COURT FILE AND PARTIES

COURT FILE NO.: CV-11-442449

DATE: 2014-06-09

RE: JET WAVE CORP., also known as JET WAVE INC., Plaintiff

AND:

IPSMARX TECHNOLOGY INC., Defendant

BEFORE: Mr. Justice Mew

COUNSEL:
M. Katzman, for the Plaintiff
Risa Sokoloff, for the Defendant

HEARD: 22 May 2014

ENDORSEMENT

[1] The issue on this summary judgment motion brought by the defendant is whether the plaintiff’s claim against the defendant is limited to the amount that the plaintiff has paid for the defendant’s goods and services. The motion arises in the context of an action in which the plaintiff seeks damages of $2,000,000 arising from the supply by the defendant to the plaintiff of an allegedly faulty communications system.

[2] The defendant relies on a limitation of liability clause contained in a Product Purchase and Services Agreement (the “Agreement”) entered into on 21 December 2009. The relevant provision of the agreement is paragraph 18 in Schedule B which purports to limit the total liability and obligation of the defendant in the aggregate for any and all claims “… ARISING OUT OF OR IN ANY CONNECTION WITH THIS AGREEMENT …” to “… THE ACTUAL AMOUNTS PAID BY CUSTOMER TO IPSMARX UNDER THE AGREEMENT IN RESPECT OF THE PRODUCTS OR SERVICES SUBJECT TO THE CLAIM” (capitalisation used in the original; emphasis added).

[3] The limitation clause goes on to provide that all disclaimers and limitations:

… apply regardless of the nature of any cause of action or demand (including, but not limited to breach of contract, breach of warranty, negligence, strict liability, tort or any other cause of action) and shall survive a fundamental breach or breaches and/or failure of the essential purpose of this Agreement or any remedy contained herein.

[4] The effectiveness of similar clauses to that contained in the Agreement has been recognised by the court: Timminco Limited v ABB Industrial Systems Inc., 2010 ONSC 6871 at para 61.

[5] If the defendant is correct about the application of the limitation of damages provision to the present facts, the maximum amount recoverable by the plaintiff is said by the defendant to be $52,195, which is the amount charged by the defendant for goods and services supplied by it to the plaintiff in 2009, 2010 and 2011.

[6] The plaintiff says that the limitation of liability provision is ineffective because:

(a) the defendant shut down the plaintiff’s entire communications system due to the purported non-payment for products supplied and in reliance upon the limitation of liability clause in the Agreement. However, the products for which payment was said by the defendant to be outstanding were products purchased in 2010 and 2011 and are, as a result, not subject to the Agreement.

(b) the plaintiff is also pursuing a cause of action in the form of trespass, the damages in respect of which cannot be limited as asserted by the defendant.

(c) the defendant grossly misrepresented the precise products being delivered and accordingly cannot rely upon the limitation of liability clause at issue.

[7] In determining whether summary judgment is available, the threshold question is whether or not there is a genuine issue requiring a trial. No genuine issue for trial will exist:

[W]hen the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. (Hryniak v. Mauldin 2014 SCC 7 at para. 49)

[8] To reach a fair and just determination, the summary judgment process must give “the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Mauldin para. 50)

[9] There is a dispute over whether the defendant in fact shut down the plaintiff’s entire communications system or not. However, there is no dispute that on 30 June 2011, for a period of between approximately 45 minutes and 2 hours and 50 minutes, the defendant shut down the two modules which it had supplied to the plaintiff in 2010 and 2011, and for which payment of was outstanding.

[10] The defendant based its temporary suspension of the operation of the modules supplied to the plaintiff on a “Terms of Payment” clause in the Agreement (paragraph 3 of Schedule B), the relevant part of which provides as follows:

In the event Customer fails to pay any amounts when due under the terms of this Agreement, IPsmarx may at its option suspend the provision of any Services, suspend Customer’s use of the IPsmarx Software and/or suspend the fulfilment of any pending orders or deliveries for Products or Services without liability. Exercise of such right by IPsmarx will not preclude IPsmarx’s exercise or enforcement of any other right or remedy hereunder.

[11] The defendant immediately reconnected the modules upon the plaintiff committing to pay the US $3,500 then outstanding.

[12] The principal question to consider is whether the supply of the two modules in 2010 and 2011, the alleged non-payment for which gave rise to the shutdown (and, subsequently, appears to have been the precipitant of this action), would be form part of “this agreement” so as to import into the contract for the supply of those two modules the limitation of damages provision contained in the Agreement.

[13] The plaintiff disputes that the reach of the Agreement” extends to the subsequent supply of the modules. It submits that when the “Terms of Payment” provision is read together with the “Entire Agreement” clause of the Agreement (paragraph 24 of schedule B), it is clear that the Agreement, and hence the provisions contained in it which limit liability, only apply to the goods and services which are the subject of the Agreement itself and not to further goods or services supplied at a later date. Paragraph 24 provides:

24. Entire Agreement and Amendment: The Agreement constitutes the entire agreement between the parties as it relates the subject matter of this Agreement and supersedes all prior or contemporaneous agreements, quotations, negotiations, representations and proposals, written or oral between IPsmarx and Customer. The Agreement may only be amended or supplemented by written agreement executed by each of the parties. No terms or conditions which may be contained in Customer’s order forms, purchase orders or any other document not agreed to in writing by IPsmarx shall bind IPsmarx. This Agreement will enure to the benefit of and be binding upon the parties and their respective successors, heirs and permitted assigns.

