ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: DV-865-10
DATE: 20120109
BETWEEN:
RAINBOW CONCRETE INDUSTRIES LTD. Plaintiff (Appellant) – and – KENWORTH TORONTO LTD. Defendant (Respondent)
Marc A. J. Huneault, for the Plaintiff (Appellant).
D. Peter Best, for the Defendant (Respondent).
HEARD: December 22, 2011
Gauthier, j.
Introduction:
[ 1 ] The Appellant, Rainbow Concrete Industries Ltd. (“Rainbow”) appeals the Order of the Honourable Deputy Judge Terence E. Land, made on November 19, 2010, in the Small Claims Court, in Sudbury.
[ 2 ] The Appeal is with regard to a Small Claims Court Action in which Rainbow alleged breach of contract by Kenworth Toronto Ltd. (“Kenworth”) in connection with the alleged settlement of an earlier Superior Court action in which Kenworth was the Plaintiff and Rainbow was the Defendant.
[ 3 ] The grounds for the Appeal are as follows:
a) At the beginning of trial, the Respondent requested an Order that Edmond J. Paquette and J. Robert Leblanc not be permitted to testify on the basis that they would be inappropriate witnesses. The Deputy Judge erred in law and in fact by determining that they were inappropriate witnesses and by making an order excluding both Edmond J. Paquette and J. Robert Leblanc as witnesses although they were material witnesses, their evidence was relevant, and there was no exclusionary rule prohibiting them from providing evidence.
b) The Deputy Judge erred in his findings of fact and conclusion of law that a formal settlement agreement be necessary to identify the agreement reached by the parties.
c) The Deputy Judge erred in fact and in law by determining that the Appellant could not rely upon the representations made by J. Robert Leblanc on behalf of the Respondent and that said representations were neither a term of the contract of settlement nor a warranty in favour of the Appellant.
d) The Deputy Judge erred in fact and in law by failing to consider that the Appellant relied upon the representations of J. Robert Leblanc in entering into a settlement agreement and that a material term of the settlement agreement was that the engine had been completely rebuilt.
e) The Deputy Judge erred in fact and in law by failing to find that the Respondent misrepresented the condition of the engine and by failing to find said misrepresentation to be either a breach of a warranty or the breach of a term of the settlement agreement.
f) The Deputy Judge erred in his findings of fact and conclusion in law by requiring a high level of formality in a settlement agreement.
g) The Deputy Judge erred in his findings of fact and conclusion of law in holding that the settlement agreement was vague and as a result any representations made in relation thereto were unenforceable.
h) The Deputy Judge further erred by failing to consider the surrounding circumstances to determine the terms and conditions of the settlement agreement where the settlement agreement was not reduced to writing.
i) The Deputy Judge erred in his findings of fact that Mike Petersen was terminated from his employment with the Appellant at the time the settlement was completed despite Mike Petersen’s evidence that he was terminated in August 2005, the Statement of Claim in the initial action was not issued until June 15, 2006, and the parties agreed that the settlement was arrived at in November 2007.
j) The Deputy Judge erred by determining the issue of ostensible authority of Mike Petersen as agent for the Appellant.
Facts:
[ 4 ] The following facts are not in dispute, and, for the most part, I have reproduced them directly from Rainbow’s factum.
[ 5 ] In July 2005, Rainbow’s Mack 1987 engine seized. Kenworth provided an estimate, for parts only, to repair the engine in the amount of $4,652. The fax dated July 15, 2005, to Petersen (Rainbow) from Johnston (Kenworth) indicated labour at $2,640. As this was the lowest estimate obtained by Rainbow, Kenworth was given the job.
[ 6 ] Mike Petersen, Rainbow’s lead mechanic, communicated the order to Harvey Johnston of Kenworth. The engine was delivered to Kenworth’s subcontractor, Luc Brosseau.
[ 7 ] Brosseau communicated to Johnston that the damage to the engine was more extensive than originally thought. Johnston advised Petersen of this and was told by Petersen to proceed with the repairs.
[ 8 ] At the trial, Petersen testified that Johnston advised him that there was a problem with the cylinder heads that had been supplied by Rainbow to Kenworth. They were cracked and not usable. Replacement cylinder heads apparently provided by Petersen were the wrong ones and did not fit the engine. This fact is disputed by Rainbow.
