COURT FILE NO.: CV-08-00354702-0000
DATE: 20130204
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1004964 ONTARIO INC., carrying on business as t.e.s.t.
Plaintiff/Defendant by Counterclaim
– and –
AVIYA TECHNOLOGIES INC.
Defendant/Plaintiff by Counterclaim
Counsel:
Joy Casey, for the Plaintiff/Defendant by Counterclaim
M. Abradjian and R. Kis, for the Defendant/Plaintiff by Counterclaim
HEARD: November 19, 20, 21, 22, 23, 26 and 27, 2012
t. mcewen j.
reasons for decision
[1] This action is brought by the Plaintiff 1004964 Ontario Inc., carrying on business as t.e.s.t. (“t.e.s.t.”) against the Defendant Aviya Technologies Inc. (“Aviya”) for damages arising out of an alleged breach of contract with respect to an oral agreement (“the Agreement”) entered into between t.e.s.t. and Aviya.
overview
[2] Generally speaking, both t.e.s.t. and Aviya provide similar engineering services and support to their customers. Both companies work in the aerospace industry in slightly different capacities. t.e.s.t. is an engineering and consulting company that designs testing systems for various engineering disciplines and customers. It has specialized expertise with respect to engineering and integrating test panel technologies. Aviya carries on the business of providing testing services to customers. It has specific expertise in providing the testing services that are carried out on the test panels.
[3] Aviya was approached by Hispano-Suiza Canada (“HSC”). HSC is an aerospace company that manufactures aircraft engines and landing gear controllers. HSC required assistance in testing landing gear and steering components for a new model airplane called the F7X (“the F7X project”).
[4] HSC had its own test panel. It needed to upgrade the test panel so that it could properly conduct testing on the F7X project.
[5] Aviya approached t.e.s.t. for assistance with the service Aviya was to provide to HSC. Generally speaking, t.e.s.t. was to upgrade the existing HSC test panel by, amongst other things, providing and developing the hardware and software components in the test panel. The plan was that t.e.s.t. would complete its work on the test panel and Aviya would develop certain test cases that would be run on the test panel to ensure that HSC’s control systems for landing gear and steering control units for the F7X project were properly operational. The test panel, once complete, would be handed over to HSC.
[6] t.e.s.t. assisted Aviya with the preparation of the proposal that Aviya was to submit to HSC. Notwithstanding t.e.s.t.’s assistance, the proposal was only between Aviya and HSC. In March of 2006, HSC accepted Aviya’s proposal. Once HSC accepted the proposal, three Purchase Orders were issued by HSC to Aviya that are relevant to this action:
Purchase Order # 93553 provided that HSC would pay Aviya $75,000 with respect to the installation of the hardware into the test panel;
Purchase Order # 93637 provided that HSC would pay Aviya $150,000 with respect to the installation of the software into the test panel;
Purchase Order # 93550 provided that HSC would pay Aviya $634,950 with respect to certain test cases that Aviya was to develop.
[7] The Agreement provided, in part, that the amounts set out above in Purchase Orders # 93553 ($75,000) and # 93637 ($150,000) would flow directly through Aviya to t.e.s.t., since t.e.s.t. was to complete the required work with respect to the installation of the hardware into the test panel and the installation of the software into the test panel.
[8] Initially, the project proceeded in the normal fashion with t.e.s.t. and Aviya cooperating in relation to their respective areas of responsibility. However, matters began to become strained between the parties as they got deeper into the project. The problems may have been exacerbated by the fact that they never reduced the Agreement to writing, largely because they had a previous relationship and there was a sense of trust between them.
[9] One of the issues that arose was the fact that HSC was tardy in providing payments to Aviya, which resulted in Aviya not paying t.e.s.t. in a timely manner. Other modest disputes arose concerning hardware that t.e.s.t. considered to be outside the scope of Purchase Order # 93553. For example, Aviya begrudgingly agreed to pay extra costs to t.e.s.t. in the amount of $10,000 for a hardware upgrade that had been described as the “harness upgrade”.
