-shot thermal protector was commonly installed in “unattended” appliances because the motor failure could otherwise go unnoticed by users. By contrast, the one-shot thermal protector was not often used for “attended” appliances in plain view, as users were expected to notice and, thus, attend to these appliances in the event of a malfunction.

II. Industry Standards and Certifications

[22] During the relevant period, the industry was highly regulated. The motor, thermal protector, and ventilation units could not be sold in Canada or the U.S. without certification by the Canadian Standards Association (“CSA”) or Underwriters Laboratory (“UL”). The two certifications were similar.

[23] The CSA certification process included laboratory testing of the motor in the locked rotor position for a minimum of 18 days.

[24] In 1994, there was no requirement to use one-shot thermal protectors in ventilator units and the Burr-Callister cycling thermal protector met all Canadian (and American) regulatory requirements. In fact, ninety percent of motors in North America used cycling thermal protectors at the time.

[25] The U.S. certification UL 507, applicable to built-in electric fans, was amended in 1994 to require the use of a one-shot thermal protector. However, ventilator units were specifically excepted from this requirement as they were subject to a different UL standard. No regulatory change was made to CSA 113 or UL 1812 standards which were applicable to ventilators.

[26] However, according to Fasco’s expert, Beth Anderson, by 1994, other appliances like furnaces had incorporated overload and overcurrent thermal protection. In her opinion, which the trial judge accepted, appliance manufacturers were aware of the “well-known motor failure modes” and, “the industry standard at the time the Venmar [ventilator] was manufactured was for equipment and appliance manufacturers to have two types of motor protection, overload protection [such as a one-shot thermal protector] and overcurrent protection [such as a fuse].” Overload protection stops the current from flowing to the motor when the motor overheats due to being in a locked rotor condition while the overcurrent protection protects the motor in the event of a short circuit.

III. Damage resulting from the Burr-Callister Ventilator Motor

[27] The prototype for the Burr-Callister motor was selected by Venmar “off the shelf” from Fasco’s catalogue. Venmar then tested the prototype, informed Fasco of gaps or custom specifications it required, and Fasco made the requested changes. The final motor was then integrated into Venmar ventilator units. Venmar did not manufacture any of the motors for its appliances.

[28] The Burr-Callister ventilator was purchased in 1994, overheated and caught fire 18 years later in 2012. The unit, the motor and the cycling thermal protector had all outlived their life expectancy. The ventilator life expectancy was 15 years, and the motor life expectancy was 7 years.

[29] Because the ventilator was an unattended appliance, the Burr-Callisters did not notice the malfunction for “weeks or months”.

IV. Knowledge of the Risk of Fire and Steps Taken by Venmar and Fasco to Address the Problem

[30] Fasco knew as early as the 1950s or 1960s the problem of overheating if the thermal protector in its motor failed. It did not relay that information to its manufacturer-customers, including Venmar.

[31] Fasco also knew since the 1980s of the different concerns regarding attended and unattended uses, and the risk of its motor catching fire. Fasco’s information sheets, called “Fasco Field Facts”, used by its sales representatives in 1986 contained specific information about its “new motor safety policy regarding shock hazard and fire prevention” and that motors to be used in “remote, inaccessible locations shall be… equipped with a one-shot protector.”

[32] Venmar also knew there were overheating problems in 1994 but did not know they could lead to fire. Venmar claimed its representatives did not turn their minds to the issue as they relied on Fasco, were unaware that the ventilators were unattended, and therefore believed that customers would notice that the air became stale or that moisture would accumulate on the windows if the ventilator stopped working.

[33] In 1998, Venmar sent some burnt-out motors to Fasco for investigation but did not send the complete ventilator unit. Fasco suggested that the problem could be solved by adding a fuse to the unit.

[34] Neither Fasco nor Venmar knew the root cause of the overheating problem.

[35] Venmar was not satisfied with Fasco’s suggestion to add a fuse and in 1999, decided to insert a one-shot thermal protector to resolve the problem. Fasco did not think the one-shot thermal protector would solve the problem as it thought the problem “m[ight] be somewhere else in the system”.

[36] In or about 2000, Venmar installed a one-shot thermal protector into the ventilator motors. This installation did not entirely resolve the overheating issue.

[37] In 2006, Venmar was able to make a unit catch fire in its laboratory and thereby discovered that the fire was caused by the thermal protector failing in a locked rotor position. In response, Venmar created a power plug adapter which was developed by Venmar’s engineers but manufactured by another company. In 2009, Venmar incorporated an in-line fuse along the line that Fasco previously suggested.

V. Venmar’s Safety Upgrade Program

[38] On December 15, 2006, the Ontario Electrical Safety Authority (the “OESA”) contacted Venmar advising them that the agency wished to have the adapter certified or it would stop its supply to Ontarians. The OESA finally approved the adapters in June the following year.

[39] According to Venmar, it sent a total of 75,297 adapter units, which was less than 25% of the total number of products manufactured and sold.

[40] The safety program team contacted Canadian and American customers, wholesalers and retailers, prepared information for television, newspaper and radio notices, sent bulk letters, and monitored the second-hand market to look out for Venmar ventilators subject to the safety upgrade program.

[41] The OESA, the Ontario Fire Marshal, the Canadian Standards Association and the U.S. Consumer Product Safety Commission all approved Venmar’s corrective steps and largely left Venmar to its own devices.

[42] By the time of trial in 2021, the motors used in Venmar ventilator units had caused fires in slightly over 100 out of the 300,000 units manufactured, resulting in an effective malfunction rate of .038 percent.