[ 9 ] At the trial, Johnston testified that, on August 26, 2005, he faxed to Rainbow a quotation reflecting the extra work that was required to repair the engine. He testified that he had sent the quotation by fax earlier to Petersen on either August 12 or August 15, 2005. The estimate was for $7,381.61. Johnston had received a purchase order number from Petersen. Neither the fax confirmation nor the original printed estimate with the August 12 or 15th dates was entered into evidence at the trial.
[ 10 ] Johnston indicated that he had advised Petersen that the damage to the engine was more extensive than originally thought, and that Petersen told him to go ahead and effect the repairs as it was a rush job.
[ 11 ] Petersen confirmed that he had given a purchase number to Johnston, before he was terminated, which means to go ahead with the job, and that he confirmed that it was a rush job.
[ 12 ] Petersen was terminated from his employment with Rainbow on August 12, 2005.
[ 13 ] There was in evidence, at the trial, an invoice dated August 26, 2005. It had the word QUOTE stamped on it, with the figure $7,386.61. The word MIKE appears under the Customer P.O.
[ 14 ] There also was in evidence at the trial, another Kenworth invoice dated August 31, 2005. This invoice had the word REPRINT stamped on it, the letters and numbers SR40264 appearing as the Customer P.O., and showed the sum of $15,433.09 as being payable.
[ 15 ] Johnston also testified that because the price was going to be different than the $7,386.61, he knew he required a new P.O. number. When he called Rainbow to get one, he was refused. So, he simply used the earlier P.O. number that Petersen had given him. He further testified that he was 99.9% certain that he had called Petersen to tell him that the price was going to be $15,433.09.
[ 16 ] Kenworth invoiced Rainbow in the amount of $15,433.09, on August 31, 2005. Rainbow refused payment, taking the position that the repair work over and above the original quote had not been authorized by Rainbow. The engine remained in the possession of Kenworth.
[ 17 ] By letter dated February 2, 2006, Mr. Leblanc wrote a demand letter to Rainbow, on behalf of Kenworth, which included the following statement:
After the truck was picked up your clients now take the position that the invoice was too high. Your client has paid absolutely nothing on account and yet has the vehicle in its possession with a rebuilt engine.
[ 18 ] Mr. Leblanc sent another letter on March 23, 2006, stating that “[y]our client cannot simply have an engine completely rebuilt and then pay nothing for it.”
[ 19 ] Kenworth sued Rainbow in the Superior Court by way of Statement of Claim dated June 15, 2006, which claimed the sum of $15,433.09. Rainbow delivered a Statement of Defence and Counterclaim on July 28, 2006.
[ 20 ] Kenworth defended the Counterclaim and, at paragraph 3 of the Defence to the counterclaim plead the following:
The Plaintiff, Defendant by Counterclaim states that the repair of the truck was completed in a timely fashion and the Defendant’s Counterclaim has no merit whatsoever.
[ 21 ] A pre-trial was held on March 12, 2007. Kenworth’s Statement of Issues included the following statement:
As a result of the P.O. and verbal commitments received from Peterson, the additional work was completed at a cost of $15,433.09 and invoiced to Rainbow.
[ 22 ] The Statement of Issues also included an invoice from Luc Brosseau to Kenworth, purportedly for work done on the engine, in the amount of $3,531. The invoice contained the following description:
Estimate to install a liner kit to 350 Mack – Original estimate 48 hours changed to 60 hours re seized engine that had to be completely dismantled and sent out for engine block repair.
[ 23 ] By way of letter dated August 27, 2007, Mr. Leblanc on behalf of Kenworth offered to settle the claim for $11,500, indicating that “[t]his is a substantial reduction from the cost to repair the engine.”
[ 24 ] Rainbow responded through its counsel, Mr. Paquette, offering to pay $8,000.
[ 25 ] By way of letter dated October 3, 2007, Kenworth confirmed the settlement and advised that the engine could be picked up once the Release was signed.
[ 26 ] Kenworth’s action and the Counterclaim were dismissed without costs by Order dated November 28, 2007. The engine was retrieved by Rainbow on November 30, 2007.
[ 27 ] Mr. Paquette wrote to Mr. Leblanc on January 14, 2008, advising that:
a. The engine wad not assembled when Rainbow picked it up;
b. Engine was not repaired and in fact was not in working order;
c. It seems that Kenworth returned a totally different engine than what Rainbow had initially provided.
