Court of Appeal for Ontario

Date: 2025-04-17
Docket: COA-23-CV-0726 & COA-24-OM-0389
Panel: Pepall, Miller and Wilson JJ.A.

Between

The North West Company LP
Plaintiff/Defendant by Counterclaim (Respondent/Appellant by way of cross-appeal)

and

Classic Furs Company Ltd.
Defendant/Plaintiff by Counterclaim (Appellant/Respondent by way of cross-appeal)

and

Jason White, J. Doe #1, J. Doe #2 and J. Doe #3
Third Parties (Respondent)

Counsel:
Ian MacLeod, for the appellant/respondent by way of cross-appeal
Nicolas Businger, for the respondents and appellant by way of cross-appeal

Heard: 2024-09-04

On appeal from the judgment of Justice P. Tamara Sugunasiri of the Superior Court of Justice, dated May 30, 2023, with reasons reported at 2023 ONSC 3223, and from the costs order, dated November 14, 2024.

Reasons for Decision

B.W. Miller J.A.:

Introduction

[1] This appeal arises out of a dispute between the North West Company LP (“NWC”) and Classic Furs Company Ltd. (“CF”). NWC supplied coyote furs to CF for manufacture into fur trim for Canada Goose parkas. In 2012, NWC commenced an action to recover unpaid invoices for furs it said it delivered to CF in 2011. CF disputed that any funds were owing, and alleged that NWC engaged in a conspiracy to defraud it, with employees of NWC issuing false invoices to CF to cover up their embezzlement from NWC. CF also counterclaimed for breach of contract.

[2] The trial judge largely accepted NWC’s explanation for its actions, except that she found in CF’s favour that the parties’ dealings were governed by a contract, and that NWC had breached it in three respects: NWC had unilaterally raised the unit price, had failed to deliver the quantity of goods it was obligated to provide, and some of the goods it provided were of substandard quality. The trial judge found that although NWC had issued two inaccurate invoices, this was not an attempt to defraud CF, but a straightforward mistake caused by poor administrative practices at NWC. The trial judge issued a judgment in favour of NWC for unpaid invoices. The amount payable was subject to a set-off for damages awarded to CF for NWC’s breach of contract.

[3] Both parties appealed the trial judge’s assessment of damages, arguing that she followed a methodology not advanced by either party. CF appealed the trial judge’s dismissal of its claims founded on conspiracy and punitive damages. More fundamentally, NWC cross-appealed the trial judge’s finding that there was a binding contract at all.

Factual Background and Findings of the Trial Judge

[4] The supply chain for raw (untanned or undressed) coyote furs in Canada involves trappers, fur buyers, dealers, and auction houses. The coyote fur buying season runs from November to March, and the optimum time to buy coyote furs is December, when coyote fur quality is at its peak. The market price for coyote furs is set at auction for lots of raw furs that are graded for quality, which is assessed according to colouration, thickness, size, and lack of damage. Furs are purchased either at the auctions in the winter and early spring, or from dealers. Dealers guard their sources for raw furs closely. Business practices in the industry tend to be informal, and it is not uncommon to conclude business dealings on a handshake.

[5] NWC carried on a fur trading business until 2019, purchasing furs directly from trappers in Canada and selling them to buyers. CF is a Canadian manufacturer that produces fur and leather products. During the relevant period, CF had an open order from Canada Goose to provide coyote fur trims for its parkas. This was a significant commercial opportunity for CF, and it sought to secure a reliable source of high quality furs.

[6] NWC and CF began commercial dealings with each other in 2010. In January 2010, CF purchased a sample of 10 furs, at $60 per unit. CF was pleased with the quality and purchased a total of 2,000 furs from NWC over the year. Jason White (NWC’s director of Inuit Art and Fur Marketing) and Cezar Gajos (CF’s President) then met up in late 2010 to discuss expanding the volume of business for 2011. A key issue at trial was whether a supply contract was formed at that meeting. The trial judge found that a contract was formed, and that the terms were that NWC would provide CF with 15,000 coyote furs at a price of $64 each. The trial judge found this was to their mutual advantage. NWC was obtaining a significant premium over the going market rate – then approximately $30 per unit – and CF was paying a premium to obtain a reliable source of quality product. The trial judge found that it was an implied term that the furs would be of sufficient quality to make strips of fur suitable for Canada Goose apparel, and that payment was due by January 2012. The trial judge also found that the supply contract was not exclusive, meaning that CF was free to purchase from other suppliers as well.

[7] In late February 2011, Mr. Gajos testified that Mr. White approached him at a Toronto auction and told him that NWC had 1,472 coyote furs that were being dressed at Tubari, NWC’s fur dresser in New Jersey. The first 265 furs from this lot were delivered to CF that day. (Furs had to be tanned, or “dressed”, before they were suitable for manufacture into apparel. NWC used a dresser in New Jersey.) NWC provided CF with a paper copy of invoice #2491, dated February 25, 2011 for 1,472 dressed coyote furs for $64 each, totalling $106,455.04. The invoice stated that 265 units were delivered to CF on February 25.