The position of the parties at trial

[43] The parties agreed on the following facts:

i. The fire was caused by the motor cycling repeatedly without intervention, and the thermal protector eventually failed in a closed position, allowing electric current to continue to flow to the motor;

ii. This in turn caused the motor to overheat, “resulting in the ignition of combustibles within the motor and within the [ventilator]”;

iii. The Fasco motor in the Burr-Callister ventilator was not defective at the time of purchase; and

iv. The motor had long outlasted its natural life expectancy.

[44] The Burr-Callisters argued that the Venmar ventilator was improperly designed as, while the motor itself was not defective, it was the wrong motor for Venmar ventilators. They claim that one or both of Venmar and Fasco should have realized that the ventilator required a different motor.

[45] Venmar agreed that it owed the Burr-Callisters a duty of care and that the Burr-Callisters sustained damages, but disputed the amount.

[46] However, Venmar argued that Fasco was wholly responsible for the harm to the Burr-Callisters because Venmar relied on Fasco to provide the right motor, Venmar did not have expertise in motors, and Fasco failed to inform Venmar about the possibility of solving the problem of overheating by putting in one-shot thermal protectors. Venmar claimed it did not consider the fact that the ventilator was an “unattended” appliance and relied on Fasco to advise them of specific concerns should they arise.

[47] Fasco claimed its motor was not inherently defective, and that it had no duty of care to the Burr-Callisters or other members of the public as it was simply a Venmar supplier. Fasco said it was never told that Venmar knew little about motors and was relying on Fasco’s expertise. Nor did Venmar involve Fasco in its design or manufacturing, apart from occasional correspondence about performance issues, relay design or testing information to Fasco, or ask about end-of-life testing or unattended use. Alternatively, Fasco alleged that Venmar was a learned intermediary.

[48] In any event, Fasco argued that Venmar was contractually liable to indemnify Fasco for any claims or actions relating to the ventilator motors.

The standard of review

[49] The question of whether one party owes a duty of care to the other is a question of law: Rankin’s Garage & Sales v. J.J., 2018 SCC 19, [2018] 1 S.C.R. 587, at para. 19. The test for showing causation is the “but for” test. The plaintiff must show on a balance of probabilities that “but for” the defendant’s negligent act, the injury would not have occurred. Inherent in the phrase “but for” is the requirement that the defendant’s negligence was necessary to bring about the injury ― in other words that the injury would not have occurred without the defendant’s negligence. This is a factual inquiry: Clements v. Clements, 2012 SCC 32, [2012] 2 S.C.R. 181, at para. 8. The determination of the standard of care and whether there is a breach is a question of mixed law and fact: Housen v. Nikolaisen, 2002 SCC 33, [2022] 2 S.C.R. 235, at paras. 31, 70. The standard of review is correctness for questions of law, and palpable and overriding error for findings of fact, mixed fact and law, and inferences of fact: Housen, at paras. 8, 10 and 19-20.

[50] Deference is owed to a trial judge’s discretion to award costs and such decisions will be overturned “only if the trial judge has made an error in principle or if the costs award is plainly wrong”: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] S.C.R. 303, at para. 27. The trial judge’s discretion extends not only to the decision but to the factors that the judge may consider. The factors may include the provisions of a contract: Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees, 2006 CanLII 7665 (Ont. C.A.), at para. 13. This court has expressed reluctance to interfere with a trial judge’s discretionary costs decision, especially where, as in this case, the trial judge has presided over a lengthy and complex proceeding: Ford, at para. 12. However, where there is a legal error, the order is subject to correctness review: 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184, 134 O.R. (3d) 641, at para. 81.

Analysis of the trial Judge’s Findings

I. The Trial Judge’s Findings of Liability Against Venmar

[51] The trial judge held that Venmar was liable for the negligent design and manufacture of the ventilator, but not for the failure to warn the Burr-Callisters.

1. Negligent design and manufacture of the ventilator

The manufacturer’s duty of care

[52] A duty of care is owed by one person to another where the relationship is so close that one may reasonably be said to owe the other a duty to take care not to injure the other. Whether such a relationship exists depends on proximity of relationship and foreseeability of injury, moderated by policy concerns: Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114, at para. 4; 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, 450 D.L.R. (4th) 181, at para. 30. Relationships in, or analogous to, pre-established categories need not be put to that test: Mustapha, at para. 5.

[53] One such pre-established category is the duty of care owed by a manufacturer to the ultimate consumer or user of its product: Maple Leaf Foods, at para. 81.“Manufacturers owe a duty to consumers of their product to see that there are no defects in manufacture which are likely to give rise to injury in the ordinary course of use”: Lambert v. Lastoplex Chemicals, 1971 CanLII 27 (SCC), [1972] S.C.R 569, at p. 574.

[54] By putting a product on the market, a manufacturer holds itself out as being knowledgeable in its field and it is only reasonable to conclude that it ought to have known of the potentially dangerous characteristics against which an adequate warning should have been given: Labrecque v. Saskatchewan Wheat Pool, (1977), 1977 CanLII 1475 (SK QB), 78 D.L.R. (3d) 289 (Sask. Q.B.), at para. 50, rev’d on other grounds, (1980) 1980 CanLII 2062 (SK CA), 110 D.L.R. (3d) 686 (Sask. C.A.); Ruegger v. Shell Oil Co. of Can. Ltd., 1963 CanLII 307 (ON SC), [1964] 1 O.R. 88 (H.C.), at pp. 195-96; see also Hollis v. Dow Corning Corp., 1995 CanLII 55 (SCC), [1995] 4 S.C.R. 634, at p. 669.

[55] A manufacturer does not have the right to manufacture an inherently dangerous article when a method exists of manufacturing the same article without risk of harm. No amount or degree of specificity of warning will exonerate the manufacturer from liability if it does: Nicholson v John Deere Ltd. (1986), 1986 CanLII 2502 (ON SC), 58 O.R. (2d) 53 (S.C.), 1986 CarswellOnt 965, at para. 26, aff’d [1989] 68 O.R. (2d) 191 (C.A); Dean F. Edgell, Product Liability in Canada (Markham, Ontario: Butterworths, 2000) at p. 52; and Price v. Smith & Wesson Corp., 2021 ONSC 8471, at para. 69.