[ 28 ] By way of letter dated January 22, 2008, Mr. Leblanc responded that “[t]he state of the engine was completely known to your client. The cylinder heads were given to my client by your former manager, Mike. Upon inspection, the cylinder heads were cracked and not usable.” Mr. Leblanc went on to say that the engine block had been completely rebuilt at Luc Brosseau’s, but could not be reassembled without the fuel injector which had never been supplied by Rainbow.
[ 29 ] On January 9, 2009, Rainbow commenced an action against Kenworth in the Small Claims Court. The claim was that Kenworth had represented to Rainbow that the engine repairs had been completed and that the engine had been completely repaired. The Claim states that the negotiated price for the repairs was $8,000. The engine when retrieved was not in the condition agreed upon by the parties.
[ 30 ] On February 4, 2009, Mr. Leblanc once again wrote to Mr. Paquette indicating that the engine had not been repaired because the cylinder heads were cracked and needed to be refurbished. They were refurbished, but did not fit the engine.
[ 31 ] The trial of the Small Claims Court action took place on October 21, 2010. Rainbow sought to call its counsel in the Superior Court action, Mr. Paquette. The Deputy Judge did not permit Rainbow to do so.
[ 32 ] The Small Claims Court heard from Rade Brujic, the Vice President of Rainbow. Mr. Brujic testified that there was no valid purchase order number indicated on Kenworth’s invoice, and the work had not been authorized by Rainbow.
[ 33 ] He testified further that it was his understanding that, in return for the payment of the settlement funds in the amount of $8,000, Rainbow was to receive a rebuilt, reassembled engine.
[ 34 ] Mr. Brujic had no knowledge about any discussions between Petersen and Johnston about cylinder heads.
[ 35 ] The Judge also heard from Murray Carroll, the maintenance manager at Rainbow and an experienced mechanic. He testified that he had inspected the disassembled engine retrieved by Rainbow on November 30, 2007, and found that the cylinder heads did fit the engine, that certain parts were missing, thus preventing the engine from being operable, and that Kenworth had invoiced Rainbow for fuel injectors when in fact the old fuel injectors were with the engine and could have been installed.
[ 36 ] Mr. Carroll further testified that there were parts missing to make the engine operable, and those parts would cost $10,305.11 to purchase. The cost to finish assembling the engine would be $900.
[ 37 ] The Small Claims Court action was dismissed. The Judge concluded that Rainbow had not discharged its burden of proving that the settlement entered into with Kenworth was that, in return for the payment of $8,000, Rainbow would receive a completely rebuilt, reassembled engine.
Issues:
[ 38 ] The issue before the Small Claims Court Judge was whether delivery of a completely rebuilt and reassembled engine was an essential term of the settlement agreement between Rainbow and Kenworth.
[ 39 ] The central issue before the Small Claims Court Judge was whether Rainbow, when it settled the earlier Superior Court action, had actual or constructive knowledge, through its employee Petersen, that the engine that it had paid the $8,000 for was in a disassembled state and could not be reassembled and put into working order without further labour and materials being supplied.
[ 40 ] A related issue was the propriety of having Mr. Paquette, counsel for Rainbow at the time of its settlement with Kenworth of the Superior Court action, testify at the Small Claims Court trial.
Rainbow’s Position:
[ 41 ] At the time Rainbow agreed to settle the Superior Court action, it did not know that the engine was not reassembled and fully operational. Kenworth not only failed to advise Rainbow of the true disassembled state of the engine, it made representations to the contrary.
[ 42 ] Kenworth did represent to Rainbow that the engine had been rebuilt and that the work was completed, in the correspondence of Mr. Leblanc on February 2, 2006, March 23, 2006, and August 27, 2007, as well as by paragraph 3 of the Defence to Counterclaim to the effect that the repair of the truck was completed in a timely fashion and Rainbow’s Counterclaim has no merit whatsoever. Rainbow further relies on Kenworth’s Statement of Issues in the earlier Superior Court action.
[ 43 ] Rainbow also takes the position that Kenworth, through Johnston, represented that the engine work had been completed.
[ 44 ] Whatever Petersen knew in 2005 is not relevant to the question of what the terms of the settlement were, some two years later.
[ 45 ] Rainbow also suggests that it should have been allowed to have Mr. Paquette testify, at the Small Claims Court trial, about reliance upon what amounted to representations in Mr. Leblanc’s correspondence.
Kenworth’s Position:
[ 46 ] Kenworth submits firstly that the Small Claims Court Judge did not err in refusing to receive oral evidence from Mr. Paquette, and that there are sound legal and policy reasons for doing so.