[8] Mr. Gajos testified to an irregular form of payment. According to Mr. Gajos, Mr. White asked for a cheque for the full invoice amount so he could show it to his boss, but promised the cheque would not be cashed. Mr. Gajos provided the cheque and wrote on the cheque stub “it won’t be cashed”. He testified that Mr. White returned, told Mr. Gajos that he had shown his boss the cheque, and then tore it up in front of Mr. Gajos.

[9] In March 2011, NWC’s Operations Manager, Mr. Gray, phoned Mr. Gajos to tell him the balance of the coyote furs from invoice #2491 was ready to be delivered.

[10] As will be addressed below, what happened next was disputed at trial. The trial judge found that the remaining 1,207 units (1,472 less 265 already delivered) were delivered in March. CF insisted that they were not, and on appeal argues that the trial judge made a palpable and overriding error in so finding. CF’s position is that there was only one attempted delivery of furs in March 2011, and it was rejected because the furs were of such poor quality as to be unusable. Moreover, CF argued that the documentary evidence established these rejected furs could not have been the 1,207 units from invoice #2491 that were to come from Tubari in New Jersey, and that those 1,207 furs were, in fact, never delivered.

[11] On Mr. Gajos’s evidence, he was later told by Mr. White that there was a mistake in the delivery. CF had been sent the wrong lot of furs, and CF’s furs were still coming. Mr. Gajos testified that from then on, he had lost confidence in NWC and inspected each individual fur that was delivered by hand, rejecting those that were totally unusable, and keeping those that, while below the quality he bargained for, could generate some usable strips. Across 2011, NWC had delivered substantially fewer furs than CF had expected, and CF claimed that of those furs that were delivered, many were substandard and were either not usable for the purposes of the Canada Goose contract, or required more processing time and yielded on average only a third of the number of usable strips of fur that would be expected. His testimony was that he attempted to mitigate by making a deal with NWC that it would purchase earmuffs that CF would manufacture from the portions of the skins that were not suitable for Canada Goose strips. He testified that NWC then refused to purchase the earmuffs, which were ultimately bundled with the rest of the scraps and sold to a third party at a loss.

[12] The trial judge, however, preferred the evidence of Mr. White that after March 2011, the parties amended their contract of supply so that Mr. Gajos was entitled to inspect each lot of furs on delivery, keep only the best of the best, and return the rest. This led the trial judge to the conclusion that after the initial problematic delivery in March 2011, all of the actually accepted furs were of an acceptable quality.

[13] It was undisputed that Mr. White unilaterally increased the contract price to $73 per unit in April 2011, after the market price for coyote furs had risen sharply. The trial judge held that this was a breach of contract.

[14] In June 2011, CF paid invoice #2491. Mr. Gajos testified that it did so because of Mr. White’s representations in late May that the furs would soon be delivered, and because CF was by this time desperate for product and afraid of losing its contract with Canada Goose. The trial judge drew an inference from this payment that the 1,207 units had in fact been delivered in March.

[15] Mr. Gajos testified that the shortfall in furs caused CF to scramble to find suppliers to make up the difference. It was greatly concerned that it would not be able to meet Canada Goose’s expectations and would lose its contract. Mr. Gajos travelled to the US and was able to source some furs from alternative suppliers, but at a much higher cost to CF.

[16] The trial judge found that CF did not satisfy its burden of establishing that the coyote furs supplied by NWC in 2011 were substandard. The trial judge found that the only reliable evidence before her was the invoices that were delivered with the product and signed by Mr. Gajos on receipt. The trial judge additionally found that it was undisputed that NWC had delivered 4,412 coyote furs, in addition to 130 beaver pelts and an Inuit sculpture, collectively invoiced at $356,801.54, of which $162,220.37 was unpaid at the time of trial, less a reduction to account for NWC’s unilateral price increase.

[17] The trial judge addressed four additional invoices separately, which she referred to as “the disputed invoices”. These were:

1. Invoice #2491 – February 25, 2011 – $106,455.04
2. Invoice #2551 – May 4, 2011 – $30,933.75
3. Invoice #2587 – June 16, 2011 – $18,560.25
4. Invoice #2654 – September 9, 2011 – $19,255.20.

[18] The parties only appeal the trial judge’s findings with respect to invoice #2491. As set out above, invoice #2491 was paid in June 2011, although CF disputed receipt of the furs, apart from the initial 265. The trial judge found that the coyote furs had been delivered in three instalments: the first instalment of 265 furs, acknowledged by CF, and two later instalments made in March 2011, which CF denied. The trial judge reasoned that “it was more likely than not that Gajos, desperate for furs, accepted the order and worked with what was delivered.” The trial judge accepted that 1,207 of these furs were of poor quality and that CF was therefore entitled to a price reduction to $40 per fur.

[19] Invoice #2551 contained a textual anomaly. Its printed typed version indicated a quantity of 75 units. However, a handwritten 3 had been inserted so that quantity read 375 units. NWC maintained that 375 units had been delivered. The trial judge accepted this evidence, which she found was supported by a contemporaneous email from Mr. Gray to Mr. White, advising that he had delivered 375 furs that day. Accordingly, she found that CF owed NWC the contract price of $64/unit for the 375 furs of this invoice.