[10] Aviya also ran into some difficulties in developing its test cases. As a result, Aviya specifically requested that t.e.s.t. assist it in the development of test cases so that the project could be completed on time. There is no dispute between the parties that t.e.s.t. was to be remunerated for this work. The amount had been discussed and agreed to by the parties. As a result, t.e.s.t. provided Aviya with Invoice # 07-101 in the amount of $45,600 including taxes in February 2007 for the assistance it provided concerning the development of test cases. When the invoice was rendered, Aviya accepted it without dispute.
[11] Ultimately, Aviya presented the test panel to HSC in approximately February of 2007. At that time, the test cases had been developed and the test panel was certified.
[12] Shortly thereafter, a dispute arose between the parties as to whether a real-time computer was to be installed pursuant to Purchase Order # 93553, as a part of the original scope of the project, or whether it was extra. t.e.s.t. took the position that it was extra work. Aviya took the position that it was contemplated in the proposal and as such, had to be provided by t.e.s.t. as per Purchase Order # 93553. t.e.s.t. ultimately agreed to install the real-time computer but maintained that it was not required in the original scope of work. The real-time computer was installed in or about June of 2007, and the F7X aircraft went into service in or about the same time. After the installation of the real-time computer, certain test cases began to fail and the parties worked on solutions to the difficulties that were being encountered.
[13] In or about the same time, certain software was integrated into the test panel which Aviya alleges also caused unexpected problems with the test panel. This software is referred to as the “Wind River probe”.
[14] t.e.s.t. took the position that other test cases were failing for reasons that could not be in any way related to the real-time computer installation or the Wind River probe installation. Aviya largely blamed t.e.s.t. for most or all of the test case failures. t.e.s.t. continued to request payment for outstanding invoices. Aviya continued to explain that there were cash flow issues and that timing of payments would continue to be addressed on an ongoing basis. At various times payment schedules were proposed. Notwithstanding this, certain payments to t.e.s.t. remained overdue.
[15] In or about January of 2008, the real-time computer and other related software and hardware had been installed after the initial February 2007 certification.
[16] In or about the same time, Aviya advised t.e.s.t. that additional work had to be completed by t.e.s.t. before Aviya would pay certain accounts, and other payments would be made by Aviya to t.e.s.t. after HSC accepted the final work. t.e.s.t. objected and sent emails to Aviya in February of 2008 outlining its position: that the time set out by Aviya to complete the additional work was unrealistic, invoices remained outstanding, and further definitions were required regarding the work Aviya was asking to be completed. Aviya did not respond to these emails and undertook to complete the work on its own.
[17] In late February of 2008, t.e.s.t. sent another invoice to Aviya, Invoice #08-104, in the amount of $31,112.55 with respect to the additional test case support that t.e.s.t. alleged it provided outside the scope of original work.
[18] At this point, the relationship had completely broken down between the parties and shortly thereafter, t.e.s.t. commenced this action against Aviya.
the invoices in dispute and counterclaim
[19] t.e.s.t. seeks payment of the following Invoices that Aviya has refused to pay:
Invoice # 08-102, dated February 13, 2008 with respect to HSC’s Purchase Order # 93553. The amount of $36,750 remains outstanding;
Invoice # 07-101, dated February 8, 2007 in the amount of $45,600 with respect to extra work that it did at Aviya’s request concerning the preparation of the test cases. Aviya made partial payment but the amount of $25,475 remains outstanding;
Invoice # 08-104, dated February 25, 2008 in the amount of $31,112.55 with respect to work that t.e.s.t. considered to be extra test case support work. The entirety of this amount remains outstanding.
[20] Aviya has commenced a counterclaim against t.e.s.t. in the amount of $37,000 with respect to work it claims it had to carry out after t.e.s.t. abandoned the project that was in the original scope of work and should have been completed by t.e.s.t.
analysis
Introduction
[21] It is nearly impossible and, in my view, not necessary to repeat each of the factual disputes between the parties. They agree on very little. In fact, this case illustrates the need for a written agreement to be in place as opposed to relying upon an oral agreement based on a proposal with a third party (HSC). In coming to the conclusions below, although I considered all of the arguments made, I do not consider it necessary to discuss every one of the numerous issues raised. These include, but are not restricted to Aviya’s allegations concerning t.e.s.t.’s mistakes in assessing the hardware needs of the panel; t.e.s.t. not pursuing Aviya for certain increased costs; t.e.s.t.’s denial with respect to being aware of the NTE provision; and t.e.s.t.’s decision not to seek the entire amount owed to it pursuant to Purchase Order # 93637.