The test for negligent design

[56] To prove negligent design, there must be a design defect that creates a substantial risk of foreseeable harm and there must be an alternative design that is both safer and economically feasible to manufacture: Labrecque, at para. 50; Kreutner v. Waterloo Oxford Co-operative Inc. (2000), 2000 CanLII 16813 (ON CA), 50 O.R. (3d) 140 (C.A.), at para. 8; Nicholson, at paras. 10, 18; Price, at para. 70; and St. Isidore Co-op Limited v. AG Growth International Inc., 2020 ABCA 447, at para. 23; see also, Edgell, Product Liability in Canada,at p. 54.

[57] In determining whether the chosen design is reasonable, the court will weigh the utility and risk of the chosen design against the risk and loss of utility of the proposed safer design: Rentway Canada Ltd./Ltee v. Laidlaw Transport Ltd. (1989), 49 C.C.L.T. 150 (Ont. H.C.), 1989 CarswellOnt 23, at paras. 45-49, aff’d 1994 CarswellOnt 2790 (C.A.); Ragoonanan Estate v. Imperial Tobacco Canada Ltd., 2000 CanLII 22719 (ON SC), 51 O.R. (3d) 603 (S.C.), at para. 103; and Price, at para. 72.

[58] In conducting this exercise, Canadian courts have considered a number of factors, including: (i) the utility of the product to the public as a whole and to the individual user; (ii) the nature of the product – that is, the likelihood that it will cause injury; (iii) the availability of a safer design; (iv) the potential for designing and manufacturing the product so that it is safer but remains functional and reasonably priced; (v) the ability of the plaintiff to have avoided injury by careful use of the product; (vi) the degree of awareness of the potential danger of the product which reasonably can be attributed to the plaintiff; and (vii) the manufacturer's ability to spread around any costs related to improving the safety of the design: Rentway, at para. 55 citing an American case Voss v. Black & Decker Mfg. Co. (1983), 450 N.E. 2d 204, at p. 208 (N.Y.C.A.); Ragoonanan, at para. 123; and Price, at para. 96.

[59] The harm must be foreseeable such that the manufacturer either knew or ought to have known about the design defect or that, when it was discovered, it failed to address that risk: St. Isidore, at para. 23.

Analysis of the trial judge’s decision that Venmar was negligent

[60] There is no dispute that Venmar owed a duty of care to the Burr‑Callisters. As such, the trial judge committed no legal error.

[61] The issues in respect of Venmar are (i) the determination of the standard of care owed by Venmar to the Burr-Callisters and (ii) whether the standard of care was breached resulting in the loss caused by the fire in the ventilator. These are issues of mixed fact and law and the trial judge’s determination is owed deference on appeal.

[62] There is no dispute that the fire was caused by the end-of-life failure of the Fasco motor in the Venmar ventilator after the motor and ventilator had exceeded their natural lifespan.

[63] In reviewing the standard of care, the trial judge noted that manufacturers are under a legal duty to take reasonable care to ensure their product operates in a reasonably safe manner and cannot transfer that obligation to others. As such, Venmar had an obligation to acquire knowledge about how its ventilator operated, obtain information available in the industry through testing, and “be able to rely on its own engineers” rather than Fasco’s. Manufacturers have an obligation to address the “intended use” of their product as a whole, as well as the “frequent and inevitable contingency of normal [product] use”: Rentway, at para. 53; St. Isidore, at para. 53.

[64] Furthermore, foreseeability of harm is an objective standard, and liability may rest on what Venmar ought to have reasonably known: Rankin’s, at para. 53; see also, Maidment, Jeffrey A. Brown, Lawrence G. Theall, Teresa M. Dufort, Product Liability: Canadian Law and Practice, at § 2:18.

[65] The trial judge noted that the Venmar ventilator did meet the applicable certification standards. He held, however, that the Venmar ventilator did not meet the industry standard.

[66] In assessing the industry standard, the trial judge “place[d] great weight” on the evidence of Fasco’s expert, Ms. Anderson, who was accepted on consent as an expert in the area of electrical engineering, the origin and cause of fires, the industry standard for appliance design, the responsibility between manufacturers and part suppliers, and the addition of electrical overcurrent protection of an appliance.

[67] Fasco’s expert opined that although the motor overheated, Venmar could have protected against that in the design of its ventilator, as in 1994, other appliances such as furnaces, had both overload and overcurrent protection for the motor. The trial judge accepted Ms. Anderson’s evidence that:

Because of these well-known motor failure modes, the industry standard at the time … was for equipment and appliance manufacturers to have two types of motor protection, overload protection and overcurrent protection. These two types of motor protection are well known to appliance manufacturers.

[68] Fasco’s expert further opined that, as of 1994, Venmar could and should have incorporated overload protection that was appropriate for an unattended use appliance, such as Venmar ventilators. Overcurrent protection, such as a fuse, would provide additional internal protection for the motor at the system level. As such, in order to safely end the motor’s life during a locked rotor event, both a one-shot thermal protector and additional overcurrent protection should have been put into the ventilator.

[69] The trial judge gave reasons for preferring Fasco’s expert’s evidence to that of Venmar’s expert. He held that Venmar’s expert “was not an unbiased expert”, but a “well-meaning advocate”, and gave “much” evidence that went beyond the domain of an expert witness. Moreover, the limited evidence from Venmar’s expert that the trial judge did find useful, was information about industry knowledge in the small motor industry from the 1980s onwards, which confirmed Fasco’s expert evidence.