[20] Invoice #2587 was for a delivery of 225 furs on June 16, 2011. CF denied there was a delivery that date. The trial judge accepted that this invoice was likely an accounting error, and a duplicate of invoice #2585, in the same quantity, which had been delivered the day before.

[21] With respect to invoice #2654, the trial judge found that Mr. Scott, an employee of NWC, delivered 240 furs to CF on September 9, 2011 under invoice #2653. Mr. Gajos’s testimony was that he rejected 6 furs, and that Scott reissued the invoice to reduce the quantity to 234 furs. Later that day, NWC generated invoice #2654 for 240 furs. It was not sent to CF until December 2011. NWC maintained at trial that invoice #2654 represented an additional 240 furs and was not duplicative of invoice #2653. The trial judge disagreed and held that NWC was not entitled to collect on this invoice.

[22] Finally, the trial judge found that CF had purchased an Inuit sculpture from NWC for $3,500 and had not paid for it. Mr. Gajos argued that the invoice for this item was fraudulently described as an invoice for furs. The trial judge found this misdescription to be immaterial, that the sculpture was delivered, and that the amount was owing by CF.

The Counterclaim

[23] With respect to the counterclaim, the trial judge did not accept CF’s claim that the furs that it received were substandard, except for some furs included in the disputed delivery of 1,472 furs under invoice #2491. The trial judge found that after the delivery of these furs, the parties came to an agreement that CF would inspect each fur delivered, and was permitted to reject any fur that did not meet its quality standards. Thereafter, the trial judge found, CF did not accept and did not pay for any substandard furs that may have been tendered.

[24] Nor did the trial judge accept the claims that NWC had engaged in conspiracy or fraudulent or negligent misrepresentations. Although she accepted that invoices had been sent in error, she characterized these as innocent mistakes and not the product of any intention to defraud.

[25] The trial judge found that NWC had ordered 1,000 earmuffs from CF at $12/unit or $10/unit and that CF had manufactured them as ordered. CF did not attempt to deliver the items or invoice for them. The trial judge found that damages were not quantifiable, because of inadequate evidence of what NWC received for them when they were bundled together and sold with fur scraps to a buyer in Greece.

Damages

[26] The trial judge awarded NWC damages of $260,496.64 (calculated at the unit price of $64 per fur) for all unpaid invoices. Against this award she set-off overpayments made by CF for furs purchased at $73 per unit after NWC had unilaterally raised the purchase price in April 2011 (amounting to $6,102); as well as a reduction to compensate for the substandard quality of the 1,472 furs from invoice #2491 (amounting to $32,733.84).

[27] The trial judge rejected CF’s claim for damages for the earmuffs it produced for NWC, as well as its claim for mitigation expenses incurred in travelling to the United States to source furs to remedy NWC’s undersupply.

[28] The trial judge noted that CF claimed damages for loss of opportunity/loss of profit in the amount of $322,593.75 resulting from NWC’s failure to supply the undelivered furs. She rejected CF’s proposed methodology for quantifying damages under its counterclaim: undelivered units x 5 strips per fur x $25 revenue per strip x 25% profit margin. She found that CF had “not tendered the evidentiary foundation needed to accept the proposed 25% profit margin. CF did not tender any books and records to justify these figures.” NWC’s submission was that no damages should be awarded to CF due to CF’s failure to provide an evidentiary foundation for an award.

[29] The trial judge decided that “the appropriate approach is to fix nominal damages to recognize that NWC’s failure to deliver what it promised would have led to some loss of profit.” She then adapted CF’s formula by setting the profit margin at 10% rather than 25% and applying a 50% discount for the undelivered units to compensate for CF’s failure to mitigate. She subsequently described these damages as “minimal damages for breach of contract.”

Issues on Appeal and Cross-Appeal

[30] Both sides appeal aspects of the judgment. The most fundamental challenge is brought on cross-appeal by NWC, which appeals the finding that there was an enforceable contract between CF and NWC. In the alternative, NWC argues that the trial judge erred in the assessment of damages under the contract.

[31] CF also appeals the trial judge’s damages assessment, although in a different direction. CF also appeals the finding that the 1,207 disputed furs from invoice #2491 were delivered, the award of damages for the purchase of an Inuit sculpture from NWC, the dismissal of the conspiracy claim, and the claim for punitive damages.

Analysis

(1) Was there a valid contract?

[32] NWC, in its cross-appeal, attacked the trial judge’s finding that there was a binding and enforceable contract between the parties. It argued that the trial judge erred in finding that the parties were ad idem, given the discrepancy in the evidence as to whether the quantity to be supplied was 10,000 coyote furs or 15,000. Further, NWC argued that the trial judge’s findings were internally inconsistent, as she found that the bargain was altered in March 2011 to allow for CF to reject some furs.