[22] With respect to the entire Agreement, t.e.s.t. received other monies from Aviya that are not in dispute in this lawsuit. t.e.s.t. received over $200,000 for other work it completed for Aviya on the F7X project.
[23] At trial, Aviya took the position that both t.e.s.t. and Aviya viewed the work that was being performed on the F7X project as being “one big job”. Therefore, t.e.s.t. had to complete all of the work to be entitled to be paid for any one portion of the work it had completed. As a result, unless t.e.s.t. completed each and every task, Aviya was not obligated to pay the disputed invoices. I disagree. The evidence at trial did not support this contention. For the reasons below, it is my view that t.e.s.t. is entitled to pursue the relief sought pursuant to the three specific invoices it delivered to Aviya. In any event, I cannot conclude that t.e.s.t. breached the Agreement by failing to provide services. Ultimately, the Agreement failed by virtue of Aviya’s failure to pay outstanding Invoices # 07-101 and # 08-102 that were clearly due and owing, and its failure to provide t.e.s.t. with the information necessary to complete its work. Certainly, in the circumstances of the case, t.e.s.t. was not obliged to keep working on the project when it was not being paid in a timely fashion. It would be unreasonable to conclude that it had to continue to provide services for the F7X project on the basis of vague promises of payment and without receiving clear direction from Aviya.
[24] Another issue to be determined is whether, as alleged by Aviya, the real-time computer and complete automation of the test panel was contemplated in the initial proposal and in the original scope of work, or whether, as contended by t.e.s.t., it was outside of the initial proposal and original scope of work.
[25] This is important because t.e.s.t. takes the position that as of February 2007, when the test panel was given to HSC and certified, it had completed its obligations to Aviya and that work done thereafter was outside the scope of the Agreement. Accordingly, t.e.s.t. submits that it is entitled to be paid for Invoice # 08-102, since all of the hardware had been installed into the test panel, and Invoice # 08-104, since it was extra work that was performed after the test panel had been completed and certified. For the reasons below, I agree with t.e.s.t.’s submissions in this regard.
[26] The proposal that Aviya entered into with HSC makes no mention of a “real-time computer”. I accept the evidence of Edward Slapsys (“Slapsys”), the president of t.e.s.t., that the computers referred to in the proposal are a different type of industrial computers. Additionally, there is no mention in any documentation whatsoever, including the voluminous emails between the parties, that Aviya ever took the position prior to the February 2007 certification, that the real-time computer was part of the original scope of work and ought to have been installed by t.e.s.t.
[27] Furthermore, John Koumoundouros (“Koumoundouros”), Aviya’s president, testified that the real-time computer was critical to the proposal. He described it as being “like the engine in an automobile”. Therefore, in my view, it defies belief that Aviya would not have clearly set this out in the proposal since the proposal clearly describes the major additional components that had to be added to the test panel. Counsel for Aviya tried to explain this in a number of ways, but primarily suggested that it was, in fact, t.e.s.t. that developed this part of the proposal. While this may be true, the proposal was reviewed and submitted by Aviya. If the real-time computer was that significant, Aviya, with its expertise, certainly would have seen it included. Additionally, there is no reference in any of the documentation that the installation of a real-time computer was outstanding when the test panel was first certified in February 2007. Aviya invoiced HSC for the full amount due for the hardware installation pursuant to Purchase Order # 93553 in February of 2007. HSC accepted that invoice. Further, Aviya never called any evidence from HSC disproving this, which would presumably have been easy enough to do. It was Aviya that had the contract with HSC, not t.e.s.t.