[70] The trial judge also noted that the amended U.S. certification, UL 507, that went into effect in 1994 on “plenty of notice”, required the use of one-shot protectors rather than cycling thermal protectors for built-in electric fans (though not for ventilators).

[71] He therefore concluded that:

In this case, the minimum [certification] standard does not provide a defence to Venmar given the knowledge that it had or should have had with respect to thermal protectors, unattended uses, and end of life circumstances. I accept [Fasco’s expert] evidence of what the industry practice required at the time.

Venmar simply chose the wrong motor without fault.… It was open to Venmar, and required of it, to test the components to be sure that they fit safely within its design. Venmar failed to do so.

No Fasco motors have by themselves been the subject of a safety recall. The only common denominator for a fire in the Venmar ventilator is the appliance and the design, not Fasco’s motor.

[72] In so finding, the trial judge accepted Fasco’s expert’s evidence that industry practice was to use overload and overcurrent protection in similar unattended use appliances and that, contrary to industry practice, a cycling thermal protector such as the one used by Venmar, did not provide sufficient protection for an unattended use appliance. The trial judge held that Venmar should have considered that its ventilator was an unattended use, and ought to have known of the risk of overheating and the availability of thermal one-shot protectors when this ventilator was manufactured. He therefore found Venmar liable in negligence.

[73] A trial judge’s evaluation of expert evidence is owed significant deference and Venmar has not provided this court with any basis to interfere with the evidentiary assessment: Hacopian-Armen Estate v. Mahmoud, 2021 ONCA 545, at paras. 67-68.

[74] I see no palpable or overriding error in the trial judge’s determination that Venmar failed to design a ventilator that was reasonably free from fire hazard, or test its overall ventilator design and the component parts to ensure they were reasonably fit for the purpose. As such, I see no basis to interfere with his conclusion that Venmar was responsible for its “choice of an inappropriate component” for the ventilator which, in turn, created a substantial likelihood of harm to the Burr-Callisters for which Venmar was responsible at law.

[75] Although the trial judge recognized that he had little evidence of whether the change in design was economically feasible, he was entitled to draw an inference that it was, as both thermal protectors were similar in design and cost, and Venmar eventually adapted its design to incorporate a one-shot thermal protector and a fuse. The cost of adding the proposed fuse would have been about 45 cents.

[76] Venmar claims that the trial judge’s holding that a manufacturer should be held to the same level of knowledge and expertise as an expert in the field was a “sweeping generalization” unsupported by authority. I disagree. Courts have frequently cited this principle in product liability cases: see, for instance, Hollis, at para. 40 (duty to warn); Labrecque, at para. 50 (duty to warn); and St. Isidore, at para. 23 (duty to manufacture a reasonably safe product). Venmar has not otherwise advanced why this principle should not apply in the negligent design case at bar. By placing its product on the market, Venmar held itself out as being knowledgeable in the field of ventilators: Ruegger, at pp. 195-9; Labrecque, at para. 50; see also, Hollis, at para. 21.

[77] Venmar’s argument that the consequence would be to require “a manufacturer to have expertise about all components” and place a “serious and costly crimp on modern commerce” is misplaced.

[78] First, once Venmar put mind to the overheating problem, it was able to discover the cause of fires and implement a commercially feasible solution.

[79] Second, Venmar is not necessarily expected to become expert in motors or every component of its ventilator; the legal obligation is to reasonably ensure the overall safety of the product design and operation. At a minimum, Venmar must familiarize itself with its own product design and operational conditions by, among other things, properly testing any assumptions it may have about its product.

[80] Venmar failed to take these reasonable steps. As the trial judge aptly noted, “[w]ithout proper end of life testing or seeking express advice from Fasco [and also without turning its mind to whether its appliance was attended or unattended use], Venmar simply used its own assumptions of how the unit would fail.” As it turned out, these untested assumptions were wrong and Venmar’s reliance on them unreasonable. I note that the court in Western Processing & Cold Storage Ltd. v. Hamilton Construction Company Ltd. (1965), 1965 CanLII 526 (MB CA), 51 D.L.R. (2d) 245 (Man. C.A.), at pp. 248-9 also held a manufacturer negligent for introducing a product without adequate testing.

[81] The design defect could have been resolved by incorporating a one-shot thermal protector and a fuse. This safer design was available and economically feasible at the time the ventilator was manufactured.

[82] I therefore agree with the trial judge’s conclusion that Venmar is liable for negligent design of the ventilator and would dismiss this ground of appeal.

2. No duty to warn the Burr-Callisters

[83] As noted by the Supreme Court in Hollis v. Down Corning Corp., 1995 CanLII 55 (SCC), [1995] 4 S.C.R. 634, at paras. 20-29, the principles governing the duty to warn include the following:

i. There is a duty to warn of dangers inherent in the use of a product;

ii. The duty is ongoing and continues after the product is delivered;

iii. Warnings must be clear and specific to the dangers that arise from ordinary use; and

iv. The duty varies with the level of danger associated with ordinary use of the product.

See also Rivtow Marine Ltd. v. Washington Iron Works, 1973 CanLII 6 (SCC), [1974] S.C.R. 1189, at p. 1200.

[84] In this case, the trial judge held that Venmar did not breach its duty to warn the Burr-Callisters as, “until 2006, it was not aware of the failing that caused the fire”. However, the trial judge held that,

Once the problem was found, Venmar acted quickly and forcefully. A delay was caused by the cautiousness of the ESA. It eventually approved Venmar solution; Neither the ESA nor Venmar can be faulted for that delay.

Second and more importantly, there is no reason to reject Venmar’s evidence that 75,927 adapters were sent out to notified customers. Mr. Bennett confirms that notices in the Burlington area brought forward other units and exposed more heating overheating concerns. Globe and Mail readers were notified. Hamilton television watchers were notified. The relevant regulatory agencies were notified. [Emphasis added.]