[33] This is not a strong argument. There was conflicting evidence as to whether the quantity of the contract was 10,000 units or 15,000 units. The trial judge did not accept the evidence of NWC that it believed it was contracting to supply 10,000 units. She accepted the evidence of CF that the parties agreed to 15,000 units and repeatedly explained the basis for her finding. The trial judge rejected NWC’s argument at trial that this difference in the evidence should lead to the conclusion that the parties failed to agree on an essential term, calling it “a distinction without a difference”. What the trial judge meant by this was that although she accepted CF’s evidence that the parties had agreed on 15,000 units, even if she had rejected it, she would have instead found that they had agreed to 10,000 units. Either way, she would have found that a contract had been formed and NWC had breached it. Put differently, she stated in obiter that even if she were to accept Mr. White’s 10,000 figure, it was a “distinction without a difference” as NWC did not even come close to supplying that number. She was satisfied that the parties had agreed to the essential terms of the contract. NWC has not provided any basis to conclude that the trial judge erred in this regard.

[34] The trial judge’s finding that the terms of the contract were changed in March 2011 to allow for CF to reject furs that were not fit for use is not, as NWC argues, inconsistent with a contract having been entered into in December 2010. Furthermore, it seems doubtful that this new arrangement, if that is what it was, was anything other than CF taking steps it was always entitled to take to ensure that NWC complied with its obligations to supply goods that were fit for purpose. NWC’s argument cannot succeed.

(2) The Disputed Invoices

(a) Invoice #2491

[35] In its appeal, CF argues that the trial judge erred in finding that 1,207 units that were included in invoice #2491 were ever delivered.

[36] The trial judge concluded there had been three deliveries totalling 1,472 furs. She stated she was persuaded primarily by documentary evidence and the brute fact that CF paid the invoice, as she found that the NWC witnesses had no recollection of the event, and she did not accept Mr. Gajos’s testimony that he could remember the transaction.

[37] There were three copies of the invoice tendered into evidence. The first, produced by CF, acknowledged delivery of 265 furs on February 25, 2011, signed by Mr. Gajos. The second, produced by NWC, had notations from Mr. Gray recording two subsequent deliveries in March: 765 units on March 10, 2011, and 442 units on March 22. The third, also produced by NWC, was a scan marked up by Mr. White, also recording two subsequent deliveries in March.

[38] Although the trial judge stated that the “best evidence is the contemporaneous documentary evidence”, and that “[f]ocusing on the documentary evidence” she found it likely that the delivery was completed, her path of reasoning went outside the invoices. She found that “it was more likely than not that Mr. Gajos, desperate for furs, accepted the order and worked with what was delivered” and that Mrs. Gajos “paid invoice #2491 in full because they received the full shipment, regardless of quality.” She also relied on an email from Mr. Gray to Mr. White on March 21, 2011, which states “[w]e got the 1472 Coyotes in from Tubari, do you want me to pull the balance of 442 skins that finishes off the commitment of 1472 on invoice #2491?”

[39] CF argues that although the trial judge purported to base her conclusion on the documentary evidence, she failed to consider or address a substantial body of documentary evidence (and its absence) related to Tubari. A trial judge is, of course, not obligated to address every piece of evidence, but CF argues that this evidence was significant and contradicted the evidence the trial judge relied on and the inferences she drew, and accordingly she was obligated to deal with it in some way. I agree.

[40] The evidence was this. The coyote furs in question were ostensibly sourced by NWC from trappers and dealers and sent by NWC to the Tubari tannery in New Jersey for tanning. The undisputed evidence was that shipments of tanned furs from Tubari into Ontario would generate contemporaneous records, including invoices, packing lists, bills of lading, and government declaration forms.

[41] CF obtained records from the U.S. Fish and Wildlife Service (the “USFWS”) – records which would have been in the possession of NWC (and in some cases generated by NWC) but were not produced by NWC. Those records established that NWC shipped 1,472 raw furs from its Mississauga premises to Tubari in New Jersey on February 14, 2011. NWC’s witnesses confirmed this. Other records and testimony make it highly likely that the 1,207 disputed furs (in fact, all of the 1,472 furs) must have still been at Tubari in March 2011, when the two deliveries to CF were supposed to have been made:

1. Invoices from Tubari to NWC: NWC’s witnesses testified that: (a) Tubari invoiced NWC when it shipped coyote furs to NWC in Mississauga, so that invoices would show when NWC received the dressed furs; (b) NWC produced all the invoices it received from Tubari in 2011; (c) the earliest invoice from Tubari is dated April 5, 2011, after the alleged deliveries from NWC to CF in March 2011; and NWC’s witnesses were unable to identify any payment of a Tubari invoice for 1,207 or 1,472 units.

2. International shipping records: NWC’s witnesses testified that: (a) NWC received hard copy shipping records (such as packing lists and bills of lading) with the dressed furs, which showed the date NWC received the furs from Tubari; (b) the shipping records were maintained by NWC at its Mississauga office. NWC undertook, for the purposes of the litigation, to produce shipping records from Tubari to support the alleged delivery in March 2011. It did not do so, and its witnesses were unable to provide an explanation at trial.