[28] Aviya points to a summary prepared by t.e.s.t. in March 2007 that refers to the real-time computer as being an outstanding item in the original scope of work. Even though the document can be interpreted that way, I agree with counsel for t.e.s.t., which was supported by the evidence of Slapsys, that this document was prepared after he had reluctantly agreed to install the real-time computer at no cost after the test panel had been certified in February 2007. In that way, it could be considered to be part of the original scope of work. I accept Slapsys’s testimony, however, that the real-time computer was not, from the outset, considered to be part of the original scope of work the proposal was accepted by HSC and the Agreement was entered into between the parties. Therefore, I find that when the certification took place in February 2007, it was not contemplated by the parties that a real-time computer was in the original proposal. As a result, it was reasonable for t.e.s.t. to conclude that it had completed its obligations to Aviya at the time of certification in February 2007.
[29] Similarly, I agree with t.e.s.t. that the proposal did not contemplate that the test panel was to be 100% automated, and that this was first requested by Aviya after the February 2007 certification. While the proposal refers to an automated test panel, the wording of the proposal, in my view, supports t.e.s.t.’s position that although automation was the ultimate goal, the test panel would only be partially automated at this stage. In fact, para. 4.3.2 of the proposal states that the existing test panel would be extended to support automated “execution of the majority of the … test cases” (emphasis added). Further, none of the documentation, including the voluminous emails, supports Aviya’s position in this regard. In fact, emails exchanged between t.e.s.t. and Aviya refer to the need for a new Purchase Order before automation was undertaken.
[30] As noted, the issues as to whether the real-time computer and the automation were part of the original scope of work is important with respect to two of the disputed invoices, being # 08-102 and # 08-104. These invoices deal with the installation of hardware into the test panel and extra work that t.e.s.t. performed due to problems with test cases, much of which related to work done after the installation of the real-time computer.
[31] Another important issue in this action is whether t.e.s.t. abandoned the project as alleged by Aviya. I agree with t.e.s.t. that it did not abandon the project. The email exchanges between the parties clearly demonstrate that t.e.s.t. was trying to work out the outstanding issues between them, and Aviya simply chose not to respond. Thereafter, Aviya began to complete the outstanding work on its own without consulting t.e.s.t. and without paying the outstanding invoices.
[32] I will now deal with each of the disputed invoices in turn.
Invoice # 08-102
[33] As noted above, t.e.s.t. rendered this invoice with respect to the HSC Purchase Order # 93553 in the amount of $75,000. Aviya was to invoice HSC for that amount, plus taxes, which would flow through to t.e.s.t.
[34] Aviya invoiced HSC for the amount in February of 2007 when the first certification of the test panel took place, before the real-time computer was installed. HSC paid the full amount of this invoice to Aviya by October 2007. Although t.e.s.t. was entitled to $75,000 plus taxes, it only invoiced Aviya for $65,000 plus taxes. Slapsys testified that he reduced the account by $10,000 to encourage payment of the account. Although I find this explanation somewhat difficult to accept, and it may have been due to the dispute over the $10,000 fee incurred with respect to the harness upgrade, there is no question that t.e.s.t. was entitled to be reimbursed by Aviya.
[35] Based on my findings above, t.e.s.t. had completed the hardware installation by the time the test panel was certified in February 2007. Aviya obviously accepted this by virtue of the fact that it invoiced HSC for the full amount due, and was paid the full amount. Notwithstanding this fact, Aviya, rather astonishingly, refused to pay t.e.s.t. the monies owed in totality and only made a partial payment, leaving the amount of $36,750 outstanding.
[36] I have concluded that Aviya did not withhold payment for any legitimate reason, but rather, engaged in a pattern of withholding payments so that it could keep t.e.s.t. committed to the Agreement and to do extra work. Billings Chan, an employee of Aviya who works in the financial department, testified, incredibly in my view, that Aviya had become worried that if t.e.s.t. was paid outstanding accounts, t.e.s.t. might walk away from the project and do no more work. Some payments were, therefore, not made. This evidences an overall callous disregard by Aviya for its contractual obligations pursuant to the Agreement with t.e.s.t. My conclusion is buttressed by the fact that Aviya never added any hardware to the test panel after t.e.s.t. stopped working in January 2008.