[85] The trial judge noted that, “[I]t is important to remember that the unit had already been purchased when Venmar realized the problem.” As such, he held that “I am looking only at the after-market process.”

[86] Nor, he noted, was there any evidence that the notification program fell below industry standards.

[87] The trial judge found that some initial delay in launching the notification program was not attributable to Venmar as the OESA wanted to examine and approve the solution before Venmar could proceed. But once approved and underway, the regulatory authorities in Canada and the U.S. had no complaints about the corrective steps taken by Venmar, other than some initial concerns in the early stages.

[88] Whether Venmar breached its duty to warn is a question of mixed fact and law to which deference is owed. There was evidence from Venmar representatives that Venmar did not discover that the fire was caused by the thermal protector failing in a locked rotor position until Venmar was able to make a unit catch fire in its laboratory. There was also evidence from Venmar’s representatives to confirm that the efforts taken by Venmar in 2006 were consistent with industry practice to warn consumers who had purchased its ventilators of the risk of fire.

[89] For these reasons, I would dismiss this cross-appeal.

II. The Trial Judge’s Findings that Fasco was Not Liable

[90] The trial judge absolved Fasco of all liability. He did so on the basis that Fasco, unlike Venmar, owed no duty of care to the Burr-Callisters.

1. No duty of care and no causation

[91] The issue of whether Fasco had a duty of care to the Burr-Callisters is a question of law subject to correctness review: Rankin’s, at para. 19.

[92] In determining whether “Fasco [was] liable to the [Burr-Callisters] for failure to advise Venmar that the motor could catch fire”, the trial judge invoked the two-part Anns/Cooper duty of care test, that is: (i) whether a prima facie duty of care exists between the parties; and (ii) if so, whether there are any residual policy considerations which should negate or limit the scope of the duty, the class of persons to whom it is owed or the damages to which a breach may give rise: Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at para. 144.

[93] It was not disputed at trial that Fasco had long known the risk that its motor could catch fire at the end of its product life, although this type of motor was used in other appliances with no ill-effects.

[94] The trial judge held, however, that Venmar, not Fasco, was liable to ensure that the overall design of the ventilation units was safe and without defect as Fasco was a “just a parts supplier”, not a design partner involved in the design or manufacturing process of the ventilators.

[95] Although a Venmar witness testified that Venmar’s research and development team “relied on” Fasco for its expertise about the motor and said there was “ongoing dialogue and question-and-answer between them”, the trial judge preferred the evidence of Fasco witnesses. These Fasco witnesses testified that “Venmar did not relay any design or testing documentation … to Fasco”. The trial judge noted that there was no evidence that (i) Venmar “communicated that it was relying on Fasco’s expertise”, (ii) Venmar told Fasco that “it knew very little about motors”, or (iii) “Venmar believed its [ventilator] was in an unattended location”. He further accepted Fasco’s expert opinion that “[i]t was reasonable for Fasco to assume that Venmar understood how a motor works and how a motor should be protected in its circuits”. As such, he held that Venmar had the duty to install appropriate protective devices.

[96] The trial judge therefore concluded that “Venmar should have been able to rely on its own engineers rather than attempt to download that to Fasco.”

[97] The trial judge also held that the causation element leading to Fasco’s liability was absent in this case:

[I]t is difficult to find that Fasco was negligent when the advice that it gave Venmar in 1998, with respect to a fuse, was the correct solution but Venmar did not accept that advice. Indeed, even the use of a one-shot thermal protector was not the end of the fires. There is no reason to believe that Venmar would have taken the same advice at the outset. By 1998, Venmar was relying on its own advice without the input from Fasco. That conduct breaks the chain of causation that could lead to Fasco.

[98] He concluded that there was no reason to believe Venmar would have changed its behaviour since “Venmar was using the industry standard cycling thermal protectors”, “others in the industry were concerned about premature motor failure”, and Venmar relied on its own advice, not Fasco’s.

[99] He further held that there was no reasonably foreseeable harm to the Burr-Callisters for the following reasons: (i) the motor was not “inherently dangerous”, as the possibility of the motors catching fire occurred only where the thermal protector failed in a closed position, after the life expectancy of the motor; (ii) Venmar was obliged to know “how the motor interacted within its ventilator”, (iii) “[t]he only customer Fasco was aware of was Venmar” and Venmar was, or ought to have been, aware of the problem. In any event, it would be “commercially impractical for Fasco to carry out testing for every potential use of their motors… Fasco had far too many customers and too few engineers to take on that role unless it was specifically contracted for”.

[100] The trial judge accepted that Fasco could reasonably expect that Venmar would be “as knowledgeable as Fasco” when it came to the risk of the Fasco motor catching fire.

[101] He also accepted that Fasco was entitled to rely on Venmar as a “learned intermediary” because “the intermediary's knowledge approximates that of the manufacturer”:Hollis, at para. 29.

2. Analysis of the trial judge’s decision regarding duty of care, and causation

[102] The trial judge held that Fasco did not cause or contribute to the damage as Venmar was aware, or should have been aware, of the need for one-shot thermal protectors in other Venmar products but decided not to include one with this ventilator, and Venmar rejected Fasco’s advice regarding the overheating issues, and only applied the fuse Fasco recommended after doing and relying on its own investigations.

[103] I have some reservations about the trial judge’s conclusion that parts manufacturers like Fasco who supply products in “close and direct” proximity to the final product, have no duty of care even where they act in a way that contravenes their own policy: see generally, Edgell, Product Liability in Canada, at p. 13; Deloitte,at para. 25; and Maple Leaf, 2020 SCC 35, at para. 131.