3. U.S. government declaration forms: it was uncontested that Tubari completed declaration forms for the USFWS (Form 3-177) when it transported furs internationally. These forms record the quantity of furs in each shipment from the USFWS inspection. NWC’s witnesses testified that NWC received paper copies of these forms when it received shipments from Tubari, and that it kept them at the Mississauga office. NWC undertook to provide these records to CF. It did not produce any that predated the alleged March 2011 delivery dates.

4. USFWS Office of Law Enforcement Report: CF obtained a publicly available report from the USFWS listing all international exports of coyote furs from Tubari for the period of January to October 2011. It showed an export of 836 furs on February 14, 2011 and another of 853 on March 31, 2011. There is no indication on this report as to who the recipients of the furs were. It may have been NWC but it may not. Tubari serviced many clients, and was particularly busy after the auctions.

[42] This evidence leaves a lot of questions hanging, but it makes a few things clear. First, it is highly unlikely that the initial delivery of 265 furs on February 25, 2011 came from the 1,472 furs sent to Tubari on February 16, 2011. Second, at most, NWC could have supplied CF with 836 furs from Tubari in March 2011, not 1,207. Third, it is highly likely that NWC did not receive the 1,472 dressed furs from Tubari until April 5, 2011 or later, which is the date of the first invoice from Tubari.

[43] The documentary evidence – which the trial judge did not address and appears not to have considered – is thus not consistent with NWC having made two deliveries to CF in March 2011 from the lot of 1,472 furs sent to Tubari.

[44] Both parties agree that there were deliveries made in March. The evidence of Mr. Gajos was that he refused all of them, because they were “garbage”. He testified that Mr. White then told him that there had been a mix up and he had received someone else’s order, and his were still coming.

[45] The evidence of NWC was that the two further deliveries were made from the Tubari order, and that Mr. Gajos rejected some of the skins in those shipments.

[46] Even if NWC’s evidence were to be accepted, and NWC was, contrary to the documentary evidence, in possession of all the 1,472 furs from Tubari in March 2011 and tendered 765 units on March 10, and 442 units on March 22, on NWC’s own evidence, CF would have rejected many of these furs. Invoice #2491 does not account for this.

[47] On what basis did the trial judge reject Mr. Gajos’s testimony that he did not accept any of the coyote furs that were delivered to him in March 2011, and only paid invoice #2491 out of a desperate hope that NWC would actually supply him with the 1,207 remaining Tubari furs he had been promised? She doubted that he had any independent memory of the events and that his evidence in examination-in-chief was produced by leading questions and sounded rehearsed. But Mr. Gajos and Mrs. Gajos both supplied the court with a plausible explanation as to why they would remember the events. Being awarded the Canada Goose contract was a big occasion for them. They celebrated with a family vacation in Mexico. They thought the contract with NWC would ensure sufficient coyote furs to satisfy the Canada Goose contract. Mr. Gajos was persuaded by Mr. White not to pursue furs at auction because NWC would supply him with better skins than what was available for purchase at the auction. And then Mrs. Gajos described the shock of her husband when he realized he was given “garbage” by NWC instead, and his panic that he would not be able to fulfill his obligations to Canada Goose. He had placed his future in the hands of what now appeared to be an untrustworthy party. It was an existential crisis for CF. It would be something to remember. As far as Mr. Gajos’s testimony being the product of leading questions, this is simply not supported by the transcript. Finally, although an appellate court is not in a good position to assess whether the evidence sounded “rehearsed”, it is noteworthy that Mr. Gajos is an immigrant from Poland. It appears from the transcripts that he can struggle with English. As counsel for CF argued, given his lack of fluency it is to be expected that he would have practiced his testimony. That of itself is not reason to doubt its credibility.

[48] I accept CF’s submission that the trial judge misapprehended the evidence before her, wrongly discounted the testimony of Mr. Gajos, and as a result made an unreasonable finding that CF had received the furs from invoice #2491 (apart from the first shipment of 256 furs). I would allow this ground of appeal.

(b) The Inuit Sculpture

[49] The trial judge awarded damages to NWC for breach of contract for CF’s purchase of an Inuit sculpture. The invoicing of this transaction, like much of NWC’s invoicing, was irregular.

[50] In November 2010, CF purchased Inuit art from NWC for $3,500, and Mr. Gajos signed an invoice for it. The next year, in November 2011, NWC faxed invoice D111308 to CF for that same amount, although itemized as 57 coyote furs at $61.40/unit. At trial, Mr. White conceded on cross-examination that the invoice was false, 57 coyote furs were not delivered, and that in reality the false invoice was for the Inuit sculpture. He also testified that the invoice was made out in this fashion at the request of Mr. Gajos.

[51] The trial judge found that Mr. Gajos acknowledged that he had not paid for the Inuit sculpture, and whether for furs or for art, the invoice was payable.

[52] On appeal, CF argues that NWC had denied in its pleadings until 2018 that invoice D111308 was a fabrication at which time it produced another invoice for the sculpture, invoice #111307, dated January 25, 2011. NWC first claimed payment of this invoice in March 2022, when it amended its statement of claim. CF argues on appeal, for the first time, that the action on this new invoice is statute barred, having been brought out of time.