[ 47 ] Petersen (the Rainbow employee in charge of the matter in July and early August of 2005) was subpoenaed by and testified on behalf of Kenworth. His testimony, combined with that of Johnston (the relevant Kenworth representative), was to the effect that Johnston told Petersen that the engine was disassembled, that work had been done on it, but that the engine could not be reassembled because Rainbow had supplied the wrong cylinder heads. This conversation fixed Rainbow with constructive, if not actual, knowledge that the engine was not and could not be reassembled.
[ 48 ] It appears that Petersen may not have communicated this knowledge to Rainbow. Nonetheless, Rainbow is deemed to have known, when it settled the Superior Court action in 2007, that it would recover the worked-on, but disassembled engine in return for the sum of $8,000.
[ 49 ] Brujic was the only Rainbow witness to testify before the Small Claims Court on the issue of what knowledge Rainbow had about the state of the engine when it agreed to settle the Superior Court action for $8,000. Brujic had no direct or personal involvement in the matter prior to Petersen being terminated and admitted at trial that he had no direct or personal knowledge of the matter.
[ 50 ] Kenworth submits that it was reasonable for the Small Claims Court Judge to prefer the evidence of Petersen over that of Brujic on the issue of the actual state of the engine.
[ 51 ] There was no testimony from Brujic that Rainbow had placed any reliance on Mr. Leblanc’s letters to suggest that Rainbow would receive a completely rebuilt and reassembled engine in return for the payment of $8,000.
[ 52 ] The Judge made a finding of mixed fact and law when he determined that Rainbow had not proven its case on a balance of probabilities. Given that the finding of fact was reasonably supported by the evidence, the Deputy Judge committed no palpable or overriding error of fact which would justify interference by the Court.
Analysis:
[ 53 ] I begin by addressing the applicable standard of review.
[ 54 ] The standard of review for findings of fact is that of “palpable and overriding error”. A palpable error is one that is plainly seen. Questions of mixed fact and law involve the application of a legal standard to a set of facts. The standard of review is that of legal or palpable and overriding error. The standard of review on a pure question of law is that of correctness. See Housen v. Nikolaisen , 2002 SCC 33 .
[ 55 ] The Small Claims Court’s decision not to permit the viva voce evidence of Mr. Paquette is a question of law. The standard of review is correctness.
[ 56 ] I conclude that the Judge was correct in refusing to permit counsel to give evidence. Kenworth suggests, and I agree, that there are sound policy reasons for doing so. The Judge commented that permitting parties to call counsel to testify and actively become witnesses in litigation could put solicitor-client privilege at risk. In addition, lawyers are counsel. They are not to be witnesses, and have to explain or justify demand letters, pleadings etc. The duty of counsel is to put forward their client’s case through the calling of evidence, not by testifying themselves about matters on which they are counselling their clients.
[ 57 ] The dispute about whether there was a valid purchase order issued in 2005 by Rainbow to Kenworth, the dispute about whether Petersen authorized all of the repairs to the engine and when, as well as the dispute about whether the cylinder heads did or did not fit the engine in 2007, are not relevant to this appeal.
[ 58 ] The Judgment appealed from was in response to a claim that Rainbow did not receive the completely rebuilt and reassembled engine that it had bargained for in the settlement and which Kenworth represented it would deliver.
[ 59 ] I turn now to certain of the Small Claims Court Judge’s findings of fact, which ultimately led him to conclude that the Plaintiff had not discharged its burden of proof (a finding of mixed fact and law).
[ 60 ] The Small Claims Court Judge found that the engine was returned to Rainbow in at least three sections, and that it required further expensive parts and labour to make it functional in a vehicle. There was no factual dispute about this and the evidence supported the finding.
[ 61 ] The Small Claims Court Judge accepted that Kenworth, specifically Johnston, had had a long standing relationship with Rainbow and that in all of the circumstances where Johnston received instructions and authorizations from Petersen for Rainbow, Johnston had a reasonable expectation that Petersen was acting with authority.
[ 62 ] This finding is clearly supported by Johnston’s testimony that he had a long standing relationship with Rainbow, that he had been in contact several times with Petersen over the quotes and prices to repair the engine, and he believed that Petersen had the authority to authorize the repairs and had done so, even after having been advised that the cost would be more than the original estimate. There is no palpable or overriding error.