[104] Manufacturers owe a duty to warn, which requires them to warn of the risks associated with the reasonably foreseeable use of their products and we have not been provided with any principled reason why Fasco should be exempted from these duties at this stage: J. Scott Maidment, Jeffrey A. Brown, Lawrence G. Theall, Teresa M. Dufort, Product Liability: Canadian Law and Practice (Toronto: Carswell, 2021), at § 3:1.

[105] It is also not clear that, as the trial judge determined, “it would not have mattered what Fasco told Venmar” as, had Venmar been alerted earlier, it could have investigated and discovered the foreseeable fire risk earlier. Nor is it clear that it would have been “commercially impractical” for Fasco to warn its manufacturer-customers of the known end-of-life risks as Fasco’s omission to inform Venmar of the risk of its motor catching fire was done in violation of its own corporate policy.

[106] Furthermore, it is not clear whether the “learned intermediary”[^2] rule relied on by Fasco extends beyond cases involving a product that is “highly technical in nature and is intended to be used only under the supervision of experts, or where the nature of the product is such that the consumer will not realistically receive a direct warning from the manufacturer before using the product”, such as prescription drugs and medical devices: Hollis, at para. 28; see also, Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 CanLII 307 (SCC), [1997] 3 S.C.R. 1210, at para. 36. Cladding used to prevent oil pipes from freezing, for example, has been found not to be “a highly technical product” requiring expert supervision: Bow Valley, at para. 37. Ventilators too are ordinary consumer products. Finally, the application of the rule also presumes that the intermediary (in this case, Venmar) “must be ‘learned’ in the sense that its knowledge of the product and its risk is the same as that of the manufacturer (in this case, Fasco)”: Bow Valley, at para. 36. On the facts found by the trial judge, it is unclear that Venmar’s knowledge of risk of fire approximated that of Fasco.

[107] However, it is unnecessary for me to conclusively address these issues in view of my determination that the trial judge was correct in concluding that Venmar was contractually obliged to indemnify Fasco for all claims, liabilities, losses and costs resulting from a finding that Fasco was negligent.

3. The Indemnification Provision

[108] Fasco and Venmar’s relationship was governed by the Terms and Conditions of their two-page contract (“the Contract”). The Contract contains the purchase acknowledgment and invoice from Fasco to Venmar. The Contract was included with each delivery order. When production drawings were required, Venmar would sign it back along with the Terms and Conditions. The two-page Contract “passed between them for many years without change or objection”.

[109] The Terms and Conditions of the Contract contain an indemnity clause and a choice of law clause. The indemnity clause provides that Venmar shall indemnify Fasco for:

[A]ny and all claims, actions, causes of action, liabilities, liens, losses and costs … relating to the Goods or any device, material or things to which the Goods or attached or of which the Goods are made a part of or within which the Goods are enclosed, regardless of whether Fasco may be wholly, concurrently, partially, jointly or solely negligent or otherwise at fault.

[110] The indemnity clause provides that it is to be interpreted and construed according to the laws of the State of Missouri. However, no evidence was adduced at trial or on appeal to suggest that this choice of law would result in a change in the right to indemnification.

[111] For the first time, in oral argument at trial, Venmar argued that if Missouri law applied, the action should be tried in Missouri. The trial judge dismissed the jurisdictional issue on the basis that it was not pleaded and was “too late to be successful” at this stage of the litigation. Moreover, he held that the factors from Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572, favoured Ontario having jurisdiction. In so finding, he noted that Fasco and Venmar were necessary parties to the Burr-Callister action and crossclaims, the damages were suffered in Ontario, and most of the evidence was in Ontario. This issue has not been raised on appeal.

[112] Instead, Venmar now takes the position that it was not aware of and did not consent to the terms of the Contract.

[113] Fasco representatives testified that the Contract was sent with every order for motors. A provision relating to payment was modified at some point in the relationship, but no other changes were ever made. Venmar was required to sign the Contract for each new or modified motor.

[114] Venmar called no witnesses with any direct involvement with the Contract or the process actually followed by the parties. The trial judge was therefore entitled to and did draw the adverse inference that “Venmar’s witnesses would have confirmed Fasco’s evidence that the Terms and Conditions attached to the acknowledgment were to be accepted before Fasco accepted the contract to create the motor as requested by Venmar.” As a result, the trial judge reasonably concluded that Venmar agreed to the Terms and Conditions in the Contract.

[115] Moreover, he noted that the parties were sophisticated commercial entities, the Terms and Conditions of the Contract had remained the same for many years, they were conspicuous, bolded, reproduced and sent with every order, they “take up more than half the [two-page] document”, and therefore, “a reasonable person in Venmar’s position would have noticed them”. Venmar never objected to the indemnification provision although Venmar sought to modify another provision in the Contract relating to the terms of payment in 1997 or early 1998.

[116] These factors constitute sufficient evidence to enable the trial judge to conclude that Venmar was aware of the agreement and consented to its terms, including Venmar’s obligation to indemnify Fasco.

[117] Contrary to the assertion made by Venmar, this is not a case of fraudulent misrepresentation as in the case of Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309, 245 D.L.R. (4th) 650, which the Supreme Court referred to with approval in Tercon Contractors, Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, 86 C.L.R. (3d) 163, at paras. 119-120, and to which Venmar referred in their submissions. In Plas-Tex, unlike this case, Dow knowingly supplied defective product to its customer. Similarly, the case of Betker v. Williams, 1991 CanLII 1160 (BC CA), 86 D.L.R. (4th) 395, also cited by Venmar, is distinguishable. In that case, a property vendor made a misrepresentation which “concerns a matter of such substance as to go to the purchaser's basic purpose in entering into the contract”. As such, the court refused to give effect to the vendor’s exclusion clause defence. Here by contrast, Venmar neither alleged nor adduced evidence to establish misrepresentation on the part of Fasco.