[53] I agree with the NWC that the limitations defence should not have been raised for the first time on appeal, and I would not hear it. What was salient at trial was that, notwithstanding Mr. White’s machinations, CF had purchased the art and not paid for it. The trial judge made no error in granting judgment against CF for $3,500 for this purchase.

Conspiracy

[54] The trial judge dismissed CF’s claim of conspiracy. She found that CF did not satisfy its onus of proving that Mr. White, Mr. Gray, and Mr. Scott acted unlawfully in concert to harm CF. She declined to find that the false invoices sent to CF were anything other than administrative incompetence, and held that even if they were not, CF did not pay the invoices and did not suffer any loss as a consequence.

[55] CF appeals the dismissal of this claim on the basis that the trial judge disregarded uncontested evidence that Mr. White and others used the false invoices both to extract payment from CF and to cover up a practice of stealing product from NWC that was intended for CF and selling that product to third parties.

[56] I would not allow the appeal of the dismissal of liability for conspiracy. The trial judge made no reviewable error in finding that the evidence was not sufficient to establish conspiracy, even taking into account her errors with respect to invoice #2491. The trial judge made no error in finding that CF had not satisfied its evidential burden to prove the allegations that Mr. White acted in concert with others to steal stock from NWC intended for CF and sell it to third parties for his own benefit.

Damages

[57] The trial judge ordered CF to pay NWC the undisputed invoices at $64 per unit, as well as invoice #2551 (also reduced to $64 per unit), for a total of $260,496.64 and the invoice of $3,955 for the Inuit art sculpture.

[58] Against this award of damages, the trial judge set-off damages awarded to CF for NWC’s breach of contract. There was a significant issue at trial as to whether CF had satisfied its burden of proving its damages. The trial judge repeatedly raised the deficiencies in the evidence with CF’s counsel in closing submissions. NWC had argued that given the gaps in CF’s evidence, there was no basis in the record on which the court could calculate CF’s damages for breach of contract. NWC was ordered to pay “minimal damages for breach of contract to be calculated by the parties using the following formula: 50% of undelivered units x 5 strips x $25 [revenue/strip] x 10% profit margin.”

[59] The trial judge did not award a discount for delivering a sub-quality product other than on the furs provided on invoice #2491, on the basis that CF rejected those furs it could not work with and did the best it could with what it kept.

The Position of the Parties

[60] NWC and CF both argue that the trial judge erred. Although the trial judge used CF’s methodology for calculating damages, CF argues that the trial judge made several unwarranted assumptions that were unsupported by evidence, particularly in fixing the profit margin at 10%, setting the number of strips per unit to 5, and grossing down the award by 50% because of an ostensible failure to mitigate. On appeal, and in the alternative, CF argued for the first time that damages be assessed on the basis of the increased cost of replacement goods that CF purchased. It also appeals the decision not to award punitive damages.

[61] NWC’s position is that because CF did not ask for damages to be assessed on a replacement goods basis at trial, the court should not entertain the argument for the first time on appeal. If the evidentiary record was too thin to support an award of damages on the theory advanced at trial, which NWC agrees with the trial judge was the case, then CF must bear the responsibility for not adducing better evidence. NWC now argues that only nominal damages were warranted on the evidence accepted by the trial judge, but although the trial judge purported to award damages on that basis, she did not do so. Instead, what she characterized as “nominal” was an award of substantial damages of approximately $55,000, using the formula for compensatory damages proposed by CF. True nominal damages, NWC argued, would be a token amount, such as $1 per undelivered fur which would amount to $9,948 given this court’s finding with respect to invoice #2491.

Analysis of Damages

[62] A plaintiff bears the burden of proving the existence of damages and the quantum of damages. Where damages are by their inherent nature difficult to assess, the court must do the best it can in the circumstances: Martin v. Goldfarb, 41 O.R. (3d) 161 (C.A.), at p. 187, leave to appeal refused, [1998] S.C.C.A. No. 516.

[63] The trial judge was placed in an exceedingly difficult situation. There was no expert evidence on damages. Neither did CF produce its financial statements or other books or records. There was no documentation from Canada Goose and no witnesses from Canada Goose to attest to the deliveries made. The trial judge pressed counsel in closing submissions to account for the state of the record. The trial judge was evidently unimpressed with the submission that an expert was not retained because the damages sought could not justify the expenditure, particularly when CF retained a handwriting expert and dedicated several days of trial to pursuing an unfruitful argument related to the signing of invoices. More significantly, the trial judge was concerned that CF had not produced much in the way of business records, relying mainly on the oral testimony of Mr. Gajos. The non-production of business records was explained in part on the basis that CF is a small family business that is haphazard in its record keeping, in an industry in which oral contracts are concluded with a handshake. Counsel argued that much of what was sought by the court was not produced because it did not exist. For example, there were no packing slips or courier slips to document the Canada Goose deliveries because Mr. Gajos delivered the furs himself to the Canada Goose factory. Nevertheless, Mr. Gajos testified that his belief that CF operated on a 25% profit margin was based on his review of financial records, and these financial records were not produced. In the end, the only evidence of the quantum of loss of profit was Mr. Gajos’s oral testimony that there was a 25% profit margin, that a coyote fur would yield on average 9 strips, and that Canada Goose would pay him $25 per strip on an open-ended basis. The trial judge did not accept Mr. Gajos’s evidence of a 25% profit margin because he could not provide any evidential foundation for it. With respect to the number of strips per fur, she made a finding that a fur of the quality that NWC contracted to provide would yield on average 9 strips. However, without explanation, she used 5 strips per fur for the damages calculation for undelivered furs. She then reduced the damages assessment by 50% for failure by CF to provide evidence of mitigation.