[37] t.e.s.t. is entitled to the remaining payment of $36,750.
Invoice # 07-101
[38] As noted, this invoice in the amount of $45,600 involves the test case work that t.e.s.t. performed at the request of Aviya prior to certification in February, 2007. Aviya made partial payment of the account and the amount of $25,475 remains outstanding.
[39] Aviya clearly owes t.e.s.t. the unpaid amount of this invoice. Not only did t.e.s.t. and Aviya specifically discuss and agree on the amount of the invoice, but Aviya agreed to pay the entire amount. Furthermore, Aviya passed the entire amount along to HSC. HSC paid the amount to Aviya, in its entirety, pursuant to Purchase Order # 93550. Aviya thereafter retained the entire amount without passing along the $25,475 to t.e.s.t. Aviya’s failure to honour this invoice is indefensible.
[40] Aviya raised the argument that some of the work that t.e.s.t. did, which was identified in this invoice, was work that was already captured by the scope of work contemplated in Purchase Order # 93637. Accordingly, it submits that t.e.s.t. is not entitled to the entire amount. Slapsys denied this at trial; however, his examination for discovery evidence was put to him in this regard where he did concede this point. He testified that the discovery evidence was wrong. I accept his trial evidence notwithstanding the inconsistency. In my view, he gave this evidence in a straightforward and honest manner. Furthermore, even if I am wrong, the amount of the invoice was clearly negotiated with Aviya and approved by Aviya. Aviya certainly had no difficulty in having HSC pay the entire amount. It is due and owing. There are no allegations by Aviya of fraud or deliberate misleading by t.e.s.t. Aviya, prior to trial, never disputed the amount of the invoice in its dealing with t.e.s.t.
[41] As with Invoice # 08-102, I am left to conclude that Aviya strategically refused to pay this invoice as a tactic to keep t.e.s.t. working on the project. I can see no other legitimate explanation for the failure of Aviya to pay this amount.
[42] t.e.s.t. is entitled to the remaining payment of $25,475.
Invoice #08-104
[43] As stated above, this invoice in the amount of $31,112.55 was for work that t.e.s.t. did that it alleged was outside the scope of the Agreement. The entire amount remains outstanding.
[44] I have come to the conclusion that t.e.s.t. did perform work outside the scope of the Agreement. In the circumstances, I am satisfied that, subject to the determination of the quantum, t.e.s.t. is entitled to be paid some monies with respect to the support it provided to Aviya for test cases after February 2007.
[45] Both in its Statement of Defence at para. 19, and in the examination for discovery evidence of Koumoundouros (questions 347-351), Aviya admitted that t.e.s.t. did assist Aviya in correcting some test cases that failed which were the responsibility of Aviya. Slapsys further testified that he only billed Aviya for time spent in supporting Aviya in fixing test cases that failed as a result of the installation of the real-time computer, upgrading the software, or re-executing test cases.
[46] However, it is difficult to determine the proper amount given the fact that there was no agreement as to how much t.e.s.t. would charge for these services and no invoice was rendered by t.e.s.t. until after the relationship between the parties had broken down. t.e.s.t. calculated the amount owing in the same way that it had calculated the amount owing pursuant to Invoice # 07-010, with respect to the earlier, negotiated test case support. Given this fact, it is fair to conclude that the parties reasonably contemplated that t.e.s.t. would have been paid in the same fashion.
[47] Upon the completion of the work, Slapsys asked his employees for estimates as to the time spent. There are problems with the estimates that were provided. They are approximate estimates and one of t.e.s.t.’s employees specifically raised the issue as to whether or not certain hours were attributable to the work spent by t.e.s.t. after February 2007.
[48] Based on all of the evidence, I accept that t.e.s.t. did provide at least half of the services set out in Invoice # 08-104. I would accordingly reduce the amount sought by one half and allow the amount of $15,556.28 plus GST of $777.81 for a total of $16,334.09.