[118] The trial judge therefore reasonably concluded that the indemnity provision in the Contract was operative such that, if Fasco had been liable to the Burr‑Callisters, Venmar was contractually bound to indemnify Fasco for any damages payable to the Burr‑Callisters.

[119] I would therefore dismiss Venmar’s appeal.

III. The Trial Judge’s Costs Awards to Fasco

[120] The trial judge ordered Venmar to pay both the Burr‑Callisters’ costs and Fasco’s reduced partial indemnity costs.

1. The Parties’ Position on Costs

[121] In its crossclaim against Venmar, Fasco pleaded that,

The indemnification of [Fasco] in the event of any potential liability arising from the product, was a fundamental term of the contract, without which, [Fasco] would not have supplied its motors for use in Venmar products.

[Fasco] pleads that Venmar is liable for any and all damage for which [Fasco] is found liable in respect of the fire at issue.

[122] At trial, Fasco sought full indemnity costs in the amount of $2,653,007.36 on the basis that the indemnity provision in the Contract provides that Fasco shall be indemnified by Venmar for “any and all claims, actions, causes of action, liabilities, liens, losses and costs (including, without limitation, the costs of litigation and attorney's fees)” brought against it relating to the motor supplied by Fasco to Venmar. In the alternative, Fasco sought partial indemnity costs of $1,437,759.45 to be paid by the Burr-Callisters and Venmar.

[123] Venmar submitted that Fasco’s costs be fixed in the amount of $355,933.17 all inclusive, and that those costs be shared between Venmar and the Burr‑Callisters, as the Burr‑Callister claim against Fasco had been unsuccessful.

[124] On this cross-appeal, Fasco seeks to:

[s]et aside the [costs] Judgment and replac[e] it with an Order that Venmar pay [Fasco’s] costs on a full indemnity basis pursuant to the contractual agreement, which was found to be valid and binding on Venmar and [Fasco] by the Honourable Justice Lemon (the “Contract”) at the trial of the within action (the “Burr Action”);

In the alternative, a declaration that [Fasco is] not barred by the doctrines of cause of action or issue estoppel from pursuing the legal fees it incurred in respect of the Burr Action through a further application or action in respect of the Contract.

2. General Principles in Making a Costs Awards

[125] The costs of and incidental to a proceeding are, subject to legislation and judicial discretion: Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) and the Rules of Civil Procedure,R.R.O. 1990, Reg. 194. As section 43 of the CJA expressly provides, costs “are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.”

[126] Rule 57.01(1) of the Rules of Civil Procedure provides guidance as to what the court “may consider” in exercising its discretion. As the trial judge correctly noted, these factors include but are not limited to: (i) the result in the proceeding, (ii) the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer; (iii) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed; (iv) the amount claimed and the amount recovered in the proceeding; (v) the complexity of the proceeding; (vi) the importance of the issues; and (vii) the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding. Rule 57.01(1)(f) provides that the court may also consider “any other matter relevant to the question of costs.”

[127] In exercising discretion, the “overriding principle” in fixing costs is to fix an amount that is “fair and reasonable”: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 24; Coventree Inc. v. Lloyds Syndicate 1221 (Millenium Syndicate), 2011 ONSC 6660, at para. 1; see also, Zesta Engineering Ltd. v. David Cloutier, 2002 CanLII 25577 (Ont. C.A.), 21 C.C.E.L. (3d) 161, at para. 4; Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 CanLII 1042 (ON CA), 75 O.R. (3d) 638 (C.A), at para. 8.

[128] Unless the award is plainly wrong or the trial judge committed an error in principle, there is no basis for appellate intervention: Open Window, at para. 27; McDowell v. Barker, 2012 ONCA 827, at para. 17.

3. The Effect of a Contract in the Assessment of Costs

[129] Ontario courts have consistently held that contractual terms that touch on the issue of costs do not bind the court in the exercise of judicial discretion to determine a costs award: Alie v. Bertrand & Frere Construction Co. Ltd., 2002 CanLII 31835 (ON CA), 62 O.R. (3d) 345 (C.A.), at para. 267; Darling v. Kay (1993), 1993 CanLII 5448 (ON SC), 15 O.R. (3d) 299 (Gen. Div.); Coventree, at para. 1; and Xpert Credit Control Solutions Inc. v. Borges, 2015 ONSC 6505, at para. 5; see also, United Soils Management Ltd. v. Mohammed, 2019 ONCA 128, at para. 42.

[130] Justice Morden, writing for this court in Bossé v. Mastercraft Group Inc., 1995 CanLII 931 (ON CA), 123 D.L.R. (4th) 161, leave to appeal refused, [1995] S.C.C.A. No. 205, recognized that:

As a general proposition, where there is a contractual right to costs the court will exercise its discretion so as to reflect that right. However, the agreement of the parties cannot exclude the court's discretion; it is open to the court to exercise its discretion contrary to the agreement.

[131] Where the court has “good reason”, it may refuse to enforce a contractual term. This includes circumstances where the prevailing party has engaged in “inequitable conduct” or there are “special circumstances” where imposing costs would be “unfair or unduly onerous”: Bossé at page 15 of 17.

[132] Thus, while a contractual provision is a factor that may be considered in awarding costs, s. 131 of the CJA provides that,

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[133] This court has recently reaffirmed the principle in Bosséand Boucher in 7550111 Canada Inc. v. Charles, 2020 ONCA 505, at para. 4:

Notwithstanding the contractually agreed upon scale of costs, the quantum of the respondent’s costs must be fair, reasonable and proportionate having regard to the circumstances of the case.