[64] In reviewing an assessment of damages, it is necessary to bear in mind the standard of review. As this court reminded in SS&C Technologies Canada Corp. v. The Bank of New York Mellon Corporation, 2024 ONCA 675, at para. 113, appellate review of assessments of damages is subject to the general principles articulated in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. Errors of law are reviewed on a standard of correctness, and errors of fact and errors of mixed fact and law are reviewed on a standard of palpable and overriding error. Nevertheless, as Hourigan J.A. stated in SS&C, reviewing courts are often reluctant to interfere with damages awards and will do so only where “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 damages”: at para. 114, citing TMS Lighting Ltd. v. KJS Transport Inc., 2014 ONCA 1, 413 O.A.C. 133, at para. 60. Hourigan J.A. explained at paras. 117-118 the practical reason for deference on damages assessments in terms of: (1) the necessity of making discretionary decisions where there is no single correct answer; and (2) ineliminable evidential uncertainty. This does not excuse a party from the obligation to lead evidence proving damages, but provides a trial judge with significant leeway in circumstances where loss is proven and it would be an injustice to limit the claimant to nominal damages, notwithstanding a suboptimal evidential record, all things considered.

[65] As stated by Finlayson J.A. in Martin v. Goldfarb at p. 187, where the absence of evidence makes it impossible to assess damages, the claimant may be entitled to only nominal damages. In this case, however, the trial judge did not find damages impossible to assess. She did not excuse the claimant from leading evidence supportive of its claim, but exercised discretion based on the evidence that was before her. She explained the basis for the formula that she used, and the basis for her factual findings. She was clearly assessing compensatory damages, discounted to account for uncertainty and frailties in the evidence. Although she refers, in places, to “nominal” damages she was not using the term strictly, but rather as a synonym for a “minimal” or reduced quantum of compensatory damages.

[66] I agree that an award of nominal damages would not be appropriate in this instance, given the real loss suffered by CF from the contractual breaches of NWC: see TMS Lighting, at para. 83. The trial judge’s findings with respect to damages are, generally speaking, entitled to deference. But in some respects, as explained below, there is an error in principle and misapprehensions of evidence that require the damages assessment to be corrected.

[67] Before turning to those errors, however, it is necessary to dispose of an argument advanced by CF for the first time on appeal. Among its arguments on appeal, CF sought to recast its damages claim in terms of a theory of loss that perhaps had a better foundation in the documentary record. This was the argument that damages be assessed not on the basis of loss of profit but on the basis of the increased cost of replacement goods. NWC objected that it would be unfair to permit CF to introduce a new theory of damages on appeal. I agree, and would not hear this ground.

[68] Turning to the damages formula adopted by the trial judge, it was premised on NWC having breached its obligation to supply CF with 15,000 furs. I have explained that the trial judge made a palpable and overriding error in not finding that NWC failed to deliver 1,207 furs that CF purchased under invoice #2491: consequently, damages should be calculated on the basis that NWC failed to deliver 9,948 units, rather than 8,741.

[69] A second error, an error of law, was manifest in the trial judge’s decision to reduce the damages award by 50% because of CF’s failure to establish that it had mitigated its damages. CF, however, was under no obligation to establish that it could have mitigated its losses and failed to do so. That burden rested with NWC, and NWC did not advance any evidence on which such a finding could be made: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, [2012] 2 S.C.R. 675, at paras. 24-25; Krmpotic v. Thunder Bay Electronics Ltd., 2024 ONCA 332, 495 D.L.R. (4th) 701, at para. 20. Indeed, given the trial judge’s finding that CF had an open contract with Canada Goose, it is unclear how the damages could have been mitigated. Subject to capacity limits, of which there was no suggestion CF had reached, any furs that CF could have obtained from other sources would have resulted in increased profit to CF. Furs that it acquired to replace the furs not supplied by NWC would have been furs that otherwise could have generated additional profit. I would set aside the 50% reduction on that basis.

[70] The trial judge found that the number of undelivered furs was ascertainable (although she understated it by 1,207 furs). She accepted, and it was uncontested, that Canada Goose paid $25 per strip. The trial judge’s findings with respect to the average number of strips per fur, however, appear to be internally inconsistent and require a closer review. She found, consistent with the evidence of Mr. Gajos, that furs of the quality that NWC was obligated to provide would generate an average of 9 strips per fur. She also found that furs that NWC actually provided produced an average of 5 strips per fur. In calculating loss of profit on the furs that NWC failed to provide, it was an error to base the calculation on the quality of furs NWC actually provided – in breach of its obligations – instead of the quality it contracted to provide. The number of strips per fur used in the calculation ought to have been 9.