The Counterclaim
[49] I would dismiss the entirety of the counterclaim.
[50] It is clear from the emails that passed back and forth between the parties that up until May 2007 at least, Aviya was very satisfied with the work that was being performed by t.e.s.t. This is evidenced by a number of emails that passed between the parties. For example, Koumoundouros’s email to Slapsys on April 26, 2007 stated:
“You do a great job and that gets noticed.”
[51] Therefore, I do not accept the evidence of Aviya’s witnesses, particularly Joseph Sum (“Sum”), that the test panel was “conditionally certified” in February of 2007. I find this evidence to be disingenuous and designed to create an aura of poor workmanship when none existed. Certainly none of the documentation that was prepared at the time supports this contention.
[52] Furthermore, it is clear from Sum’s evidence that post February 2007, there were still some errors in test cases that had nothing to do with t.e.s.t.’s work on the project and t.e.s.t. provided assistance in this regard.
[53] The evidence is also clear, and supported by Sum’s evidence, that t.e.s.t. continued to provide assistance, and that the last software upgrade was in November of 2007. In January of 2008, t.e.s.t. gave Aviya all of the test case reports.
[54] In my view, the counterclaim of Aviya was largely manufactured to try to offset the legitimate claims of t.e.s.t. in the main action, specifically, the claims involving payment for the hardware and the test case support, both of which were approved by Aviya and for which Aviya received reimbursement from HSC.
[55] While Aviya may have expended some time in correcting test cases after the installation of the real-time computer, I do not accept that the claim is legitimate given the insufficient documentation to support it and the overall conclusion I have drawn that the counterclaim is largely a tactic. Furthermore, as previously noted, t.e.s.t. remained committed to the project through February 2008, until Aviya placed unreasonable demands on t.e.s.t. Understandably, t.e.s.t. at this point in time was entirely frustrated by yet another demand being placed upon it to perform work in a very short period of time, when there were large amounts of monies outstanding that were owed to it by Aviya. There is little doubt that t.e.s.t. would have continued on with the work had Aviya acted reasonably.
[56] I specifically reject Aviya’s contention that t.e.s.t. “walked away” from the relationship and the development of the test panel. Aviya, as noted, had adopted a strategy to stop paying t.e.s.t. so that t.e.s.t. would remain committed to the project. Later, unreasonable timelines were imposed by Aviya. t.e.s.t. acted reasonably in refusing to do any further work until certain clarifications were made with respect to its role and payment of its invoices. Aviya refused to acknowledge t.e.s.t.’s requests in this regard and would not respond to t.e.s.t.’s emails. In the circumstances, it certainly cannot be said that t.e.s.t. “walked away” from the relationship; rather, Aviya breached the Agreement by failing to make proper payments. In addition, Aviya insisted on unreasonable timelines and refused to answer the reasonable requests of t.e.s.t. concerning future work.
[57] For all of the aforementioned reasons, the counterclaim is dismissed.
disposition
[58] For the reasons above, t.e.s.t. is entitled to judgment against Aviya with respect to Invoice # 08-102 in the amount of $36,750; Invoice # 07-101 in the amount of $25,475; and Invoice # 08-104 in the amount of $16,334.09, with the total being $78,559.09. The counterclaim is dismissed.
[59] t.e.s.t. is also entitled to prejudgment interest calculated pursuant to the provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43.
[60] If the parties cannot agree on prejudgment interest and costs, written submissions may be made to me and are not to exceed seven pages in length. t.e.s.t. is to provide its submissions within 21 days of the date of this judgment, Aviya is to provide its submissions 14 days thereafter, and t.e.s.t. has seven days thereafter to reply.
T. McEwen J.
Released: February 4, 2013
COURT FILE NO.: CV-08-00354702-0000
DATE: 20130204
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1004964 ONTARIO INC., carrying on business as t.e.s.t.
Plaintiff/Defendant by Counterclaim
– and –
AVIYA TECHNOLOGIES INC.
Defendant/Plaintiff by Counterclaim
REASONS FOR DECISION
T. McEwen J.
Released: February 4, 2013