4. The Trial Judge’s Costs Endorsement

[134] The trial judge set out the cost principles under Rule 57.01 of the Rules of Civil Procedure and noted that the court must exercise its discretion in awarding costs. He also specifically noted that,

Even in a situation that allows for costs on a full indemnity basis, the successful party is not entitled to whatever costs were incurred. In assessing costs, the court is still required to consider all the factors in such an award. The award must also be proportionate to the importance and complexity of the issues, and to the amount involved: United Soils Management Ltd. v. Mohammed, 2019 ONCA 128.

[Fasco] submits that Venmar must pay its full costs since, by their contract, Venmar agreed to “defend, indemnify and hold harmless [Fasco] from and against any and all claims (including, without limitation, the costs of litigation and attorney's fees.)” [Emphasis added.]

[135] It is evident from the above that the trial judge was clearly aware of the existence of the indemnity provision in the Contract and the position taken by Fasco that this should entitle Fasco to full indemnity costs.

[136] The trial judge held that it was reasonable for the Burr‑Callisters to have brought a claim against both Venmar and Fasco and noted that each of Venmar and Fasco had cross-claimed against one another.

[137] He therefore made a Sanderson order that Venmar pay both the Burr‑Callister and Fasco costs rather than have the Burr‑Callisters pay Fasco’s costs of its successful defence. Venmar was ordered to pay both the Burr‑Callister partial indemnity costs in the amount of $400,000 and Fasco’s reduced partial indemnity costs in the amount of $800,000.

[138] In assessing the quantum of costs to be paid to Fasco, the trial judge held that, although all parties were sophisticated (the Burr‑Callisters were represented by their insurer), Fasco’s fees should be reduced because (i) Fasco changed its lead counsel halfway through trial and, while the overlap could not be discerned from the bill of costs, Venmar should not have to pay for additional work caused by Fasco’s decision to change counsel; (ii) the increase in rates was not warranted; and (iii) one of Fasco’s experts was of no value and Venmar should not have to pay for those costs incurred.

[139] In making his costs order, the trial judge described the task before him as follows:

[A]t this stage, I am to determine a fair and reasonable amount to be paid by the unsuccessful party according to a number of well-known factors. I am not to determine a contractual summary judgment motion between two commercial parties. If, after my determination here, [Fasco] believes that it has further substantive entitlements under its contract, it is free to make those claims elsewhere. There is nothing here to suggest anything other than partial indemnity costs. [Emphasis added.]

5. Analysis of the Trial Judge’s Cost Endorsement

[140] While the trial judge rejected Fasco’s claim for full indemnity costs, he held that Fasco “is free to make those [further costs] claims elsewhere”.

[141] Although the trial judge was aware of the existence and terms of the Contract and had rejected Fasco’s claim for full indemnity costs, he mistakenly believed that in determining the scale and quantum of costs, his task did not require him to consider the terms of the Contract and how, if at all, those terms affect the exercise of his discretion. Rather, he was of the view that Fasco would be “free to make those [further costs] claims elsewhere”.

[142] This was a legal error. As noted by this court in Bossé: “As a general proposition, where there is a contractual right to costs, the court will exercise its discretion so as to reflect that right [in assessing an order for costs].” However, the agreement of the parties cannot exclude the court’s discretion; it is open to the court to exercise its discretion contrary to the agreement.

[143] Therefore, while the trial judge articulated valid reasons for awarding only reduced partial indemnity costs, he did not take into account the Contract indemnity provision in exercising his discretion. It is therefore not clear how, if at all, his costs award might have been different had he considered the Contract in conducting his analysis of the scale and quantum of costs payable to Fasco.

[144] As such, I would remit the issue of costs payable to Fasco only, to the trial judge.

[145] In making this order, I note that while the indemnity clause in the Contract provides for “the costs of litigation and attorney’s fees”, it does not plainly and expressly stipulate the costs and, even if it did, this is not determinative. In Heliotrope Investment Corporation v. 1324789 Ontario Inc., 2022 ONCA 411, at para. 6, for example, this court exercised its discretion to reduce the costs awarded on appeal despite contractual language requiring payment of full indemnity costs, where “some discretionary adjustment” is warranted given “the circumstances of this difficult and overly complex litigation”.

[146] I also note that Fasco’s reliance on British Columbia jurisprudence to argue that a contract “is entirely independent” of the court’s rules and that “[n]othing in [the rules] purports to override any such [contractual] obligation” is unhelpful in light of the well-established statutory and common law authorities in Ontario that clearly vest the determination of the appropriate costs award in the court. Indeed, the British Columbia Court of Appeal has acknowledged that “the Ontario [costs] regime is different than British Columbia’s” costs regime: West Van Holdings Ltd. v. Economical Mutual Insurance Company, 2019 BCCA 110, [2019] 10 W.W.R. 53, at paras. 74-76.

[147] For these reasons, I would allow Fasco’s cross-appeal on the terms set out herein.

Conclusion

[148] For the above reasons, I would dismiss Venmar’s appeal and the Burr‑Callister cross-appeal. I would allow Fasco’s cross-appeal on the terms set out above.

[149] If the parties are unable to agree on costs of this appeal and these cross‑appeals, they may file short written submissions of no more than three pages. Venmar and the Burr‑Callisters must file their cost submissions within fourteen days and Fasco must file its cost submissions within seven days thereafter.

Released: March 1, 2023. “M.T”

“J.A. Thorburn J.A.”

“I agree. M. Tulloch J.A.”

I agree. J. George J.A.”

[^1]: By the time that the proceedings below had commenced, Tecumseh Industries Inc. had been purchased by Fasco. Fasco’s name has since changed. The claim against Tecumseh Products of Canada Limited was dismissed on consent.

[^2]: The learned intermediary rule is an exception to the manufacturer's duty to warn a consumer about the risks of a product.