[71] The last remaining component is profit margin. With respect to the 10% profit margin, the trial judge was, as noted previously, in a difficult position. She accepted that CF had suffered a loss of profit as a result of NWC’s breach. She did not accept Mr. Gajos’s evidence that it could be quantified at 25%, because Mr. Gajos was providing opinion evidence based on financial records that CF did not produce. Nevertheless, the trial judge accepted there was some profit margin, and she fixed it at 10%. NWC objected that her decision to fix profit margin at 10% is arbitrary, without evidential foundation and was furthermore not advanced by any party.

[72] I disagree that the trial judge made any reviewable error in finding a profit margin of 10%. The trial judge was content, having heard all of the evidence, that Mr. Gajos was not operating at a loss and there was some margin of profit when purchasing furs at $64 per fur. This was consistent with Mr. Gajos’s efforts to source replacement furs when faced with significantly higher unit costs. The quantum of the profit margin was underdetermined by the evidence and the trial judge had to choose a number within the bounds of rationality. It was not 25% and it was not zero, and coming to an acceptable number required an exercise of discretion that could well have been made differently. The trial judge found that CF has suffered a real loss because of the contractual breach by NWC, and that the justice of the case required some award of compensatory damages. CF compromised its own case through its failure to advance expert evidence on damages and suffered the consequences. Although courts often award nominal damages in such situations, in this case an award of nominal damages would not have been just, notwithstanding the evidential shortcomings, and the trial judge ordered what she termed “minimal” damages. Essentially, the trial judge made an award that risked significantly undercompensating the plaintiff on the basis that although the plaintiff was entitled to some compensation it bore responsibility for the inadequate state of the record and appropriately bore the risk of undercompensation. The finding of a 10% profit margin was an exercise of discretion and is entitled to deference. I would not interfere with it.

[73] The rejection of damages for the claimed expenses from Mr. Gajos’s efforts to mitigate – including the manufacture and disposal of the ear muffs – can be understood in a similar vein. The trial judge exercised some leniency over CF’s failure to provide business records, given the informal nature of the business and the justice of holding NWC to account for its multiple breaches. However, she was not required to excuse all evidential shortcomings.

[74] The trial judge dismissed the claim for punitive damages, summarily stating there was no basis to award it. Accordingly, although there is much in the commercial dealings of NWC and its employees that is deserving of censure – the unilateral raising of prices midseason, the falsification of the invoice for the Inuit sculpture, the delivery of subprime products, the non-delivery of thousands of units – the trial judge did not find (notwithstanding the misapprehension of evidence regarding Invoice #2491) that NWC’s conduct rose to such a level as to require an expression of outrage at its behaviour, so as to deter it and others. I do not agree. The compensatory damages that have been ordered are not sufficient to achieve the goal of punishment and deterrence for NWC’s highly reprehensible conduct: see Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 94. I would award punitive damages against NWC in the amount of $25,000.

[75] Additionally, as I have concluded that the trial judge erred in finding that the balance of the furs from invoice #2491 were delivered (1,207 units), CF would be entitled to a set-off for the monies paid for the 1,207 undelivered furs. As stated above, that quantum of furs would also need to be included in the loss of profit calculation.

[76] With respect to NWC’s appeal of the costs award at trial to CF in the amount of $80,000, I see no basis to interfere with it. As the trial judge stated, CF was clearly the successful party at trial. That conclusion is even more secure given the result of the appeal.

Disposition

[77] I would dismiss NWC’s cross-appeal on liability and costs. I would allow CF’s appeal in part. In particular, I would find that the 1,207 furs from invoice #2491 were not delivered and the amount paid – calculated to be $87,290.24 including HST – should be set-off against NWC’s award for unpaid invoices. The award to CF for loss of profit should be recalculated to eliminate the 50% reduction for failure to mitigate, to use 9 strips per undelivered fur, and should include the quantum of undelivered furs from invoice #2491. This amounts to a recalculated sum of $223,800. In addition, CF is awarded punitive damages against NWC in the amount of $25,000. As I would find that NWC never delivered the 1,207 furs from Invoice #2491, and that those additional undelivered furs should be included in CF’s damages, I would consequently relieve NWC from paying the $32,733.84 the trial judge awarded to CF for what she found to be the poor quality of those 1,207 supposedly delivered furs.

[78] For greater clarity, I would not interfere with the following aspects of the trial judge’s award:

1. That CF pay NWC $260,496.64 for unpaid invoices for furs that were delivered;
2. That CF pay NWC $3,955 for the Inuit sculpture; and
3. That NWC pay CF $6,102 for increasing the unit price of the furs it delivered.

[79] In accordance with the parties’ agreement on costs, I would award CF costs of the appeal in the amount of $30,000, all inclusive.

Released: April 17, 2025

“S.E.P.”
“B.W. Miller J.A.”
“I agree. S.E. Pepall J.A.”
“I agree. D.A. Wilson J.A.”