[14] Any extension of the Agreement to cover additional goods or services not otherwise covered by the Agreement can, according to paragraph 24. only be effected “by written agreement executed by each of the parties”. According to the plaintiff there is no evidence of any written agreement executed by each of the parties supplementing the original agreement.

[15] The defendant counters that the invoices for the two modules (dated 23 June 2010 and 1 June 2011 respectively) both contained the following narrative:

This Quotation or Invoice ("Quote") is issued pursuant to and is deemed a part of, and the Products and Services described in this Quotation are supplied by IPsmarx subject to, the terms and conditions of the IPsmarx Product Purchase Agreement ("Purchase Agreement") between the parties and govern the purchase and supply of such Products and Services. If Customer has not signed this Quote, by making payment Customer is deemed to have agreed to the terms hereof.

[16] The undisputed evidence is that each of the invoices was preceded by a quotation. Neither of the quotations contained the narrative recited above. Accordingly, the clause purporting to apply the terms and conditions of the Agreement to the supply of the modules was only notified to the plaintiff, as purchaser, after the order had been placed. Indeed, having regard to the “deemed” application of the Agreement to the supply of the modules in the event of payment for them being made, it is noteworthy that in the case of the first module the plaintiff has still not paid anything and in the case of the second module it had only paid the first half of the purchase price prior to the defendant shutting down the plaintiff’s service.

[17] In cases dealing with what is often called “the battle of the forms” (where, for example, a buyer orders goods using a form of purchase order that includes the buyers terms of business and the seller then sends an acknowledgment accompanied by different terms of sale) it would be reasonable to find that the applicable terms are those put forward by the party which has performed its obligations under the contract and where the other party has accepted that performance: G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011) at 60.

[18] In the present case, however, the issue of performance by IPsmarx is disputed. Although the defendant supplied the modules, the plaintiff claims that they have not worked properly.

[19] The defendant asserts that the plaintiff’s claims of non-performance are tactical. There is little by way of contemporaneous evidence of dissatisfaction on the plaintiff’s part. In a solitary email on 20 June 2011, Isaac Klein of Jet Wave complained about problems with incoming and outgoing calls which he says have been ongoing for four weeks and asks for urgent help. Otherwise, there is a bald assertion in an affidavit, unsupported by particulars, of many meetings over several months to discuss “concerns” about the performance of the system supplied by the defendant.

[20] There are, indeed, a number of reasons for IPsmarx to be skeptical about the complaints now made by the plaintiff. At one stage the plaintiff agreed to provide a reference concerning the defendant’s product and service. Then there was a Christmas hamper generously dispatched by the plaintiff to the defendant. Neither of these gestures would be expected from an unhappy client.

[21] But these concerns do not repair the shortcomings of the paperwork.

[22] If the defendant wanted to make the limitation of liability applicable to not only its initial contract for the supply of goods and services, but all subsequent orders, it could have so provided in clear, unequivocal and timely language. It did not.

[23] The application of the limitation of liability terms is dependent on conditions which were printed on invoices that were sent to the plaintiff after the modules had been supplied by the defendant, and for which full payment had yet to be made.

[24] The defendant may well have strong arguments of the merits of its defences to the plaintiff’s claim. But I am not persuaded that the terms on the invoices for the modules are sufficient to import the terms of the Agreement to the supply of those modules.

[25] I am reinforced in this view by the lack of clarity as to what the extent of the limitation would be if the Agreement did apply. Is it the amount paid for the original supply of goods and services under the Agreement (US $40,695)? Or that sum plus the additional amounts payable for one or both of the modules ($52,195)? Or just the amount payable (or paid) for each module? Or the “actual amounts paid” by the plaintiff?

[26] The defendant brought this motion because it believes there is no genuine issue for trial about the applicability of the limitation of liability provision in the Agreement to the claims asserted by the plaintiff in this action. For the foregoing reasons, I decline to grant summary judgment on this issue in the defendant’s favour.

[27] Instead, it is appropriate for me to consider whether there remains a triable issue at all concerning the ability of the defendant to assert a contractual limitation of its liability to the plaintiff.

[28] In that regard, it is hard to imagine what evidence might be available to rescue the limitation provisions, such that they could be relied upon by the defendant at trial in connection with the alleged non-performance of the modules.

[29] It is the responsibility of the parties to put their best foot forward on this motion. On the presumption that the defendant has done so, I see no basis for not determining the issue now - but in favour of the plaintiff rather than against it.

[30] I would dismiss the defendant’s motion for summary judgment and in doing so conclude (and so order) that the limitation in paragraph 18 in Schedule B of the Agreement and any similar limitation contained in the Agreement or its schedules does not apply to the supply of the modules by the defendant to the plaintiff.

[31] For the sake of clarity, by so deciding I make no finding regarding the effectiveness of the limitations contained in the Agreement concerning the goods and services supplied pursuant to that agreement (as opposed to any subsequent goods and services supplied by the defendant to the plaintiff).

[32] Having thus concluded, it is not necessary for me to consider the other defences to the motion raised by the plaintiff.

[33] Subject to any submissions of the parties to the contrary, it would be my provisional view that the plaintiff should receive costs of the motion on a partial indemnity scale. I will receive written submissions, not to exceed three pages in length (plus a bill of costs from the plaintiff) as follows:

[34] From the plaintiff within 7 working days of receipt of these reasons;

[35] From the defendant within 7 working days after receipt of the plaintiff’s costs submission.

Mew J.

Date: 9 June 2014