[ 63 ] At page two of the Small Claims Court Judgment, rendered on November 19, 2010, the Judge said this:
It is also clear that Rainbow Concrete Industries Ltd. through its agent, Mike Petersen, knew more reliably than Rade Brujic, his boss, what the actual state of the engine was in and what it would cost to complete the work. It is not possible to tell from the evidence what information Mr. Petersen passed on to his boss before his employment was terminated at or about the same time as the negotiations of the settlement were being completed. Who has to have the knowledge within the company for the company to be bound by what its agent knew? I find that Rainbow Concrete Industries Ltd. was capable of being informed as to the actual condition of the engine when the settlement was being negotiated and it should not have relied solely on the content of the letters of Kenworth’s lawyer. Mr. Brujic involved himself with the repair of the engine only from time to time and left the actual decisions for much of the time to Mr. Petersen.
[ 64 ] Although the Small Claims Court Judge was in error in finding that Petersen was terminated at or about the time of the settlement negotiations which gave rise to the action, that error is of little or no consequence. Petersen knew the state of the engine while he was employed by Rainbow. Rainbow could have inquired of Petersen about the actual state of the engine at any time, and certainly could have done so before agreeing to pay the sum of $8,000 to settle Kenworth’s Superior Court action, particularly given that the engine was not in its possession.
[ 65 ] By the time Petersen was terminated by Rainbow, Rainbow had constructive knowledge that the engine was disassembled, that work had been done on it, and that it could not be reassembled because of the incorrect cylinder heads or other missing parts being supplied to it through Rainbow. As Kenworth indicates in its factum:
Nothing that happened after this changed this AT LEAST constructive knowledge on the part of Rainbow and no statements by any lawyer, whether in correspondence, pleadings or other Court filings, changed this fact or dislodged this deemed knowledge from the corporate mind of Rainbow.
Therefore, when Rainbow settled the first Court action in 2007 and paid the $8,000 settlement amount, it was deemed to know that it was paying to recover the worked-on BUT STILL DISASSEMBLED engine, and that it would have to invest further in labour and materials to re-assemble it and get it operational.
[ 66 ] Although the judge found that Rainbow should not have relied on the contents of correspondence from Kenworth’s counsel, there is no evidence, in fact, that Rainbow did rely on that correspondence. Therefore it cannot be said that there was reliance to support Rainbow’s claim that it was mislead about the state of the engine when it agreed to pay $8,000 to settle the Superior Court action.
[ 67 ] The Judge found that Brujic, and therefore Rainbow, had left the actual decisions about the repair of the engine to Petersen. There is no error in this finding. Brujic was the only witness who testified for Rainbow and his evidence was that he had no direct or personal involvement in the arrangements for the repair of the engine until he refused to provide a new purchase order to Kenworth. Although Brujic may have understood that the engine had been completely rebuilt and reassembled, he did not obtain that understanding from anything that anyone at Kenworth may have said to him. In fact, he agreed that Johnston had not at any time told him that the engine had been completely rebuilt.
[ 68 ] Therefore, it was no error on the part of the judge to find that Petersen knew the actual state of the engine, and no error to conclude that Rainbow had constructive knowledge of the state of the engine through Petersen, regardless of the fact that Petersen was no longer the agent of Rainbow by the time of the settlement.
[ 69 ] The Judge preferred the combined evidence of Johnston and Petersen over Brujic, on the issue of what knowledge Rainbow had, actually or constructively, as to the state of the engine when it settled the action. This was an exercise of judicial discretion and it is entitled to deference. The finding that Rainbow had failed to establish, on a balance of probabilities, that the settlement agreed upon by the parties was to the effect that Rainbow was to receive a reassembled, fully operational engine, in return for the payment of $8,000, was one of mixed fact and law.
[ 70 ] The findings of fact were not in error and the finding of mixed fact and law which was the basis for the dismissal of the Small Claims Court claim is therefore not in error. The judge made no legal or palpable and overriding error in dismissing the claim.
[ 71 ] Accordingly, the appeal is dismissed. If the parties are unable to agree on costs, they are to communicate with the Trial Co-ordinator, within twenty (20) days of this decision, to set a date and time to argue costs, failing which there will be no order for costs to either party.
Madam Justice L. L. Gauthier
Released: January 9, 2012
COURT FILE NO.: DV-865-10
DATE: 20120109
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: RAINBOW CONCRETE INDUSTRIES LTD. Plaintiff (Appellant) – and – KENWORTH TORONTO LTD. Defendant (Respondent) REASONS FOR JUDGMENT Gauthier, J.
Released: January 9, 2012